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RECAPITALIZATION AGREEMENT AND PLAN OF MERGER
AMONG
WESTAFF ACQUISITION CORP.,
WESTAFF, INC.
AND
CERTAIN STOCKHOLDERS OF
WESTSTAFF, INC.
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March 7, 2000
TABLE OF CONTENTS
PAGE
ARTICLE I
THE RECAPITALIZATION AND THE MERGER.........................................2
SECTION 1.01 ISSUANCE OF PREFERENCE SHARES.................................2
SECTION 1.02 DEBT FINANCING................................................3
SECTION 1.03 THE MERGER....................................................3
SECTION 1.04 EFFECTIVE TIME; CLOSING.......................................3
SECTION 1.05 EFFECT OF THE MERGER..........................................3
SECTION 1.06 CERTIFICATE OF INCORPORATION; BY-LAWS.........................4
SECTION 1.07 DIRECTORS AND OFFICERS........................................4
SECTION 1.08 ADDITIONAL ACTIONS............................................4
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES; DEPOSIT.................5
SECTION 2.01 EFFECT ON CAPITAL STOCK AND COMPANY STOCK OPTIONS.............5
SECTION 2.02 EXCHANGE OF CERTIFICATES......................................6
SECTION 2.03 COMPANY STOCK OPTIONS; PLANS..................................8
SECTION 2.04 SHARES OF DISSENTING STOCKHOLDERS.............................9
SECTION 2.05 ADJUSTMENT OF MERGER CONSIDERATION...........................10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY..............................10
SECTION 3.01 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.................10
SECTION 3.02 CERTIFICATE OF INCORPORATION AND BY-LAWS.....................11
SECTION 3.03 CAPITALIZATION...............................................11
SECTION 3.04 AUTHORITY RELATIVE TO THIS AGREEMENT.........................12
SECTION 3.05 NO CONFLICT; REQUIRED FILINGS AND CONSENTS...................12
SECTION 3.06 SEC FILINGS; FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES...13
SECTION 3.07 ABSENCE OF CERTAIN CHANGES OR EVENTS.........................14
SECTION 3.08 ABSENCE OF LITIGATION........................................16
SECTION 3.09 STOCKHOLDER VOTE REQUIRED....................................16
SECTION 3.10 OPINION OF FINANCIAL ADVISOR.................................16
SECTION 3.11 BROKERS......................................................16
SECTION 3.12 COMPANY ACTION; STATE TAKEOVER STATUTES......................17
SECTION 3.13 INFORMATION SUPPLIED.........................................17
SECTION 3.14 ENVIRONMENTAL AND SAFETY MATTERS.............................17
SECTION 3.15 REAL PROPERTY................................................18
SECTION 3.16 PERSONAL PROPERTY............................................20
SECTION 3.17 CONTRACTS....................................................20
SECTION 3.18 INSURANCE POLICIES...........................................21
SECTION 3.19 COMPLIANCE WITH LAWS.........................................21
SECTION 3.20 TAX MATTERS..................................................22
SECTION 3.21 EMPLOYMENT AGREEMENTS........................................24
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SECTION 3.22 CHANGE OF CONTROL PROVISIONS.................................24
SECTION 3.23 EMPLOYEES....................................................24
SECTION 3.24 PERMITS......................................................24
SECTION 3.25 EMPLOYEE BENEFIT PLANS.......................................25
SECTION 3.26 INTELLECTUAL PROPERTY RIGHTS.................................26
SECTION 3.27 YEAR 2000....................................................27
SECTION 3.28 UNIONS.......................................................27
SECTION 3.29 FRANCHISE MATTERS............................................28
SECTION 3.30 NOTES AND ACCOUNTS RECEIVABLE................................29
SECTION 3.31 AFFILIATED TRANSACTIONS......................................29
SECTION 3.32 CONTRIBUTIONS................................................29
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MERGER SUB
AND THE INVESTOR GROUP.....................................................30
SECTION 4.01 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.................30
SECTION 4.02 CHARTER DOCUMENTS AND BY-LAWS................................30
SECTION 4.03 AUTHORITY RELATIVE TO THIS AGREEMENT.........................30
SECTION 4.04 NO CONFLICT; REQUIRED FILINGS AND CONSENTS...................31
SECTION 4.05 INTERIM OPERATIONS OF MERGER SUB.............................31
SECTION 4.06 INFORMATION SUPPLIED.........................................31
SECTION 4.07 BROKERS......................................................32
SECTION 4.08 FINANCING....................................................32
SECTION 4.09 LITIGATION...................................................32
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.........................33
SECTION 5.01 NO CONFLICT; REQUIRED FILINGS AND CONSENTS...................33
SECTION 5.02 OWNERSHIP OF SHARES..........................................33
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER.....................................34
SECTION 6.01 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER........34
ARTICLE VII
ADDITIONAL AGREEMENTS......................................................37
SECTION 7.01 STOCKHOLDERS' MEETING........................................37
SECTION 7.02 PREPARATION OF PROXY STATEMENT...............................37
SECTION 7.03 APPROPRIATE ACTION; CONSENTS; FILINGS; FURTHER ASSURANCES....38
SECTION 7.04 ACCESS TO INFORMATION; CONFIDENTIALITY.......................40
SECTION 7.05 NO SOLICITATION..............................................41
SECTION 7.06 INDEMNIFICATION AND INSURANCE................................43
SECTION 7.07 NOTIFICATION OF CERTAIN MATTERS..............................44
SECTION 7.08 PUBLIC ANNOUNCEMENTS.........................................45
SECTION 7.09 ASSISTANCE WITH FINANCING....................................45
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SECTION 7.10 STOCKHOLDER APPROVAL.........................................46
SECTION 7.11 EXCHANGE ACT AND NASDAQ FILINGS..............................46
SECTION 7.12 ALTERNATIVE FINANCING; DISCLOSURE............................46
SECTION 7.13 REPRESENTATIONS..............................................47
SECTION 7.14 SUPPORT AGREEMENT............................................47
SECTION 7.15 GUARANTEE; LIMITATION ON LIABILITY...........................47
SECTION 7.16 PURCHASE OF PROMISSORY NOTE BY XXXXXX........................47
ARTICLE VIII
CONDITIONS TO THE MERGER...................................................48
SECTION 8.01 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY..................48
SECTION 8.02 CONDITIONS TO THE OBLIGATIONS OF MERGER SUB..................49
SECTION 8.03 CONDITIONS TO THE OBLIGATION OF THE COMPANY..................51
SECTION 8.04 CONDITIONS TO THE OBLIGATIONS OF THE INVESTOR GROUP..........51
SECTION 8.05 CONDITIONS TO THE OBLIGATIONS OF THE STOCKHOLDERS............51
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER..........................................52
SECTION 9.01 TERMINATION..................................................52
SECTION 9.02 METHOD OF TERMINATION; EFFECT OF TERMINATION.................53
SECTION 9.03 FEES AND EXPENSES............................................53
SECTION 9.04 AMENDMENT....................................................55
SECTION 9.05 WAIVER.......................................................55
ARTICLE X
GENERAL PROVISIONS.........................................................56
SECTION 10.01 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS..56
SECTION 10.02 NOTICES.....................................................56
SECTION 10.03 CERTAIN DEFINITIONS.........................................57
