EXECUTION COPY
ACQUISITION AGREEMENT AND
AGREEMENT AND PLAN OF MERGER
DATED AS OF OCTOBER __, 2005
BY AND AMONG
GOODY'S FAMILY CLOTHING, INC.,
GF GOODS INC.
AND
GF ACQUISITION CORP.
TABLE OF CONTENTS
PAGE
EXHIBITS.....................................................................1
INDEX OF DEFINED TERMS.......................................................1
LIST OF SCHEDULES............................................................1
ACQUISITION AGREEMENT AND AGREEMENT AND PLAN OF MERGER.......................1
RECITALS.....................................................................1
ARTICLE 1 THE OFFER..........................................................2
1.01 The Offer..................................................2
1.02 Company Actions............................................4
1.03 Directors..................................................5
ARTICLE 2 THE MERGER.........................................................7
2.01 The Merger.................................................7
2.02 Effective Time.............................................7
2.03 Effects of the Merger......................................8
2.04 Charter and Bylaws of the Surviving Corporation............8
2.05 Directors of the Surviving Corporation.....................8
2.06 Officers of the Surviving Corporation......................8
2.07 Closing....................................................8
2.08 Additional Actions.........................................8
ARTICLE 3 EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE COMPANY AND
ACQUISITION CORP.......................................................9
3.01 Effect on Shares of Capital Stock..........................9
3.02 Options; Stock Plans.......................................9
3.03 Payment for Common Shares and Options in the Merger.......11
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................13
4.01 Organization and Qualification............................14
4.02 Charter Documents and Bylaws..............................14
4.03 Capitalization............................................14
4.04 Authority Relative to this Agreement......................15
4.05 Company Subsidiaries......................................16
4.06 No Violation; Required Filings and Consents...............16
4.07 SEC Reports and Financial Statements......................17
4.08 Compliance with Applicable Laws...........................19
4.09 Absence of Certain Changes or Events......................20
4.10 Change of Control.........................................21
4.11 Litigation................................................21
4.12 Information in Offer Documents and Proxy Statement........22
4.13 Benefit Plans.............................................22
4.14 Taxes.....................................................25
4.15 Intellectual Property.....................................27
4.16 Licenses and Permits......................................28
4.17 Material Contracts........................................29
4.18 Environmental Laws........................................30
4.19 Opinion of Financial Advisor..............................31
4.20 Brokers...................................................31
4.21 Special Committee and Company Board Recommendations.......31
4.22 Required Shareholder Vote.................................32
4.23 Related Party Transactions................................32
4.24 Assets and Properties.....................................32
4.25 Labor and Employment Matters..............................33
4.26 Insurance.................................................34
4.27 Company Expenses..........................................35
4.28 State Takeover Statutes...................................35
4.29 Suppliers.................................................35
4.30 Termination of Existing Agreements........................35
4.31 No Other Representations or Warranties....................36
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PARENT..........................36
AND ACQUISITION CORP........................................................36
5.01 Organization and Qualification............................36
5.02 Charter Documents and Bylaws..............................37
5.03 Authority Relative to this Agreement......................37
5.04 No Violation; Required Filings and Consents...............37
5.05 Litigation................................................38
5.06 Brokers...................................................38
5.07 Information to be Supplied................................38
5.08 Financing.................................................39
5.09 Holding Corp. and Acquisition Corp........................39
ARTICLE 6 COVENANTS.........................................................39
6.01 Interim Operations........................................39
6.02 Shareholders Meeting......................................44
6.03 Filings and Consents......................................45
6.04 Access to Information.....................................46
6.05 Notification of Certain Matters...........................46
6.06 Public Announcements......................................47
6.07 Further Assurances; Reasonable Best Efforts...............47
6.08 No Solicitation...........................................47
6.09 SEC Reports...............................................50
6.10 Delisting.................................................50
6.11 Financing.................................................50
ii
6.12 Shareholder Litigation....................................51
6.13 Conveyance Taxes..........................................51
6.14 Special Meeting...........................................51
6.15 State Takeover Laws.......................................52
6.16 Stock Purchase Plans......................................52
6.17 Certain Deliveries Prior to Offer Payment Date............52
6.18 Employee Benefits.........................................53
6.19 Directors' and Officers' Indemnification and
Insurance.................................................54
ARTICLE 7 CONDITIONS TO CONSUMMATION OF THE MERGER..........................56
7.01 Conditions to the Obligations of Each Party...............56
ARTICLE 8 TERMINATION.......................................................56
8.01 Termination by Mutual Consent.............................56
8.02 Termination by Acquisition Corp., Parent or the
Company...................................................56
8.03 Termination by Acquisition Corp. and Parent...............57
8.04 Termination by the Company................................58
8.05 Effect of Termination.....................................59
ARTICLE 9 MISCELLANEOUS.....................................................59
9.01 Payment of Fees and Expenses..............................59
9.02 No Survival of Representations, Warranties, Covenants
and Agreements............................................61
9.03 Modification or Amendment.................................62
9.04 Entire Agreement; Assignment; Termination of
Confidentiality Agreement.................................62
9.05 Validity..................................................62
9.06 Notices...................................................62
9.07 Governing Law.............................................63
9.08 Descriptive Headings......................................63
9.09 Counterparts..............................................63
9.10 Certain Definitions.......................................63
9.11 Specific Performance......................................65
9.12 Extension; Waiver.........................................65
9.13 Third-Party Beneficiaries.................................65
9.14 Company Disclosure Schedule...............................65
9.15 Severability..............................................65
9.16 Submission to Jurisdiction; Waiver of Jury Trial..........66
ANNEX A.....................................................................68
CONDITIONS TO THE TENDER OFFER..............................................68
iii
EXHIBITS
Exhibit A Articles of Merger
Exhibit B Charter of Surviving Corporation
Exhibit C Bylaws of Surviving Corporation
Exhibit D Form of Acknowledgement of Certain Optionholders
Exhibit E Press Release
INDEX OF DEFINED TERMS
TERM LOCATION OF DEFINITION
---- ----------------------
1991 Plan 3.02(a)
Accountants 6.11(a)
Acquisition Corp Introduction
Acquisition Corp. Common Stock 3.01(c)
Acquisition Corp. Disclosure Schedule 5.04(a)
Acquisition Corp. Material Adverse 5.01
Effect
Acquisition Corp. Representatives 6.04
Acquisition Corp. Stock Option Agreement Recitals
Acquisition Proposal 6.08(f)
affiliate 9.10(a)
Agent 3.03(a)
Agreement Introduction
Articles of Merger 2.02
Benefit Plans 4.13(b)
Business Day 9.10(b)
Certain Principal Shareholders Recitals
Certificates 3.03(b)
Charter 9.10(c)
Class B Common Stock 4.03(a)
Closing 2.07
Closing Date 2.07
COBRA 4.13(a)
Code 3.03(h)
Commencement Delay Election 8.03
Commitment Letter 5.08
Common Shares Recitals
Company Introduction
Company Board Recitals
Company Break Up Fee 9.01(b)
Company Disclosure Documents 4.12(a)
Company Disclosure Schedule 4.01
Company Extension Election 1.01
Company Material Adverse Effect 4.01
Company Permits 4.16
Company Representatives 6.04
Company Tender Recommendation 1.02(b)
Confidentiality Agreement 6.04
Contract 9.10
Costs 6.19(a)
Director Plan 3.02(a)
Effective Time 2.02
Employees 4.13(a)
TERM LOCATION OF DEFINITION
---- ----------------------
Environmental Laws 4.18(e)
ERISA 4.13(b)
Exchange Act 1.01(a)
Expenses 9.01(a)
Financial Advisor 4.19
Financing 6.11(a)
Force Majeure Event 8.03
Force Majeure Period 8.03
Four Day Period 6.08(c)
Fully-Diluted Basis 9.10(e)
Future SEC Reports 4.07(a)
GAAP 4.07(b)
Governmental Authority 4.06(b)
GUST 4.13(c)
Hazardous Substances 4.18(e)
HSR Act 4.06(b)
Indebtedness 4.07(b)
Indemnified Directors and Officers 6.19(a)
Independent Directors 1.03(c)
Intellectual Property 4.15(b)
Interim Financial Statements 4.07(b)
knowledge 9.10(f)
Law 4.06(a))
Laws 4.06(a)
Leased Real Property 9.10(g)
Leases 9.10(h)
Liabilities 4.07(d)
Lien 4.06(a)
Liens 4.06(a)
Material Contracts 4.17(a)
Maximum Amount 6.19(c)
Merger 2.01
Merger Consideration 3.01(a)
Minimum Condition 1.01(A)
-------
Multiemployer Pension Plans 4.13(b)
Nasdaq 1.03(c)
Offer 1.01(A)
-------
Offer Documents 1.01(b)
Offer Payment Date 1.01(A)
-------
Offer Price 1.01(A)
-------
Offer to Purchase 1.01(A)
-------
Option 3.02(a)
Option Consideration 3.02(b)
Order 7.01(b)
Other Offer Closing Conditions Annex A
TERM LOCATION OF DEFINITION
---- ----------------------
Owned Real Property 9.10(i)
Parent Introduction
Parent Disclosure Documents 5.07(b)
Payment Fund 3.03(a)
Pension Plans 4.13(b)
Permits 4.16
Permitted Liens 4.24(d)
Person 9.10(j)
Preferred Stock 4.03(a)
Press Release 6.06
Proxy Statement 4.12(a)
Release 4.18(e)
Schedule TO 1.01(b))
SEC 1.01(b)
SEC Reports 4.07(a)
Securities Act 4.06(b)
Shareholder Approval 4.22
Shareholders Meeting 6.02
Special Committee Recitals
Stock Plan 3.02(a)
Sub Board 1.03(a)
Subsidiaries 9.10(k)
Subsidiary 9.10(k)
Summary of Material Terms 4.24(c)
Sun Merger Agreement 4.30
Superior Proposal 6.08(g)
Support Agreement Recitals
Surviving Corporation 2.01
Surviving Corporation Common Stock 3.01(c)
Tax 4.14(i))
Tax Return 4.14(i)
Taxes 4.14(i)
TBCA Recitals
Tenn. Acts Recitals
Terminating Acquisition Corp. Breach 8.04(a)
Terminating Company Breach 8.03(a)
Termination Date 8.02(b)
Transaction Agreements Recitals
Transactions 4.01
WARN Act 4.25(c)
LIST OF SCHEDULES
SCHEDULE CONTENT
-------- -------
4.01 Organization and Qualification
4.03 Capitalization
4.05 Company Subsidiaries / Investments
in Marketable Securities
4.06 No Violation; Filings and Consents
4.07 SEC Reports and Financial
Statements
4.08 Compliance with Applicable Law
4.09 Absence of Certain Changes or
Events
4.10 Change of Control
4.11 Litigation
4.12 Information in Offer Documents and
Proxy Statement
4.13 Benefit Plans
4.14 Tax
4.15 Intellectual Property
4.16 Licenses and Permits
4.17 Material Contracts
4.18 Environmental Laws
4.23 Related Party Transactions
4.24 Assets and Properties
4.24(b) Owned Real Property
4.24(c) Leased Real Property
4.25 Labor and Employment Matters
4.26 Insurance
4.27 Company Expenses
4.29 Suppliers
5.04 Filings and Consents for
Acquisition Corp. and Parent
6.01 Interim Operations
6.19 Employee Benefits
6.19 Directors' and Officers'
Indemnification and Insurance
ACQUISITION AGREEMENT AND
AGREEMENT AND PLAN OF MERGER
THIS ACQUISITION AGREEMENT AND AGREEMENT AND PLAN OF MERGER (this
"AGREEMENT"), dated as of October __, 2005, is entered into by and among
Goody's Family Clothing, Inc., a Tennessee corporation (the "COMPANY"), GF
Acquisition Corp., a Tennessee corporation ("ACQUISITION CORP."), and GF
Goods Inc., a Delaware corporation ("PARENT").
RECITALS
WHEREAS, a special committee consisting solely of disinterested
directors (the "SPECIAL COMMITTEE") of the board of directors of the Company
(the "COMPANY BOARD") has recommended to the Company Board that it approve of
the transactions contemplated by this Agreement;
WHEREAS, the Company Board, and the board of directors of each of
Parent and Acquisition Corp. have approved, and deem it advisable and in the
best interests of their respective shareholders to consummate, the acquisition
of the Company by Parent upon the terms and subject to the conditions set forth
herein;
WHEREAS, in furtherance thereof, it is proposed that Acquisition
Corp. make the Offer (as defined in SECTION 1.01(A)) to acquire all of the
shares of the Company's common stock, no par value per share (the "COMMON
SHARES"), issued and outstanding for $8.85 per Common Share in cash, on the
terms and subject to the conditions set forth herein;
WHEREAS, subject to any additional conditions set forth herein, also
in furtherance thereof, if Acquisition Corp. purchases pursuant to the Offer at
least fifty-one percent (51%) of the Common Shares determined on a Fully-Diluted
Basis, it is proposed that the parties hereto consummate the merger of
Acquisition Corp. into the Company on the terms set forth herein;
WHEREAS, also in furtherance of such acquisition, the Special
Committee, the Company Board and the board of directors of each of Parent and
Acquisition Corp. have approved this Agreement, the Offer and the Merger
following the Offer in accordance with the Tennessee Business Corporation Act
(the "TBCA") and the Tennessee Investor Protection Act (together with the TBCA,
the "TENN. ACTS") upon the terms and subject to the conditions set forth herein;
WHEREAS, the Special Committee and the Company Board have each
determined that the consideration to be paid for each Common Share in the Offer
and the Merger is fair to the holders of the Common Shares and has resolved to
recommend that the holders of the Common Shares accept the Offer and approve
this Agreement, the Merger and the other transactions contemplated hereby, in
each case upon the terms and subject to the conditions set forth herein;
WHEREAS, Parent, Acquisition Corp. and the Company desire to make
certain representations, warranties, covenants and agreements in connection with
the Offer and the Merger;
WHEREAS, as a condition and inducement to Parent and Acquisition Corp.
entering into this Agreement and incurring the obligations set forth herein, the
Company, concurrently herewith, is entering into a Stock Option Agreement (the
"ACQUISITION CORP. STOCK OPTION AGREEMENT"), dated as of the date hereof, with
Parent and Acquisition Corp. pursuant to which the Company is granting to
Acquisition Corp. an option to purchase Common Shares upon the terms and subject
to the conditions as set forth in the Acquisition Corp. Stock Option Agreement;
and
WHEREAS, as a condition and inducement to Parent and Acquisition Corp.
entering into this Agreement and incurring the obligations set forth herein,
certain shareholders of the Company ("CERTAIN PRINCIPAL Shareholders") have
entered into an agreement with Parent and Acquisition Corp. (the "SUPPORT
AGREEMENT" and, together with this Agreement and the Acquisition Corp. Stock
Option Agreement, the "TRANSACTION AGREEMENTS") pursuant to which Certain
Principal Shareholders have agreed to take specified actions in furtherance of
the Offer and the Merger.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE 1
THE OFFER
1.01 THE OFFER.
(a) Subject only to any Laws or Orders preventing commencement of the
Offer, provided that this Agreement shall not have been terminated in accordance
with ARTICLE 8 hereof and that the Company complies with its covenants set forth
in this Agreement, then Acquisition Corp. shall, as promptly as practicable, but
not later than the tenth (10th) Business Day after the date hereof (unless due
to a Force Majeure Event), commence (within the meaning of Rule 14d-2 under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")) an offer (the
"OFFER") to purchase all of the Common Shares at a price of $8.85 per share in
cash (such price, or such higher price per Common Share as may be paid in the
Offer, the "OFFER Price"), subject to the condition that the holders of Common
Shares have validly tendered and not withdrawn prior to the expiration of the
Offer a number of Common Shares which, together with the Common Shares
beneficially owned by Parent or Acquisition Corp., represents at least 51% of
the Common Shares determined on a Fully-Diluted Basis (the "MINIMUM CONDITION")
and subject to the other conditions set forth in Annex A hereto. Subject to the
prior satisfaction of the Minimum Condition and the prior satisfaction (or
waiver in writing by Acquisition Corp.) of the other conditions of the Offer set
forth in Annex A, Acquisition Corp. shall use reasonable best efforts to
consummate the Offer in accordance with its terms and to accept for payment and
pay for all of the Common Shares that are tendered pursuant to the Offer as soon
as it is legally permitted to do so under applicable Law. The date on which all
of the Common Shares validly tendered pursuant to the Offer and not withdrawn
have been accepted for payment and paid for is referred to herein as the "OFFER
PAYMENT DATE" The obligations of Acquisition Corp. to commence the Offer and to
accept for payment and
2
pay for the Common Shares validly tendered on or prior to the expiration of the
Offer and not withdrawn shall be subject only to the Minimum Condition and the
other conditions set forth in Annex A hereto. The Offer shall be made by means
of an offer to purchase (the "OFFER TO PURCHASE") containing the terms set forth
in this Agreement, the Minimum Condition and the other conditions set forth in
Annex A hereto. The Offer shall remain open until 5:00 p.m., New York City time,
on the day immediately following the twentieth Business Day of the Offer (as
such term is defined in Rule 14d-1(g)(3) under the Exchange Act), unless
Acquisition Corp. shall have extended the time for which the Offer is open
pursuant to this SECTION 1.01 or as may be required by Law. Parent and
Acquisition Corp. expressly reserve the right to modify the terms of the Offer,
except that, without the prior written consent of the Company, neither Parent
nor Acquisition Corp. shall decrease the Offer Price, decrease the number of
Common Shares sought, increase or decrease the required percentage of, or waive,
the Minimum Condition, change the form of or reduce the consideration in the
Offer or add to or amend any of the conditions of the Offer set forth in Annex A
hereto in any manner which would be adverse to the holders of the Common Shares
(other than with respect to insignificant changes or amendments); PROVIDED,
HOWEVER, (i) if on the initially scheduled expiration date of the Offer (as it
may be extended) any of the conditions to the Offer have not been satisfied or
waived, Acquisition Corp. may, from time to time, in its sole discretion, extend
the Offer (provided that no such extension pursuant to this sentence shall
extend the Offer beyond the date of the termination of this Agreement pursuant
to ARTICLE 8), (ii) if on or before the initially scheduled expiration date of
the Offer (as it may be extended) any of the conditions to the Offer have not
been satisfied or waived, the Company shall have the option to require
Acquisition Corp. to extend the Offer for a period of up to the number of
Business Days equal to (X) ten minus (Y) the number of Business Days of any
Force Majeure Period and MINUS (Z) the number of Business Days of any
Commencement Delay Election, if the Company is not in material breach of its
covenants under this Agreement, the Company provides notice to Parent and
Acquisition Corp. of its election to extend the expiration date of the Offer
pursuant to clause (ii) of this SECTION 1.01 and the Company pays certain
Expenses of Parent and Acquisition Corp. pursuant to SECTION 9.01 (the "COMPANY
EXTENSION ELECTION") and (iii) Acquisition Corp. may, in its sole discretion,
provide a subsequent offering period in accordance with Rule 14d-11 under the
Exchange Act. In addition, the Offer Price may be increased, and, in connection
therewith, the Offer may be extended, to the extent required by applicable
federal securities laws, in each case without the consent of the Company.
Notwithstanding the foregoing, if, as of immediately prior to the expiration
date of the Offer (as it may be extended), the Common Shares tendered and not
withdrawn pursuant to the Offer constitute less than 90% of the Common Shares
determined on a Fully-Diluted Basis, Acquisition Corp. may, from time to time in
its sole discretion, extend the Offer for a period not to exceed twenty Business
Days in the aggregate, notwithstanding that all conditions to the Offer are
satisfied as of such expiration date of the Offer.
(b) On the date the Offer is commenced, Parent and Acquisition Corp.
shall file with the United States Securities and Exchange Commission (the "SEC")
a Tender Offer Statement on Schedule TO with respect to the Offer (together with
all amendments and
3
supplements thereto and including the exhibits thereto, the "SCHEDULE TO"). The
Schedule TO will include, as exhibits, the Offer to Purchase and a form of
letter of transmittal and summary advertisement (collectively, together with any
amendments and supplements thereto, the "OFFER DOCUMENTS"). Parent and
Acquisition Corp. further agree to take all steps necessary to cause the Offer
Documents to be filed with the SEC and to be disseminated to holders of Common
Shares, in each case as and to the extent required by applicable federal
securities laws. Each of Parent and Acquisition Corp., on the one hand, and the
Company, on the other hand, agrees promptly to correct any information provided
by it for use in the Offer Documents if and to the extent that it shall have
become false or misleading in any material respect and Acquisition Corp. further
agrees to take all steps necessary to cause the Offer Documents as so corrected
to be filed with the SEC and to be disseminated to holders of Common Shares, in
each case as and to the extent required by applicable federal securities laws;
PROVIDED that the costs and expenses of filing and disseminating the corrected
Offer Documents shall be borne by the Company if any such corrections are
required as a result of information provided by the Company becoming false and
misleading in any material respect. The Company and its counsel shall be given a
reasonable opportunity to review and comment on the Schedule TO before it is
filed with the SEC. In addition, Parent and Acquisition Corp. agree to provide
the Company and its counsel in writing with any written comments Parent,
Acquisition Corp. or their counsel may receive from time to time from the SEC or
its staff with respect to the Offer Documents promptly after the receipt of such
comments, and shall provide the Company and its counsel with a reasonable
opportunity to comment on the proposed responses thereto.
(c) Parent shall engage an information agent reasonably acceptable to
the Company to act as information agent in connection with, and through the
consummation of, the Offer.
1.02 COMPANY ACTIONS.
(a) The Company hereby approves and consents to the Offer, the Merger
and the other Transactions and represents that (i) the Company Board has, at a
meeting duly called and held, unanimously (A) approved each of the Transaction
Agreements and the Transactions, including the Offer and the Merger, (B)
recommended that the holders of Common Shares accept the Offer, tender their
Common Shares pursuant to the Offer and approve and adopt this Agreement and the
Merger, (C) determined that each of the Transaction Agreements and the
Transactions, including the Offer and the Merger, are fair to and in the best
interests of the shareholders of the Company, (D) determined that the
consideration to be paid for each Common Share in the Offer and the Merger is
fair to the shareholders of the Company, and (E) declared that each of the
Transaction Agreements is advisable, and (ii) Rothschild Inc. has delivered to
the Company Board its written opinion that the consideration to be received by
the Company's shareholders other than Xxxxxx X. Xxxxxxxxxx and his immediate
family and family trusts in respect of each Common Share pursuant to the Offer
and the Merger is fair to such shareholders from a financial point of view.
(b) Concurrently with the commencement of the Offer, the Company shall
file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9
(together with all amendments and supplements thereto and including the exhibits
thereto, the "SCHEDULE 14D-9") which shall, subject to the fiduciary duties of
the Company's directors under applicable Law and
4
to the provisions of this Agreement, contain the recommendation referenced in
clause (v) of SECTION 4.21 hereof (the "COMPANY TENDER RECOMMENDATION"). The
Company hereby consents to the inclusion of the Company Tender Recommendation in
the Offer Documents. The Company further agrees to take all steps necessary to
cause the Schedule 14D-9 to be filed with the SEC and to be disseminated to all
holders of Common Shares, in each case as and to the extent required by
applicable federal securities laws. Each of the Company, on the one hand, and
Parent and Acquisition Corp., on the other hand, agrees promptly to correct any
information provided by it for use in the Schedule 14D-9 if and to the extent
that it shall have become false and misleading in any material respect and the
Company further agrees to take all steps necessary to cause the Schedule 14D-9
as so corrected to be filed with the SEC and to be disseminated to all holders
of the Common Shares, in each case as required by applicable federal securities
laws. Parent, Acquisition Corp. and their counsel shall be given a reasonable
opportunity to review and comment on the Schedule 14D-9 and any amendment
thereto before it is filed with the SEC. In addition, the Company agrees to
provide Parent, Acquisition Corp. and their counsel in writing with any comments
the Company or its counsel may receive from time to time from the SEC or its
staff with respect to the Schedule 14D-9 promptly after the receipt of such
comments, and shall provide Parent and Acquisition Corp. with a reasonable
opportunity to comment on the proposed responses thereto.
(c) In connection with the Offer, the Company shall promptly (but in
any event within five Business Days) after the date hereof, furnish or cause to
be furnished to Acquisition Corp. mailing labels, security position listings and
any available listing or computer file containing the names and addresses of the
record holders of the Common Shares as of the most recent practicable date prior
to delivery of such information and all updates to such information, and shall
furnish Acquisition Corp. with such information and assistance as Acquisition
Corp. or any of its agents may reasonably request in communicating the Offer to
the record and beneficial holders of the Common Shares. Subject to applicable
law or legal process and except for such steps as are necessary to disseminate
the Offer Documents, Parent and Acquisition Corp. shall hold in confidence the
information contained in any of such labels and lists and the additional
information referred to in the preceding sentence, shall use such information
only in connection with the Offer, the Merger and the other Transactions, and,
if this Agreement is terminated, shall upon the request of the Company deliver
or cause to be delivered to the Company, or cause to be destroyed, all copies of
such information then in its possession or the possession of its agents or
representatives.