SECTION 10.04 ACCOUNTING TERMS............................................60
SECTION 10.05 SEVERABILITY................................................60
SECTION 10.06 ENTIRE AGREEMENT; ASSIGNMENT................................60
SECTION 10.07 PARTIES IN INTEREST.........................................60
SECTION 10.08 SPECIFIC PERFORMANCE........................................60
SECTION 10.09 GOVERNING LAW...............................................60
SECTION 10.10 HEADINGS....................................................61
SECTION 10.11 COUNTERPARTS................................................61
SECTION 10.12 CONSTRUCTION................................................61
Exhibit A Terms of New Preference Stock
Exhibit B Stockholders' Schedule
Exhibit C Surviving Corporation Preferred Stock Terms
Exhibit D Legal Opinion of Counsel to the Company
Exhibit E Legal Opinion of Counsel to Merger Sub and the Investor Group
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RECAPITALIZATION AGREEMENT AND PLAN OF MERGER
This RECAPITALIZATION AGREEMENT AND PLAN OF MERGER dated March 7,
2000 (this "AGREEMENT") is by and among Westaff Acquisition Corp., a Delaware
corporation, ("MERGER SUB"), Westaff, Inc., a Delaware corporation (the
"COMPANY"), for purposes of Articles I, V, VII and VIII only, The Xxxxxx
Revocable Trust, The Xxxxxx 1999 Charitable Remainder Unitrust and The Xxxxxx
Foundation (collectively, the "STOCKHOLDERS"), and for purposes of Article IV
and Sections 1.01(c), 7.02, 7.03 (a), (b), (c) and (d), 7.04, 7.08, 7.12(b) and
7.15 only, Cornerstone Equity Investors IV, L.P. (together with its affiliate
assignees, "CORNERSTONE") and Centre Capital Investors III, L.P. (together with
its affiliate assignees, "CENTRE", and together with Cornerstone, the "INVESTOR
GROUP");
RECITALS
WHEREAS, Merger Sub is a new corporation formed by the Investor
Group for the purpose of entering into this Agreement and consummating the
transactions contemplated hereby;
WHEREAS, the Board of Directors of the Company has deemed it
advisable in connection with the transactions contemplated by this Agreement and
subject to the terms and conditions hereof that the Company amend its
Certificate of Incorporation or adopt a Certificate of Designation (the
"PREFERENCE AMENDMENT") to provide for the authorization to create and issue up
to 682,900.4 shares of Preferred Stock, $0.01 par value (the "NEW PREFERENCE
STOCK"), of the Company having the terms set forth on EXHIBIT A;
WHEREAS, immediately prior to the Effective Time (as defined
below), at the request of the Investor Group, the Stockholders shall convert an
aggregate of 500,000 shares of their Common Stock, par value $0.01, of the
Company (the "COMPANY COMMON STOCK") into New Preference Stock in the amounts
set forth on EXHIBIT B;
WHEREAS, immediately prior to the Effective Time, Cornerstone
shall make a $31,645,020 equity contribution into the Company for 316,450.2
shares of New Preference Stock (the "CORNERSTONE EQUITY CONTRIBUTION") and
Centre shall make a $31,645,020 equity contribution into the Company for
316,450.2 shares of New Preference Stock (the "CENTRE EQUITY CONTRIBUTION", and
together with the Cornerstone Equity Contribution, the "EQUITY CONTRIBUTION");
WHEREAS, the respective Boards of Directors of the Company and
Merger Sub have approved and declared advisable a merger (the "MERGER") of
Merger Sub with and into the Company upon the terms and subject to the
conditions set forth in this Agreement, with the Company surviving the Merger
(the "SURVIVING CORPORATION"), and the Board of Directors of the Company has
recommended that the holders of shares of Company Common Stock approve the
Merger and the other transactions contemplated by this Agreement upon the terms
of this Agreement;
WHEREAS, the Boards of Directors of Merger Sub and the Company
have determined that the Merger is in furtherance of and consistent with their
respective long-term business strategies and is fair to and in the best
interests of their respective stockholders;
WHEREAS, the Merger is subject to the approval of holders of
66 2/3% of the outstanding shares of Company Common Stock and satisfaction of
certain other conditions described in this Agreement;
WHEREAS, the Surviving Corporation shall, contemporaneously with
the Merger, obtain the debt financing (the "DEBT FINANCING") described in the
Commitment Letters (as defined below) to fund a portion of the Merger
Consideration (as defined below);
WHEREAS, contemporaneously with the execution of this Agreement,
the Stockholders are entering into a Support Agreement pursuant to which, and
subject to the terms thereof, they have agreed to vote their shares of Company
Common Stock in favor of the Merger and the Transactions; and
WHEREAS, it is intended that the transactions contemplated by
this Agreement be recorded as a recapitalization of the Company for financial
reporting purposes.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained and intending to be legally bound
hereby, the parties hereby agree as follows:
ARTICLE I
THE RECAPITALIZATION AND THE MERGER
SECTION 1.01 ISSUANCE OF PREFERENCE SHARES.
(a) AUTHORIZATION. Upon the terms and subject to the conditions
set forth in this Agreement, prior to the Effective Time, the Company
shall have amended its Certificate of Incorporation or adopted a
Certificate of Determination to authorize the creation, issuance and
sale of 682,900.4 shares of New Preference Stock having the terms set
forth on EXHIBIT A hereto.
(b) CONVERSION OF COMPANY COMMON STOCK INTO PREFERENCE SHARES.
Upon the terms and subject to the conditions set forth in this
Agreement, the Stockholders agree to convert immediately prior to the
Effective Time, an aggregate of 500,000 shares (or any lesser number
designated by the Investor Group at its sole discretion) ("TARGET
ROLL-OVER SHARES") of Company Common Stock into 50,000 shares of New
Preference Stock (the "PREFERENCE EXCHANGE"). Notwithstanding the
foregoing, the parties to this Agreement expressly agree that the number
of shares to be converted pursuant to the Preference Exchange shall be
reduced on a share for share basis to take into effect any Roll-Over
Management Shares (as defined in Section 2.01(f)). In the event of any
Roll-Over Management Shares the number of Target Roll-Over Shares shall
be adjusted accordingly.
(c) EQUITY CONTRIBUTION. Upon the terms and subject to the
conditions set forth in this Agreement, immediately prior to the
Effective Time, Cornerstone shall make the Cornerstone Equity
Contribution and Centre shall make the Centre Equity Contribution in
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exchange for the shares of New Preference Stock referred to in the
Recitals to this Agreement. Notwithstanding anything to the contrary
contained herein, each of Cornerstone and Centre may assign all or any
portion of its right to make its portion of the Equity Contribution
pursuant to this Section 1.01(c) to other persons without the consent of
any other parties hereto, provided that no member of the Investor Group
shall be released from its obligation to make its portion of the Equity
Contribution without the written consent of the other parties hereto.
Each of Cornerstone's and Centre's obligation to make its portion of the
Equity Contribution shall be several and not joint.
SECTION 1.02 DEBT FINANCING. Contemporaneously with the Merger,
the Surviving Corporation will consummate the Debt Financing.
SECTION 1.03 THE MERGER. Upon the terms and subject to the
conditions set forth in Article VIII, and in accordance with the provisions of
the Delaware General Corporation Law (the "DGCL"), at the Effective Time (as
defined below), Merger Sub shall be merged with and into the Company. As a
result of the Merger, the separate corporate existence of Merger Sub shall
cease, and the Company shall be the Surviving Corporation of the Merger.
SECTION 1.04 EFFECTIVE TIME; CLOSING. As promptly as practicable,
and in no event later than five business days after the satisfaction or, if
permissible, waiver of the conditions set forth in Article VIII (other than
those conditions that can only be satisfied on the Closing Date (as defined
below)), including, without limitation, the approval of the Merger by an
affirmative vote of the Requisite Majority, the parties hereto shall cause the
Merger to be consummated by filing a certificate of merger (the "CERTIFICATE OF
MERGER") with the Secretary of State of the State of Delaware, in such form as
is required by, and executed in accordance with, the DGCL. The term "EFFECTIVE
TIME" means the date and time of the filing of the Certificate of Merger with
the Secretary of State of the State of Delaware (or such later time as may be
agreed by the parties hereto and specified in the Certificate of Merger).
Immediately prior to the filing of the Certificate of Merger, a closing (the
"CLOSING") will be held at the offices of Xxxxxxxx & Xxxxx, Citigroup Center,
000 Xxxx 00xx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 (or such other place as the
parties may agree). The date on which such Closing takes place shall be referred
to herein as the "CLOSING DATE".
SECTION 1.05 EFFECT OF THE MERGER. At the Effective Time, the
effect of the Merger shall be as provided in the applicable provisions of the
DGCL. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time, all the property, rights, immunities, privileges, powers,
franchises and licenses of the Company and Merger Sub shall vest in the
Surviving Corporation, without further act or deed, and all debts, liabilities,
obligations, restrictions, disabilities and duties of each of the Company and
Merger Sub shall become the debts, liabilities, obligations, restrictions and
duties of the Surviving Corporation.
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SECTION 1.06 CERTIFICATE OF INCORPORATION; BY-LAWS.
(a) CERTIFICATE OF INCORPORATION. From and after the Effective
Time, the Certificate of Incorporation of Merger Sub in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended in
accordance with its terms and as provided by the DGCL and this
Agreement, except that, as of the Effective Time, Article I of such
Certificate of Incorporation shall be amended to read as follows: "The
name of the Corporation is Westaff, Inc."
(b) BYLAWS. From and after the Effective Time, the By-laws of the
Company as in effect immediately prior to the Effective Time shall be
the By-laws of the Surviving Corporation until thereafter amended in
accordance with its terms and as provided by the DGCL and the
Certificate of Incorporation of the Surviving Corporation.
SECTION 1.07 DIRECTORS AND OFFICERS.
(a) DIRECTORS. From and after the Effective Time, the directors
of Merger Sub immediately prior to the Effective Time shall be the
directors of the Surviving Corporation until the earlier of their
resignation or removal or until their respective successors are duly
elected and qualified, as the case may be, in accordance with the
Certificate of Incorporation and By-laws of the Surviving Corporation,
the DGCL and this Agreement.
(b) OFFICERS. From and after the Effective Time, the officers of
the Company immediately prior to the Effective Time shall be the
officers of the Surviving Corporation and shall hold office until the
earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be, in
accordance with the Certificate of Incorporation and By-laws of the
Surviving Corporation, the DGCL and this Agreement.
SECTION 1.08 ADDITIONAL ACTIONS. If, at any time after the
Effective Time, the Surviving Corporation shall consider or be advised that any
further deeds, assignments or assurances in Law (hereinafter defined) or any
other acts are necessary or desirable to (a) vest, perfect or confirm, of record
or otherwise, in the Surviving Corporation its rights, title or interest in, to
or under any of the rights, properties or assets of the Company or its
subsidiaries, or (b) otherwise carry out the provisions of this Agreement, 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 or 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 otherwise to carry
out the provisions of this Agreement, and the officers and directors of the
Surviving Corporation are authorized in the name of the Company to take any and
all such action.
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ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES; DEPOSIT
SECTION 2.01 EFFECT ON CAPITAL STOCK AND COMPANY STOCK OPTIONS.
As of the Effective Time, by virtue of the Merger and without any action on the
part of the holder of any Company Common Stock or any shares of capital stock of
Merger Sub:
(a) CAPITAL STOCK OF MERGER SUB. Each issued and outstanding
share of capital stock of Merger Sub issued and outstanding immediately
prior to the Effective Time shall be converted into the right to receive
$1,000.
(b) CANCELLATION OF COMPANY OWNED STOCK. All shares of Company
Common Stock and New Preference Stock (if any) that are held in the
treasury of the Company or by any wholly owned subsidiary of the Company
shall be canceled and retired and shall cease to exist without any
consideration payable therefor.
(c) CONVERSION OF COMPANY COMMON STOCK. Each share of Company
Common Stock issued and outstanding immediately prior to the Effective
Time (other than shares of the Company Common Stock referred to in
Section 2.01(b)) shall be converted into (as provided in and subject to
the limitations set forth in this Article II) the right to receive from
the Surviving Corporation in cash, $10.00 (the "MERGER CONSIDERATION")
without interest thereon upon surrender of the certificate previously
representing such share of Company Common Stock as provided in Section
2.02(c). As of the Effective Time, all such shares of Company Common
Stock shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a certificate
representing any such share of Company Common Stock shall cease to have
any rights with respect thereto, except the right to receive the cash
into which their shares of Company Common Stock have been converted by
the Merger as provided in this Section 2.01(c).
(d) CONVERSION OF NEW PREFERENCE STOCK. Each share of New
Preference Stock issued and outstanding immediately prior to the
Effective Time (other than shares of New Preference Stock to be canceled
pursuant to Section 2.01(b)) shall be converted into (as provided in and
subject to the limitations set forth in this Article II) and become ten
fully paid and nonassessable shares of Common Stock, par value $0.01, of
the Surviving Corporation (the "SURVIVING CORPORATION COMMON STOCK") and
ten fully paid and nonassessable shares of Preferred Stock, par value
$0.01, of the Surviving Corporation (the "SURVIVING CORPORATION
PREFERRED STOCK") having the terms set forth on EXHIBIT C and otherwise
being acceptable to the Investor Group, upon the surrender of the
certificate previously representing such shares of New Preference Stock.
As of the Effective Time, all such shares of New Preference Stock shall
no longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each holder of a certificate representing
any such share of New Preference Stock shall cease to have any rights
with respect thereto, except the right to receive the surviving
Corporation Common Stock and Surviving Corporation's Preferred Stock
into which their shares of New Preference Stock have been converted by
the Merger as provided in this Section 2.01(d).
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(e) CONVERSION OF COMPANY STOCK OPTIONS. Each Company Stock
Option (as defined in Section 2.03(a) hereof), issued and outstanding
immediately prior to the Effective Time shall be converted into (as
provided in and subject to the limitations set forth in this Article II)
the right to receive from the Surviving Corporation the Option
Consideration (as defined in Section 2.03(a) hereof) without interest
thereon. As of the Effective Time, all such Company Stock Options shall
no longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each holder of any such Company Stock
Option shall cease to have any rights with respect thereto, except the
right to receive the Option Consideration into which their Company Stock
Options have been converted by the Merger as provided in this Section
2.01(e) and Section 2.03(a).
(f) FURTHER AMENDMENT. Notwithstanding any provision to the
contrary, to the extent requested by Merger Sub, the parties agree to
amend this Agreement prior to Closing to permit shares of Company Common
Stock and/or Company Stock Options (as defined below) owned by certain
employees of the Company as mutually agreed by the Company and Merger
Sub to be converted into shares of New Preference Stock with
corresponding adjustments to be made to Section 1.01(b) and this Section
2.01 and the related definitions (any such shares of Company Common
Stock which are converted are referred to as "ROLL-OVER MANAGEMENT
SHARES").
SECTION 2.02 EXCHANGE OF CERTIFICATES.
(a) PAYING AGENT. Prior to the Effective Time, Merger Sub shall,
with the approval of the Company, designate a bank or trust company to
act as paying agent in the Merger (the "PAYING AGENT").