1.03 DIRECTORS.
(a) Promptly upon the purchase of and payment for any Common Shares by
Parent, Acquisition Corp. and/or any of their affiliates pursuant to the Offer
and at all times thereafter, Parent shall be entitled to elect or designate such
number of directors, rounded up to the next whole number, on the Company Board
as is equal to the product of the total number of directors on such Company
Board (giving effect to the directors designated or elected by Parent pursuant
to this sentence) multiplied by the percentage that the aggregate number of
Common Shares beneficially owned by Parent, Acquisition Corp. and/or any of
their respective affiliates bears to the total number of Common Shares then
issued and outstanding. The Company shall, upon the request of Parent, use its
best efforts to promptly (but in any event within two Business Days after
receipt of such request) take such actions, including filling vacancies or newly
created
5
directorships on the Company Board, increasing the size of the Company Board,
including by amending the bylaws of the Company if necessary to so increase the
size of the Company Board, and/or securing the resignations of such number of
its incumbent directors, as is necessary to enable Parent's designees to be so
elected or designated to the Company Board, and shall cause Parent's designees
to be so elected or appointed at such time. The Company shall, upon the request
of Parent, also cause Persons elected or designated by Parent to constitute the
same percentage (rounded up to the next whole number) as is on the Company Board
of (i) each committee of the Company Board, (ii) each board of directors (or
similar body) of each Subsidiary (as defined in SECTION 3.01 hereof) of the
Company (each a "SUB BOARD") and (iii) each committee (or similar body) of each
Sub Board, in each case only to the extent permitted by applicable Law and the
rules of any stock exchange or quotation system on which the Common Shares are
listed. Notwithstanding the foregoing, until the Effective Time (as defined in
SECTION 2.02 hereof), neither Parent nor Acquisition Corp. shall remove (other
than for cause) any of the Designated Company Directors (as defined in SECTION
1.03(B) below) or request that any of the Designated Company Directors resign
from the Company Board; PROVIDED that, subsequent to the purchase of and payment
for Common Shares pursuant to the Offer, Parent shall always be entitled to have
its designees represent a majority of the entire Company Board. The Company's
obligations under this SECTION 1.03(A) shall be subject to Section 14(f) of the
Exchange Act and Rule 14f-1 promulgated thereunder. The Company shall promptly
take all actions required pursuant to such Section 14(f) and Rule 14f-1 in order
to fulfill its obligations under this SECTION 1.03(A), including mailing to
shareholders the information required by such Section 14(f) and Rule 14f-1 as is
necessary to enable Parent's designees to be elected or appointed to the Company
Board. Parent or Acquisition Corp. will supply the Company any information with
respect to either of them and their nominees, officers, directors and affiliates
required by such Section 14(f) and Rule 14f-1. The provisions of this SECTION
1.03(A) are in addition to and shall not limit any rights which Acquisition
Corp., Parent or any of their affiliates may have as a holder or Beneficial
Owner of Common Shares as a matter of Law with respect to the election of
directors or otherwise.
(b) Prior to the purchase of and payment for any Common Shares by
Parent, Acquisition Corp. and/or any of their affiliates pursuant to the Offer,
(i) to effect the transactions contemplated by SECTION 1.03(A) hereof, the
Company Board shall approve, and shall not have withdrawn or amended,
resolutions (x) to increase the number of members of the Company Board from five
to up to ten directors (as determined by Parent in its sole discretion), to be
effective at such time as Parent, Acquisition Corp. and/or any of their
affiliates purchases any Common Shares, and (y) to elect Persons designated by
Parent prior to consummation of the transactions contemplated by SECTION 1.03(A)
to fill the vacancies created by such increase in the number of directors,
effective upon such increase and (ii) each of the directors of the Company prior
to the consummation of the transactions contemplated by SECTION 1.03(A) hereof,
other than three directors of the Company determined by Acquisition Corp. in its
sole and absolute discretion (the "DESIGNATED COMPANY DIRECTORS"), shall deliver
to the Company a letter stating that such director has irrevocably resigned from
the Company Board, and from each committee thereof, effective at such time as
Parent, Acquisition Corp. and/or any of their affiliates purchases Common Shares
to the extent such resignations are necessary to permit all of Parent's
designees to which Parent is entitled pursuant to SECTION 1.03(A) hereof to be
elected or designated to the Company Board.
6
(c) In the event that Parent's designees are elected or appointed to
the Company Board, until the Effective Time, the Company Board shall have at
least such number of directors as may be required by the rules of the Nasdaq
National Market, Inc. ("NASDAQ") or the federal securities laws and the SEC
rules and regulations thereunder who are considered independent directors within
the meaning of the rules of Nasdaq ("INDEPENDENT DIRECTORS"), PROVIDED that, in
such event, if the number of Independent Directors shall be reduced below the
number of directors as may be required by such rules and regulations and the
federal securities laws and the SEC rules and regulation thereunder for any
reason whatsoever, the remaining Independent Director(s) shall be entitled to
designate persons to fill such vacancies who shall be deemed to be Independent
Directors for purposes of this Agreement or, if no other Independent Director
then remains, the other directors shall designate such number of directors as
may be required by the rules of Nasdaq and the federal securities laws and the
SEC rules and regulation thereunder, to fill such vacancies who shall not be
shareholders or affiliates of Parent or Acquisition Corp., and such Persons
shall be deemed to be Independent Directors for purposes of this Agreement.
(d) From and after the time, if any, that Parent's designees
constitute a majority of the Company Board, any amendment of this Agreement, any
termination of this Agreement by the Company, any extension of time for
performance of any of the obligations of Parent or Acquisition Corp. hereunder,
any waiver of any condition or any of the Company's rights hereunder or other
action by the Company hereunder that adversely affects the holders of Common
Shares may be effected only by the action of a majority of the Independent
Directors, including, for these purposes, the vote of a majority of the
Designated Company Directors, which action shall be deemed to constitute the
action of the full Company Board; PROVIDED that, if there shall be no Designated
Company Directors, such actions may be effected by majority vote of the entire
Company Board.
ARTICLE 2
THE MERGER
2.01 THE MERGER. At the Effective Time (as defined in SECTION 2.02),
subject to the terms and conditions of this Agreement and in accordance with the
provisions of the Tenn. Acts, Acquisition Corp. shall be merged with and into
the Company (the "MERGER"). Following the Merger, the separate corporate
existence of Acquisition Corp. shall cease, and the Company shall continue as
the surviving corporation (sometimes hereinafter referred to as the "SURVIVING
CORPORATION") and shall continue to be governed by the laws of the State of
Tennessee.
2.02 EFFECTIVE TIME. As soon as practicable following the Closing (as
defined in SECTION 2.07), and provided that this Agreement has not been
terminated or abandoned pursuant to ARTICLE 8 hereof, the Company and
Acquisition Corp. will cause articles of Acquisition Corp. substantially in the
form attached hereto as EXHIBIT A (the "ARTICLES OF MERGER") to be duly
executed, acknowledged and filed, in the manner required by the Tenn. Acts, with
the Secretary of State of the State of Tennessee, and the parties shall take
such other and further actions as may be required by law to make the Merger
effective. The date and time the Merger becomes effective in accordance with
applicable law is referred to herein as the "EFFECTIVE TIME."
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2.03 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth herein, in the Articles of Merger and in the Tenn. Acts. Without limiting
the generality of the foregoing, and subject thereto, at the Effective Time, all
the properties, rights, privileges, powers and franchises of the Company and
Acquisition Corp. shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Acquisition Corp. shall become the
debts, liabilities and duties of the Surviving Corporation.
2.04 CHARTER AND BYLAWS OF THE SURVIVING CORPORATION.
(a) The Charter of the Company as in effect immediately prior to the
Effective Time shall be amended in its entirety substantially as provided in
EXHIBIT B attached hereto, and, as so amended, shall be the Charter of the
Surviving Corporation until duly amended.
(b) The Bylaws of the Company as in effect immediately prior to the
Effective Time shall be amended in its entirety substantially as provided in
EXHIBIT C attached hereto, and, as so amended, shall be the Bylaws of the
Surviving Corporation until duly amended.
2.05 DIRECTORS OF THE SURVIVING CORPORATION. The directors of
Acquisition Corp. immediately prior to the Effective Time shall be the initial
directors of the Surviving Corporation and shall hold office until their
respective successors are duly elected and qualified, or their earlier death,
resignation or removal in accordance with applicable law and the Surviving
Corporation's Charter and Bylaws.
2.06 OFFICERS OF THE SURVIVING CORPORATION. The officers designated by
Acquisition Corp. immediately prior to the Effective Time shall be the initial
officers of the Surviving Corporation and shall hold office until their
respective successors are duly elected and qualified, or their earlier death,
resignation or removal.
2.07 CLOSING. Subject to the conditions contained in this Agreement,
the closing of the Merger (the "CLOSING") shall take place (i) at the offices of
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP, Four Times Square, Xxx Xxxx, XX 00000,
as promptly as practicable but in no event later than the third Business Day
following the satisfaction (or waiver if permissible) of the conditions set
forth in ARTICLE 7 that by their terms are not to be satisfied at the Closing or
(ii) at such other place and time and/or on such other date as the Company and
Acquisition Corp. may agree in writing. The date on which the Closing occurs is
hereinafter referred to as the "CLOSING DATE."
2.08 ADDITIONAL ACTIONS. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances in law or any other acts are necessary or
desirable to vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of the Company or Acquisition Corp., the Company and its
officers and directors shall be deemed to have granted to the Surviving
Corporation an irrevocable power of attorney to execute and deliver all such
deeds, assignments and assurances in law and to take all acts necessary, proper
or desirable to vest, perfect or confirm title to and possession of such rights,
properties or assets in the Surviving Corporation, and the officers and
directors of the
8
Surviving Corporation are authorized in the name of the Company to take any and
all such action.
ARTICLE 3
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE COMPANY AND ACQUISITION CORP.
3.01 EFFECT ON SHARES OF CAPITAL STOCK.
(a) COMMON SHARES OF THE COMPANY. As of the Effective Time, by virtue
of the Merger and without any action on the part of the holder of any Common
Shares, the Company or Acquisition Corp., each Common Share that is issued and
outstanding immediately prior to the Effective Time (other than those Common
Shares to be canceled pursuant to SECTION 3.01(B) shall be canceled and
extinguished and converted into the right to receive the Offer Price (the
"MERGER CONSIDERATION"), payable to the holder thereof, without interest or
dividends thereon, less any applicable withholding of taxes, in the manner
provided in SECTION 3.03. All such Common Shares, when so converted, shall no
longer be outstanding and shall automatically be canceled and each holder of a
certificate or certificates representing any such Common Shares shall cease to
have any rights with respect thereto, except the right to receive the
consideration specified in the preceding sentence.
(b) CANCELLATION OF CERTAIN COMMON SHARES. As of the Effective Time,
by virtue of the Merger and without any action on the part of the holder of any
Common Shares, the Company or Acquisition Corp., each Common Share that is owned
by the Company or any wholly owned Subsidiary as treasury stock or otherwise or
owned by Acquisition Corp. or Parent or any of their respective Subsidiaries
immediately prior to the Effective Time shall automatically be canceled and
shall cease to exist, and no cash or other consideration shall be delivered or
deliverable in exchange therefor.
(c) CAPITAL STOCK OF ACQUISITION CORP.. As of the Effective Time, each
share of common stock, no par value per share, of Acquisition Corp.
("ACQUISITION CORP. COMMON STOCK") issued and outstanding immediately prior to
the Effective Time shall, by virtue of the Merger and without any action on the
part of the holders of Acquisition Corp. Common Stock, the Company or
Acquisition Corp., be converted into three hundred thirty thousand (330,000)
validly issued, fully paid and non-assessable shares of common stock, no par
value per share, of the Surviving Corporation ("SURVIVING CORPORATION COMMON
STOCK"). Each certificate that, immediately prior to the Effective Time,
represented issued and outstanding shares of Acquisition Corp. Common Stock
shall, from and after the Effective Time, automatically and without the
necessity of presenting the same for exchange, represent the shares of the
Surviving Corporation capital stock into which such shares have been converted
pursuant to the terms hereof; provided, however, that the record holder thereof
shall receive, upon surrender of any such certificate, a certificate
representing the shares of Surviving Corporation Common Stock into which the
shares of Acquisition Corp. Common Stock formerly represented thereby shall have
been converted pursuant to the terms hereof.
3.02 OPTIONS; STOCK PLANS.
9
(a) For purposes of this Agreement, the term "OPTION" means each
outstanding unexercised option to purchase Common Shares, whether or not then
vested or fully exercisable, granted on or prior to the date hereof to any
current or former employee or director of the Company or any Subsidiary of the
Company or any other person, whether under any stock option plan or otherwise
(including, without limitation, under the 1991 Stock Incentive Plan (the "1991
PLAN"), the 1993 Stock Option Plan, the Discounted Stock Option Plan for
Directors (the "DIRECTOR PLAN"), the 1997 Stock Option Plan and the 2005 Stock
Incentive Plan) (collectively, the "STOCK PLANS").
(b) Prior to the Offer Payment Date, (i) the Company shall clarify its
interpretations of the 1991 Plan and the Director Plan and take such other
actions reasonably requested by Parent or Acquisition Corp. to clarify that at
the Effective Time, all Options issued under the 1991 Plan and the Director Plan
shall be converted into the right to receive Option Consideration (as defined
below) and (ii) the Company shall take all actions necessary so that (A)
immediately prior to the Effective Time, each outstanding Option granted under
the Stock Plans, including each outstanding Option held by those holders of
record listed on the OPTIONS SCHEDULE attached hereto, shall become immediately
vested and exercisable in full and (B) at the Effective Time, all Options shall
be canceled, in each case, in accordance with and pursuant to the terms of the
Stock Plans under which such Options were granted. In consideration of such
cancellation, each holder of an Option canceled in accordance with this SECTION
3.02(B) will be entitled to receive in settlement of such Option as promptly as
practicable following the Effective Time, but in no event later than 10 Business
Days after the Effective Time, a cash payment from the Payment Fund (as defined
in SECTION 3.03), subject to any required withholding of taxes, equal to the
product of (i) the total number of Common Shares otherwise issuable upon
exercise of such Option and (ii) the amount, if any, by which the Merger
Consideration per Common Share exceeds the applicable exercise price per Common
Share otherwise issuable upon exercise of such Option (the "OPTION
CONSIDERATION"); provided, however, that with respect to any person subject to
Section 16 of the Exchange Act, any such amount shall be paid as soon as
practicable after the first date payment can be made without liability to such
person under Section 16(b) of the Exchange Act.
(c) If requested by Parent or Acquisition Corp., the Company shall use
commercially reasonable efforts to obtain from each holder of an Option issued
pursuant to the Stock Plans to execute a written acknowledgment of such holder
that effective as of the Effective Time, (i) the payment of the Option
Consideration, if any, will satisfy in full the Company's obligation to such
person pursuant to such Option and (ii) subject to the payment of the Option
Consideration, if any, all Options held by such holder shall, without any action
on the part of the Company or the holder, be deemed terminated, canceled, void
and of no further force and effect as between the Company and the holder and
neither party shall have any further rights or obligations with respect thereto.
Such written acknowledgment shall be substantially in the form attached hereto
as EXHIBIT D.
(d) Prior to the consummation of the acquisition of Common Shares by
Acquisition Corp. pursuant to the Offer, the Company shall take all actions
(including, if appropriate, amending the terms of the relevant Stock Plans or
amending or waiving relevant agreements providing for vesting conditions on
Common Shares or Options therefor) that are necessary to give effect to the
transactions contemplated by this SECTION 3.02.
10
(e) Except as otherwise provided herein or agreed to in writing by
Parent and the Company or as may be necessary to administer Options remaining
outstanding following the Effective Time, the Stock Plans shall terminate
effective as of the Effective Time and no participant in the Stock Plans shall
thereafter be granted any rights thereunder to acquire any equity securities of
the Company, the Surviving Corporation, Parent or any Subsidiary of any of the
foregoing.
(f) The Company covenants that prior to the Effective Time it will
take all actions necessary under that certain SEC no-action letter, dated
January 12, 1999, to Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP, to provide that
the cancellation, cash-out and conversion of Options, pursuant to this SECTION
3.02, will qualify for exemption under Rule 16b-3(d) or (e), as applicable,
under the Exchange Act.
3.03 PAYMENT FOR COMMON SHARES AND OPTIONS IN THE MERGER.
(a) Prior to the Effective Time, Acquisition Corp. shall appoint a
commercial bank or trust company reasonably acceptable to the Company to act as
exchange and paying agent, registrar and transfer agent (the "AGENT") for the
purpose of (i) exchanging certificates representing, immediately prior to the
Effective Time, Common Shares for the aggregate Merger Consideration and (ii)
making payment of the aggregate Option Consideration in exchange for the
cancellation of all then-outstanding Options. Subject to the Company's
obligations to deposit cash in the Payment Fund described in this SECTION
3.03(A), at or prior to the Effective Time, Acquisition Corp. shall deposit, or
Acquisition Corp. shall otherwise take all steps necessary to cause to be
deposited, in trust with the Agent for the benefit of the holders of Common
Shares and Options, as the case may be, cash in an aggregate amount equal to the
sum of (i) the product of (A) the number of Common Shares issued and outstanding
immediately prior to the Effective Time and entitled to receive the Merger
Consideration in accordance with SECTION 3.01(A) and (B) the Merger
Consideration and (ii) the amount necessary for the payment in full of the
Option Consideration (such aggregate amount described in (i) and (ii) being
hereinafter referred to as the "PAYMENT FUND"). The Company shall, as of the
Offer Payment Date, have sufficient unrestricted domestic cash on hand to pay
any unpaid Expenses contemplated by SECTION 4.27 (including, without limitation,
those incurred or which may be incurred by the Financial Advisor and counsel to
the Company (including Expenses incurred in connection with any litigation with
respect to, arising from or related to the Transactions)) and at the request of
Acquisition Corp. or Parent, shall use commercially reasonable efforts to
deposit all other available domestic cash of the Company (taking into account
the reasonable short-term working capital needs of the Company) with the Agent
for deposit into the Payment Fund prior to the Effective Time. The Agent shall,
pursuant to instructions provided by Acquisition Corp., make the payments
provided for in SECTION 3.01 and SECTION 3.02 of this Agreement out of the
Payment Fund (it being understood that any and all interest earned on funds made
available to the Agent pursuant to this Agreement shall be turned over to the
party depositing such funds with the Agent). The Payment Fund shall not be used
for any other purpose except as provided in this Agreement.
(b) Promptly after the Effective Time, but in no event later than 10
Business Days after the Effective Time, the Surviving Corporation shall cause
the Agent to mail to each record holder of certificates (the "CERTIFICATES")
that immediately prior to the Effective Time represented Common Shares (i) a
notice of the effectiveness of the Merger, (ii) a form letter of
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transmittal which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Agent, and (iii) instructions for use in surrendering such
Certificates and receiving the Merger Consideration in respect thereof.
(c) Upon surrender to the Agent of a Certificate, together with such
letter of transmittal duly executed and completed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive, within 10 Business Days after such surrender, in exchange therefor, in
the case of Common Shares (other than Common Shares to be canceled pursuant to
SECTION 3.01(B)), cash in an amount equal to the product of (i) the number of
Common Shares formerly represented by such Certificate and (ii) the Merger
Consideration, which amounts shall be paid by Agent by check or wire transfer in
accordance with the instructions provided by such holder. No interest or
dividends will be paid or accrued on the consideration payable upon the
surrender of any Certificate. If the consideration provided for herein is to be
delivered in the name of a person other than the person in whose name the
Certificate surrendered is registered, it shall be a condition of such delivery
that the Certificate so surrendered shall be properly endorsed or otherwise in
proper form for transfer and that the person requesting such delivery shall pay
any transfer or other taxes required by reason of such delivery to a person
other than the registered holder of the Certificate, or that such person shall
establish to the satisfaction of the Surviving Corporation that such tax has
been paid or is not applicable. Until surrendered in accordance with the
provisions of this SECTION 3.03, each Certificate (other than Common Shares to
be canceled pursuant to SECTION 3.01(B)) shall represent, for all purposes, in
the case of Certificates representing Common Shares (other than Common Shares to
be canceled pursuant to SECTION 3.01(B)), only the right to receive an amount in
cash equal to the Merger Consideration multiplied by the number of Common Shares
formerly evidenced by such Certificate without any interest or dividends
thereon.
(d) The consideration issued upon the surrender of Certificates in
accordance with this Agreement shall be deemed to have been issued in full
satisfaction of all rights pertaining to such Common Shares formerly represented
thereby. After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of any Common Shares that were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation, they shall be
canceled and exchanged as provided in this ARTICLE 3.
(e) Any portion of the Payment Fund (including any amounts that may be
payable to the former shareholders of the Company in accordance with the terms
of this Agreement) which remains unclaimed by the former shareholders of the
Company upon the 180th day immediately following the Closing Date shall be
returned to the Surviving Corporation, upon demand, and any former shareholders
of the Company who have not theretofore complied with this ARTICLE 3 shall,
subject to SECTION 3.03(F), thereafter look to the Surviving Corporation only as
general unsecured creditors thereof for payment of any Merger Consideration,
without any interest or dividends thereon, that may be payable in respect of
each Common Share held by such shareholder. Following the Closing, the Agent
shall retain the right to invest and reinvest the Payment Fund on behalf of the
Surviving Corporation in securities listed or guaranteed by the United States
government or certificates of deposit of commercial banks that have, or are
12
members of a group of commercial banks that has, consolidated total assets of
not less than $500,000,000 and the Surviving Corporation shall receive the
interest earned thereon.
(f) None of Acquisition Corp., the Company or Agent shall be liable to
a holder of Certificates or any other person in respect of any cash delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law. If any Certificates shall not have been surrendered upon the second
anniversary of the Closing Date (or immediately prior to such earlier date on
which any Merger Consideration, dividends (whether in cash, stock or property)
or other distributions with respect to Common Shares in respect of such
Certificate would otherwise escheat to or become the property of any
Governmental Authority (as defined in SECTION 4.06(B)), any such shares, cash,
dividends or distributions in respect of such Certificate shall, to the extent
permitted by applicable law, become the property of the Surviving Corporation,
free and clear of all claims or interests of any person previously entitled
thereto.
(g) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit (in form and substance acceptable to
the Surviving Corporation) of that fact by the person (who shall be the record
owner of such Certificate) claiming such Certificate to be lost, stolen or
destroyed, the agreement to indemnify the Surviving Corporation against any
claim that may be made against it with respect to such Certificate and, if
required by the Surviving Corporation, the posting by such person of a bond in
such amount as the Surviving Corporation may direct as indemnity against any
claim that may be made against it with respect to such Certificate, the Agent
will issue in exchange for such lost, stolen or destroyed Certificate the Merger
Consideration deliverable in respect thereof pursuant to this Agreement.
(h) Each of the Agent, the Surviving Corporation and Parent shall be
entitled to deduct and withhold from the consideration otherwise payable to any
holder of Common Shares or Options pursuant to this Agreement such amounts as
may be required to be deducted or withheld with respect to the making of such
payment or any other payment in connection with the transactions contemplated by
this Agreement under the Internal Revenue Code of 1986, as amended (the "CODE"),
or any applicable provision of state, local or foreign tax law. To the extent
that amounts are so deducted or withheld and paid over to the appropriate taxing
authority by Agent, the Surviving Corporation or Parent, such amounts shall be
treated for all purposes of this Agreement as having been paid to the person to
whom such amounts would otherwise have been paid.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on the corresponding sections of the Company
Disclosure Schedule (as defined below), the Company represents and warrants to
each of Acquisition Corp. and Parent as of the date hereof and as of the
scheduled expiration of the Offer and the Offer Payment Date that:
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4.01 ORGANIZATION AND QUALIFICATION. The Company and each of its
Subsidiaries (as described in SECTION 4.05) is a corporation, limited liability
company or limited partnership, as the case may be, duly organized or formed, as
the case may be, validly existing and in good standing (to the extent
applicable) under the laws of its state or jurisdiction of incorporation or
formation, as the case may be, and has the requisite power and authority to
carry on its business as now being conducted, except where the failure to be in
good standing (to the extent applicable) would not, individually or in the
aggregate, have a Company Material Adverse Effect (as defined below). Except as
set forth in SECTION 4.01 of the disclosure schedule delivered by the Company to
Acquisition Corp. and Parent prior to the execution of this Agreement (the
"COMPANY DISCLOSURE SCHEDULE"), the Company and each of its Subsidiaries is duly
qualified or licensed as a foreign corporation to do business, and is in good
standing (to the extent applicable), in each jurisdiction where the nature of
its business makes such qualification or licensing necessary, except where the
failure to be so qualified or licensed and in good standing (to the extent
applicable) would not, individually or in the aggregate, have a Company Material
Adverse Effect. As used in this Agreement, the term "COMPANY MATERIAL ADVERSE
Effect" means any effect, event, or change that (i) is, or is reasonably likely
to be, materially adverse to the business, financial condition or results of
operations of the Company and its Subsidiaries, taken as a whole, or (ii)
prevents or materially delays, or is reasonably likely to prevent or materially
delay, the ability of the Company and its Subsidiaries to perform in all
material respects their obligations under this Agreement or to consummate the
transactions contemplated hereby (the "TRANSACTIONS") in accordance with the
terms hereof, except for any effect, event or change (w) that is generally
applicable to the industry or markets in which the Company and its Subsidiaries
operate and not affecting the Company or any of its Subsidiaries in any
materially more adverse manner or degree therefrom, (x) that is generally
applicable to the United States economy or securities markets or the world
economy or international securities markets, (y) the public announcement or
existence of this Agreement and the transactions contemplated hereby, or (z) the
failure by the Company to meet any internal or published projections, forecasts
or predictions of financial performance for any period ending on or after July
30, 2005 (but any underlying facts causing the Company to fail to meet such
projections, forecasts or predictions shall not constitute an exception to the
definition of Company Material Adverse Effect).
4.02 CHARTER DOCUMENTS AND BYLAWS. The charter attached as Exhibit 3.1
of the SEC Report for the period ending July 29, 1995 is a complete and correct
copy of the Charter and the bylaws attached as Exhibit 3.2 of the SEC Report for
the period ending January 29, 1995 is a complete and correct copy of the bylaws
of the Company, each in full force and effect as of the date hereof. The Company
is not in violation of any of the provisions of its charter or bylaws. The
Company has heretofore made available to Acquisition Corp. a complete and
correct copy of the Charter and the bylaws (or equivalent organizational
documents) of each Subsidiary of the Company in full force and effect as of the
date hereof. No Subsidiary of the Company is in violation in any material
respect of any of the provisions of its charter or bylaws (or equivalent
organizational documents).
4.03 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of
100,000,000 shares of Common Stock, of which 50,000,000 shares have been
designated as Common Shares and 50,000,000 shares have been designated as Class
B Common Stock, no par value per share
14
("CLASS B COMMON STOCK"), and 2,000,000 shares of preferred stock, par value
$1.00 per share ("PREFERRED STOCK"). Except for Common Shares issued after the
date of this Agreement upon exercise of Options outstanding as of the date of
this Agreement, (i) 33,128,681 shares of Common Shares are issued and
outstanding, (ii) no shares of Class B Common Stock are issued and outstanding,
(iii) no shares of Preferred Stock are issued and outstanding and (iv) no Common
Shares are held by the Company in its treasury. The Company has 8,625,000 Common
Shares reserved for issuance pursuant to the Stock Plans, of which 3,475,001
Common Shares are subject to outstanding Options, and the weighted average
exercise price for such Options is $7.80 (except for any changes caused by the
exercise of Options after the date of this Agreement which were outstanding on
the date hereof). Except as set forth in this SECTION 4.03, there are not now,
and at the Effective Time there will not be, any options, warrants, calls,
subscriptions, or other rights, or other agreements or commitments of any
character relating to the issued or unissued capital stock of the Company or
obligating the Company to issue, transfer or sell any shares of capital stock
of, or other equity interests in, the Company or any Subsidiary of the Company.
SECTION 4.03(A) of the Company Disclosure Schedule sets forth the name of each
holder of an Option, together with the grant date, exercise price, number of
Common Shares issuable upon exercise of each such Option, vesting schedule of
each such Option, the number of vested and unvested Options of each Option
holder and the specific Stock Plan pursuant to which such Option was issued,
except with respect to any unintentional misstatement which would not affect the
number of Common Shares issuable upon exercise of the Options or the aggregate
Option Consideration with respect to all Options. All issued and outstanding
Common Shares are duly authorized, validly issued, fully paid, nonassessable and
free of preemptive rights. All of the outstanding shares of capital stock of, or
other equity interests in, each Subsidiary of the Company have been duly
authorized and validly issued and are fully paid and non-assessable, are owned
by either the Company or another of its wholly-owned Subsidiaries, free and
clear of all Liens (as defined in SECTION 4.06(A)) other than Permitted Liens
(as defined in SECTION 4.24(D)). There are no outstanding options, warrants,
calls, subscriptions, convertible securities or other rights, or other
agreements or commitments, obligating any Subsidiary of the Company to issue,
transfer or sell any shares of its capital stock or other equity interests.
There are no outstanding obligations of the Company or any of its Subsidiaries
to repurchase, redeem or otherwise acquire any shares of capital stock of, or
other equity interests in, the Company or any Subsidiary of the Company.
(b) To the knowledge of the Company, without having made inquiry of
any of its shareholders, except for estate planning and similar trust
agreements, there are no shareholders agreements, voting trusts or other
agreements or understandings relating to voting or disposition of any shares of
capital stock of the Company or granting to any person or group of persons the
right to elect, or to designate or nominate for election, a director to the
Company Board. The Company is not party to any agreement granting registration
rights to any Person.
4.04 AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has the
requisite corporate power and authority to execute and deliver this Agreement
and the Acquisition Corp. Stock Option Agreement, to perform its obligations
hereunder and thereunder, subject, with respect to this Agreement, to the
approval of this Agreement and the Merger by the holders of a majority of the
outstanding Common Shares entitled to vote thereon with respect to the Merger,
and to consummate the Transactions. The execution and delivery of this Agreement
and the Acquisition Corp. Stock Option Agreement and the consummation of the
Merger and the other Transactions
15
have been duly and validly authorized by all necessary corporate action and no
other corporate proceedings on the part of the Company are necessary to
authorize the Company's execution and delivery of this Agreement or the
Acquisition Corp. Stock Option Agreement or to consummate the Transactions
(other than, with respect to this Agreement and the Merger, the approval of this
Agreement and the Merger by the holders of a majority of the outstanding Common
Shares entitled to vote thereon and, with respect to the Merger, the filing or
recordation of appropriate merger documents as required by the Tenn. Acts). This
Agreement and the Acquisition Corp. Stock Option Agreement have been duly and
validly executed and delivered by the Company, and (assuming this Agreement
constitutes a valid and binding obligation of Acquisition Corp. and Parent)
constitute the valid and binding obligation of the Company, enforceable against
the Company in accordance with their terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
creditors' rights generally and to general principles of equity. Upon
consummation of the Transactions, Parent will own all of the outstanding capital
stock of the Company, including all of the outstanding Common Shares, and all
Options shall have been cancelled and be of no further force or effect.
4.05 COMPANY SUBSIDIARIES. SECTION 4.05 of the Company Disclosure
Schedule contains a correct and complete list of each Subsidiary of the Company
and the jurisdiction in which each such Subsidiary is incorporated or organized.
SECTION 4.05 of the Company Disclosure Schedule sets forth for each Subsidiary
of the Company: (i) its authorized capital stock or share capital; (ii) the
number of issued and outstanding shares of capital stock or share capital; and
(iii) the Company's direct or indirect equity interest therein. Except for (A)
investments in marketable securities set forth in SECTION 4.05 of the Company
Disclosure Schedule and (B) equity interests in the Company's Subsidiaries, the
Company does not own, directly or indirectly, any capital stock or other
ownership interest in any Person. No Subsidiary of the Company owns, directly or
indirectly, any capital stock or other ownership interest in any Person, except
for the capital stock and/or other ownership interest in another wholly-owned
Subsidiary of the Company. Each Subsidiary is directly or indirectly wholly
owned by the Company.
4.06 NO VIOLATION; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery by the Company of this Agreement and
the Acquisition Corp. Stock Option Agreement do not, and the performance of this
Agreement and the Acquisition Corp. Stock Option Agreement by the Company and
the consummation of the Transactions will not, (i) conflict with or violate any
provision of the Company's charter or bylaws or conflict with or violate any
provision of the articles of incorporation or bylaws or equivalent organization
documents of any Subsidiary of the Company, (ii) assuming that all consents,
approvals, authorizations and other actions described in SECTION 4.06(B) have
been obtained and all filings and obligations described in SECTION 4.06(B) have
been made or complied with, conflict with or violate in any material respect any
foreign or domestic (federal, state or local) law, statute, ordinance, rule,
regulation, permit, license, injunction, writ, judgment, decree or order (each,
a "LAW" and, collectively, "LAWS") applicable to the Company or any of its
Subsidiaries or by which any asset of the Company or any of its Subsidiaries is
bound or affected, (iii) except as set forth in SECTION 4.06(A) of the Company
Disclosure Schedule, materially conflict with, result in any breach of or
constitute a material default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any right of
16
termination, amendment, acceleration or cancellation of, require any notice, or
require any payment under, or give rise to a loss of any benefit to which the
Company or any Subsidiary of the Company is entitled under any provision of any
Material Contract or (iv) result in the creation or imposition of a material
lien, claim, security interest or other charge, title imperfection or
encumbrance (each, a "LIEN" and, collectively, "LIENS") on any asset of the
Company or any Subsidiary of the Company.
(b) The execution and delivery by the Company of this Agreement and
the Acquisition Corp. Stock Option Agreement do not, and the performance of this
Agreement and the Acquisition Corp. Stock Option Agreement and the consummation
by the Company of the Transactions will not, require any material consent,
approval, authorization or permit of, or filing with or notification to, any
domestic (federal, state or local) or foreign government or governmental,
regulatory or administrative authority, agency, commission, board, bureau, court
or instrumentality or arbitrator of any kind ("GOVERNMENTAL AUTHORITY"), except
for applicable requirements, if any, of the Exchange Act, the Securities Act of
1933, as amended (the "SECURITIES Act"), Nasdaq, the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended (the "HSR ACT"), and the rules and
regulations thereunder, and filing and recordation of appropriate documents for
the Merger as required by the Tenn. Acts.
(c) Neither the execution of this Agreement or the Acquisition Corp.
Stock Option Agreement nor the consummation of the Transactions will give rise
to any dissenter or appraisal rights, including any contractual dissenter or
appraisal rights or similar rights pursuant to the Tenn. Acts.
4.07 SEC REPORTS AND FINANCIAL STATEMENTS.
(a) The Company has filed all forms, reports, statements and schedules
and made all other filings (the "SEC REPORTS") with the SEC required to be filed
by it pursuant to the federal securities laws and the SEC rules and regulations
thereunder since February 2, 2002. The SEC Reports, as well as all forms,
reports, statements, schedules and other documents to be filed by the Company
with the SEC after date hereof and prior to the Effective Time (the "FUTURE SEC
REPORTS") (i) were prepared in all material respects in accordance with the
requirements of the Securities Act, the Exchange Act and the published rules and
regulations of the SEC thereunder, each as applicable to such SEC Reports and
such later filed Future SEC Reports and (ii) did not and will not as of 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 light of the circumstances under which they were and will
be made, not misleading. No Subsidiary of the Company is subject to the periodic
reporting requirements of the Exchange Act. As of the date hereof, there are no
material unresolved comments issued by the staff of the SEC with respect to any
of the SEC Reports.
(b) Set forth in SECTION 4.07(B) of the Company Disclosure Schedule
are copies of the Company's unaudited, consolidated balance sheet as of August
27, 2005 and statements of income and cash flows for the seven-month period
ended August 27, 2005 (collectively, the "INTERIM FINANCIAL STATEMENTS"). Each
of the Interim Financial Statements and the consolidated financial statements
(including, in each case, any notes thereto) of the Company included in the SEC
Reports or any Future SEC Report has been, and in the case of any Future
17
SEC Report will be, prepared in all material respects in accordance with the
published rules and regulations of the SEC (including Regulation S-X) and in
accordance with United States generally accepted accounting principles applied
on a consistent basis throughout the periods indicated ("GAAP") (except as
otherwise stated in such financial statements, including the related notes, or,
in the case of unaudited interim financial statements, as may be permitted by
the SEC under Forms 10-Q, 8-K or any successor forms under the Exchange Act),
except as otherwise specifically set forth in SECTION 4.07(B) of the Company
Disclosure Schedule, and each fairly presents, in all material respects, the
consolidated financial position, results of operations and cash flows of the
Company and its consolidated Subsidiaries as at the respective dates thereof and
for the respective periods indicated therein, except as otherwise set forth in
the notes thereto (subject, in the case of unaudited statements, to the absence
of complete footnote disclosure and to normal and recurring quarterly and
year-end adjustments, none of which, individually or in the aggregate, has had
or could reasonably be expected to have a Company Material Adverse Effect).
Except as set forth in SECTION 4.07(B) of the Company Disclosure Schedule,
neither the Company nor any of its Subsidiaries have any outstanding
Indebtedness (as hereinafter defined). For purposes of this Agreement,
"INDEBTEDNESS" shall mean, with respect to any Person at a particular time and,
in each case, except between or among the Company and any of its Subsidiaries,
(i) any obligation for borrowed money or issued in substitution for or exchange
of indebtedness for borrowed money, (ii) any obligation evidenced by any note,
bond, debenture or other debt security, (iii) any obligation for the deferred
purchase price of property or services with respect to which such Person is
liable, contingently or otherwise, as obligor or otherwise (other than trade
payables and other current Liabilities (as defined in SECTION 4.07(D)) incurred
in the ordinary course of business consistent with past practice), (iv) any
commitment by which such Person assures a creditor against loss (including,
without limitation, contingent reimbursement obligations with respect to letters
of credit), (v) any obligation guaranteed in any manner by such Person
(including, without limitation, guarantees in the form of an agreement to
repurchase or reimburse), (vi) any obligations under capitalized or synthetic
leases with respect to which such Person is liable, contingently or otherwise,
as obligor, guarantor or otherwise, or with respect to which obligations such
Person assures a creditor against loss, (vii) any obligation secured by a Lien
(other than a Permitted Lien) on such Person's assets, (viii) any Liability
under any deferred compensation plans, which Liability is payable or becomes due
as a result of the transactions contemplated herein, and (ix) any fees,
penalties, premiums or accrued and unpaid interest with respect to the foregoing
(in the case of prepayments or otherwise) that would become due or payable as a
result of the consummation of the Transactions. There are no obligations under
any letters of credit in effect as of September 23, 2005 in excess of the
amounts set forth in SECTION 4.07(B) of the Company Disclosure Schedule and any
such obligations subsequent to the date hereof were entered into in the ordinary
course of business in compliance with ARTICLE 6.
(c) The management of the Company has (i) designed disclosure controls
and procedures (as defined under the Exchange Act) to ensure that material
information relating to the Company, including its consolidated Subsidiaries, is
made known to the management of the Company by others within those entities, and
(ii) disclosed, based on its most recent evaluation, to the Company's auditors
and the audit committee of the Company Board (A) all significant deficiencies in
the design or operation of internal control over financial reporting (as defined
under the Exchange Act) which are reasonably likely to adversely affect the
Company's ability to record, process, summarize and report financial data and
have identified for the Company's auditors any material weaknesses in internal
control over financial reporting (as defined under the Exchange Act) and (B) any
fraud, whether or not material, that involves management or other employees who
have a significant role in the Company's internal control over financial
reporting (as defined under the Exchange Act). A summary of such disclosure made
by management to the Company's
18
auditors and audit committee is set forth in SECTION 4.07(C) of the Company
Disclosure Schedule.
(d) Except as disclosed in SECTION 4.07(D) of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries is subject to any
liabilities or obligations of any kind or nature (whether accrued, absolute,
contingent, determinable or otherwise) (collectively, "LIABILITIES"), except (i)
Liabilities set forth on the face of the July 30, 2005 balance sheet included in
the Company's Quarterly Report on Form 10-Q for the quarter ended July 30, 2005
or the footnotes thereto, (ii) Liabilities that have arisen after July 30, 2005
in the ordinary course of business and consistent with past practice (none of
which is a liability for breach of contract, breach of warranty, tort,
infringement, violation of law, claim or lawsuit), (iii) Liabilities under
Contracts identified in SECTION 4.17(A) of the Company Disclosure Schedule or
under Contracts not required to be identified on such Company Disclosure
Schedule pursuant to SECTION 4.17 below which were entered into in the ordinary
course of business consistent with past practice (but not Liabilities for any
breach of any such Contract occurring on or prior to the Closing Date), or (iv)
Liabilities not required by GAAP to be reflected on the consolidated balance
sheet or notes thereto which would not reasonably be expected to have a Company
Material Adverse Effect. Except as set forth in SECTION 4.07(D) of the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries is a
guarantor or otherwise liable for any Liability (including Indebtedness) of any
Person other than the following bonds to the extent disclosed in SECTION 4.07(D)
of the Company Disclosure Schedule: (x) indemnity bonds entered into the
ordinary course of business (e.g., workers compensation), (y) utility bonds or
(z) bonds entered into in connection with certain promotional activities and any
similar Liabilities, in each case other than bonds which do not have a Liability
exceeding $200,000 in the aggregate. No such bonds require any collateral.
(e) Except as set forth in SECTION 4.07(E) of the Company Disclosure
Schedule, none of the Company or any of its Subsidiaries is indebted to any
director or officer of the Company or any of its Subsidiaries (except for
amounts due as normal salaries and bonuses or in reimbursement of ordinary
business expenses and directors' fees) and no such person is indebted to the
Company or any of its Subsidiaries.
(f) The Company does not have any unresolved comments from the staff
of the SEC with respect to any SEC Report covered by SECTION 4.07(A).
(g) The Company has no plans to file any amendments or modifications
to any previously filed SEC Reports.
4.08 COMPLIANCE WITH APPLICABLE LAWS. Except as set forth in SECTION 4.08 of the
Company Disclosure Schedule and except as would not have a Company Material
Adverse Effect, (i) neither the Company nor any of its Subsidiaries is in
violation of any Order (as defined in SECTION 7.01(B)) of any Governmental
Authority or any Law of any Governmental Authority applicable to the Company or
any Subsidiary of the Company or any of their respective
19
properties or assets and (ii) since February 2, 2002, the business operations of
the Company and its Subsidiaries have been conducted in compliance with all Laws
of each Governmental Authority.
4.09 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
SECTION 4.09 of the Company Disclosure Schedule or as contemplated by this
Agreement, since January 29, 2005, the Company and its Subsidiaries have
conducted their businesses only in the ordinary course of business and in a
manner consistent with past practice and there has not been:
(a) any material change in any method of accounting or accounting
practice by the Company or any of its Subsidiaries or made any material
write-down in the value of its inventory or accounts receivable or reversed any
material accruals;
(b) any declaration of any dividend scheduled to be paid after the
date hereof or, other than regular quarterly dividends and distributions from
any Subsidiary of the Company to the Company or another wholly owned Subsidiary
of the Company, any declaration, setting aside or payment of any dividend
(whether in cash, stock or other property) or other distribution in respect of
the Company's securities or any redemption, purchase or other acquisition of any
of the Company's securities;
(c) any issuance or the authorization of any issuance of any
securities in respect of, in lieu of or in substitution for shares of its
capital stock, except for (i) the granting of Options set forth in SECTION
4.03(A) of the Company Disclosure Schedule and (ii) the issuance of any Common
Shares pursuant to the exercise of any Options;
(d) any amendment of any material term of any outstanding security of
the Company or any of its Subsidiaries;
(e) any issuance by the Company or any of its Subsidiaries of any
notes, bonds or other debt securities or any capital stock or other equity
securities or any securities convertible, exchangeable or exercisable into any
capital stock or other equity securities, except for (i) the granting of Options
set forth in SECTION 4.03(A) of the Company Disclosure Schedule and (ii) the
issuance of any Common Shares pursuant to the exercise of any Options;
(f) any incurrence, assumption or guarantee by the Company or any of
its Subsidiaries of any indebtedness for borrowed money other than the issuance
of letters of credit in the ordinary course of business consistent with past
practices of the Company and its Subsidiaries;
(g) any creation or assumption by the Company or any of its
Subsidiaries of any Lien on any material assets other than Permitted Liens;
(h) any making of any loans, advances or capital contributions to or
investment in any entity or person, other than loans, advances or capital
contributions to or investments in the Company or its wholly owned Subsidiaries
other than in connection with the construction of stores pursuant to a lease
agreement relating to Leased Real Property in the ordinary course of business
(which as of August 27, 2005 is set forth in SECTION 4.17(A) of the Company
Disclosure Schedule);
20
(i) any entry into any Contract related to the acquisition or
disposition of any business or any material assets other than inventory in the
ordinary course of business;
(j) any effect, event or change that has had or is reasonably likely
to have a Company Material Adverse Effect;
(k) any material increase in the benefits under, or the establishment,
material amendment or termination of, any Benefit Plan (as defined in SECTION
4.13(B)) covering current or former employees, officers or directors of the
Company or any of its Subsidiaries, or any material increase in the compensation
payable or to become payable to or any other material change in the employment
terms for any directors or officers with a title of vice president or higher of
the Company or any of its Subsidiaries;
(l) any entry by the Company or any of its Subsidiaries into any
employment, consulting, severance, termination, change-of-control or
indemnification agreement with any director or officer of the Company or any of
its Subsidiaries or entry into any such agreement with director or officer with
a title of vice president or higher for a noncontingent cash amount in excess of
$50,000 per year or outside the ordinary course of business;
(m) any capital expenditures that amount in the aggregate to more than
$1,000,000 or any commitments with respect to capital expenditures and other
planned capital expenditures through the Offer Payment Date in the ordinary
course of business that amount in the aggregate to more than $2,000,000 (in each
case by category); or
(n) any authorization of, or agreement by the Company or any of its
Subsidiaries to take, any of the actions described in this SECTION 4.09, except
as expressly contemplated by this Agreement.
4.10 CHANGE OF CONTROL. SECTION 4.10 of the Company Disclosure
Schedule sets forth (i) all Contracts with the Company or any of its
Subsidiaries, including but not limited to, severance plans, bonus plans,
employment agreements, or any other plan, agreement or arrangement with any
Person, pursuant to which a Liability is due or would become payable, in whole
or in part, directly as a result of the consummation of any of the Transactions
and (ii) the amount of any compensation, remuneration or other amounts which are
or may be due or payable by the Company or any of its Subsidiaries as a result
of the Transactions under such Contracts (including any such Liabilities which
are or may be due or payable by the Company or any of its Subsidiaries assuming
that each employee of the Company that is a party to a Contract is terminated
without Cause immediately following the consummation of the Offer or Merger).
4.11 LITIGATION. SECTION 4.11 of the Company Disclosure Schedule sets
forth, as of the date hereof, each material suit, claim, action, material
grievance, arbitration, proceeding or investigation pending or, to the knowledge
of the Company, threatened against the Company or any of its Subsidiaries, at
law or in equity other than workers' compensation claims or general liability
claims which individually do not exceed $50,000, workers' compensation claims or
general liability claims which were made after September 30, 2005 in the
ordinary course of business. Other than as set forth on SCHEDULE 4.11 of the
Company Disclosure Schedule, as of the date hereof, neither the Company nor any
of its Subsidiaries is subject to any outstanding
21
material order, writ, injunction or decree. All workers' compensation claims and
general liability claims taken in the aggregate have not had and would not
reasonably be expected to have a Company Material Adverse Effect.
4.12 INFORMATION IN OFFER DOCUMENTS AND PROXY STATEMENT.
(a) Each document required to be filed by the Company with the SEC in
connection with the Transactions (the "COMPANY DISCLOSURE DOCUMENTS"),
including, without limitation, the proxy or information statement of the Company
containing information required by Regulation 14A under the Exchange Act and the
Schedule 14d-9 (together with all amendments and supplements thereto, the "PROXY
STATEMENT"), to be filed with the SEC in connection with the Merger, will, when
filed, comply as to form in all material respects with the applicable
requirements of the Exchange Act. The representations and warranties contained
in this SECTION 4.12(A) will not apply to statements or omissions included in
the Company Disclosure Documents based upon information furnished to the Company
in writing by Parent or any of their representatives specifically for use
therein.
(b) Neither the Schedule 14D-9, any other document required to be
filed by the Company with the SEC in connection with the Offer, the Merger or
any other transaction contemplated hereby, nor any information supplied by the
Company for inclusion in the Offer Documents shall, at the respective times the
Schedule 14D-9, any such other filings by the Company, the Offer Documents or
any amendments or supplements thereto are filed with the SEC or are first
published, sent or given to shareholders of the Company, as the case may be,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they are made, not
misleading.
(c) At the time the Proxy Statement, if any, or any amendment or
supplement thereto is first mailed to shareholders of the Company and at the
time such shareholders vote on adoption of this Agreement and the Merger, the
Proxy Statement, as supplemented or amended, if applicable, will not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. At the time of the filing of any
Company Disclosure Document other than the Proxy Statement and at the time of
any distribution thereof, such Company Disclosure Document will not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
4.13 BENEFIT PLANS.
(a) Except as disclosed in SECTION 4.13(A) of the Company Disclosure Schedule,
there exist no employment, severance, retention, termination or
change-of-control agreements, arrangements or understandings between the Company
or any of its Subsidiaries and any individual current or former director or
officer with a title of vice president or higher (or any dependent, beneficiary
or relative of any of the foregoing) of the Company or any of its Subsidiaries
(collectively, the "EMPLOYEES") other than the Company's obligations to former
22
employees under the health care continuation requirements of Part 6 of Subtitle
B of Title I of ERISA, Section 4980B of the Code or any similar state law
("COBRA").
(b) SECTION 4.13(B) of the Company Disclosure Schedule contains a
complete and correct list of all existing (i) "employee pension benefit plans"
(as defined in Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")) (collectively, the "PENSION PLANS"), including any
such Pension Plans that are "multiemployer plans" (as such term is defined in
Section 4001(a)(3) of ERISA) (collectively, the "MULTIEMPLOYER PENSION PLANS"),
(ii) "employee welfare benefit plans" (as defined in Section 3(1) of ERISA) and
(iii) other bonus, deferred compensation, severance pay, pension,
profit-sharing, retirement, insurance, stock purchase, stock option, vacation
pay, sick pay or other fringe benefit plan or arrangement maintained, or
contributed to, by the Company or any of its Subsidiaries for the benefit of any
of the Employees or with respect to which the Company has any liability other
than immaterial plans or arrangements (the foregoing clauses (i), (ii) and (iii)
collectively, the "BENEFIT PLANS"). The Company has made available to
Acquisition Corp. correct and complete copies of (i) each Benefit Plan document
(or a written description of such Benefit Plan if no such formal document
exists), (ii) the three most recent annual reports on Form 5500 as filed with
the Internal Revenue Service with respect to each Benefit Plan (and all
attachments thereto), (iii) the most recent summary plan description for each
Benefit Plan for which such summary plan description is required, (iv) the most
recent determination letter received from the Internal Revenue Service, if
applicable, and (v) each trust agreement, insurance contract, group annuity
contract or funding arrangement relating to any Benefit Plan, if applicable.
(c) Except as disclosed in SECTION 4.13(C) of the Company Disclosure
Schedule, all Pension Plans intended to be qualified plans under Section 401(a)
of the Code may either rely on opinion letters issued for the form of plan or
have been the subject of favorable determination letters from the Internal
Revenue Service to the effect that such Pension Plans are qualified and exempt
from Federal income taxes under Section 401(a) and 501(a), respectively, of the
Code (taking into account the laws commonly referred to as "GUST"), no such
determination or opinion letter has been revoked and, to the knowledge of the
Company, nothing has occurred since the date of such determination that could
reasonably be expected to adversely affect the qualification of such Benefit
Plan.