(b) At the Closing, Merger Sub shall deliver:
(i) to each person (who has been identified on a list to
be provided to Merger Sub by the Company not later than five
business days before the Closing) who has surrendered to the
Company prior to the Closing one or more certificates which
immediately prior to the Effective Time represented shares of
Company Common Stock (such certificates, the "CERTIFICATES") by
wire transfer of immediately available funds, the amount of cash
into which the shares of Company Common Stock represented by the
Certificates so surrendered have been converted pursuant to the
provisions of this Article II;
(ii) to the Stockholders who shall have surrendered to the
Merger Sub at the Closing the certificates which, immediately
prior to the Effective Time, represented shares of outstanding
New Preference Stock, the securities of the Surviving Corporation
into which the shares of New Preference Stock represented by such
certificates have been converted pursuant to the provisions of
this Article II; and
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(iii) to the Paying Agent, for the benefit of the holders
of Company Common Stock not so listed as provided in clause (i)
above, funds in the aggregate amount into which such shares of
Company Common Stock shall have been converted pursuant to the
provisions of this Article II.
(c) EXCHANGE PROCEDURE. Promptly after the Effective Time, the
Surviving Corporation shall mail to each holder of record (other than
the members of the Investor Group) of Certificates not surrendered
pursuant to Section 2.02(b), (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to
the Certificates shall pass, only upon delivery of the Certificates to
the address specified therein) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for the Merger
Consideration. Upon surrender of a Certificate for cancellation to the
Paying Agent, together with such letter of transmittal, duly executed,
and such other documents as may reasonably be required by the Paying
Agent, the holder of such Certificate shall be entitled to receive
promptly in exchange therefor from the Paying Agent the amount of cash
into which the shares of Company Common Stock theretofore represented by
such Certificate shall have been converted pursuant to Section 2.01, and
the Certificate so surrendered shall forthwith be canceled. In the event
of a transfer of ownership of the shares of Company Common Stock that is
not registered in the transfer records of the Company, payment may be
made to a person other than the person in whose name the Certificate so
surrendered is registered, if such Certificate shall be properly
endorsed or otherwise be in proper form for transfer and the person
requesting such payment shall pay any transfer or other taxes required
by reason of the payment to a person other than the registered holder of
such Certificate or establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.02, each Certificate shall
be deemed at any time after the Effective Time to represent only the
right to receive upon such surrender the amount of cash, without
interest, into which the shares of Company Common Stock theretofore
represented by such Certificate shall have been converted pursuant to
Section 2.01. No interest will be paid or will accrue on the cash
payable upon the surrender of any Certificate. In the event any
Certificate shall have been lost, stolen or destroyed, upon making of an
affidavit of that fact by the person claiming such Certificate to be
lost, stolen or destroyed, the Surviving Corporation will pay in
exchange for such lost, stolen or destroyed Certificate, the cash
payable in respect of the shares represented by such Certificate as
determined in accordance with this Article II, except that when
authorizing such payment, the Board of Directors of the Surviving
Corporation, may, in its discretion and as a condition precedent to such
payment, require the owner of such lost, stolen or destroyed Certificate
to deliver a bond in such sum as it may reasonably direct as indemnity
against any claim that may be made against the Surviving Corporation or
the Paying Agent with respect to such Certificate.
(d) WITHHOLDING. Merger Sub, Surviving Corporation and Paying
Agent shall be entitled to deduct and withhold from the Merger
Consideration otherwise payable or issuable pursuant to this Agreement
to any holder of Company Common Stock such amount as is required to be
deducted and withheld with respect to such payment or issuance under any
provision of federal, state, local or foreign tax Law. To the extent
that amounts are so
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withheld, such withheld amounts shall promptly be paid to the
appropriate governmental authority and shall be treated for all purposes
of this Agreement as having been paid to the holder of Company Common
Stock in respect of which such deduction and withholding was made.
(e) CLOSING OF STOCK TRANSFER BOOKS. All cash paid upon the
surrender of Certificates in accordance with the terms of this Article
II shall be deemed to have been paid in full satisfaction of all rights
pertaining to the shares of Company Common Stock theretofore represented
by such Certificates. At the Effective Time, the stock transfer books of
the Company shall be closed, and there shall be no further registration
of transfers on the stock transfer books of the Surviving Corporation of
the shares of Company Common Stock that were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates
are presented to the Surviving Corporation or the Paying Agent for any
reason, they shall be canceled and exchanged as provided in this Article
II.
(f) NO LIABILITY. At any time following the expiration of twelve
months after the Effective Time, the Surviving Corporation shall be
entitled to require the Paying Agent to deliver to it any funds
(including any interest received with respect thereto) which had been
made available to the Paying Agent and which have not been disbursed to
holders of Certificates, and thereafter such holders shall be entitled
to look to the Surviving Corporation (subject to any applicable
abandoned property, escheat or similar Law) only as general creditors
thereof with respect to the Merger Consideration payable upon due
surrender of their Certificates, without any interest thereon; PROVIDED,
HOWEVER, with respect to any Certificates which shall not have been
surrendered prior to five years after the Closing Date, the unclaimed
cash payable in exchange for such Certificates shall, to the extent
permitted by applicable abandoned property, escheat or similar Law,
become the property of the Surviving Corporation, free and clear of all
claims or interests of any person previously entitled thereto.
Notwithstanding the foregoing, none of Merger Sub, the Stockholders, the
Company, the Paying Agent or any member of the Investor Group shall be
liable to any person in respect of any cash delivered to a public
official pursuant to any applicable abandoned property, escheat or
similar Law.
SECTION 2.03 COMPANY STOCK OPTIONS; PLANS.
(a) OPTION CONSIDERATION. Except as set forth in this Section
2.03 and except to the extent that Merger Sub and the holder of any
option otherwise agree in writing prior to or contemporaneously with the
Effective Time, the Surviving Corporation shall promptly after the
Effective Time pay in cash to each holder of an outstanding option to
purchase Company Common Stock (a "COMPANY STOCK OPTION") granted
pursuant to the Company's 1996 Stock Option/Stock Issuance Plan or the
Company's Executive and Key Employee Nonstatutory Incentive Stock Option
Plan (collectively, the "COMPANY STOCK OPTION PLANS"), in settlement of
each such Company Stock Option, whether or not exercisable or vested, an
amount in respect thereof equal to the product of (x) the excess, if
any, of the Merger Consideration over the exercise price of each such
Company Stock Option, and (y) the number of shares of Company Common
Stock subject to the Company Stock Option
8
immediately prior to its settlement (the "OPTION CONSIDERATION") (such
payment to be net of applicable withholding taxes). Upon delivery of the
related Option Consideration, the Company Stock Option shall be
canceled. The surrender of a Company Stock Option to the Company in
exchange for the Option Consideration shall be deemed, upon receipt of
such consideration, to be a release of all rights the holder had or may
have had in respect of that Company Stock Option.
(b) CONSENTS OF OPTION HOLDERS. Prior to the Effective Time, the
Company shall use reasonable efforts to obtain any consents from holders
of the Company Stock Options and make any amendments to the terms of the
Company Stock Option Plans or arrangements that are necessary to give
effect to the transactions contemplated by Section 2.01(e) and this
Section 2.03.
(c) TERMINATION OF OPTION PLANS. Except as may otherwise be
agreed in writing by Merger Sub and the Company, the Company Stock
Option Plans shall terminate as of the Effective Time, and no holder of
Company Stock Options or any participant in the Company Stock Option
Plans shall have any rights thereunder to acquire any equity securities
of the Company, the Surviving Corporation or any subsidiary thereof.