(d) None of the Benefit Plans is, and neither the Company or any of
its Subsidiaries nor any ERISA Affiliate maintains, contributes to or has any
liability or potential liability with respect to (i) a "single employer plan"
(as such term is defined in Section 4001(a)(15) of ERISA) subject to Section 412
of the Code or Section 302 of Title I of ERISA or Title IV of ERISA, (ii) a
"multiple employer plan" (as such term is defined in ERISA), (iii) a
Multiemployer Pension Plan or (iv) a funded welfare benefit plan (as such term
is defined in Section 419 of the Code). Each Benefit Plan and all of its related
trusts have been maintained, funded and administered in all material respects in
accordance with its terms, the terms of any applicable collective bargaining
agreement and each Benefit Plan in compliance in all material respects with the
applicable provisions of ERISA, the Code and other applicable laws. With respect
to each Benefit Plan, all contributions (including all employer contributions
and employee salary reduction contributions) that are due have been made within
the time periods prescribed by ERISA and the Code, and all contributions for any
period ending on or before the Closing Date that are not yet due have been made
or properly accrued. All premiums or other
23
payments for all periods ending on or prior to the Closing Date have been paid
or properly accrued with respect to each Employee Benefit Plan that is an
employee welfare benefit plan (as defined in Section 3(1) of ERISA). Except as
set forth in SECTION 4.13(D) of the Company Disclosure Schedule, neither the
Company nor any of its Subsidiaries has any material unfunded liabilities with
respect to any deferred compensation, retirement or other Benefit Plan that is
not accurately reflected on the Company's balance sheet. For purposes of SECTION
4.13, "ERISA Affiliate" means each entity that is treated as a single employer
with the Company or any Subsidiary for purposes of Section 414 of the Code.
(e) None of the Company nor any of its Subsidiaries has engaged in a
"prohibited transaction" (as such term is defined in Section 406 of ERISA and
Section 4975 of the Code) or any other breach of fiduciary responsibility with
respect to any Benefit Plan subject to ERISA that reasonably could be expected
to subject the Company or any of its Subsidiaries or any Employee to (i) any
material tax or penalty on prohibited transactions imposed by Section 4975 or
(ii) any liability under Section 502(i) or Section 502(l) of ERISA. Except as
disclosed in SECTION 4.13(E) of the Company Disclosure Schedule, as of the date
of this Agreement, with respect to any Benefit Plan: (i) no filing or
application is pending with the Internal Revenue Service, the Pension Benefit
Guaranty Corporation, the United States Department of Labor or any other
governmental body, other than filings or applications which are filed in the
ordinary course of the administration of any Benefit Plan and (ii) there is no
action, suit, investigation, inquiry or claim pending or to the knowledge of the
Company or any of its Subsidiaries threatened, other than routine claims for
benefits under any Benefit Plan.
(f) None of the Company or any of its Subsidiaries or any ERISA
Affiliates has any obligation to provide any health benefits or other welfare
benefits to retired or other former employees, except as specifically required
by COBRA. Except as disclosed in SECTION 4.13(F) of the Company Disclosure
Schedule, each Benefit Plan that provides medical, disability or other similar
health benefits is fully insured. Incurred but not reported claims under each
such Benefit Plan that is not fully insured have been properly accrued in
accordance with GAAP. The Company and each ERISA Affiliate have complied in all
material respects with the requirements of COBRA. With respect to any Benefit
Plan that is a "health plan" (as defined in 45 C.F.R. Section 160.103), all
required actions to comply in all material respects with the final privacy
regulations issued under the Health Insurance Portability and Accountability Act
of 1996 (45 CFR Parts 160 and 164 ("HIPAA privacy regulations") have been taken
by April 14, 2003.
(g) Except as set forth in SECTION 4.10 of the Company Disclosure
Schedule, neither the Benefit Plans nor any other arrangement obligates the
Company or any of its Subsidiaries to pay any separation, severance, termination
or similar benefit, accelerate any vesting schedule, or alter the timing of any
benefit payment, in whole or in part, as a result of any transaction
contemplated by this Agreement and the Acquisition Corp. Stock Option Agreement
or, in whole or in part, as a result of a change in control or ownership within
the meaning of any Benefit Plan (or any other arrangement) or Section 280G of
the Code.
(h) Neither the Company nor any Subsidiary has any liability
(potential or otherwise) with respect to any "employee benefit plan" (as defined
in Section 3(3) of ERISA) solely by reason of being treated as a single employer
under Section 414 of the Code with any other entity.
24
4.14 TAXES.
(a) Except as set forth in SECTION 4.14(A) of the Company Disclosure
Schedule: (i) the Company and each of its Subsidiaries has timely filed all
income Tax Returns and all other material Tax Returns required to be filed by
it, and each such Tax Return has been prepared in substantial compliance with
all applicable laws and regulations and all such Tax Returns are true and
correct; (ii) the Company and each of its Subsidiaries has paid (or the Company
has paid on behalf of its Subsidiaries) all material Taxes (as hereinafter
defined) required to be paid in respect of the periods covered by such returns
and has made adequate provision in the Company's financial statements for
payment of all material Taxes that have not been paid, whether or not shown as
due and payable on any Tax Return, in respect of all taxable periods or portions
thereof ending on or before the date hereof, subject to quarterly and year-end
adjustments; and (iii) neither the Company nor any of its Subsidiaries has
incurred any material liability for Taxes subsequent to the date of the most
recent financial statements contained in the SEC Reports other than in the
ordinary course of the Company's or such Subsidiary's business.
(b) Except as set forth in SECTION 4.14(B) of the Company Disclosure
Schedule or which are not material: (i) no Tax Return of the Company or any of
its Subsidiaries is under audit or examination by any taxing authority, and no
written notice of such an audit or examination or any other audit or examination
with respect to Taxes has been received by the Company or any of its
Subsidiaries; (ii) each deficiency resulting from any audit or examination
relating to Taxes by any taxing authority has been paid, except for deficiencies
currently being contested in good faith and for which adequate reserves, as
applicable, have been established in the Company's financial statements in
accordance with United States generally accepted accounting principles; (iii)
there are no Liens for Taxes upon the assets of the Company or any of its
Subsidiaries, except Liens relating to current Taxes not yet due and payable or
otherwise being contested in good faith as to which appropriate reserves have
been established in the Company's financial statements in accordance with United
States generally accepted accounting principles; (iv) all Taxes which the
Company or any of its Subsidiaries are required by law to withhold or to collect
for payment have been duly withheld and collected; (v) none of the Company or
any of its Subsidiaries has consented to extend the time in which any Tax may be
assessed or collected by any taxing authority; and (vi) no written claim has
been made by any taxing authority in a jurisdiction where the Company and its
Subsidiaries do not file Tax Returns that the Company or any of its Subsidiaries
is or may be subject to taxation in that jurisdiction.
(c) Except as set forth in SECTION 4.14(C) of the Company Disclosure
Schedule, there is no Contract or other arrangement, plan or agreement by or
with the Company or any of its Subsidiaries covering any person that,
individually or collectively, could give rise to the payment of any amount by
the Company or any of its Subsidiaries that would not be deductible by the
Company or such Subsidiary by reason of Sections 280G or 162(m) of the Code (or
any corresponding provision of state, local or foreign law).
(d) Except as set forth in SECTION 4.14(D) of the Company Disclosure
Schedule, each of the Company and its Subsidiaries has made available to
Acquisition Corp. and Parent true, correct and complete copies of all income Tax
Returns, and all examination reports and statements of deficiencies assessed
against or agreed to by any of the Company or any of its
25
Subsidiaries that have been filed by or submitted to any of the Company or any
of its Subsidiaries for all taxable years not barred by the statute of
limitations.
(e) Except as set forth in SECTION 4.14(E) of the Company Disclosure
Schedule, none of the Company or any of its Subsidiaries (i) has been a member
of an affiliated group filing a consolidated federal income Tax Return (other
than a group the common parent of which was the Company), (ii) is a party to or
bound by any Tax allocation or Tax sharing agreement with any persons or entity
other than the Company and its Subsidiaries, (iii) has any liability for the
Taxes of any Person (other than any of the Company or any of its Subsidiaries)
under Treas. Reg. ss. 1.1502-6 (or any similar provision of state, local or
foreign law), as a transferee or successor, by contract, or otherwise or (iv)
has any liability for the Taxes of any Person other than the Company, the
Subsidiaries of the Company or in connection with the acquisition, directly or
indirectly, of any Person acquired by the Company or any of its Subsidiaries,
other than under leases relating to the Leased Real Property.
(f) Except as set forth in SECTION 4.14(F) of the Company Disclosure
Schedule, none of the Company or any of its Subsidiaries will be required to
include any item of income in, or exclude any item of deduction from, taxable
income for any taxable period (or portion thereof) ending after the Closing Date
as a result of any (i) change in method of accounting for a taxable period
ending on or prior to the Closing Date under Code Section 481(c) (or any
corresponding or similar provision of state, local or foreign income Tax Law);
(ii) "closing agreement" as described in Code ss. 7121 (or any corresponding or
similar provision of state, local or foreign income Tax Law); (iii) deferred
intercompany gain or any excess loss account described in Treasury Regulations
under Code ss. 1502 (or any corresponding or similar provision of state, local
or foreign income Tax Law); (iv) installment sale made prior to the Closing
Date; or (v) prepaid amount received on or prior to the Closing Date.
(g) None of the Company or any of its Subsidiaries has been a U.S.
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.
(h) Except as set forth in SECTION 4.14(H) of the Company Disclosure
Schedule, none of the Company or any of its Subsidiaries has distributed stock
of another Person, or had its stock distributed by another Person, in a
transaction that was purported or intended to be governed in whole or in part by
Code Sections 355 or 361.
(i) As used in this SECTION 4.14, the terms (i) "TAX" (and, with
correlative meaning, "TAXES") means: (A) any federal, state, local or foreign
income, gross receipts, windfall profit, severance, property, production, sales,
use, license, excise, franchise, employment, payroll, withholding, alternative
or add-on minimum, ad valorem, value added, transfer, stamp, environmental or
other tax, or any other tax of any kind whatsoever, whether disputed or not,
together with any interest or penalty or addition to tax imposed by any
Governmental Authority and (B) any liability of the Company or any of its
Subsidiaries for payments of a type described in clause (A) as a result of (I)
any obligation of the Company or any of its Subsidiaries under any tax sharing
agreement or tax indemnity agreement or (II) the Company or any of its
Subsidiaries being a member of an affiliated group (other than one of which the
Company is the parent); and (ii) "TAX RETURN" means any report, return or other
26
information or document required to be supplied to or filed with a taxing
authority in connection with Taxes.
4.15 INTELLECTUAL PROPERTY.
(a) SECTION 4.15(A) of the Company Disclosure Schedule contains a
complete and accurate list of all (a) except for shrink wrap, click wrap or
other standard form licenses for commercially available software, patented or
registered Intellectual Property (as defined in SECTION 4.15(B) below) owned or
used by and material to the Company and each of its Subsidiaries, (b) pending
patent applications and applications for registrations of other Intellectual
Property filed by the Company and each of its Subsidiaries, (c) material
unregistered trademarks and servicemarks owned by the Company and each of its
Subsidiaries, and (d) except for shrink-wrap, click-wrap or other standard form
licenses for unmodified commercially available software purchased or licensed
for less than $50,000, all written licenses and other agreements by which the
Company and each of its Subsidiaries grants to any third party the right to use
any Intellectual Property owned by the Company or its Subsidiaries, all licenses
and other agreements by which any third party grants to the Company or any of
its Subsidiaries the right to use any material Intellectual Property and all
other agreements that restrict the Company's and each of its Subsidiaries'
ability to use or disclose any material Intellectual Property owned or used by
the Company or any of its Subsidiaries, in each case identifying the subject
Intellectual Property.
(b) Except as set forth in SECTION 4.15(B) of the Company Disclosure
Schedule, the Company and each of its Subsidiaries owns and possesses, free and
clear of any Liens, or has a valid and enforceable license or otherwise has the
right to use, all material Intellectual Property set forth in or required to be
set forth in SECTION 4.15(A) of the Company Disclosure Schedule and all other
Intellectual Property necessary for the operation of their respective businesses
as currently conducted. As used in this Agreement, the term "INTELLECTUAL
PROPERTY" means: (i) registered and unregistered trademarks, service marks,
trade names, Internet domain names, and trade dress (including the good will
associated with each); (ii) patents, patent applications, patent disclosures,
inventions and related know how; (iii) registered and unregistered copyrights,
copyrightable works and mask works; (iv) computer software, data and databases
including, but not limited to, object code, source code, related documentation
and all copyrights therein; (v) trade secrets and confidential information; and
(vi) all other intellectual property rights. Without limiting the generality of
the foregoing and for the purpose of clarity, "INTELLECTUAL PROPERTY" includes
intellectual property identified in clauses (i) through (vi) of the preceding
sentence which may be embodied in: computer software (including source code,
object code, data, databases and related documentation); systems, processes,
methods, devices, machines, designs or articles of manufacture (whether
patentable or unpatentable and whether or not reduced to practice); improvements
thereto; technology; proprietary information; specifications; flowcharts;
blueprints; schematics; protocols; programmer notes; customer and supplier
lists; pricing and cost information; business and marketing plans; and
proposals.
(c) Except as set forth in SECTION 4.15(C) of the Company Disclosure
Schedule, no loss or expiration of any Intellectual Property owned or used by
the Company or any of its Subsidiaries is pending, or to the knowledge of the
Company, threatened or reasonably foreseeable, which loss or expiration would
have or reasonably be expected to have a Company
27
Material Adverse Effect. The Company and each of its Subsidiaries have taken all
necessary reasonable steps to maintain and protect the material Intellectual
Property owned by the Company or any of its Subsidiaries and will continue to
maintain and protect all of the Intellectual Property prior to Closing, in each
such case so as not to materially and adversely affect the validity or
enforceability thereof. The Company and its Subsidiaries do not have any actual
knowledge that the owners of any material Intellectual Property licensed to the
Company or any of its Subsidiaries have not taken commercially reasonable action
to maintain and protect the Intellectual Property which are subject to such
licenses.
(d) Except as set forth in SECTION 4.15(D) of the Company Disclosure
Schedule, (i) all of the material Intellectual Property owned by the Company or
any of its Subsidiaries is valid and enforceable, (ii) no material claim by any
third party has been made since February 1, 2004, is currently outstanding or,
to the knowledge of the Company is threatened, against the Company or any of its
Subsidiaries contesting the validity, enforceability, use or ownership of any of
the Intellectual Property owned or used by the Company or any of its
Subsidiaries, (iii) neither the Company nor any of its Subsidiaries has
infringed, misappropriated or otherwise conflicted with, and the operation of
their business as currently conducted will not infringe, misappropriate or
conflict with, any Intellectual Property of any third party, and neither the
Company nor any of its Subsidiaries has received any notices asserting such a
claim (including, without limitation, any demands to license any Intellectual
Property from any third party) since February 1, 2004, and (iv) to the knowledge
of the Company and its Subsidiaries, none of the material Intellectual Property
owned or used by the Company or any of its Subsidiaries has been or is currently
being infringed, misappropriated or otherwise violated by any third party. The
transactions contemplated by this Agreement will not have a Company Material
Adverse Effect on the Company's and its Subsidiaries' right, title or interest
in and to the Intellectual Property owned or used by the Company or any of its
Subsidiaries and all of such Intellectual Property shall be owned or available
for use by the Company and its Subsidiaries on substantially the same terms and
conditions immediately after the Closing.
(e) Except as set forth in SECTION 4.15(E) of the Company Disclosure
Schedule, to the knowledge of the Company, all of the computer software,
computer firmware, computer hardware (whether general or special purpose) and
other similar or related computer systems or software that are used or relied on
by Company and its Subsidiaries in the conduct of their respective businesses is
sufficient for the immediate and currently contemplated future needs of such
businesses and is currently functioning without material errors.
4.16 LICENSES AND PERMITS. The Company and its Subsidiaries are in
possession of all material franchises, grants, authorizations, licenses,
permits, easements, variances, exceptions, consents, certificates, approvals and
orders of any Governmental Authority ("PERMITS") necessary for the Company and
its Subsidiaries to own, lease and operate its properties and carry on its
business as it is now being conducted in all material respects (the "COMPANY
PERMITS"). As of the date hereof, all of the Company Permits are in full force
and effect and no material violation, suspension or cancellation of any of the
Company Permits is pending or, to the knowledge of the Company, threatened.
Except as disclosed in SECTION 4.16 of the Company Disclosure Schedule, none of
the Company Permits will be terminated or impaired in any material respect or
become terminable, in whole or in part, as a result of the Transactions.
28
4.17 MATERIAL CONTRACTS.
(a) SECTION 4.17(A) of the Company Disclosure Schedule sets forth a
list (in effect as of the date of this Agreement) of each of the following
Contracts (and each amendment or modification thereto), excluding purchase order
and sales orders made in the ordinary course of business consistent with past
practices: (i) pension, profit sharing, equity option, employee equity purchase,
bonus or other plan or Contract of the Company or any of its Subsidiaries
providing for deferred or other compensation to employees, former employees or
consultants, or any collective bargaining agreement or other Contract of the
Company or any of its Subsidiaries with any labor union; (ii) Contract for the
employment of any officer, individual employee or other Person relating to the
Company or any of its Subsidiaries on a full-time, part-time, consulting or
other basis or relating to loans to members, managers, officers, directors or
affiliates of the Company or any of its Subsidiaries; (iii) Contract under which
the Company or any of its Subsidiaries has advanced or loaned or agreed to
advance or loan to any other Person amounts exceeding $100,000 in the aggregate,
other than (x) from the Company or a Subsidiary in the ordinary course of
business, and (y) in connection with the construction of stores pursuant to a
lease agreement relating to such Leased Real Property in the ordinary course of
business, which is set forth in SECTION 4.17(A) of the Company Disclosure
Schedule but it is understood that such schedule is only current as of August
27, 2005); (iv) Contract of the Company or any of its Subsidiaries relating to
borrowed money or other Indebtedness or the mortgaging, pledging or otherwise
placing a Lien on any material asset or material group of assets of the Company
and its Subsidiaries; (v) Contract by which the Company or any of its
Subsidiaries guarantees, endorses or otherwise becomes or is contingently liable
upon the Liability of any other Person (other than by endorsements of
instruments in the ordinary course of collection), or guaranties of the payment
of dividends or other distributions upon the shares of any other Person; (vi)
Contract under which the Company or one of its Subsidiaries is lessee of or
holds or operates any property, real or personal, owned by any other Person,
except for any lease of real or personal property under which the aggregate
annual rental payments do not exceed $100,000; (vii) Contract under which the
Company or one of its Subsidiaries is lessor of or permits any other Person to
hold or operate any property, real or personal, owned or controlled by the
Company or one of its Subsidiaries other than immaterial rights of way,
easements, covenants or similar rights to real property; (viii) Contract of the
Company or any of its Subsidiaries that is a settlement, conciliation or similar
agreement requiring payment as of or after the execution date of this Agreement
of consideration in excess of $50,000; (ix) material Contract of the Company or
any of its Subsidiaries relating to any intangible property (including any
Intellectual Property) or any other agreements affecting the Company's or any of
its Subsidiaries' ability to use or disclose any Intellectual Property; (x)
warranty agreement of the Company or any of its Subsidiaries relating to the
services rendered or products sold or leased by it; (xi) distribution, supply or
franchise agreement of the Company or any of its Subsidiaries; (xii) each
Contract of the Company or any of its Subsidiaries with a term of more than
three (3) months which is not terminable by the Company or one of its
Subsidiaries upon less than thirty-two (32) days' notice without material
penalty and involves a consideration in excess of $250,000 in the aggregate
annually; (xiii) Contract prohibiting the Company or any of its Subsidiaries
from freely engaging in business in any jurisdiction in the world in any
material respect; (xiv) Contract of the Company or any of its Subsidiaries which
involves the processing, auditing, originating or servicing of credit cards,
including private label credit cards, debit cards, gift cards and other prepaid
cards, and the related accounts and receivables; and (xv) Contract or group of
related Contracts of the Company or any
29
of its Subsidiaries which involves a consideration in excess of $500,000 in the
aggregate annually other than purchase orders for inventory in the ordinary
course of business consistent with past practices of the Company and its
Subsidiaries (the items listed in clauses (i) through (xv) hereof, together with
any Contract required to be disclosed pursuant to SECTION 4.15 hereof,
collectively, the "MATERIAL CONTRACTS"). The Company has made available to
Acquisition Corp. a correct and complete copy of each Material Contract listed
in SECTION 4.17(A) of the Company Disclosure Statement.
(b) Except as disclosed in SECTION 4.17(B) of the Company Disclosure
Schedule, (i) neither the Company nor any of its Subsidiaries is, nor to the
Company's knowledge, is any other party, in material default under any Material
Contract and (ii) there has not occurred any event that, with the lapse of time
or giving of notice or both, would constitute a material default. All Contracts
to which the Company or any of its Subsidiaries is a party, or by which any of
their respective assets are bound, are valid and binding, in full force and
effect and enforceable against the Company or any such Subsidiary, as the case
may be, and to the Company's knowledge, the other parties thereto in accordance
with their respective terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors' rights
generally and to the general principles of equity and except as would not be
material to the Company and its Subsidiaries, taken as a whole.
4.18 ENVIRONMENTAL LAWS. Except as disclosed in SECTION 4.18 of the
Company Disclosure Schedule:
(a) The Company and its Subsidiaries have complied and are in
compliance in all material respects with all Environmental Laws, including
without limitation all environmental permits required by Environmental Law for
the occupation of the Company's or its Subsidiaries' properties or facilities.
(b) Neither the Company nor any of its Subsidiaries has received any
written, or to the knowledge of the Company other notice or report regarding any
violation of, or liability under, Environmental Laws with respect to its past or
current operations or its past or current real properties or facilities which
would be material to the Company and its Subsidiaries, taken as a whole.
(c) Neither the Company nor any of its Subsidiaries, nor any
predecessor or affiliate of the Company or its Subsidiaries has treated, stored,
disposed of, arranged for or permitted the disposal of, transported, handled, or
released, or exposed any Person to, any substance, or owned or operated its
business or any property or facility (and no such property or facility is
contaminated by any such substance) in a manner that has given or would give
rise to any material or potentially material liabilities or material or
potentially material investigative, corrective or remedial obligations pursuant
to CERCLA or any other Environmental Laws.
(d) The Company has made available to Acquisition Corp. and Parent all
material environmental audits, reports and other material environmental
documents relating to the Company or any of its Subsidiaries or its or their
current operations, properties or facilities (and any past operations,
properties or facilities with respect to which environmental matters
30
remain unresolved and are material to the Company and its Subsidiaries taken as
a whole) which are in their possession or under its or their reasonable control.
(e) Except for any other representations in this Agreement expressly
referring to environmental matters, the representations contained in this
SECTION 4.18 shall be the exclusive representations and warranties with respect
to environmental matters (including, without limitation, compliance with
Environmental Laws and Hazardous Substances).
"ENVIRONMENTAL LAWS" shall mean all federal, state, local and
foreign statutes, regulations, ordinances and other requirements having the
force or effect of law, all judicial and administrative orders and
determinations, and all common law concerning public health and safety, worker
health and safety, and pollution or protection of the environment, as the
foregoing are enacted or in effect, on or prior to the Closing Date.
"HAZARDOUS SUBSTANCES" shall mean any hazardous, toxic or polluting
substance, material or waste or any other substance for which liability or
standards of conduct are imposed under Environmental Laws, and shall include
including petroleum or any derivative or by-product thereof, asbestos containing
materials, radioactive materials, odors, mold and polychlorinated biphenyls.
"RELEASE" shall mean any release, spill, leak, discharge, disposal,
pumping, pouring, emitting, emptying, injecting, leaching, dumping or allowing
to escape.
4.19 OPINION OF FINANCIAL ADVISOR. The Special Committee has received
the written opinion of Rothschild Inc. (the "FINANCIAL ADVISOR") to the effect
that, as of the date hereof, subject to the factors and assumptions in the
opinion, the Offer Price and the Merger Consideration to be received by the
holders of Common Shares other than Xxxxxx X. Xxxxxxxxxx and his immediate
family and family trusts pursuant to the Offer and the Merger are fair to such
holders from a financial point of view. The Company has made available a copy of
such opinion to Parent.
4.20 BROKERS. Except for the liability to the Financial Advisor
pursuant to the engagement letter delivered to Acquisition Corp. prior to the
date hereof, none of the Company or any of its Subsidiaries has or will have any
liability for any brokerage fees, commissions, finder's fees or investment
banking fees connection with the Transactions. Prior to the execution hereof,
the Company has made available to Parent a complete and correct copy of all
agreements between the Company and any broker, finder or investment banker
pursuant to which any such Person would be entitled to any payment relating the
Transactions.
4.21 SPECIAL COMMITTEE AND COMPANY BOARD RECOMMENDATIONS. The Special
Committee has unanimously (i) declared the advisability of this Agreement and
the Transactions, (ii) determined that this Agreement and the Transactions,
including the Offer and the Merger, are fair to and in the best interests of the
shareholders of the Company, (iii) determined that the consideration to be paid
in the Offer and the Merger is fair to and in the best interests of the
shareholders of the Company, (iv) recommended that the Company Board approve and
adopt this Agreement and the Transactions, including the Offer and the Merger,
(v) recommended that the Company's shareholders accept the Offer and tender
their Common Shares, and (vi) subject to
31
the provisions of SECTION 6.08 hereof, resolved to recommend that the
shareholders of the Company approve and adopt this Agreement and the Merger and
the other Transactions. Based upon the recommendation of the Special Committee,
the Company Board, at a meeting duly called and held, has (i) declared the
advisability of this Agreement and the Transactions and approved and adopted
this Agreement and the Transactions, including the Offer and the Merger, in
accordance with the Tenn. Acts and the Company's charter and bylaws, (ii)
determined that this Agreement and the Transactions, including the Offer and the
Merger, are fair to and in the best interests of the shareholders of the
Company, (iii) determined that the consideration to be paid in the Offer and the
Merger is fair to and in the best interests of the shareholders of the Company
and (iv) subject to the provisions of SECTION 6.08 hereof, resolved to recommend
that the shareholders of the Company accept the Offer and tender their Common
Shares and approve and adopt this Agreement and the Merger and the other
Transactions.
4.22 REQUIRED SHAREHOLDER VOTE. The approval of this Agreement at the
Shareholders Meeting (as defined in SECTION 6.02) by the holders of a majority
of the issued and outstanding Common Shares entitled to vote at the Shareholders
Meeting (the "SHAREHOLDER APPROVAL") is the only vote of the holders of any
class or series of the Company's securities necessary to adopt and approve this
Agreement, the Merger and the other Transactions.
4.23 RELATED PARTY TRANSACTIONS. Except as set forth in SECTION 4.23
of the Company Disclosure Schedule or otherwise disclosed in the SEC Reports, no
director, executive officer or any person who beneficially owns 5% or more of
the issued and outstanding Common Shares is a party to any Contract with or
binding upon the Company or any of its Subsidiaries or any of their respective
properties or assets or has any material interest in any material property owned
by the Company or any of its subsidiaries or has engaged in a transaction with
any of the foregoing within the last 12 months, in each case, that is of the
type that would be required to be disclosed under Item 404 of Regulation S-K
under the Securities Act.
4.24 ASSETS AND PROPERTIES.
(a) The Company and its Subsidiaries have good title to, or a valid
leasehold interest in or valid right to use, all material properties and assets
used by them, located on their premises or shown on the consolidated balance
sheet of the Company and its Subsidiaries as of August 27, 2005 or acquired
after the date thereof, free and clear of all Liens (other than properties and
assets disposed of in the ordinary course of business since August 27, 2005,
except for Liens disclosed on such consolidated balance sheet, and except for
Permitted Liens). The Company and its Subsidiaries own, have a valid leasehold
interest in, or have the valid and enforceable right to use all assets, tangible
or intangible, necessary for the conduct of their businesses as presently
conducted. Except as set forth in SECTION 4.24(A) of the Company Disclosure
Schedule and except as would not have a Company Material Adverse Effect, all of
the Company's and its Subsidiaries' buildings (including all components of such
buildings, structures and other improvements), and all equipment, machinery,
fixtures, improvements and other tangible assets (whether owned or leased) are
in adequate condition and repair (ordinary wear and tear excepted) for the
operation of their businesses as presently conducted.
(b) SECTION 4.24(B) of the Company Disclosure Schedule sets forth the
address and description of each parcel of Owned Real Property. With respect to
each parcel of Owned
32
Real Property, except as set forth in SECTION 4.24(B) of the Company Disclosure
Schedule: (i) the Company or its Subsidiaries have fee simple title, free and
clear of all Liens except Permitted Liens as of the Closing Date; (ii) neither
the Company nor any of its Subsidiaries has leased or otherwise granted to any
Person the right to use or occupy such Owned Real Property or any portion
thereof; and (iii) there are no outstanding options, rights of first offer or
rights of first refusal to purchase such Owned Real Property or any portion
thereof or interest therein.
(c) SECTION 4.24(C) of the Company Disclosure Schedule sets forth the
address of each parcel of Leased Real Property, and a complete list of all
Leases for each such Leased Real Property (including the date and name of the
parties to such Lease document). The Company has made available to Parent and
Acquisition Corp. a complete copy of each such Lease. Neither the Company nor
its Subsidiaries are party to any oral Leases. Except as set forth in SECTION
4.24(C) of the Company Disclosure Schedule, with respect to each of the Leases:
(i) as to the Company and its Subsidiaries, such Lease is legal, valid, binding,
enforceable and in full force and effect in all material respects; (ii) the
transaction contemplated by this Agreement does not require the consent of or
notice to any other party to such Lease, will not result in a material breach of
or material default under such Lease, will not give rise to any recapture or
similar rights, and will not otherwise cause such Lease to cease to be legal,
valid, binding, enforceable and in full force and effect on identical terms
following the Closing; (iii) none of the Company, its Subsidiaries, or, to the
knowledge of the Company, any other party to the Lease is in material breach or
material default under such Lease and no event, with the passage of time or
giving of notice or both, would constitute a material breach or default under
such Lease; (iv) the other party to such Lease is not an affiliate of the
Company or any of its Subsidiaries; (v) neither the Company nor any of its
Subsidiaries has subleased, licensed or otherwise granted any Person the
contractual right to use or occupy such Leased Real Property or any portion
thereof; (vi) neither the Company nor any of its Subsidiaries has collaterally
assigned or granted any other security interest in such Lease or any interest
therein; and (vii) there are no Liens on the estate or interest created by such
Lease except for Permitted Liens. Except as set forth in SECTION 4.24(C) of the
Company Disclosure Schedule, none of the Leases contain any capital expenditure
requirements or remodeling obligations of the Company or any of its Subsidiaries
other than ordinary maintenance and repair obligations.
(d) For purposes of this Agreement, "PERMITTED LIENS" shall mean (i)
statutory landlord's, mechanic's, carrier's, workmen's, repairmen's or other
similar Liens arising or incurred in the ordinary course of business for amounts
which are not due and payable and which would not, individually or in the
aggregate, have a Material Adverse Effect on the business of the Company and its
Subsidiaries as currently conducted thereon, (ii) such easements, covenants and
other restrictions or encumbrances of record as do not materially affect the
ownership or use of the properties or assets subject thereto or affected thereby
or otherwise materially affect, restrict or impair business operations at such
properties, and (iii) liens pursuant to that certain loan agreement with The CIT
Group/Business Credit, Inc.
4.25 LABOR AND EMPLOYMENT MATTERS.
(a) Except as set forth in SECTION 4.25 of the Company Disclosure
Schedule, (i) there is no labor strike, material labor dispute, slowdown,
stoppage or lockout actually pending, or, to the knowledge of the Company,
threatened against the Company or any of its
33
Subsidiaries, and during the past three years there has not been any such
action, (ii) no labor organization claims to represent the employees of the
Company or any of its Subsidiaries, (iii) neither the Company nor any of its
Subsidiaries is a party to or bound by any collective bargaining agreement with
any labor organization, (iv) none of the employees of the Company or any of its
Subsidiaries is represented by any labor organization and the Company does not
have any knowledge of any current union organizing drive involving the employees
of the Company or any of its Subsidiaries, nor does any question concerning
representation exist concerning such employees, (v) the Company and its
Subsidiaries are, and have at all times been, in material compliance with all
applicable Laws respecting employment and employment practices, terms and
conditions of employment, wages, hours of work and occupational safety and
health, and are not engaged in any unfair labor practices as defined in the
National Labor Relations Act or other applicable Law, (vi) there is no pending,
or to the knowledge of the Company, threatened material unfair labor practice
charge or complaint against the Company or any of its Subsidiaries before the
National Labor Relations Board or any similar state or foreign agency, (vii)
there is no material grievance arising out of any collective bargaining
agreement, (viii) no material charges with respect to or relating to the Company
or any of its Subsidiaries are pending before the Equal Employment Opportunity
Commission or any other agency responsible for the prevention of unlawful
employment practices, (ix) neither the Company nor any of its Subsidiaries has
received notice of the intent of any federal, state, local or foreign agency
responsible for the enforcement of labor or employment laws to conduct an
investigation with respect to or relating to the Company or any of its
Subsidiaries and no such investigation is in progress, and (x) there are no
material complaints, lawsuits or other proceedings pending or to the knowledge
of the Company threatened in any forum by or on behalf of any present or former
employee of the Company or any of its Subsidiaries alleging breach of any
express or implied contract of employment, any law or regulation governing
employment or the termination thereof or other discriminatory, wrongful or
tortious conduct in connection with the employment relationship.
(b) To the actual knowledge of the Company, as of the date hereof, no
officer with a title of vice president or higher of the Company or any of its
Subsidiaries is subject to any noncompete, nonsolicitation, employment,
consulting or similar agreement relating to, affecting or in conflict with the
present or proposed business activities of the Company and its Subsidiaries,
except agreements between the Company or any Subsidiary of the Company and its
present and former officers and employees.
(c) No notice is required under any law or collective bargaining
agreement with respect to the Transactions, and all bargaining obligations with
any employee representative have been, or prior to the Closing will be,
satisfied. Within the past three years, neither the Company or any of its
Subsidiaries has implemented any plant closing or mass layoff that triggered
notice obligations under the Worker Adjustment and Retraining Notification Act
of 1988, as amended, or any similar foreign, state or local law, regulation or
ordinance (collectively, the "WARN ACT"), and no such action will be implemented
without advance notification to Purchaser.
4.26 INSURANCE. Set forth in SECTION 4.26 of the Company Disclosure
Schedule is a list of all property, casualty and general liability insurance
policies and surety bonds maintained by the Company and each of its Subsidiaries
and a description of the type of insurance covered by such policies, the dollar
limit and deductible of the policies and the annual premiums for such
34
policies. All premiums due and payable under all such policies and bonds have
been paid and the Company and its Subsidiaries are otherwise in compliance in
all material respects with the terms of such policies and bonds. Except as set
forth in SECTION 4.26 of the Company Disclosure Schedule, as of the date hereof,
neither the Company nor any of its Subsidiaries maintains any material
self-insurance or co-insurance programs covering property, casualty and general
liability. Except as set forth in SECTION 4.26 of the Company Disclosure
Schedule, as of the date hereof, neither the Company nor any of its Subsidiaries
has any material disputed claim or claims with any insurance provider relating
to any claim for insurance coverage under any policy or insurance maintained by
the Company or any of its Subsidiaries.
4.27 COMPANY EXPENSES. SECTION 4.27 of the Company Disclosure Schedule
sets forth, as of the Effective Time, the Company's good faith estimate of the
amount of Expenses (as defined in SECTION 9.01(A)) incurred or which may be
incurred prior to the Effective Time by the Company in connection with the
Transactions including, but not limited to, those incurred or which may be
incurred by the Financial Advisor and counsel to the Company (including Expenses
incurred in connection with the preparation and filing of the Proxy Statement).
4.28 STATE TAKEOVER STATUTES. To the Company's knowledge, and as
currently contemplated by the Agreement, the Company Board has taken all actions
so that no "fair price," "moratorium," "control share acquisition" or other
similar anti-takeover statute or regulation enacted under state or federal laws
in the United States (including any such statute or regulation under the Tenn.
Acts) applicable to the Company shall be applicable to the Merger or the other
Transactions. No state takeover or other similar statute or regulation is
applicable to the Offer, the Merger, this Agreement, the Support Agreement or
the Acquisition Corp. Stock Option Agreement (including any amendments to such
agreements) or the other transactions contemplated by this Agreement or any of
the other Transaction Agreements.
4.29 SUPPLIERS. SECTION 4.29(A) of the Company Disclosure Schedule sets
forth a list of the top twenty (20) suppliers of the Company and its
Subsidiaries (by volume of purchases from such suppliers), for the fiscal years
ended February 1, 2003, January 31, 2004 and January 29, 2005 and for the
seven-month period ended August 27, 2005. Neither the Company nor any of its
Subsidiaries has received any notification from any supplier to the Company and
its Subsidiaries set forth on such list to the effect that such supplier will
stop, materially decrease the rate of, or materially change the terms (whether
related to payment, price or otherwise) with respect to, supplying materials,
products or services to the Company and its Subsidiaries (whether as a result of
the consummation of the transactions contemplated hereby or otherwise). SECTION
4.29(B) of the Company Disclosure Schedule sets forth all purchase commitments
of the Company and its Subsidiaries for inventory (other than with respect to
purchase orders in the ordinary course of business), including all fabric vendor
commitments. The Company has provided Acquisition Corp. with release letters
from all Persons other than the Persons set forth in SECTION 4.29(B) of the
Company Disclosure Schedule to whom the Company or any of its Subsidiaries had
any obligations with respect to purchase commitments (other than with respect to
purchase orders in the ordinary course of business).
4.30 TERMINATION OF EXISTING AGREEMENTS . Each of the Acquisition
Agreement and Agreement and Plan of Merger, dated as of October 7, 2005, by and
among GFC Enterprise, Inc., GFC Holding Corp. and the Company (the "SUN MERGER
AGREEMENT"), the Stock Option
35
Agreement, dated as of October 7, 2005, by and among GFC Enterprise, Inc., GFC
Holding Corp. and the Company, and any other agreement between Sun Capital
Partners IV, LP, or its affiliates and the Company (other than the
Confidentiality Agreement dated June 20, 2005) has been duly terminated with no
further liability of the Company thereunder other than the obligation to pay the
Company Break Up Fee and Expenses (as such terms are defined under the Sun
Agreement) pursuant to the Sun Merger Agreement which shall be paid by the
Company promptly after the date hereof.
4.31 NO OTHER REPRESENTATIONS OR WARRANTIES.
(a) Except for the representations and warranties contained in this
Agreement, Parent and Acquisition Corp. acknowledge that neither the Company nor
any other Person on behalf of the Company makes any other express or implied
representation or warranty with respect to the Company with respect to any other
information provided to Parent. Except in the case of fraud or willful
misrepresentation, neither the Company nor any other Person will have or be
subject to any liability or indemnification obligation to Parent or any other
Person resulting from the distribution to Parent, or use by Parent of, any such
information, including any information, documents, projections, forecasts or
other material made available to Parent in certain "data rooms", confidential
information memoranda or management presentations in expectation of the
transactions contemplated by this Agreement.
(b) In connection with investigation by Parent of the Company and its
Subsidiaries, Parent has received or may receive from the Company and/or its
Subsidiaries certain projections, forward-looking statements and other forecasts
and certain business plan information. Parent acknowledges that there are
uncertainties inherent in attempting to make such estimates, projections and
other forecasts and plans, that Parent is familiar with such uncertainties, that
Parent is taking full responsibility for making its own evaluation of the
adequacy and accuracy of all estimates, projections and other forecasts and
plans so furnished to it (including the reasonableness of the assumptions
underlying such estimates, projections, forecasts or plans), and that, absent
fraud or willful misrepresentation, Parent shall have no claim against anyone
with respect thereto. Accordingly, Parent acknowledges that the Company makes no
representation or warranty with respect to such estimates, projections,
forecasts or plans (including the reasonableness of the assumptions underlying
such estimates, projections, forecasts or plans), except for representations or
warranties which expressly reference such terms (if any) including in the
Company Disclosure Schedule.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION CORP.
Parent and Acquisition Corp. represent and warrant to the Company
that:
5.01 ORGANIZATION AND QUALIFICATION. Each of Acquisition Corp. and
Parent is a corporation duly organized, validly existing and in good standing
(to the extent such concept is relevant in such jurisdiction) under the laws of
its jurisdiction of formation and has the requisite power and authority to carry
on its business as now being conducted, except where the failure to
36
be in good standing would not, individually or in the aggregate, have a
Acquisition Corp. Material Adverse Effect (as defined below). Each of
Acquisition Corp. and Parent is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the nature of its business makes such qualification or licensing necessary,
except where the failure to be so qualified or licensed and in good standing
would not, individually or in the aggregate, have a Acquisition Corp. Material
Adverse Effect. As used in this Agreement, the term "ACQUISITION CORP. MATERIAL
ADVERSE EFFECT" means any effect, event or change that prevents or materially
delays, or is reasonably likely to prevent or materially delay, the ability of
Parent and Acquisition Corp. to perform in all material respects their
obligations under this Agreement or to consummate the Transactions in accordance
with the terms hereof.
5.02 CHARTER DOCUMENTS AND BYLAWS. Parent has heretofore made
available to the Company a complete and correct copy of the Charter and the
bylaws of Parent in full force and effect as of the date hereof. Parent is not
in violation of any of the provisions of its charter or bylaws. Parent has
heretofore made available to the Company a complete and correct copy of the
Charter and the bylaws (or equivalent organizational documents) of each
Subsidiary of Parent (including Acquisition Corp.) in full force and effect as
of the date hereof. No Subsidiary of Parent (including Acquisition Corp.) is in
violation of any of the provisions of its articles of incorporation or bylaws
(or equivalent organizational documents). Acquisition Corp. is or immediately
prior to the Offer Payment Date, will be a wholly owned subsidiary of Parent.
5.03 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Acquisition Corp.
and Parent has the requisite corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the Transactions pursuant to the Tenn. Acts or the General Corporation Law of
the State of Delaware, as applicable. The execution and delivery of this
Agreement and the Acquisition Corp. Stock Option Agreement and the consummation
of the Merger and the other Transactions have been duly and validly authorized
by all necessary corporate action and no other corporate proceedings on the part
of Acquisition Corp. or Parent are necessary to authorize their execution and
delivery of this Agreement or to consummate the Transactions (other than the
filing and recordation of appropriate merger documents as required by the Tenn.
Acts). This Agreement has been duly and validly executed and delivered by each
of Acquisition Corp. and Parent, and (assuming this Agreement constitutes a
valid and binding obligation of the Company) constitutes the valid and binding
obligations of each of Acquisition Corp. and Parent, enforceable against them in
accordance with its respective terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
creditors' rights generally and to general principles of equity. The Acquisition
Corp. Stock Option Agreement has been duly and validly executed and delivered by
Acquisition Corp., and (assuming the Acquisition Corp. Stock Option Agreement
constitutes a valid and binding obligation of the Company) constitutes the valid
and binding obligations of Acquisition Corp., enforceable against Acquisition
Corp. in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
creditors' rights generally and to general principles of equity.
5.04 NO VIOLATION; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery by each of Acquisition Corp. and Parent
of this Agreement does not, and the performance of this Agreement and the
consummation by each
37
of Acquisition Corp. and Parent of the Transactions will not, (i) conflict with
or violate any provision of Parent's charter or bylaws or conflict with or
violate any provision of the articles of incorporation or bylaws or equivalent
organizational documents of any Subsidiary of Parent (including Acquisition
Corp.), (ii) conflict with or violate any Law applicable to Parent or any of its
Subsidiaries or by which any asset of Parent or any of its Subsidiaries is bound
or affected, (iii) materially conflict with, result in any breach of or
constitute a material default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any right of termination,
amendment, acceleration or cancellation of, or require any payment under, or
give rise to a loss of any benefit to which Parent or any Subsidiary of Parent
or any party controlling Parent is entitled under any provision of any Contract
or (iv) result in the creation or imposition of a material Lien on any asset of
Parent or any of its Subsidiaries, in each case, in a manner that would prevent
the consummation of the Transaction or have a material adverse effect on
Acquisition Corp.'s ability to consummate the transaction.
(b) The execution and delivery by each of Acquisition Corp. and Parent
of this Agreement does not, and the performance of this Agreement and the
consummation by each of Acquisition Corp. and Parent of the Transactions will
not, require any consent, approval, authorization or permit of, or filing with
or notification to, any Governmental Authority, except for applicable
requirements, if any, of the Exchange Act, the Securities Act, Nasdaq, the HSR
Act and the rules and regulations thereunder, and any filing and recordation of
appropriate documents for the Merger as required by the Tenn. Acts.
5.05 LITIGATION. There is no material suit, claim, action, proceeding
or investigation pending or, to Parent's knowledge, threatened against Parent or
Acquisition Corp., at law or in equity. As of the date hereof, neither Parent
nor Acquisition Corp. is subject to any outstanding order, writ, injunction or
decree.
5.06 BROKERS. No broker, finder, financial adviser or investment
banker, other than Financo Inc., is entitled to any brokerage, finder's or other
fee or commission in connection with the Transactions based upon arrangements
made by, or on behalf of, Parent or any of its Subsidiaries.
5.07 INFORMATION TO BE SUPPLIED.
(a) None of the information to be supplied by Parent to the Company
for inclusion in the Proxy Statement to be filed by the Company with the SEC and
to be sent to the shareholders of the Company in connection with the
Shareholders Meeting will, at the time it is sent to the shareholders of the
Company or at the time of the Shareholders Meeting, contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading.
(b) Each document required to be filed by Parent or Acquisition Corp.
with the SEC in connection with the Transactions (the "PARENT DISCLOSURE
Documents"), including, without limitation, the Offer Documents, to be filed
with the SEC in connection with the Offer or the Merger, will, when filed,
comply as to form in all material respects with the applicable requirements of
the Exchange Act and the rules and regulations thereunder.
38
(c) None of the Offer Documents or any other document required to be
filed by Parent or Acquisition Corp. with the SEC in connection with the Offer,
the Merger or any other transaction contemplated hereby, nor any information
supplied by Parent or Acquisition Corp. for inclusion in the Schedule 14D-9, any
filing pursuant to Rule 14f-1 under the Exchange Act, the Proxy Statement or any
such other filings by the Company, or any amendments or supplements thereto are
filed with the SEC or are first published, sent or given to shareholders of the
Company, as the case may be, will, when filed, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in light of the
circumstances under which they are made, not misleading.
(d) Notwithstanding any provision to the contrary in this Agreement,
the representations and warranties contained in this SECTION 5.07 will not apply
to statements or omissions included in the Parent Disclosure Documents or the
Offer Documents based upon information furnished to Parent or Acquisition Corp.
in writing by the Company or any of their representatives specifically for use
therein.
5.08 FINANCING.
(a) Parent has delivered to the Company true and complete copies of
the commitment letter ("COMMITMENT LETTER"), dated as of the date hereof, among
Acquisition Corp. and GMM Capital LLC and Prentice Capital Management, LP, which
permits the Company to rely upon the terms of the Commitment Letter. The
Commitment Letter has not been amended or modified prior to the date of this
Agreement, and the respective commitments contained in the Commitment Letter
have not been withdrawn or rescinded in any respect. The Commitment Letter is in
full force and effect. The aggregate proceeds contemplated by the Commitment
Letter, which in the case of the Merger together with available cash of the
Company, will be sufficient for Acquisition Corp. and the Surviving Corporation
to pay the aggregate Offer Price and the Aggregate Merger Consideration.
5.09 HOLDING CORP. AND ACQUISITION CORP. Each of Holding Corp. and
Acquisition Corp. has been formed for the purpose of engaging in the
Transactions and prior to the Offer will have engaged in no other business
activities.