(d) TERMINATION OF OTHER PLANS AND PROGRAMS. Except as may
otherwise be agreed in writing by Merger Sub and the Company, all other
plans, programs or arrangements providing for the issuance or grant of
any other interest in respect of the capital stock of the Company or any
of its subsidiaries shall terminate as of the Effective Time, and no
participant in any such plans, programs or arrangements shall have any
rights thereunder to acquire any equity securities of the Company, the
Surviving Corporation or any subsidiary thereof.
SECTION 2.04 SHARES OF DISSENTING STOCKHOLDERS.
(a) Notwithstanding anything in this Agreement to the contrary,
any shares of Company Common Stock that are issued and outstanding as of
the Effective Time and that are held by a holder who has not voted in
favor of the Merger or consented thereto in writing and who has properly
exercised his or her appraisal rights (the "DISSENTING SHARES") under
the DGCL, shall not be converted into the right to receive the Merger
Consideration, unless and until such holder shall have failed to
perfect, or shall have effectively withdrawn or lost, his or her right
to dissent from the Merger under the DGCL and to receive such
consideration as may be determined to be due with respect to such
Dissenting Shares pursuant to and subject to the requirements of the
DGCL. If, after the Effective Time, any such holder shall have failed to
perfect or shall have effectively withdrawn or lost such right, each
share of such holder's Company Common Stock shall thereupon be deemed to
have been converted into and to have become, as of the Effective Time,
the right to receive, without interest or dividends thereon, the
consideration provided for in this Article II.
(b) The Company shall give Merger Sub and the Investor Group (i)
prompt notice of any notices or demands for appraisal or payment for
shares of Company Common Stock
9
received by the Company and (ii) the opportunity to participate in and
direct all negotiations and proceedings with respect to any such demands
or notices. The Company shall not, without prior written consent of
Merger Sub and the Investor Group, make any payments with respect to, or
settle, offer to settle or otherwise negotiate, with respect to any such
demands.
(c) Dissenting Shares, if any, after payments of fair value in
respect thereto have been made to the holders thereof pursuant to the
DGCL, shall be canceled.
SECTION 2.05 ADJUSTMENT OF MERGER CONSIDERATION. In the event
that, subsequent to the date of this Agreement but prior to the Effective Time,
the outstanding shares of Company Common Stock shall have been changed into a
different number of shares of a different class as a result of a stock split,
reverse stock split, stock dividend, subdivision, reclassification, split,
combination, exchange, recapitalization or other similar transaction, the Merger
Consideration shall be appropriately adjusted. The Merger Consideration and the
Option Consideration, each payable pursuant to Article II, have been calculated
based upon the representations and warranties made by the Company in Section
3.03. In the event that, at the Effective Time, the actual number of shares of
Company Common Stock outstanding and/or the actual number of shares of Common
Stock issuable upon the exercise of outstanding options, warrants or similar
agreements or upon conversion of securities (including without limitation, as a
result of any stock split, stock dividend, including any dividend or
distribution of securities convertible into shares of Company Common Stock, or a
recapitalization) is more than as described in Section 3.03, the Merger
Consideration and the Option Consideration shall be appropriately adjusted
downward.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as disclosed in a separate disclosure schedule referring
to the Sections contained in this Agreement, which has been delivered by the
Company to Merger Sub prior to the execution of this Agreement (the "COMPANY
DISCLOSURE SCHEDULE"), the Company hereby represents and warrants to Merger Sub
that:
SECTION 3.01 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Each of the Company and its subsidiaries is a corporation or
other legal entity duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and has the
requisite organizational power and authority and all necessary
governmental approvals to own, lease and operate the properties and
assets it currently owns, operates or holds under lease and to carry on
its business as it is now being conducted, except where the failure to
be organized, existing or in good standing or to have such
organizational power and authority or approvals would not, individually
or in the aggregate, have a Company Material Adverse Effect (as defined
below). Each of the Company and its subsidiaries is duly qualified or
licensed as a foreign entity to do business, and is in good standing, in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its business makes such qualification or
licensing necessary, except for
10
such failures to be so qualified or licensed and in good standing that
would not, individually or in the aggregate, have a Company Material
Adverse Effect. The term "COMPANY MATERIAL ADVERSE EFFECT" means, when
used in connection with the Company, any change, effect, event,
occurrence, condition or development that is or is reasonably likely to
be materially adverse to (i) the business, assets, liabilities,
properties, results of operations, prospects or condition (financial or
otherwise) of the Company and its subsidiaries, taken as a whole or (ii)
the ability of the Company to perform its obligations under this
Agreement.
(b) Except as set forth in Section 3.01 of the Company Disclosure
Statement, the Company does not directly or indirectly own any equity or
similar interest in, or any interest convertible into or exchangeable or
exercisable for any equity or similar interest in, any corporation,
partnership, limited liability company, joint venture or other business
association or entity. All outstanding equity interests of each such
subsidiary of the Company have been duly authorized and validly issued
and are fully paid and non-assessable, and are owned, directly or
indirectly, by the Company free and clear of any Liens, and there
are no outstanding options, warrants, convertible securities, calls,
rights, commitments, preemptive rights or agreements or instruments or
understandings of any character, obligating any subsidiary of the
Company to issue, deliver or sell, or cause to be issued, delivered or
sold, contingently or otherwise, additional equity interests in such
subsidiary or any securities or obligations convertible or exchangeable
for such equity interests or to grant, extend or enter into any such
option, warrants, convertible security, call, right, commitment,
preemptive right or agreement, in each case except as provided by
applicable Law.
SECTION 3.02 CERTIFICATE OF INCORPORATION AND BY-LAWS. The
Company has heretofore furnished to Merger Sub complete and correct copies of
its Certificate of Incorporation and By-laws, each as amended to the date
hereof. Such Certificate of Incorporation and By-laws are in full force and
effect. The Company is not in violation of any provision of its Certificate of
Incorporation or By-laws.
SECTION 3.03 CAPITALIZATION. The authorized capital stock of the
Company consists of (i) 25,000,000 shares of Company Common Stock, (ii)
1,000,000 shares of Preferred Stock, and (iii) no shares of New Preference Stock
as of the date hereof. As of the end of business on the business day immediately
preceding the date hereof, there are 15,947,776 shares of Company Common Stock
issued and outstanding, no shares of Preferred Stock outstanding and no shares
of New Preference Stock outstanding. Section 3.03 of the Company Disclosure
Statement sets forth the number of shares of Company Common Stock to be received
upon exercise or conversion and the exercise or conversion price of each
outstanding Company Stock Option. Except for the Company Stock Options granted
under the Company Stock Option Plans or as contemplated by this Agreement,
purchase rights granted under the Employee Stock Purchase Plan and the
International Employee Stock Purchase Plan (collectively, the "COMPANY EMPLOYEE
STOCK PURCHASE PLANS"), and as otherwise described in the Company Disclosure
Statement, there are no existing options, warrants, convertible securities,
calls, subscriptions, or other rights or other agreements or commitments
obligating the Company to issue, transfer or sell, or caused to be issued,
transferred or sold, contingently or otherwise, any shares of capital stock of
the Company or any other securities
11
convertible into or evidencing the right to subscribe for purchase or any such
shares. Except as identified and described in Section 3.03 of the Company
Disclosure Statement, there are no outstanding stock appreciation rights or
similar phantom equity securities with respect to the capital stock of the
Company. All issued and outstanding shares of Company Common Stock are duly
authorized and validly issued, fully paid, non-assessable and free of preemptive
rights with respect thereto. All shares of New Preference Stock to be issued to
(i) the Stockholders pursuant to the Preference Exchange and (ii) the members of
the Investor Group in connection with the Equity Contribution, shall, when
issued in accordance with the terms of this Agreement and other applicable
agreements, be duly authorized and validly issued, fully paid, non-assessable
and free of preemptive rights with respect thereto.