ARTICLE 6
COVENANTS
6.01 INTERIM OPERATIONS. Except as otherwise contemplated by this
Agreement or as set forth in SECTION 6.01 of the Company Disclosure Schedule or
as consented to in writing by Parent, the Company covenants and agrees that
during the period from the date of this Agreement to the Effective Time (or
until termination of this Agreement in accordance with ARTICLE 8 hereof):
(a) the business and operations of the Company and its Subsidiaries
shall be conducted only in the ordinary course of business and the Company and
its Subsidiaries shall use their reasonable best efforts to preserve intact
their current business organizations, keep available
39
the services of their current officers and employees and preserve their
relationships with their material customers, suppliers, licensors, licensees,
advertisers, distributors and other material third parties having business
dealings with them and to preserve the goodwill of their respective businesses;
(b) the Company shall not (i) authorize for issuance, issue, deliver,
sell or agree or commit to issue, sell or deliver (whether through the issuance
or granting of options, commitments, subscriptions, rights to purchase or
otherwise), pledge or otherwise encumber any shares of its capital stock or the
capital stock of any of its Subsidiaries, any other securities or any securities
convertible or exercisable into, or any rights, warrants or options to acquire,
any such shares, securities or convertible securities or any other securities or
equity equivalents (including without limitation stock appreciation rights or
phantom interests), except for issuances of Common Shares upon the exercise of
Options outstanding as of the date hereof or (ii) repurchase, redeem or
otherwise acquire, or permit any of its Subsidiaries to repurchase, redeem or
otherwise acquire, any shares of capital stock or other equity interests of the
Company or any of its Subsidiaries (including, without limitation, securities
exchangeable for, or options, warrants, calls, commitments or rights of any kind
to acquire, capital stock or other equity interests of the Company or any of its
Subsidiaries);
(c) the Company shall not (i) sell, transfer or pledge, or agree to
sell, transfer or pledge, any equity interest owned by it in any of its
Subsidiaries or alter through merger, liquidation, reorganization, restructuring
or in any other fashion the corporate structure or ownership of any of its
Subsidiaries, (ii) amend or otherwise change its charter, articles of
incorporation or bylaws or permit any of its Subsidiaries to amend its articles
of incorporation, bylaws or equivalent organizational documents or (iii) split,
combine or reclassify any shares of its capital stock, and shall not permit any
of its Subsidiaries to split, combine or reclassify any shares of its capital
stock;
(d) the Company shall not, and shall not permit any of its
Subsidiaries to, declare, set aside or pay any dividends on (whether in cash,
stock or other property), or make any other distributions in respect of, any of
its capital stock (except for dividends paid by direct or indirect wholly owned
Subsidiaries to the Company or to other wholly owned Subsidiaries of the Company
consistent with past practices);
(e) neither the Company nor any of its Subsidiaries shall (i) grant or
agree to any increase in any manner the compensation or fringe benefits of, or
pay any bonus to, any current or former director, officer or employee except
increases in the ordinary course of business consistent with past practice of
less than 10% of each such individual's salary for non-officer employees,
increases and bonuses expressly contemplated by or required under existing
employment agreements, bonus plans and other agreements and arrangements listed
or described in SECTION 6.01(E) of the Company Disclosure Schedule and except in
connection with accelerating the vesting schedules of the Options and
terminating the Options and the Stock Plans, (ii) enter into any new or
materially amend any existing employment, consulting, severance, termination,
change-of-control or indemnification agreement with any current or former
director, officer or employee of the Company, (iii) except as set forth in
SECTION 6.01(E) of the Company Disclosure Schedule, as may be required to comply
with applicable Law and as provided or otherwise contemplated in this Agreement
(including, without limitation, SECTION 3.02 hereof), become obligated under any
Benefit Plan that was not in existence on the date hereof or amend, modify or
terminate any Benefit Plan or other employee benefit plan or any agreement,
arrangement, plan or policy for the benefit of any current or former director,
officer or employee in existence on the date hereof or (iv) except as may be
required to comply with applicable Law and except as provided or otherwise
contemplated in this Agreement (including, without limitation, SECTION
40
3.02 hereof), pay any benefit not required by any plan or arrangement as in
effect as of the date hereof (including, without limitation, the granting of,
acceleration of, exercisability of or vesting of stock options, stock
appreciation rights or restricted stock, except as otherwise contemplated by
this Agreement), except in connection with accelerating the vesting schedules of
the Options and terminating the Options and the Stock Plans;
(f) the Company shall not, and shall not permit any of its
Subsidiaries to, acquire or agree to acquire, including, without limitation, by
merging or consolidating with, or purchasing the assets or capital stock or
other equity interests of, or by any other manner, any business or any
corporation, partnership, association or other business organization or division
thereof other than non-taxable transfers by or among the Company's Subsidiaries;
(g) the Company shall not, and shall not permit any of its
Subsidiaries to, sell, lease, license, mortgage or otherwise encumber or subject
to any Lien or otherwise dispose of, or agree to sell, lease, license, mortgage
or otherwise encumber or subject to any Lien or otherwise dispose of, any of its
properties or assets other than (i) pursuant to existing contracts and
commitments described in SECTION 6.01(G) of the Company Disclosure Schedule,
(ii) immaterial properties or assets (or immaterial portions of properties or
assets, including those described in SECTION 6.01(G) of the Company Disclosure
Schedule), (iii) inventory in the ordinary course of business consistent with
past practice, (iv) Permitted Liens, (v) Liens relating to Taxes that are not
yet due and payable or otherwise being contested in good faith and as to which
appropriate reserves have been established by the Company in accordance with
U.S. generally accepted accounting principles and (vi) other than non-taxable
transfers by or among the Company's Subsidiaries;
(h) the Company shall not, and shall not permit any of its
Subsidiaries to, issue any letter of credit other than pursuant to the issuance
of letters of credit in the ordinary course of business consistent with past
practices of the Company and its Subsidiaries in an amount not to exceed
$10,000,000 in the aggregate, incur, assume or pre-pay any Indebtedness, enter
into any agreement to incur, assume or pre-pay any Indebtedness, guarantee, or
agree to guarantee, any such Indebtedness or obligation of another person, issue
or sell, or agree to issue or sell, any debt securities or options, warrants or
calls or rights to acquire any debt securities of the Company or any of its
Subsidiaries, guarantee any debt securities of others, enter into any "keep
well" or other agreement to maintain any financial statement condition of
another person or enter into any arrangement having the economic effect of any
of the foregoing;
(i) the Company shall not, and shall not permit any of its
Subsidiaries to, make or forgive any loans, advances or capital contributions
to, guarantees for the benefit of, or investments in, any person or entity,
other than (i) loans or advances in the ordinary course of business to
facilitate construction or renovation of stores pursuant to Material Contracts
in an amount not to exceed $2,000,000 in the aggregate, (ii) such loans between
or among the Company and any of its wholly-owned Subsidiaries and (iii) cash
advances to the Company's or
41
any such Subsidiary's employees for reimbursable travel and other business
expenses incurred in the ordinary course of business consistent with past
practice;
(j) the Company shall not, and shall not permit any of its
Subsidiaries to, assume, guarantee or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any other
Person, except for the obligations of the Subsidiaries of the Company permitted
under this Agreement;
(k) neither the Company nor any of its Subsidiaries shall adopt or put
into effect a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of the
Company or any of its Subsidiaries (other than any transaction specifically
contemplated by this Agreement);
(l) except as set forth in SECTION 6.01(L) of the Company Disclosure
Schedule, the Company shall not, and shall not permit any of its Subsidiaries
to, (i) enter into, or materially amend, modify or supplement any Contract
outside the ordinary course of business consistent with past practice (except as
may be necessary for the Company to comply with its obligations hereunder), (ii)
enter into, or materially amend, modify or supplement, any Lease or Material
Contract, or (iii) waive, release, grant, assign or transfer any of its material
rights or claims (whether such rights or claims arise under a Contract or
otherwise);
(m) the Company shall not, and shall not permit any of its
Subsidiaries to, authorize or make any capital expenditures (other than pursuant
to commitments prior to the date hereof or other planned capital expenditures in
the ordinary course of business consistent with past practices disclosed in
SECTION 6.01(M) of the Company Disclosure Schedule by category) or make any
commitments with respect to capital expenditures or other planned capital
expenditures in the ordinary course of business consistent with past practices
in excess of $1,000,000 in the aggregate;
(n) except for customer contracts entered into in the ordinary course
of business, the Company shall not, and shall not permit its Subsidiaries to,
renegotiate or enter into any new license, agreement or arrangement relating to
any Intellectual Property;
(o) the Company and its Subsidiaries (i) shall continue in force
insurance with good and responsible insurance companies adequately covering
risks of such types and in such amounts as are consistent with the Company's
past practices and (ii) shall use reasonable best efforts not permit any
insurance policy naming it as beneficiary or loss payable payee to be canceled
or terminated;
(p) the Company shall not, and shall not permit any of its
Subsidiaries to, establish or acquire (i) any Subsidiary other than wholly-owned
Subsidiaries or (ii) Subsidiaries organized outside of the United States and its
territorial possessions;
(q) the Company shall not, and shall not permit any of its
Subsidiaries to, amend, modify or waive any term of any outstanding security of
the Company or any of its Subsidiaries, except (i) as required by this
Agreement, (ii) except as set forth in SECTION 6.01(Q) of the Company Disclosure
Schedule, in connection with accelerating the vesting schedules of
42
the Options to the extent required by the Stock Plans or the agreements pursuant
to which such Options were granted or (iii) in connection with terminating the
Options and the Stock Plans;
(r) the Company shall, and shall cause its Subsidiaries to, (i)
maintain any real property of which the Company and any of its Subsidiaries have
ownership or a leasehold interest (including, without limitation, the furniture,
fixtures, equipment and systems therein) in its current condition in all
material respects, subject to reasonable wear and tear and subject to any
casualty or condemnation and Permitted Liens, subject to the expiration of real
property in accordance with their terms or (ii) pay, prior to the imposition of
any Lien or material penalty all taxes, water and sewage rents, assessments and
insurance premiums affecting such real property or contest them in good faith;
(s) the Company shall not, and shall not permit any of its
Subsidiaries to, enter into or materially amend any labor or collective
bargaining agreement, memorandum or understanding, grievance settlement or any
other agreement or commitment to or relating to any labor union, except as
required by Law;
(t) the Company shall not, and shall not permit any of its
Subsidiaries to, conduct any plant closing or layoff that could implicate the
WARN Act;
(u) the Company shall not, and shall not permit any of its
Subsidiaries to, settle or compromise any pending or threatened suit, action,
claim or litigation, except with respect to the settlement or compromise of any
such matter which does not involve equitable or injunctive relief and does not
obligate the Company and its Subsidiaries to make aggregate cash payments
exceeding $25,000 individually or $125,000 in the aggregate;
(v) except as set forth in SECTION 6.01(V) of the Company Disclosure
Schedule, the Company shall not, and shall not permit any of its Subsidiaries
to, change any of the accounting policies, practices or procedures (including
tax accounting policies, practices and procedures) used by the Company and its
Subsidiaries as of the date hereof, except as may be required as a result of a
change in applicable Law or in U.S. generally accepted accounting principles;
(w) the Company shall not, and shall not permit any of its
Subsidiaries to, revalue in any material respect any of its assets (including,
without limitation, writing down or writing off any notes or accounts receivable
in any material manner), except as required by U.S generally accepted accounting
principles;
(x) the Company shall not, and shall not permit any of its
Subsidiaries to, pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than (i) the payment, discharge or satisfaction in the
ordinary course of business and consistent with past practice of Liabilities
reflected on or reserved in the financial statements of the Company or incurred
in the ordinary course of business and consistent with past practice, (ii) the
payment of the Company's Expenses (as defined herein), including the payment of
the fees and expenses of the Special Committee and the costs, fees and expenses
incurred by the Special Committee or (iii) the payment of claims under any of
the Benefit Plans;
43
(y) the Company shall not, and shall not permit any of its
Subsidiaries to, knowingly and intentionally take, or agree or commit to take,
any action that would, or is reasonably likely to, make any representation or
warranty of the Company contained in this Agreement inaccurate at, or as of any
time prior to, the Effective Time or result in any of the conditions to the
Offer or any conditions to the Merger set forth in ARTICLE 7 not being
satisfied, or knowingly and intentionally omit, or agree to omit, to take any
action necessary to prevent any such representation or warranty from being
inaccurate at any such time or to prevent any such condition from not being
satisfied;
(z) the Company shall not, and shall not permit any of its
Subsidiaries to make or change any material tax election or change an annual
accounting period with respect to Taxes, adopt or change any accounting method,
file any amended Tax Return, enter into any closing agreement, settle or
compromise any Tax claim, assessment or liability relating to the Company or any
of its Subsidiaries, or surrender any right to claim a refund of Taxes, except
as set forth in SECTION 6.01(Z) of the Company Disclosure Schedule, consent to
any extension or waiver of the limitation period applicable to any Tax claim or
assessment relating to the Company or any of its Subsidiaries, or take any other
similar action, or omit to take any action relating to the filing of any Tax
Return or the payment of any Tax, if such election, adoption, change, amendment,
agreement, settlement, surrender, consent or other action or omission would have
the effect of increasing the present or future Tax liability or decreasing any
present or future Tax benefit of the Company or any of its Subsidiaries; and
(aa) the Company shall not, and shall not permit any of its
Subsidiaries to, agree or commit to do any of the foregoing.
6.02 SHAREHOLDERS MEETING.
(a) Unless the Merger is to be effected pursuant to Section 00-00-000
of the TBCA pursuant to SECTION 6.02(C) below, the Company, acting through the
Company Board, shall, in accordance with applicable law and its charter and
bylaws, duly call, establish a record date for, give notice of, convene and hold
a special meeting of its shareholders (the "SHAREHOLDERS MEETING") as soon as
practicable following the clearance by the SEC of the Proxy Statement for the
purpose of considering and voting upon the approval and adoption of this
Agreement, the Merger and such other matters as may be necessary to effectuate
the Transactions. The Company Board, based upon the recommendation of the
Special Committee, shall (i) recommend to the shareholders of the Company the
approval and adoption of this Agreement and the Merger, (ii) include in the
Proxy Statement such favorable recommendation of the Company Board that the
shareholders of the Company vote in favor of the approval and adoption of this
Agreement and the Merger, (iii) take all lawful actions to solicit such approval
from the shareholders of the Company and (iv) not withdraw or modify such
favorable recommendation, in each case, unless the Company Board based upon the
recommendation of the Special Committee, after consultation with independent
outside legal counsel, determines in good faith that failing to take such action
is necessary for the Company Board to comply with its fiduciary duties to the
Company's shareholders under applicable law.
(b) As soon as practicable following the Offer Payment Date and in
connection with the Shareholders Meeting, unless the Merger is to be effected
pursuant to
44
Section 00-00-000 of the TBCA pursuant to SECTION 6.02(C) below, the Company
shall (i) promptly prepare and file with the SEC (but in no event later than
fifteen (15) Business Days after the Offer Payment Date), use its reasonable
best efforts to have cleared by the SEC and thereafter mail to its shareholders
as promptly as practicable the Proxy Statement and all other proxy materials
required in connection with such meeting, (ii) notify Acquisition Corp. and
Parent of the receipt of any comments of the SEC with respect to the Proxy
Statement and of any requests by the SEC for any amendment or supplement thereto
or for additional information and shall promptly provide to Acquisition Corp.
and Parent copies of all correspondence between the Company or any
representative of the Company and the SEC, (iii) shall give Acquisition Corp.
and Parent and their counsel the opportunity to review the Proxy Statement prior
to its being filed with the SEC and shall give Acquisition Corp. and Parent and
their counsel the opportunity to review all amendments and supplements to the
Proxy Statement and all responses to requests for additional information and
replies to comments prior to their being filed with, or sent to, the SEC, (iv)
subject to SECTION 6.02(A), use its reasonable best efforts to obtain the
necessary approvals by its shareholders of this Agreement, the Offer and the
Merger and (v) use its reasonable best efforts otherwise to comply with all
legal requirements applicable to such meeting.
(c) Notwithstanding SECTION 6.02 hereof or any other provision to the
contrary in this Agreement, in the event that Acquisition Corp. owns at least
90% of the outstanding Common Shares pursuant to the Offer, the Acquisition
Corp. Stock Option Agreement or otherwise, the parties hereto agree, at the
request of Parent and subject to Article 7 hereof, to take all necessary and
appropriate action to cause the Merger to become effective as soon as
practicable after such acquisition, without a meeting of shareholders of the
Company, in accordance with Section 00-00-000 of the TBCA.
6.03 FILINGS AND CONSENTS. Subject to the terms and conditions of this
Agreement, each of the parties hereto (i) shall use all reasonable best efforts
to cooperate with one another in determining which filings are required to be
made by each party prior to the Effective Time with, and which consents,
approvals, permits or authorizations are required to be obtained by each party
prior to the Effective Time from, Governmental Authorities or other third
parties in connection with the execution and delivery of this Agreement and the
consummation of the Transactions and (ii) shall use reasonable best efforts to
assist the other parties hereto in timely making all such filings and timely
seeking all such consents, approvals, permits, authorizations and waivers
required to be made and obtained by the other party. Without limiting the
foregoing, (a) the Company shall give all required notices to third parties and
use reasonable best efforts to obtain all consents identified or required to be
identified on SECTION 4.06(A) or SECTION 4.06(B) of the Company Disclosure
Schedule (provided that the Company shall not be required to make any payment to
obtain such consents, approvals, permits, authorizations or waivers if it has
provided Acquisition Corp. with reasonable notice of such required payment and
Acquisition Corp., in its sole discretion, does not consent to such payment) and
(b) each of the parties hereto shall (and shall use its reasonable best efforts
to cause their affiliates, directors, officers, employees, agents, attorneys,
accountants and representatives to) consult and fully cooperate with and provide
assistance to each other in seeking early termination of any waiting period
under the HSR Act or any foreign merger control or competition laws and
regulations, if applicable; it being agreed that no party shall be under any
obligation to divest of any assets or hold separate any assets or take any other
similar measures in connection with any demand therefor by any Governmental
45
Authority as a pre-condition to the approval of the Transactions by any such
Governmental Authority. Prior to making any application to or filing with any
Governmental Authority in connection with this Agreement, each party shall
provide the other party with drafts thereof (excluding any confidential
information included therein) and afford the other party a reasonable
opportunity to comment on such drafts.
6.04 ACCESS TO INFORMATION. From the date of this Agreement until the
earlier of the Effective Time or the date this Agreement is properly terminated
in accordance with ARTICLE 8, and subject to the requirements of any Law,
including any anti-trust Law, the Company will, and will cause each of its
Subsidiaries, and will use its reasonable best efforts to cause each of their
respective officers, directors, employees, agents, counsel, accountants,
investment bankers, financial advisors and representatives (collectively, the
"COMPANY REPRESENTATIVES") to, give Acquisition Corp. and Parent and their
respective officers, directors, employees, agents, counsel, accountants,
investment bankers, financial advisors, representatives, consultants and
financing sources (collectively, the "ACQUISITION CORP. REPRESENTATIVES")
access, upon reasonable notice and during the Company's normal business hours,
to the offices and other facilities, to the senior officers and other Company
Representatives, and to the books and records of the Company and each of its
Subsidiaries and use reasonable best efforts to provide access to vendors,
landlords and other Persons with business relationships with the Company or any
of its Subsidiaries and will cause the Company Representatives and its
Subsidiaries to furnish or make available to Parent, Acquisition Corp. and the
Acquisition Corp. Representatives such financial and operating data and such
other information with respect to the business and operations of the Company or
any its Subsidiaries as Parent, Acquisition Corp. or the Acquisition Corp.
Representatives may from time to time reasonably request. At any time after the
date hereof, at the request of Parent, the Company shall (and shall cause its
Subsidiaries to) use commercially reasonable efforts to obtain estoppel letters
from landlords pursuant to the Leases. Unless otherwise required by Law, each of
Parent and Acquisition Corp. will, and will cause the Acquisition Corp.
Representatives to, hold any such information in confidence in accordance with
the terms of Confidentiality Agreement (as defined below). Except as otherwise
agreed to by the Company, and notwithstanding termination of this Agreement, the
terms and provisions of the Confidentiality Agreement, dated as of October 12,
2005 (the "CONFIDENTIALITY AGREEMENT"), among the Company, GMM Capital LLC and
Prentice Capital Management, LP, shall apply to all information furnished to any
Acquisition Corp. Representative by any Company Representative hereunder or
thereunder.
6.05 NOTIFICATION OF CERTAIN MATTERS. Each of the parties hereto shall
promptly notify the others in writing of (a) receipt of any notice from any
third party alleging that the consent of such third party is or may be required
in connection with the Transactions, (b) any event or occurrence that has a
Company Material Adverse Effect or Acquisition Corp. Material Adverse Effect, as
the case may be, (c) any material claims, actions, proceedings or governmental
investigations commenced or, to its knowledge, threatened, involving or
affecting the Company or any of its Subsidiaries or any of their property or
assets, (d) any representation or warranty made by such party contained in this
Agreement becoming untrue or inaccurate which would be material to the Company
and its Subsidiaries taken as a whole, and (e) any failure of the Company,
Acquisition Corp. or Parent, as the case may be, to comply with or satisfy, in
any material respect, any covenant, condition or agreement to be complied with
or satisfied by it hereunder. Notwithstanding anything in this Agreement to the
contrary, no such notification or
46
investigation by any party shall affect the representations, warranties or
covenants of any party or the conditions to the obligations of any party
hereunder, nor shall it limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
6.06 PUBLIC ANNOUNCEMENTS. Each of the parties hereto agrees that,
promptly following the execution of this Agreement, the Company shall (a) issue
a press release substantially in the form attached hereto as EXHIBIT E
announcing the execution of this Agreement and the Transactions (the "PRESS
RELEASE") and (b) file a current report with the SEC on Form 8-K attaching the
Press Release and a copy of this Agreement as exhibits. Thereafter, the parties
hereto agree to consult promptly with each other prior to issuing any press
release or otherwise making any public statement with respect to the Offer, the
Merger and the other Transactions, agree to provide to each other for review a
copy of any such press release or statement other than a press release or public
statement with respect to which the substantially the same disclosure has
previously been the subject of agreement between the parties hereto, and shall
not issue any such press release or make any such public statement prior to such
consultation and review, unless required by applicable Law (including the
requirement to file a Schedule 13D or any amendment thereto) or any listing
agreement with a securities exchange or Nasdaq; PROVIDED THAT Parent and its
shareholders may provide information to their respective investors in the
ordinary course of business consistent with past practice.
6.07 FURTHER ASSURANCES; REASONABLE BEST EFFORTS. Except as expressly
provided in this Agreement, prior to the Effective Time, the parties hereto
shall use their reasonable best efforts to take, or cause to be taken, all such
actions as may be necessary or appropriate in order to effectuate, as
expeditiously as practicable, the Offer, the Merger and the other Transactions
on the terms and subject to the conditions set forth in this Agreement. Without
limiting the foregoing, the Company will use reasonable best efforts to take,
and will cause each of its Subsidiaries to use reasonable best efforts to take,
all actions necessary (i) to comply promptly with all legal requirements which
may be imposed on the Company or any of its Subsidiaries with respect to the
Offer and the Merger, (ii) to cooperate promptly with and furnish information to
Acquisition Corp. and Parent in connection with any such requirements imposed
upon Acquisition Corp. or Parent in connection with the Offer and the Merger,
(iii) to obtain any consent, authorization, order or approval of, or any
exemption by, any Governmental Authority, or other third party, required to be
obtained or made by the Company or any of its Subsidiaries in connection with
this Agreement, the Offer, the Merger and the other Transactions or to permit
the Company and its Subsidiaries to operate its business and assets on the same
terms and conditions after the Closing as prior to the Effective Time, and (iv)
with respect to the Owned Real Property, to assist and cooperate with Parent in
Parent's efforts to obtain prior to the Effective Time, ALTA extended coverage
owner's policies of title insurance or binding marked-up commitment from the
title company to provide such insurance showing good and marketable title to the
Owned Real Property with gap coverage through the date of recording, free and
clear of all Liens other than Permitted Liens and ALTA surveys.
6.08 NO SOLICITATION.
(a) From and after the date hereof until the earlier of the Effective
Time and the termination of this Agreement pursuant to ARTICLE 8, the Company,
its Subsidiaries and their affiliates shall not, and shall use best efforts to
cause the Company Representatives not to,
47
directly or indirectly, (i) solicit, initiate or knowingly encourage (including
by way of furnishing information or assistance), or take any other action to
facilitate, any inquiry in connection with or the making of any proposal from
any Person that constitutes, or may reasonably be expected to lead to, an
Acquisition Proposal (as defined in SECTION 6.08(F)), (ii) enter into, explore,
maintain, participate in or continue any discussion or negotiation with any
Person (other than Acquisition Corp., Parent or any of the Acquisition Corp.
Representatives, as applicable) regarding an Acquisition Proposal, or furnish to
any Person (other than Acquisition Corp., Parent or any of the Acquisition Corp.
Representatives, as applicable) any non-public information or otherwise assist
or participate in, facilitate or encourage, any known effort or attempt by any
other Person (other than Acquisition Corp., Parent or any of the Acquisition
Corp. Representatives, as applicable) to make or effect an Acquisition Proposal,
(iii) enter into any agreement, arrangement or understanding with respect to, or
otherwise endorse, any Acquisition Proposal, or (iv) authorize or permit any
Company Representative to take any such action; provided, however, that nothing
contained in this SECTION 6.08 shall prohibit the Company Board, based upon the
recommendation of the Special Committee, prior to approval of this Agreement by
the shareholders of the Company at the Shareholders Meeting, from furnishing
information to, or engaging in discussions or negotiations with, any Person that
makes an unsolicited bona fide written Acquisition Proposal (which did not
result from a breach of this SECTION 6.08) if (A) the Company Board, based upon
the recommendation of the Special Committee, determines in good faith after
consultation with its financial advisors and outside legal advisors, that such
action is necessary for the Company Board to comply with its fiduciary duties to
the Company's shareholders under applicable law, (B) the Acquisition Proposal
constitutes or would reasonably be expected to lead to a Superior Proposal (as
defined in SECTION 6.08(G)) and (C) prior to furnishing such information to, or
engaging in discussions or negotiations regarding an Acquisition Proposal or the
Transactions with, such Person, the Company receives from such Person an
executed confidentiality agreement (which agreement shall be provided to Parent
for information purposes) with terms no less favorable to the Company than those
contained in the Confidentiality Agreement.
(b) From and after the date hereof until the earlier of the Effective
Time and the termination of this Agreement pursuant to ARTICLE 8, if the Company
Board is entitled to furnish information to, or engage in discussions or
negotiations with, any Person on the terms contemplated in SECTION 6.08(A), the
Company Board may, prior to the approval of this Agreement by the shareholders
of the Company at the Shareholders Meeting, terminate this Agreement in respect
of any Acquisition Proposal pursuant to the termination provisions set forth in
ARTICLE 8 hereof if (A) such Acquisition Proposal constitutes a Superior
Proposal and (B) the Company Board, based upon the recommendation of the Special
Committee, shall have determined in good faith after consultation with financial
advisors and outside legal advisors, that such action is necessary for the
Company Board to comply with its fiduciary duties to the Company's shareholders
under applicable Law.
(c) The Company (i) will promptly (but in any event within one
Business Day) notify Parent orally and in writing of the receipt of any
Acquisition Proposal or any inquiry by which a third party expresses an interest
or intention to make an Acquisition Proposal, including any request for
non-public information, the terms and conditions of such request, Acquisition
Proposal or inquiry and the identity of the Person making such request,
Acquisition Proposal or inquiry and (ii) will keep Parent fully informed of the
status and details (including
48
amendments and proposed amendments) of any such request, Acquisition Proposal or
inquiry. Prior to taking any of the actions referred to in SECTION 6.08(A), the
Company Board shall promptly (but in any event within 48 hours prior to taking
any such action) notify Parent orally and in writing of any action it proposes
to take with respect to such Acquisition Proposal. After taking any such action,
the Company Board shall promptly advise Parent orally and in writing of the
status of such action as developments arise or as requested by Parent. Without
limiting the foregoing, at least four Business Days (the "FOUR DAY PERIOD")
prior to taking any of the actions referred to in SECTION 6.08(B), the Company
Board shall notify Parent of any such action it proposes to take and, during the
Four Day Period, the Company Board or the Special Committee, as applicable,
shall negotiate in good faith with Parent with respect to any revised proposal
to acquire the Common Shares that Parent may make prior to or during the Four
Day Period.
(d) Nothing contained in this Agreement shall prevent the Company
Board from taking, and disclosing to the Company shareholders, a position
contemplated by Rule 14d-9 or Rule 14e-2 promulgated under the Exchange Act with
regard to any tender offer; provided, however, that none of the Company, the
Company Board or the Special Committee shall, except as permitted by SECTION
6.08(B) propose to approve or recommend any Acquisition Proposal. Without
limiting the foregoing, it is understood and agreed that any violation of the
restrictions set forth in the preceding sentence by any Company Representative,
whether or not acting on behalf of the Company or any of its Subsidiaries or any
of their affiliates, shall be deemed to be a breach of this SECTION 6.08 by the
Company.
(e) The Company and each of its Subsidiaries shall immediately cease
and cause its affiliates and the Company Representatives to cease any and all
existing activities, discussions or negotiations with any parties (other than
Acquisition Corp., Parent or any of the Acquisition Corp. Representatives, as
applicable) conducted heretofore with respect to any Acquisition Proposal, and
shall use its commercially reasonable efforts to cause any such parties in
possession of confidential information about the Company that was furnished by
or on behalf of the Company to return or destroy all such information in the
possession of any such party or its representatives.
(f) For purposes of this Agreement, "ACQUISITION PROPOSAL" shall mean
any offer or proposal for, or any indication of interest in, (i) any direct or
indirect acquisition or purchase of 10% or more of the total consolidated assets
of the Company or any of its Subsidiaries, in a single transaction or series of
transactions, (ii) any direct or indirect acquisition or purchase of 10% or more
of any class of equity securities of the Company or any of its Subsidiaries, in
a single transaction or series of transactions (including through a merger,
consolidation, share exchange, business combination or other similar
transaction), (iii) any tender offer or exchange offer (including a self-tender
offer) that if consummated would result in any person beneficially owning 10% or
more of any class of equity securities of the Company or any of its
Subsidiaries, (iv) any merger, consolidation, share exchange, business
combination, reorganization, recapitalization, reclassification, liquidation or
dissolution or other similar transaction involving the Company or any of its
Subsidiaries or (v) any public announcement of an agreement, proposal, plan or
intention to do any of the foregoing, other than the transactions contemplated
by this Agreement.
49
(g) For purposes of this Agreement, "SUPERIOR PROPOSAL" shall mean any
bona fide written Acquisition Proposal described in clauses (i), (ii) or (iii)
of the definition thereof (PROVIDED, that for the purposes of this definition,
the applicable percentages in clauses (i), (ii) and (iii) of the definition of
Acquisition Proposal shall be 50% as opposed to 10%) by a Person (i) on terms
that the Company Board has determined in good faith, after consultation with the
Company's financial advisors and legal advisors, is more favorable from a
financial point of view to the Company's shareholders than the Offer and the
Merger (including any adjustment to the terms and conditions thereof proposed in
writing by Parent in response to any such Acquisition Proposal), and (ii) that
the Company Board, based upon the recommendation of the Special Committee, has
determined in good faith, after consultation with its outside legal advisors,
that is of such a nature that they must accept such Acquisition Proposal in
order for the Company Board to comply with its fiduciary duties to the Company's
shareholders under applicable Law, taking into account for this purpose, whether
such Acquisition Proposal is reasonably capable of being consummated in a timely
manner (taking into account all financial, regulatory, legal and other aspects
of such proposal (including, without limitation, the ready availability of cash
on hand and/or commitments for the same, in each case as applicable, required to
consummate any such Acquisition Proposal and any antitrust or competition Law
approvals or non-objections).
6.09 SEC REPORTS. From the date of this Agreement until the earlier of
the termination of this Agreement pursuant to ARTICLE 8 or the Effective Time,
the Company shall use reasonable best efforts to file on a timely basis all SEC
Reports required to be filed by it with the SEC under the Exchange Act, the
Securities Act and the published rules and regulations of the SEC under either
of the foregoing applicable to such SEC Reports, which SEC Reports shall comply
in all material respects with the requirements of the Exchange Act, the
Securities Act and the published rules and regulations of the SEC thereunder,
each as applicable to such SEC Reports.
6.10 DELISTING. Each of the parties hereto agrees to cooperate with
the other party in taking, or causing to be taken, all actions necessary (i) to
delist the Common Shares from Nasdaq and (ii) to terminate the registration of
the Common Shares under the Exchange Act; provided that such delisting and
termination shall not be effective until or after the Effective Time (as
determined by Acquisition Corp.).
6.11 FINANCING.
(a) While it is understood and acknowledged by Parent and Acquisition
Corp. that financing is not a condition to the Offer or the Merger, the Company
shall use reasonable best efforts to cooperate in connection with the
arrangement of any financing to be obtained by Parent and its Subsidiaries or
the Surviving Corporation in connection with the transactions contemplated by
this Agreement (the "FINANCING") including, without limitation, (i) permitting
Parent's financing sources and their officers and authorized representatives,
during normal business hours, to inspect its records and premises and to consult
with its officers, employees, attorneys, and agents with respect to such
financial and operating data and other information with respect to the Company
that Parent's financing sources request, (ii) making Company Representatives
reasonably available to Parent's financing sources in connection with such
Financing to reasonably participate in due diligence sessions, participate in
"road shows" in connection with any such offerings and participate in meetings
with rating agencies, (iii) use reasonable best efforts to cause the present
independent accountants for the Company and its
50
Subsidiaries ("ACCOUNTANTS") to participate in drafting sessions related to the
preparation of any offering materials and making work papers available to
Parent, the underwriters and their respective representatives, (iv) using
reasonable best efforts to engage the current outside legal counsel for the
Company and its Subsidiaries to deliver a legal opinion at the closing of the
Financing with respect to such matters concerning the Company and its
Subsidiaries as are customary and appropriate for such transactions, which legal
opinion shall be reasonably satisfactory to Parent's financing sources and shall
be legally and factually supported and consistent with professional standards,
and (v) reasonably participating in the preparation of one or more appropriate
offering documents and assisting Parent's financing sources in preparing other
appropriate marketing materials, in each case to be used in connection with the
Financing.
(b) The Company shall use reasonable best efforts to obtain the
written consent of the Accountants to permit the use of the Company's audited
financial statements and the Accountant's audit report thereon and the
Accountant's report on the Company's internal controls over financial reporting
in connection with the Financing, including any registration statement filed in
connection therewith, and shall use reasonable best efforts to cause the
Accountants to provide a comfort letter in accordance with SAS 72 for any such
offering, which comfort letter shall be reasonably satisfactory to Parent's
financing sources. The Company agrees to execute any reasonably necessary,
appropriate and legally and factually supported management representation
letters to the Accountants to issue unqualified reports with respect to the
financial statements to be included in any offering documents and in any updated
filings or amendments thereto.
6.12 SHAREHOLDER LITIGATION. Each of the parties hereto shall give the
others the reasonable opportunity to participate in the defense of any
shareholder litigation against the Company, Parent or Acquisition Corp., as
applicable, and their directors relating to the Transactions. The Company agrees
that, until termination of this Agreement pursuant to ARTICLE 8, it will not
settle any litigation currently pending, or commenced after the date hereof,
against the Company or any of its directors by any shareholder of the Company
relating to this Agreement, the Offer, the Merger or the Sun Merger Agreement,
without the prior written consent of Parent (which will not be unreasonably
conditioned, withheld or delayed). The Company will not voluntarily cooperate
with any third party which has sought or may hereafter seek to restrain or
prohibit or otherwise oppose the Offer or the Merger and will cooperate with
Parent to resist any such effort to restrain or prohibit or otherwise oppose the
Offer or the Merger.
6.13 CONVEYANCE TAXES. Acquisition Corp. and the Company shall
cooperate in the preparation, execution and filing of all returns,
questionnaires, applications or other documents regarding any real property
transfer or gains, sales, use, transfer, value added, stock transfer and stamp
Taxes, any transfer, recording, registration and other fees or any similar Taxes
which become payable by the Company or any of its Subsidiaries in connection
with the Transactions that are required or permitted to be filed on or before
the Effective Time.
6.14 SPECIAL MEETING. The Company shall take no action to call a
special meeting of shareholders of the Company without the prior consent of
Parent unless compelled by legal process, except in accordance with this
Agreement unless and until this Agreement has been terminated in accordance with
its terms.
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6.15 STATE TAKEOVER LAWS. The Company shall, upon the request of
Parent, take all reasonable steps to assist in any challenge by Parent to the
validity or applicability to the Transactions, including the Offer and the
Merger, of any state takeover law.
6.16 STOCK PURCHASE PLANS. Immediately upon execution of this
Agreement, the Company will terminate (i) all stock purchase and similar plans
in which employees and other Persons are entitled to acquire shares of capital
stock of the Company from the Company or one of its affiliates and (ii) the
Company's Employee Payroll Investment Plan.
6.17 CERTAIN DELIVERIES PRIOR TO OFFER PAYMENT DATE.
(a) On the Offer Payment Date (prior to the consummation of the
transactions contemplated by the Offer), the Company shall deliver a
certification in form and substance that is reasonably satisfactory to Parent
and Acquisition Corp., satisfying the requirements of Treasury Regulation
Section 1.897-2(h) certifying that the Company is not a U.S. real property
holding corporation as defined in Section 897 of the Code.
(b) On the Offer Payment Date (prior to the consummation of the
transactions contemplated by the Offer), the Company shall deliver an Officers'
Certificate, duly executed by the Company's Chief Executive Officer and Chief
Financial Officer, in their capacities as such, and dated as of the Offer
Payment Date, stating that, to the best of their respective knowledge, the
conditions to the consummation of the Offer pursuant to ANNEX A to this
Agreement have been satisfied.
(c) On the Offer Payment Date (prior to the consummation of the
transactions contemplated by the Offer), the Company shall deliver certified
copies of (i) the resolutions duly adopted by the Company Board authorizing the
execution, delivery and performance of this Agreement and the Transactions,
including the Company Board actions required pursuant to SECTION 3.02(B) and
(ii) the charter and the bylaws of the Company as then in effect immediately
prior to the Offer Payment Date.
(d) On the Offer Payment Date (prior to the consummation of the
transactions contemplated by the Offer), the Company shall have delivered to
Acquisition Corp. copies of all resignations required to have been delivered to
the Company pursuant to SECTION 1.03 of the Agreement, including resignations of
all members of the Company Board immediately preceding the Offer Payment Date
other than the Designated Company Directors.
(e) On or prior to the Offer Payment Date, the Company shall cause the
holders of Options to acquire at least eighty-eight percent (88%) of the Common
Shares issuable upon exercise of all Options outstanding under the Director Plan
as of the date hereof and the holders of Options to acquire at least sixty-five
percent (65%) of the Common Shares issuable upon exercise of all Options
outstanding under the 1991 Plan as of the date hereof to execute a written
acknowledgment of such holder that (i) the payment of the Option Consideration,
if any, will satisfy in full the Company's obligation to such person pursuant to
such Option (other than with respect to any Options which have been exercised
prior to the Effective Time) and (ii) subject to the payment of the Option
Consideration, if any, all Options held by such holder shall, without any action
on the part of the Company or the holder, be deemed terminated, canceled,
52
void and of no further force and effect as between the Company and the holder
and neither party shall have any further rights or obligations with respect
thereto. Such written acknowledgment shall be substantially in the form attached
hereto as EXHIBIT D. On or prior to the Offer Payment Date, the Company shall
deliver copies of all such acknowledgements to Parent and Acquisition Corp. The
holder of any Options who exercises all Options owned by such holder prior to
the Offer Payment Date shall be treated for purposes of satisfying the
percentage tests above as if an acknowledgment was received from such holder.
6.18 EMPLOYEE BENEFITS. For a period of six months after the Effective
Time, Parent shall cause the Surviving Corporation to provide base wages and
salary to the employees of the Company who continue to be employed by the
Company after the Offer Payment Date (the "COMPANY EMPLOYEES") that are
substantially similar in the aggregate to the base wages and salary provided to
the Company immediately prior to the Effective Time. The preceding sentence
shall not preclude the Surviving Corporation from terminating the employment of
any employee, subject to applicable severance obligations in its sole
discretion. After the Effective Time, Parent shall cause the Surviving
Corporation and its Subsidiaries to honor all severance obligations under all of
the severance agreements identified on SECTION 6.19 of the Company Disclosure
Schedule.
53
6.19 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE.
(a) Without limiting any additional rights that any employee, officer
or director may have under any agreement or Benefit Plan or under the Company's
charter or bylaws, after the Effective Time, Parent shall, and shall cause the
Surviving Corporation to, indemnify and hold harmless each present (as of the
Effective Time) and former officer or director of the Company or any of its
Subsidiaries (the "INDEMNIFIED DIRECTORS AND OFFICERS"), against all claims,
losses, liabilities, damages, judgments, inquiries, fines and reasonable fees,
costs and expenses, including attorneys' fees and disbursements (collectively,
"COSTS") incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of actions taken by them in their capacity as officers or directors at or
prior to the Effective Time (including this Agreement and the Transactions), or
taken by them at the request of the Company or any Subsidiary of the Company,
whether asserted or claimed prior to, at or after the Effective Time, to the
fullest extent permitted under applicable Law for a period of six years from the
Effective Time. Each Indemnified Director and Officer shall be entitled to
advancement of expenses incurred in the defense of any claim, action, suit,
proceeding or investigation from the Surviving Corporation within ten Business
Days of receipt by the Surviving Corporation from the Indemnified Director or
Officer of a request therefor; provided that any Person to whom expenses are
advanced provides an undertaking to repay such advances if it is ultimately
determined that such person is not entitled to indemnification. The Surviving
Corporation shall not settle, compromise or consent to the entry of any judgment
in any proceeding or threatened action, suit, proceeding, investigation or claim
(and in which indemnification could be sought by such Indemnified Director or
Officer hereunder), without the consent of such Indemnified Director or Officer,
which consent shall not be unreasonably withheld or delayed, unless such
settlement, compromise or consent includes an unconditional release of such
Indemnified Director or Officer from all liability arising out of such action,
suit, proceeding, investigation or claim.
(b) The charter and bylaws of the Surviving Corporation shall continue
to contain provisions no less favorable with respect to indemnification,
advancement of expenses and exculpation of former or present directors and
officers than are presently set forth in the charter and bylaws of the Company
and its Subsidiaries, which provisions shall not be amended, repealed or
otherwise modified for a period of six years from the Effective Time in any
manner that would adversely affect the rights thereunder of any such
individuals.
(c) On or prior to the date of this Agreement, the Company has
received confirmation notices with respect to offers, on the terms and
conditions set forth on SECTION 6.19(C) of the Company Disclosure Schedule,
which the Company believes to be binding on the insurance carriers, subject to
the absence of a material change in this Agreement and to the consummation of
the Offer (the "BINDER"), for "run-off" insurance policies for directors' and
officers' liability insurance, plan purchaser protection, employee practices and
fiduciary liability coverage (which shall provide for the Side A, B and C
coverage for Indemnified Directors and Officers), on terms and conditions that
have been made available to Parent and Acquisition Corp., with a claims period
of at least six years from the Offer Payment Date with respect to directors' and
officers' liability insurance, employee practices and fiduciary liability
coverage, and with a claims period of at least three years from the Offer
Payment Date with respect to plan purchaser protection from an insurance carrier
with the same or better credit rating as the Company's current insurance carrier
with respect to all such coverage in an amount and scope at least as favorable
as the Company's existing policies with respect to matters existing or occurring
at or prior to the Offer Payment Date (the "RUN-OFF POLICY"). Prior to the
earlier of (i) the Offer Payment Date or (ii) the date such Run-Off Policy is
cancelled due to non-payment, the Company shall obtain and fully pay for the
Run-Off Policy. Parent shall, and shall cause the Surviving Corporation to,
honor and perform under all indemnification agreements entered into by the
Company or any Company Subsidiary set forth in SECTION 6.19(C) of the Company
Disclosure Schedule. In the event that the carriers do not make the Run-Off
Policy available to the Company for any reason other than a breach of this
Agreement by the Company and Acquisition Corp. acquires shares of Common Stock
on the Offer Payment Date pursuant to the Offer, the Company shall endeavor to
(and if the Company is unable to, Parent shall cause the Surviving Corporation
to (after the Offer Payment Date) obtain and fully pay (up to a maximum cost of
300% of the current annual premium paid by the Company for its existing coverage
for directors' and officers' liability insurance, plan purchaser protection,
employee practices and fiduciary liability coverage in the aggregate (the
"MAXIMUM AMOUNT")) for "tail" insurance policies (which shall provide for the
Side A, B and C coverage for Indemnified Directors and Officers where the
existing policies also include coverage for the Company) with a claims period of
at least six years from the Offer Payment Date for directors' and officers'
liability insurance, plan purchaser protection, employee practices and fiduciary
liability coverage and three years from the Offer Payment Date for plan
purchaser protection, from an insurance carrier with the same or better credit
rating as the
54
Company's current insurance carrier with respect to all such coverage in an
amount and scope at least as favorable as the Company's existing policies with
respect to matters existing or occurring at or prior to the Offer Payment Date.
Notwithstanding the foregoing, after the Offer Payment Date, if the amount of
the annual premium necessary to maintain or procure such insurance coverage
exceeds the Maximum Amount, the Company or the Surviving Corporation shall
maintain or procure, for such six (6) year period or three (3) year period, as
appropriate, the most advantageous policy of insurance for the Indemnified
Directors and Officers obtainable for an annual premium equal to the Maximum
Amount.
(d) Notwithstanding anything herein to the contrary, if any claim,
action, suit, proceeding or investigation (whether arising before, at or after
the Effective Time) is made against any Indemnified Director or Officer or any
other party covered by directors' and officers' liability insurance, on or prior
to the sixth anniversary of the Effective Time, the provisions of this SECTION
6.19 shall continue in effect until the final disposition of such claim, action,
suit, proceeding or investigation.
(e) This covenant is intended to be for the benefit of, and shall be
enforceable by, each of the Indemnified Directors and Officers and their
respective heirs and legal representatives. The indemnification provided for
herein shall not be deemed exclusive of any other rights to which an Indemnified
Director or Officer is entitled, whether pursuant to Law, contract or otherwise.
Parent and Acquisition Corp. shall pay all reasonable, documented out-of-pocket
expenses, including reasonable attorneys' fees, that may be incurred by any
Indemnified Director and Officer in enforcing the indemnity and other
obligations provided in this SECTION 6.19.
55
ARTICLE 7
CONDITIONS TO CONSUMMATION OF THE MERGER
7.01 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The respective
obligations of the Company, Parent and Acquisition Corp. to consummate the
Merger are subject to the satisfaction, at or before the Effective Time, of each
of the following conditions:
(a) COMMON SHAREHOLDER APPROVAL. The Company shall have obtained the
Shareholder Approval at the Shareholders Meeting in accordance with the Tenn.
Acts, the Company's Charter and its bylaws unless such Shareholder Approval is
not necessary pursuant to SECTION 6.02(C) above; PROVIDED THAT Acquisition Corp.
agrees to vote all Common Shares owned by it, if any, in favor of the Merger at
the Shareholder Meeting unless such Shareholder Approval is not necessary
pursuant to SECTION 6.02(C) above or unless otherwise prohibited by Law.
(b) NO ORDERS AND INJUNCTIONS. No Governmental Authority shall have
enacted, issued, promulgated, enforced or entered any Law, rule or regulation or
executive order or decree, judgment, injunction, ruling or other order, whether
temporary, preliminary or permanent (collectively, "ORDER"), that is then in
effect and has the effect of preventing or prohibiting consummation of the
Merger or otherwise imposing material limitations on the ability of Acquisition
Corp. and Parent effectively to acquire or hold the business of the Company and
its Subsidiaries; provided, however, that each of the parties hereto shall use
their commercially reasonable efforts to have any such Order vacated.
(c) THE OFFER. Parent and Acquisition Corp. shall have purchased at
least 51% of the Common Shares determined on a Fully-Diluted Basis pursuant to
the Offer.
ARTICLE 8
TERMINATION
8.01 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated and
the Merger and other Transactions may be abandoned at any time prior to the
Effective Time, before or after the approval of this Agreement by the
shareholders of the Company, by the mutual written consent of the Company,
acting under the direction of the Company Board, and Parent and Acquisition
Corp., acting under the direction of their respective boards of directors.
8.02 TERMINATION BY ACQUISITION CORP., PARENT OR THE COMPANY. This
Agreement may be terminated and the Merger and other Transactions may be
abandoned at any time prior to the Effective Time, before or after the approval
of this Agreement by the shareholders of the Company, by either Acquisition
Corp. and Parent, on the one hand, by action of their respective boards of
directors, or the Company, on the other hand, by action of the Company Board,
if:
(a) any Governmental Authority shall have issued an Order (which has
not been vacated, withdrawn or overturned) permanently restraining, enjoining or
otherwise prohibiting the acceptance for payment of, or payment for, the Common
Shares pursuant to the Offer or the Merger and such Order shall have become
final and nonappealable; provided,
56
however, that the right to terminate this Agreement pursuant to this SECTION
8.02(A) shall not be available to any party that has failed to perform in all
material respects its obligations under SECTION 6.08 or the proviso contained in
SECTION 7.01(b);
(b) the Offer Payment Date shall not have occurred on or before the
forty-fifth (45th) Business Day after the date hereof (the "TERMINATION Date");
PROVIDED, HOWEVER, that (i) the right to terminate this Agreement under this
SECTION 8.02(B) shall not be available to any party whose failure to perform any
covenant or obligation under this Agreement has been the cause of or resulted in
the failure of the Offer Payment Date to have occurred on or before the
Termination Date and (ii) in the event the conditions to the consummation of the
Offer set forth in Annex A hereto have not been fully satisfied by the
Termination Date as a result of a breach of a representation, warranty or
covenant of the Company or due to the evaluation of an Acquisition Proposal by
the Company Board, the Termination Date shall automatically be extended until
the seventh Business Day after the date such breach has been cured or the
seventh Business Day after the Company Board rejects such Acquisition Proposal
and reaffirms its approval and recommendation of the transactions contemplated
by this Agreement; or
(c) there shall be any Law or Order that makes consummation of the
Offer or the Merger illegal or otherwise prohibited.
8.03 TERMINATION BY ACQUISITION CORP. AND PARENT. This Agreement may
be terminated and the Merger and other Transactions may be abandoned at any time
prior or on the Offer Payment Date, by action of the board of directors of
Acquisition Corp. and the board of directors of Parent, if:
(a) the Company shall have breached in any material respect any of its
representations, warranties, covenants or other agreements set forth in this
Agreement (a "TERMINATING COMPANY BREACH") and such Terminating Company Breach
(A) would give rise to the failure of a condition to the consummation of the
Offer set forth in clause (e) or clause (f) of ANNEX A attached hereto and (B)
if curable has not been cured within seven Business Days after notice thereof is
received by the Company (provided that the Company shall not be entitled to any
cure period for any breach of SECTION 6.08 hereof); provided that Parent and
Acquisition Corp. shall have no right to terminate this Agreement pursuant to
this SECTION 8.03(A) if there is an uncured Terminating Acquisition Corp. Breach
(as defined below) at the time of the Terminating Company Breach;
(b) any of the following occur: (i) there shall not have been validly
tendered to Acquisition Corp. and not withdrawn prior to the expiration of the
Offer (giving effect to any extension thereof) at least 51% of the Common Shares
determined on a Fully-Diluted Basis, (ii) the Offer is not commenced within ten
(10) Business Days after the date of this Agreement (plus the number of Business
Days in the Force Majeure Period (as hereinafter defined), if applicable) if the
failure to commence the Offer results from the breach of any representations,
warranties or covenants of the Company or from other facts or circumstances
outside of Parent and Acquisition Corp.'s control, or (iii) the Offer Payment
Date does not occur on the 20th Business Day after the commencement of the Offer
(plus the number of Business Days of any extension determined by Acquisition
Corp. in its sole and absolute discretion and plus the number of Business Days
of any extension pursuant to the Company Extension Election), PROVIDED THAT (x)
57
if the Offer is not commenced within ten (10) Business Days after the date of
this Agreement (plus the number of Business Days in the Force Majeure Period, if
applicable) and the Company has complied with its covenants set forth in this
Agreement, the Company shall have the option to delay Parent's and Acquisition
Corp.'s right to terminate this Agreement pursuant to SECTION 8.03(B)(II) for up
to ten (10) additional Business Days (minus the number of Business Days in any
Force Majeure Period prior to such time) (the "COMMENCEMENT DELAY ELECTION") if
the Company provides notice to Parent and Acquisition Corp. of its election to
delay Parent's and Acquisition Corp.'s right to terminate this Agreement
pursuant to SECTION 8.03(B)(II) and the Company pays certain Expenses of Parent
and Acquisition Corp. pursuant to SECTION 9.01, in which case this Agreement may
not be terminated pursuant to this SECTION 8.03(B)(III) if the Offer is
commenced within such extended period, (y) Parent and Acquisition Corp. shall
have no right to terminate this Agreement pursuant to SECTION 8.03(B)(II) if the
Offer has not been commenced on such date as a result of a breach of this
Agreement by Parent or Acquisition Corp. and, (z) Parent and Acquisition Corp.
shall have no right to terminate SECTION 8.03(B)(III) if the Offer Payment Date
does not occur as a result of a breach of this Agreement by Parent or
Acquisition Corp.;
(c) (i) the Company Board or the Special Committee withdraws, modifies
or changes in a manner adverse to Acquisition Corp. and Parent its approval and
favorable recommendation of this Agreement and the Offer or the Merger, (ii) the
Company Board or the Special Committee shall have approved or recommended to the
shareholders of the Company, taken no position with respect to, failed to
promptly (and in no event more than ten Business Days following receipt thereof)
take a position or failed to promptly (and in no more than ten Business Days
following receipt thereof) recommend against acceptance of, any Acquisition
Proposal other than the Offer or the Merger, or (iii) the Company, the Company
Board or the Special Committee resolves to do any of the foregoing; PROVIDED,
HOWEVER, that actions taken by the Company Board solely in accordance with the
proviso to SECTION 6.08(A) or SECTION 6.08(D) shall not be deemed to be a
withdrawal or modification of its approval or recommendation of this Agreement
and the Offer or the Merger.
For purposes of this Agreement, the "FORCE MAJEURE PERIOD" means the period
beginning on the date of any Force Majeure Event (as hereinafter defined) and
ending on the earlier of (i) the date such Force Majeure Event is no longer in
effect and (ii) the number of Business Days equal to (X) ten MINUS (Y) the
number of Business Days of any Commencement Delay Election MINUS (Z) the number
of Business Days of any Company Extension Election. The term "FORCE MAJEURE
EVENT" shall mean any natural disaster, act of war, sabotage or terrorism,
military action or the escalation thereof or any delay in the commencement of
the Offer or the acquisition of Common Shares pursuant to the Offer on the Offer
Payment Date by the SEC or Nasdaq which was not caused by a breach of this
Agreement by the Company; provided that such events shall only be deemed Force
Majeure Events to the extent such events materially and adversely affect
Parent's or Acquisition Corp.'s ability to commence the Offer or acquire the
Common Shares pursuant to the Offer.