SECTION 3.04 AUTHORITY RELATIVE TO THIS AGREEMENT. The Company
has all necessary corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the Merger and
the other Transactions. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the Transactions 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 this Agreement
or to consummate the Transactions (other than, with respect to the Merger and
the Preference Amendment, the adoption of this Agreement (and, if required, the
Preference Amendment, the Preference Exchange and the Equity Contribution) by
the Requisite Majority and the filing and recordation of appropriate merger
documents and the Preference Amendment as required by the DGCL). This Agreement
has been duly and validly executed and delivered by the Company and, assuming
the due authorization, execution and delivery by Merger Sub, constitutes a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar Laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
SECTION 3.05 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by the Company
does not, and the consummation by the Company of the Transactions will
not (i) conflict with or violate the Certificate of Incorporation or
By-laws of the Company or any of its subsidiaries, (ii) conflict with or
violate any domestic (federal, state or local) or foreign law, rule,
regulation, order, judgment or decree (collectively, "LAWS") applicable
to the Company, its subsidiaries or by which any of its properties or
assets is bound or affected, except for such conflicts or violations
that, individually or in the aggregate, would not have a Company
Material Adverse Effect, or (iii) result in a violation or breach of or
constitute a default (or an event which 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 result in
the creation of a Lien on any property or asset of the Company or its
subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company or its subsidiaries is a party or by
which the Company, its subsidiaries or any of its properties or assets
is bound or affected, except as disclosed in Section 3.05(a) of the
Company Disclosure Statement and except for any such violations,
breaches, defaults or other occurrences that, individually or in the
12
aggregate, would not have a Company Material Adverse Effect and will not
prevent or materially delay the consummation of the Transactions.
(b) Except as disclosed in Section 3.05(b) of the Company
Disclosure Statement, the execution and delivery of this Agreement by
the Company does not, and the consummation by the Company of the
Transactions will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental entity or
subdivision thereof, or any administrative, governmental or regulatory
authority, agency, commission, tribunal or body, domestic, foreign or
supranational, except (i) for applicable requirements, if any, of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), the
Securities Act of 1933, as amended (the "SECURITIES ACT"), state
securities or "blue sky" laws ("BLUE SKY LAWS"), the rules of the
National Association of Securities Dealers ("NASD"), state takeover
laws, the pre-merger notification requirements of the Xxxx-Xxxxx-Xxxxxx
Antitrust Improvements Act of 1976, as amended, and the rules and
regulations thereunder (the "HSR ACT"), and filing and recordation of
appropriate merger and amendment documents as required by the DGCL, and
(ii) where failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, individually or in
the aggregate, would not have a Company Material Adverse Effect.
SECTION 3.06 SEC FILINGS; FINANCIAL STATEMENTS; UNDISCLOSED
LIABILITIES.
(a) The Company has filed all forms, reports and documents
required to be filed by it with the Securities and Exchange Commission
(the "SEC") since November 16, 1994 and has made available to the Merger
Sub all registration statements filed by the Company with the SEC,
including all exhibits filed in connection therewith (on all forms
applicable to the registration of securities) since November 16, 1994
and prior to the date of this Agreement (collectively, the "COMPANY SEC
REPORTS"). As of their respective dates, the Company SEC Reports (and
giving effect to any amendments thereof) (i) complied in all material
respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations thereunder and
(ii) did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. The Company
will deliver to the Merger Sub promptly after they become publicly
available true and complete copies of any Company SEC Reports filed
subsequent to the date hereof and prior to the Effective Time.
(b) Each of the financial statements (including, in each case,
any notes and schedules thereto) contained in the Company SEC Reports
complied as to form with the applicable accounting requirements and
rules and regulations of the SEC and was prepared in accordance with
United States generally accepted accounting principles ("GAAP") applied
on a consistent basis throughout the periods indicated (except as may be
indicated in the notes thereto), and each fairly presented in all
material respects the consolidated financial position, results of
operations and cash flows of the Company and the consolidated
subsidiaries as at the respective dates thereof and for the respective
periods indicated therein in accordance with GAAP, subject, in the case
of unaudited statements (the "INTERIM
13
FINANCIAL STATEMENTS"), to the absence of footnotes and to normal and
recurring year-end adjustments none of which would, individually or in
the aggregate, have a Company Material Adverse Effect.
(c) Except as disclosed in Section 3.06(c) to the Company
Disclosure Statement, since October 31, 1999 to the date hereof, except
as disclosed in the Company SEC Reports, there has not been any event,
condition or development which individually or in the aggregate would
constitute a Company Material Adverse Effect.
(d) Neither the Company nor its subsidiaries have any material
liabilities or obligations (whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated and whether due or to
become due, including any liability for taxes) other than such
liabilities or obligations (i) disclosed in Section 3.06(d) of the
Company Disclosure Statement, (ii) disclosed or reserved against in the
most recent consolidated balance sheet of the Company filed with the
SEC, (iii) incurred in the ordinary course of business consistent with
past practice since the date of the most recent audited consolidated
balance sheet of the Company filed with the SEC, or (iv) under Contracts
listed in Section 3.17 of the Company Disclosure Statement (none of
which is a liability for breach of contract) that are not required by
GAAP to have been included in the most recent consolidated balance sheet
of the Company filed with the SEC.
SECTION 3.07 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as
specifically disclosed in Section 3.07 of the Company Disclosure Statement or
the Company SEC Reports or as contemplated by this Agreement, since October 31,
1999 to the date hereof, neither the Company nor its subsidiaries have, directly
or indirectly:
(a) redeemed, purchased, otherwise acquired, or agreed to redeem,
purchase or otherwise acquire, any shares of capital stock of the
Company, or declared, set aside or paid any dividend or otherwise made a
distribution (whether in cash, stock or property or any combination
thereof) in respect of its capital stock (other than between the Company
and a wholly-owned subsidiary thereof);
(b) authorized for issuance, issued, sold, delivered, granted or
issued any options, warrants, calls, subscriptions or other rights for,
or otherwise agreed or committed to issue, sell, deliver or grant any
shares of any class of capital stock of the Company or any securities
convertible into or exchangeable or exercisable for shares of any class
of capital stock of the Company or its subsidiaries, other than pursuant
to and in accordance with (i) the Company Stock Option Plans, (ii) the
Company Employee Stock Purchase Plans, or (iii) the terms of the
agreements listed in Section 3.03 of the Company Disclosure Statement;
(c) except in the ordinary course of business and consistent with
past practice (i) created or incurred any indebtedness for borrowed
money, (ii) assumed, guaranteed, endorsed or otherwise as an
accommodation become responsible for the obligations of any other
individual, firm or corporation, made any loans or advances to any other
individual,
14
firm or corporation, or (iii) mortgaged, pledged or subjected to any
lien or encumbrance, any asset having a book or market value in excess
of $100,000;
(d) instituted any material change in its accounting methods,
principles or practices;
(e) revalued any of its assets, including without limitation,
writing down the value of inventory or writing off notes or accounts
receivables except for amounts previously reserved as reflected in the
October 31, 1999 balance sheet;
(f) suffered any damage, destruction or loss, whether covered by
insurance or not, except for such as would not, individually and in the
aggregate, have a Company Material Adverse Effect;
(g) granted any material increase in the base compensation of, or
made any other material change in the employment terms for, any of its
directors, officers and employees, except for increases or changes
reflecting or based upon changed responsibilities or duties and
increases or changes made in the ordinary course of business consistent
with past practice;
(h) adopted, modified or terminated any bonus, profit-sharing,
incentive, severance or other plan or contract for the benefit of any of
its directors, officers and employees other than such adoptions,
modifications and terminations which do not materially increase the
aggregate cost of such plan or contract;
(i) except for provision of services or sales in the ordinary
course of business and consistent with past practice (i) sold, leased,
licensed, assigned, transferred or otherwise disposed of any of its
assets or property having a book or market value, in excess of $100,000
or (ii) entered into, or consented to the entering into of, any
agreement granting a preferential right to sell, lease, license, assign,
transfer or otherwise dispose of any of such assets;
(j) entered into any new line of business, or incurred or
committed to incur any capital expenditures, obligations or liabilities
in connection therewith in excess of $100,000 in the aggregate;
(k) acquired or agreed to acquire by merging or consolidating
with, or agreed to acquire by purchasing a substantial portion of the
assets of, or in any other manner, any business of any other person;
(l) made any cancellation or waiver of (i) any right having a
value in excess of $100,000, or (ii) any material debts or claims
against any affiliate of the Company;
(m) made any disposition of, or failed to maintain or keep in
effect any patent, trademark, service xxxx, trade name, copyright or
trade secret of the Company or its
15
subsidiaries or any registration or application for registration thereof
or right or interest therein that is material to the operations of the
Company;
(n) to the Company's Knowledge, entered into any agreement,
arrangement or transaction with any affiliate of the Company;
(o) agreed to do any of the things described in the preceding
clauses (a) through (n) other than as expressly contemplated or provided
for in this Agreement; or
(p) entered into any agreement, arrangement or transaction to
purchase any real property.
SECTION 3.08 ABSENCE OF LITIGATION. Except as disclosed in
Section 3.08 of the Company Disclosure Statement, there is no claim, action,
proceeding or investigation pending or, to the Company's Knowledge, threatened
against the Company, its subsidiaries, or any of its properties or assets,
before any court, arbitrator or Governmental Authority, which, individually or
when aggregated with other claims, actions, proceedings or investigations or
product liability claims (or claims, actions, proceedings or investigations
which are reasonably likely to result from facts and circumstances that have
given rise to such a claim, action, proceeding or investigation), would have a
Company Material Adverse Effect. As of the date hereof, neither the Company nor
its subsidiaries nor any of its properties or assets is subject to any order,
writ, judgment, injunction, decree, determination or award which could
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.
SECTION 3.09 STOCKHOLDER VOTE REQUIRED. The affirmative vote of
the holders of a 66 2/3% of the outstanding shares of Company Common Stock is
the only vote of the holders of any class or series of capital stock of the
Company necessary to approve the Merger, this Agreement, the Preference
Amendment and the transactions contemplated hereby under the DGCL and the
Company's Certificate of Incorporation.
SECTION 3.10 OPINION OF FINANCIAL ADVISOR. The special committee
of the Company's Board of Directors has received the opinion, dated as of the
date of this Agreement, of CIBC World Markets Corp. (the "FINANCIAL ADVISOR TO
THE SPECIAL COMMITTEE"), to the effect that the Merger Consideration is fair to
the holders of Company Common Stock (other than the Stockholders) from a
financial point of view.
SECTION 3.11 BROKERS. Except as disclosed in Section 3.11 of the
Company Disclosure Statement, no broker, finder or investment banker (other than
the Financial Advisor to the Special Committee) is entitled to any brokerage,
finder's or other fee or commission in connection with the Merger based upon
arrangements made by or on behalf of the Company or which are to be paid by the
Company. The Company has heretofore furnished to Merger Sub a complete and
correct copy of all agreements between the Company and the Financial Advisor to
the Special Committee or any other firms pursuant to which the Financial Advisor
to the Special Committee or any such firms would be entitled to any payment
relating to the Merger, and there have been no amendments to such agreements.
16
SECTION 3.12 COMPANY ACTION; STATE TAKEOVER STATUTES. The
Company's Board of Directors has by requisite vote of directors (i) approved and
adopted this Agreement and the Transactions, and such approval is sufficient to
render inapplicable to this Agreement and the Transactions any approval required
under Section 203 of the DGCL to the extent, if any, such approval is required
in connection with this Agreement or the Transactions and (ii) agreed to
recommend that the stockholders of the Company approve and adopt this Agreement
and the Transactions.
SECTION 3.13 INFORMATION SUPPLIED. The Proxy Statement (as
defined below) and any other document to be filed by the Company with the SEC or
any Governmental Authority in connection with the Transactions (the "OTHER
FILINGS") will not, in the case of the Proxy Statement, at the time of mailing
thereof to the Company's stockholders, or, in the case of all other such
documents, at the respective times filed with the SEC or other Governmental
Authority, 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 in which they were made,
not misleading; provided, that the Company makes no representation with respect
to any information provided by Merger Sub, any Stockholder or any member of the
Investor Group. The Proxy Statement (except for those portions relating to
Merger Sub or the Investor Group) will comply as to form in all material
respects with the provisions of the Exchange Act and the rules and regulations
thereunder.
SECTION 3.14 ENVIRONMENTAL AND SAFETY MATTERS. Except as set
forth in Section 3.14 of the Company Disclosure Statement:
(a) With respect to the business, the Company and its
subsidiaries have materially complied and are in material compliance
with all Environmental and Safety Requirements.
(b) Without limiting the generality of the foregoing, the Company
and its subsidiaries have obtained and complied with, and are in
compliance with, all material permits, licenses and other authorizations
that may be required pursuant to Environmental and Safety Requirements
for the occupation of the Real Property and the operation of the
business and all such permits, licenses and authorizations may be relied
upon for the lawful operation of the business and the Real Property on
and after the Closing without transfer, reissuance or other governmental
action; a list of all such material permits, licenses and other
authorizations is set forth on Section 3.14 of the Company Disclosure
Statement.
(c) The Company and its subsidiaries have not received any
written notice regarding any actual or alleged material violation of
Environmental and Safety Requirements, or any liabilities or potential
liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise), including any investigatory, remedial or corrective
obligations, relating to the business or the Real Property and arising
under Environmental and Safety Requirements.
17
(d) With respect to the business, the Company and its
subsidiaries have not treated, stored, disposed of, arranged for or
permitted the disposal of, transported, handled, or released any
substance, including without limitation any hazardous substance, or
owned or operated 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 liabilities, including any liability for
response costs, corrective action costs, personal injury, property
damage, natural resources damages or attorney fees, or any
investigative, corrective or remedial obligations, pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA") or the Solid Waste Disposal Act, as amended
("SWDA") or any other Environmental and Safety Requirements.
(e) With respect to the business, the Company and its
subsidiaries have not, either expressly or by operation of Law, assumed
or undertaken any liability, including without limitation any obligation
for corrective or remedial action, of any other person relating to
Environmental and Safety Requirements.
SECTION 3.15 REAL PROPERTY.
(a) OWNED REAL PROPERTY.