8.04 TERMINATION BY THE COMPANY. This Agreement may be terminated by
the Company acting under the direction of the Company Board, and the Merger and
other Transactions may be abandoned at any time prior to or on the Offer Payment
Date if:
58
(a) at any time prior to the acquisition of any Common Shares by
Acquisition Corp. pursuant to the Offer, Acquisition Corp. or Parent shall have
breached in any material respect any of their respective representations,
warranties, covenants or other agreements set forth in this Agreement (a
"TERMINATING ACQUISITION CORP. BREACH") and such Terminating Acquisition Corp.
Breach (A) would prevent Acquisition Corp. from consummating the transactions
contemplated by this Agreement, including the acquisition of Common Shares
pursuant to the Offer and (B) is not cured within seven days after written
notice thereof is received by Acquisition Corp. and Parent; provided that the
Company shall have no right to terminate this Agreement pursuant to this SECTION
8.04(A) if there is an uncured Terminating Company Breach at the time of the
Terminating Acquisition Corp. Breach; or
(b) Acquisition Corp. shall have failed to timely commence the Offer
in accordance with SECTION 1.01 above (subject to extension due to a Force
Majeure Event for the Force Majeure Period and any extension resulting from the
exercise of the Commencement Delay Election pursuant to SECTION 8.03(B) above)
unless such failure resulted from a breach of this Agreement by the Company; or
(c) each of the following have occurred: (A) the Company has complied
in all respects with its covenants under this Agreement, including SECTION 6.08
above, and (B) an Acquisition Proposal constitutes a Superior Proposal.
8.05 EFFECT OF TERMINATION. In the event of the termination of this
Agreement and abandonment of the Merger and other Transactions pursuant to
SECTIONS 8.01, 8.02, 8.03 or 8.04 of this ARTICLE 8 (other than the Offer if the
Offer has been consummated prior to termination of this Agreement), this
Agreement shall forthwith become null and void and have no effect, without any
liability on the part of any party or its officers, directors, shareholders,
affiliates and agents, other than the provisions of the last sentence of SECTION
6.04, the provisions of this SECTION 8.05, and the provisions of ARTICLE 9.
Nothing contained in this SECTION 8.05 shall relieve any party hereto from
liability for any material and intentional breach of this Agreement; PROVIDED
THAT except in connection with fraudulent misrepresentation or deceit, (x) the
Company shall not have any liability for such material and intentional breach of
this Agreement in excess of the sum of (a) the aggregate amount of Parent's and
Acquisition Corp.'s Expenses up to $3 million in the aggregate plus (b) the
Company Break Up Fee and (y) Parent and Acquisition Corp. shall not have any
liability for such material and intentional breach of this Agreement (in the
aggregate) in excess of the sum of (a) the aggregate amount of the Company's
Expenses up to $3 million in the aggregate plus (b) the Company Break Up Fee.
ARTICLE 9
MISCELLANEOUS
9.01 PAYMENT OF FEES AND EXPENSES.
(a) Except as otherwise specified in this Agreement, each of the
parties hereto shall bear their own Expenses (as defined below) incurred by or
on behalf of such party in preparing for, entering into and carrying out this
Agreement and the consummation of the Merger and the financing of the
Transactions. "EXPENSES" as used in this Agreement shall
59
include all out-of-pocket expenses (including, without limitation, all fees and
expenses of outside counsel, investment bankers, banks, other financial
institutions, accountants, financial printers, experts and consultants to a
party hereto) incurred by a party or on its behalf in connection with or related
to the investigation, due diligence examination, authorization, preparation,
negotiation, execution and performance of this Agreement and the Transactions
and the financing thereof and all other matters contemplated by this Agreement
and the closing thereof, together with any out-of-pocket costs and expenses
incurred by any party in enforcing any of its rights set forth in this
Agreement, whether pursuant to litigation or otherwise.
(b) If this Agreement is terminated pursuant to SECTION 8.03(A)
due to a breach of a covenant of the Company, SECTION 8.03(C) or SECTION
8.04(C), then immediately following such termination, the Company shall pay
Parent and Acquisition Corp. the Company Break Up Fee (as defined below) plus
Parent's and Acquisition Corp.'s Expenses pursuant to SECTION 9.01(C). In the
event that (x) the Company exercises the Company Extension Election, (y) this
Agreement is terminated pursuant to SECTION 8.03(B) and (z) within four months
of the termination of this Agreement, the Company enters into an agreement to
consummate an Alternative Acquisition (as defined below) or consummates an
Alternative Acquisition or, with respect to clause (iii) of the definition of
Alternative Acquisition below a tender offer is announced (provided that shares
of capital stock are ultimately acquired pursuant to such tender offer whether
or not within the four-month period), then the Company shall immediately pay
Parent and Acquisition Corp. the Company Break Up Fee in addition to Parent's
and Acquisition Corp.'s Expenses pursuant to SECTION 9.01(C) below; PROVIDED
THAT in the event of a tender offer commenced without the consent of the Company
Board, the Company would not be required to pay such amounts until the
consummation of such tender offer. For purposes of this Agreement, "COMPANY
BREAK UP FEE" means cash in immediately available funds in an amount equal to
Ten Million Eight Hundred Seventy-Five Thousand Dollars ($10,875,000). For
purposes of this Agreement, an "ALTERNATIVE ACQUISITION" means any of the
following transactions or series of related transactions: (i) any direct or
indirect acquisition or purchase of 50% or more of the total consolidated assets
of the Company or any of its Subsidiaries, in a single transaction or series of
transactions (including through the acquisition of any equity securities of any
of the Company's Subsidiaries), (ii) any direct or indirect acquisition or
purchase of 50% or more of any class of equity securities of the Company, in a
single transaction or series of transactions (including through a merger,
consolidation, share exchange, business combination or other similar
transaction), (iii) any tender offer or exchange offer (including a self-tender
offer) that results in any person or group of related persons beneficially
owning 50% or more of any class of equity securities of the Company or any of
its Subsidiaries; PROVIDED THAT an Alternative Acquisition shall not include a
recapitalization transaction which is financed solely out of some combination of
(x) the Company's own funds, (y) the proceeds of a debt financing provided by a
senior lender or mezzanine lender and (z) the proceeds of a sale-leaseback
transaction, which, in the case of clauses (y) or (z) above would not result in
the acquisition or transfer of any of the capital stock (or securities
exercisable or convertible into capital stock) of the Company or any Subsidiary
of the Company and would not result in the acquisition or transfer of 5% or more
of the capital stock (or securities exercisable or convertible into capital
stock) of the Company or any Subsidiary of the Company to such lender or
acquiror or any of their respective affiliates.
(c) Notwithstanding any provision to the contrary in this Agreement,
if this Agreement is terminated for any reason, the Company shall promptly pay
to Acquisition Corp.
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the lesser of (x) the aggregate amount of Parent's and Acquisition Corp.'s
Expenses and (y) $3,000,000 unless (I) this Agreement is terminated pursuant to
SECTION 8.02, SECTION 8.03(B) or SECTION 8.04(B) solely as a result of the
failure of the expiration or termination of any waiting period under the HSR Act
or an injunction issued by or at the request of the Federal Trade Commission or
Department of Justice in connection with antitrust violations, (II) the breach
of any representation or warranty of Parent or the failure of Parent and
Acquisition Corp. to perform any covenant or obligation under this Agreement has
been the cause of or resulted in the failure of the Merger to have been
consummated on or before the Termination Date, (III) this Agreement is
terminated pursuant to SECTION 8.02(B), SECTION 8.03(B) or SECTION 8.04(B)
solely as a result of a Force Majeure Event or (IV) this Agreement is terminated
pursuant to SECTION 8.02, SECTION 8.03(B) or SECTION 8.04(B) solely as a result
of (a) an injunction in connection with a shareholder derivative action or a
purported class action against the Company by its shareholders with respect to
the transactions contemplated by this Agreement or the Sun Merger Agreement or
(b) any delay in the commencement of the Offer or the acquisition of Common
Shares pursuant to the Offer on the Offer Payment Date by the SEC or Nasdaq
which was not caused by a breach of this Agreement by the Company; PROVIDED
HOWEVER, that in the event of a termination of this Agreement described in
clause (IV) above, the Company shall promptly pay to Acquisition Corp. the
lesser of (x) the aggregate amount of Parent's and Acquisition Corp.'s Expenses
and (y) $1,500,000. In the event that the Company exercises the Commencement
Delay Election and/or the Company Extension Election, the Company shall
immediately pay to Acquisition Corp. cash in an amount (the "COMPANY ELECTION
PAYMENT") equal to the lesser of (x) one-half of Parent's and Acquisition
Corp.'s Expenses as of the first date that the Company exercises either the
Commencement Delay Election or the Company Extension Election and (y) $1,500,000
and the Company shall acknowledge in writing the aggregate amount of Parent's
and Acquisition Corp.'s Expenses as of such date. In the event this Agreement is
subsequently terminated, the Company shall promptly pay to Acquisition Corp. an
amount equal to (A) the lesser of (x) the aggregate amount of Parent's and
Acquisition Corp.'s Expenses and (y) $3,000,000 MINUS (B) the aggregate amount
of Expenses paid by the Company to Acquisition Corp. pursuant to the immediately
preceding sentence. Notwithstanding the foregoing, in the event this Agreement
is subsequently terminated pursuant to SECTION 8.04(A), then Acquisition Corp.
will promptly pay to the Company an amount equal to the Company Election
Payment.
(d) All amounts payable by under this SECTION 9.01 shall be paid in
cash and in immediately available funds to such account as Parent or Acquisition
Corp. may designate in writing to the other party.
(e) The parties agree that the agreements contained in this SECTION
9.01 and the amounts payable as provided in this SECTION 9.01 are an integral
part of the Transactions, that such amounts represent the damages that the party
receiving such payment will incur if the conditions giving rise to such payments
occur and that such payments constitute liquidated damages and not a penalty and
that the right to receive said amounts shall constitute such party's sole and
exclusive remedy for termination of this Agreement pursuant to SECTION 8.03(B)
or SECTION 8.04(B).
9.02 NO SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. None of the representations, warranties, covenants and agreements
made in this Agreement shall survive beyond the Effective Time except for the
agreements set forth in ARTICLE 1, ARTICLE 2 and
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ARTICLE 3, SECTION 6.07, SECTION 6.10, SECTION 6.18, SECTION 6.19 and ARTICLE 9
shall survive the Effective Time and those set forth in SECTION 8.05 shall
survive termination.
9.03 MODIFICATION OR AMENDMENT. This Agreement may be amended by the
parties hereto at any time before or after approval of this Agreement by the
shareholders of the Company; provided, however, that after any such approval,
there shall not be made any amendment that by law requires the further approval
by such shareholders without such further approval. Without limiting the
foregoing, this Agreement may not be amended or modified except by an instrument
in writing signed by the parties hereto.
9.04 ENTIRE AGREEMENT; ASSIGNMENT; TERMINATION OF CONFIDENTIALITY
Agreement. This Agreement (including the documents and the instruments referred
to herein) and the Confidentiality Agreement constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof and thereof. Neither this
Agreement nor any of the rights, interests or obligations hereunder will be
assigned by any of the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other party (except that each of Parent
and Acquisition Corp. may assign its rights, interests and obligations to any of
their respective affiliates or direct or indirect Subsidiaries or to any lender
for collateral security without the consent of the Company). Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties and their respective successors and assigns.
At the Effective Time, the Confidentiality Agreement shall terminate and be of
no further force and effect.
9.05 VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, each of which shall remain in full force and
effect.
9.06 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by overnight courier or telecopier to the
respective parties as follows:
If to Parent or Acquisition Corp.:
GF Goods Inc.
GF Acquisition Corp.
c/o GMM Capital LLC
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx Xxxxx
Telecopy: (000) 000-0000
c/o Prentice Capital Management, LP
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx Xxxxxxxxx
Telecopy: (000) 000-0000
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with a copy to:
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
Xxxx Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxxx
Facsimile No.: (000) 000-0000
If to the Company:
000 Xxxxx'x Xxxx
Xxxxxxxxx, XX, 00000
Attention: Chairman and Chief Executive Officer
Facsimile No.: (000) 000-0000
with a copy to:
Dechert LLP
00 Xxxxxxxxxxx Xxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000-0000
Attention: Xxxxxx Xxxxxxxx
Facsimile No.: (000) 000-0000
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above;
provided that notice of any change of address shall be effective only upon
receipt thereof.
9.07 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Tennessee, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
9.08 DESCRIPTIVE HEADINGS. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
9.09 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement, and any one of which may be
delivered by facsimile.
9.10 CERTAIN DEFINITIONS. As used in this Agreement:
(a) the term "AFFILIATE," as applied to any person, shall mean any
other person directly or indirectly controlling, controlled by, or under common
control with, that person. For the purposes of this definition, "control"
(including, with correlative meanings, the terms
63
"controlling," "controlled by" and "under common control with"), as applied to
any person, means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of that person, whether
through the ownership of voting securities, by contract or otherwise;
(b) the term "BUSINESS DAY" means any day on which the principal
offices of the SEC in Washington, D.C. are open to accept filings, or, in the
case of determining a date when any payment is due, any day on which banks are
not required or authorized to close in New York, New York or Knoxville,
Tennessee;
(c) the term "CHARTER" shall have the meaning ascribed in the TBCA;
(d) the term "CONTRACT" shall mean any contract, instrument, permit,
concession, franchise, license, loan or credit agreement, note, bond, mortgage,
indenture, lease or other property agreement, partnership or joint venture
agreement or other legally binding agreement, whether oral or written,
applicable to the Person or any Subsidiary of the Person or any of their
respective properties or assets to whom the term is being applied;
(e) the term "FULLY-DILUTED BASIS" means, in respect of any class of
Company capital stock at any time, (i) all shares of such class of stock
outstanding at such time plus (ii) all shares of such class of stock which are
issuable directly or indirectly upon conversion of all then outstanding
convertible securities or upon the exercise or exchange of all outstanding
options, warrants or other rights which are convertible into or exchangeable for
Company securities or other rights, whether or not such convertible securities,
options, warrants or other rights are then convertible, exercisable or
exchangeable;
(f) the term "KNOWLEDGE," of any Person which is not an individual
means the actual knowledge, after due inquiry, of such Person's officers and
directors, including the chief merchandising officer and all officers with a
title of vice president or higher.
(g) the term "LEASED REAL PROPERTY" means all leasehold or
subleasehold estates and other rights to use or occupy any land, buildings,
structures, improvements, fixtures or other interest in real property held by
the Company or its Subsidiaries;
(h) the term "LEASES" means all leases, subleases, licenses,
concessions and other agreements (written or oral), including all amendments,
extensions, renewals, guaranties and other agreements with respect thereto,
pursuant to which the Company or its Subsidiaries holds any Leased Real
Property, including the right to all security deposits and other amounts and
instruments deposited by or on behalf of the Company or its Subsidiaries
thereunder.
(i) the term "OWNED REAL PROPERTY" means all land, together with all
buildings, structures, improvements and fixtures located thereon, including all
electrical, mechanical, plumbing and other building systems, fire protection,
security and surveillance systems, wiring and cable installations for
telecommunications, computer or other applications, utility installations, water
distribution systems, and landscaping (each of the foregoing to the extent owned
by the Company or its Subsidiaries), together with all easements and other
rights and interests appurtenant thereto (including, without limitation, air,
oil, gas, mineral and water rights) owned by the Company and its Subsidiaries.
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(j) the term "PERSON" or "PERSON" shall include individuals,
corporations, partnerships, trusts, other entities and groups (which term shall
include a "group" as such term is defined in Section 13(d)(3) of the Exchange
Act); and
(k) the term "SUBSIDIARY" or "SUBSIDIARIES" means, with respect to any
Person, any corporation, partnership, joint venture or other legal entity of
which such Person (either alone or through or together with any other
Subsidiary), owns, directly or indirectly, more than 50% of the stock or other
equity or beneficial interests, the holders of which are generally entitled to
vote for the election of the board of directors or other governing body of such
corporation or other legal entity.
9.11 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
9.12 EXTENSION; WAIVER. At any time prior to the Effective Time, a
party may (a) extend the time for the performance of any of the obligations or
other acts of the other party, (b) waive any inaccuracies in the representations
and warranties of the other party contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) subject to the proviso in SECTION
9.03, waive compliance by the other party with any of the agreements or
conditions contained in this Agreement. Any agreement on the part of a party to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of such rights.
9.13 THIRD-PARTY BENEFICIARIES. This Agreement is not intended to
confer upon any person other than the parties hereto any rights or remedies.
9.14 COMPANY DISCLOSURE SCHEDULE. Any disclosure made with reference
to one or more sections of the Company Disclosure Schedule shall be deemed
disclosed only with respect to such section unless such disclosure is made in
such a way as to make its relevance to the information called for by another
section of the Company Disclosure Schedule readily apparent in which case, such
disclosure shall be deemed to have been included in such other section,
notwithstanding the omission of a cross reference thereto.
9.15 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of Law or public
policy, unless the effects of such invalidity, illegality or unenforceability
would prevent the parties from realizing the major portion of the economic
benefits of the Merger that they currently anticipate obtaining therefrom, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible to the fullest extent permitted by
65
applicable Law in an acceptable manner to the end that the Transactions are
fulfilled to the extent possible.
9.16 SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. Each of the
parties hereto submits to the exclusive jurisdiction of the United States
district court for the Eastern District of Tennessee, Knoxville Division in any
action or proceeding arising out of or relating to this Agreement and agrees
that all claims in respect of the action or proceeding may be heard and
determined in any such court. Each of the parties hereto also agrees not to
bring any action or proceeding arising out of or relating to this Agreement in
any other court. Each of the parties hereto waives any defense of inconvenient
forum to the maintenance of any action or proceeding so brought and waives any
bond, surety, or other security that might be required of any other party with
respect thereto. Any party hereto may make service on any other party by sending
or delivering a copy of the process to the party to be served at the address and
in the manner provided for the giving of notices in SECTION 9.06 above. Nothing
in this SECTION 9.16, however, shall affect the right of any party to serve
legal process in any other manner permitted by law or at equity. Each party
hereto agrees that a final judgment in any action or proceeding so brought shall
be conclusive and may be enforced by suit on the judgment or in any other manner
provided by law or at equity. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ALL
RIGHT TO A TRIAL BY JURY IN ANY SUIT, ACTION OR OTHER PROCEEDING INSTITUTED BY
OR AGAINST SUCH PARTY IN RESPECT OF ITS, HIS OR HER OBLIGATIONS HEREUNDER OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
* * * * *
66
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its respective officer thereunto duly authorized,
all as of the day and year first above written.
Goody's Family Clothing, Inc.
By: ____________________________________
Name:
Title:
GF Goods Inc.
By: /s/ Xxxxx Xxxxx
-------------------------------------------
Name: Xxxxx Xxxxx
Title: Chief Executive Officer
GF Acquisition Corp.
By: /s/ Xxxxx Xxxx
-------------------------------------------
Name: Xxxxx Xxxxx
Title: Chief Executive Officer
ANNEX A
CONDITIONS TO THE TENDER OFFER
Notwithstanding any other provisions of the Offer or this Agreement,
and in addition to (and not in limitation of) Acquisition Corp.'s rights to
extend and amend the Offer at any time in its sole discretion (subject to the
provisions of this Agreement), Acquisition Corp. shall 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 Acquisition Corp.'s
obligation to pay for or return tendered Shares promptly after termination or
withdrawal of the Offer), pay for, and may delay the acceptance for payment of
or, subject to the restriction referred to above, the payment for, any tendered
Common Shares, and may terminate the Offer as to any Common Shares not then paid
for, if prior to the termination of the Agreement (i) any applicable waiting
period under the HSR Act or any foreign antitrust or competition law or
regulation has not expired or terminated, (ii) the Minimum Condition has not
been satisfied, or (iii) at any time on or after the date of this Agreement and
before the time of payment for any Common Shares, any of the following events
shall occur or shall be determined by Acquisition Corp. to have occurred or be
occurring:
(a) there shall be pending any suit, action or proceeding by any
Governmental Authority (i) seeking to prohibit or impose any material
limitations on Parent's or Acquisition Corp.'s ownership or operation (or that
of any of their respective Subsidiaries or affiliates) of all or a material
portion of their or the Company's businesses or assets, or to compel Parent or
Acquisition Corp. or their respective Subsidiaries and affiliates to dispose of
or hold separate any material portion of the business or assets of the Company
or Parent and their respective Subsidiaries, in each case taken as a whole, (ii)
challenging the acquisition by Parent or Acquisition Corp. of any Common Shares
under the Offer or any Common Shares pursuant to the Acquisition Corp. Stock
Option Agreement, seeking to restrain or prohibit the making or consummation of
the Offer or the Merger or the performance of any of the other transactions
contemplated by this Agreement, the Acquisition Corp. Stock Option Agreement or
any of the other Transaction Agreements, or seeking to obtain from the Company,
Parent or Acquisition Corp. any damages that are material in relation to the
Company and its Subsidiaries taken as a whole, (iii) seeking to impose material
limitations on the ability of Acquisition Corp., or rendering Acquisition Corp.
unable, to accept for payment, pay for or purchase some or all of the Common
Shares pursuant to the Offer, the Acquisition Corp. Stock Option Agreement, and
the Merger, (iv) seeking to impose material limitations on the ability of
Acquisition Corp. or Parent effectively to exercise full rights of ownership of
the Common Shares, including, without limitation, the right to vote the Common
Shares purchased by it on all matters properly presented to the Company's
shareholders, or (v) which otherwise is reasonably likely to have a Company
Material Adverse Effect;
(b) any Governmental Authority shall have enacted, issued,
promulgated, enforced or entered any Order that is then in effect and has the
effect of preventing or prohibiting consummation of the Offer or the Merger or
otherwise imposing material limitations on the
ability of Acquisition Corp. and Parent effectively to acquire or hold the
business of the Company and its Subsidiaries;
(c) there shall be Law enacted, entered, enforced, promulgated or
deemed applicable to the Offer or the Merger, or any other action shall be taken
by any Governmental Authority, other than the application to the Offer or the
Merger of applicable waiting periods under the HSR Act or any foreign antitrust
or competition law or regulation, that is reasonably likely to result, directly
or indirectly, in any of the consequences referred to in clauses (i) through (v)
of paragraph (a) above;
(d) there shall have occurred (i) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States (whether or not mandatory) or (ii) any limitation or proposed limitation
(whether or not mandatory) by any foreign or United States governmental
authority or agency that has a material adverse effect generally on the
extension of credit by banks or other financial institutions;
(e) any of the representations and warranties of the Company contained
in this Agreement (except for the representations and warranties of the Company
in SECTION 4.03(A) (Capitalization)) or the Acquisition Corp. Stock Option
Agreement shall not be true and correct in all respects as of the date of this
Agreement or as of the scheduled expiration of the Offer or the Offer Payment
Date as if made at such time (except for those representations and warranties
that address matters only as of a particular date or only with respect to a
specific period of time, which need only be true and correct in all respects as
of such date or with respect to such period), in each case without giving effect
to any disclosures made by the Company or any of its Subsidiaries after the
parties execute this Agreement or to any "materiality" or "Company Material
Adverse Effect" limitations contained therein, except where the failure of any
such representations and warranties to be true and correct would not have a
Company Material Adverse Effect, either individually or in the aggregate, or any
of the representations and warranties of the Company contained in SECTION
4.03(A) (Capitalization) of this Agreement shall not be true and correct in all
respects as of the date of this Agreement or as of the scheduled expiration of
the Offer or the Offer Payment Date as if made at such time;
(f) the Company shall have breached or failed to perform in any
material respect any obligation or to comply in any material respect with any
agreement or covenant of the Company to be performed or complied with by it
under any of the Transaction Agreements, which breach or failure to perform
cannot be or has not been cured within seven Business Days after giving of
written notice to the Company of such breach, except in the case of the
Company's covenants contained in SECTION 6.01(R) if the breach of such covenants
was not intentional or willful and would not have, individually or in the
aggregate, a Company Material Adverse Effect.
(g) there shall have occurred any events or changes (whether or not
described in any notice delivered by the Company pursuant to SECTION 6.8 hereof)
which have had or which are reasonably likely to have or constitute,
individually or in the aggregate, a Company Material Adverse Effect;
(h) this Agreement shall have been terminated in accordance with its
terms;
(i) the Company Board or any committee thereof (i) shall have
withdrawn, or modified or changed in any manner adverse to Parent or Acquisition
Corp. (including by amendment of the Schedule 14D-9), its recommendation of the
Offer, this Agreement, or the Merger, (ii) shall have recommended another
proposal or offer, (iii) shall have resolved to do any of the foregoing or (iv)
shall have taken a neutral position or made no recommendation with respect to
another proposal or offer (other than by Parent or Acquisition Corp.) after a
reasonable amount of time (and in no event more than ten Business Days following
receipt thereof) has elapsed for the Company Board or any committee thereof to
review and make a recommendation with respect thereto;
(j) the Company shall not have made any notifications required to be
given to any third parties with respect to any Contract, in each case on terms
satisfactory to Parent or any consents, approvals, permits of, authorizations
from, notifications to and filings with any Governmental Authorities required to
be made or obtained prior to the consummation of the Offer shall not have been
made or obtained; or
(k) any party to the Support Agreement or the Acquisition Corp. Stock
Option Agreement (other than Acquisition Corp. or Parent) shall have (i)
breached or failed to perform any obligations to tender Common Shares, (ii)
breached any representations and warranties or failed to perform any other
obligations which would reasonably be expected to have a Company Material
Adverse Effect or have a material adverse effect on the parties' abilities to
consummate the Transactions, or (iii) any of such agreements shall not be valid,
binding and enforceable, which in each case in the sole judgment of Parent makes
it inadvisable to proceed with the Offer or with such acceptance for payment or
payments.
The foregoing conditions are for the sole benefit of Acquisition Corp.
and Parent and may be waived by Parent and Acquisition Corp., in whole or in
part at any time and from time to time in the sole collective discretion of
Parent and Acquisition Corp. The failure by Parent or Acquisition Corp. at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