(i) Section 3.15 of the Company Disclosure Statement sets
forth the address and description of all land, together with all
buildings, structures, improvements and fixtures located thereon, and
all easements and other rights and interests appurtenant thereto, owned
by the Company or any Subsidiary used or intended to be used in, or
otherwise related to the Business ("Owned Real Property"). With respect
to each Owned Real Property: (A) the Company has good and marketable
indefeasible fee simple title to such Owned Real Property, free and
clear of all liens and encumbrances, except Permitted Encumbrances, (B)
except as set forth in Section 3.15 of the Company Disclosure Statement,
the Company has not leased or otherwise granted to any Person the right
to use or occupy such Owned Real Property or any portion thereof; (C)
other than the right of Merger Sub pursuant to this Agreement, 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, (D) the Company is not a party to any agreement or option to
purchase or sell any real property or interest therein relating to the
Business, and (E) all buildings, structures, improvements, fixtures,
building systems and equipment, and all components thereof, included in
the Owned Real Property (the "IMPROVEMENTS") are in good condition and
repair and sufficient for the operation of the Business. To the
Company's Knowledge, there are no structural deficiencies or latent
defects affecting any of the Improvements and there are no facts or
conditions affecting any of the Improvements which would, individually
or in the aggregate, interfere in any material respect with the use or
occupancy of the Improvements or any portion thereof in the operation of
the Business.
(ii) The term "PERMITTED ENCUMBRANCES" shall mean with
respect to each Owned Real Property and leasehold improvement (as the
case may be): (A) real estate taxes, assessments and other governmental
levies, fees or charges imposed with respect to such
18
Real Property which are not due and payable as of the Closing Date; (B)
mechanics liens and similar liens for labor, materials or supplies
provided with respect to such Real Property incurred in the ordinary
course of business for amounts which are not delinquent and which would
not, individually or in the aggregate, have a material adverse effect on
the Business; (C) zoning, building codes and other land use Laws
regulating the use or occupancy of such Real Property or the activities
conducted thereon which are imposed by any governmental authority having
jurisdiction over such Real Property which are not violated by the
current use or occupancy of such Real Property or the operation of the
Business thereon; (D) liens for any financing secured by such Real
Property which is an Assumed Liability under this Agreement; and (E)
easements, covenants, conditions, restrictions and other similar matters
of record affecting title to such Real Property which do not or would
not materially impair the use or occupancy of such Real Property or the
operation of the Business.
(b) LEASED REAL PROPERTY.
(i) Section 3.15 of the Company Disclosure Statement
identifies all leases and lists by street address all real estate
leased, subleased or otherwise occupied or used pursuant to an agreement
(the "LEASES") by the Company or its subsidiaries requiring payment by
the Company or its subsidiaries of $100,000 or more in annual rent (the
"LEASED REAL PROPERTY", and together with the Owned Real Property, the
"REAL PROPERTY"). The Leased Property is leased to the Company or its
subsidiaries pursuant to written leases, copies of which have been
delivered to Merger Sub. With respect to each Lease: (A) the Company or
its subsidiaries, as applicable, have a good and valid leasehold
interest in and to applicable Leased Premises, and, to the Company's
Knowledge, such leasehold interest is subject to no Liens other than
those disclosed on Section 3.15 of the Company Disclosure Statement and
those which would not have a material adverse effect on the Company's
leasehold interest; (B) each Lease is legal, valid, binding and in full
force and effect and is enforceable in accordance with its terms and
neither the Company nor its subsidiaries have assigned, transferred,
conveyed, mortgaged, deeded in trust, or encumbered any interest in such
Lease; (C) there exists no default by the Company or condition which,
with the giving of notice, the passage of time or both, would constitute
a default by the Company under any Lease; (D) except as set forth in
Section 3.15 of the Company Disclosure Statement, the other party to
such Lease is not an affiliate of, or otherwise has any economic
interest in, the Company or any subsidiary; (E) except as set forth in
Section 3.15 of the Company Disclosure Statement, the Company or
subsidiary has not subleased, licensed or otherwise granted any person
the right to use or occupy such Leased Premises or any portion thereof;
(F) except as set forth in Section 3.15 of the Company Disclosure
Statement, the Company or subsidiary has not collaterally assigned or
granted any other security interest in such Lease or any interest
therein; and (G) except as disclosed on Section 3.15 of the Company
Disclosure Statement, no consent, waiver, approval or authorization is
required from the landlord under any Lease as a result of the execution
of this Agreement or the consummation of the transactions contemplated
hereby.
(ii) Except as disclosed in Section 3.15 of the Company
Disclosure Statement, the Leased Property constitutes all of the real
property leased, occupied or
19
otherwise utilized in connection with the business of the Company or its
subsidiaries as currently conducted. The Leased Property is sufficient
and appropriate for the conduct of business by the Company and its
subsidiaries. To the Company's Knowledge, (A) all permits, licenses and
other approvals necessary to the current occupancy and use of the Leased
Property have been obtained, are in full force and effect and have not
been violated by the Company in any material respect and (B) there
exists no violation by the Company of any material covenant, condition,
restriction, easement, agreement or order affecting any portion of the
Leased Property that would individually or in the aggregate have a
Company Material Adverse Effect. To the Company's Knowledge, all
facilities located on the Leased Property are supplied with adequate
utilities and other services necessary for the conduct of the Company's
business as currently conducted. There is no pending or, to the
Company's Knowledge, threatened condemnation proceeding, or material
lawsuit or administrative action affecting any portion of the Leased
Property to which the Company or its subsidiaries is a named party.
SECTION 3.16 PERSONAL PROPERTY.
(a) Each of the Company and its subsidiaries has good title to
all personalty of any kind or nature which the Company or its
subsidiaries purport to own, free and clear of all Liens, except for (i)
Liens disclosed on Section 3.16 of the Company Disclosure Statement,
(ii) Liens for non-delinquent taxes and non-delinquent statutory liens
arising other than by reason of default, (iii) statutory Liens of
landlords, liens of carriers, warehousemen, mechanics and materialmen
incurred in the ordinary course of business for sums not yet due; (iv)
Liens incurred or deposits made in the ordinary course of business in
connection with worker's compensation, unemployment insurance and other
types of social security, (v) purchase money Liens, and (vi) Liens which
do not materially detract from the value or use of said personalty. The
Company and its subsidiaries, as lessees, have the right under valid and
subsisting leases to use and possess all personalty leased by and
material to the Company or its subsidiaries as now used or possessed by
the Company or its subsidiaries, as applicable.
(b) All machinery, equipment and other tangible assets currently
being used by the Company or its subsidiaries which are owned or leased
by the Company or its subsidiaries are usable in the ordinary course of
business and are reasonably adequate and suitable for the uses to which
they are being put, except where any other condition of any machinery,
equipment or other tangible asset would not have a Company Material
Adverse Effect.
SECTION 3.17 CONTRACTS. Section 3.17 of the Company Disclosure
Statement is a complete list of all written agreements of the Company or its
subsidiaries (other than contracts or leases for the sale in the ordinary course
of business of the Company's services or products) that are currently in effect
and that are (i) license agreements or franchise agreements with any person that
provides services in the name of or on behalf of the Company; (ii) leases, sales
contracts and other agreements with respect to any property, real or personal,
of the Company or its subsidiaries which provide for the receipt or expenditure
by the Company or its subsidiaries after the date of this
20
Agreement, of more than $100,000; (iii) contracts or commitments for capital
expenditures or acquisitions in excess of $100,000 for one project or set of
related projects; (iv) guarantees of third party obligations; (v) agreements
(including non-competition agreements) which restrict the kinds of businesses in
which the Company or its subsidiaries may engage or the geographical area in
which any of them may conduct their business (other than provisions in
agreements with franchisees or licensees listed in Section 3.29 of the Company
Disclosure Statement); (vi) indentures, mortgages, loan agreements or other
agreements relating to the borrowing of money by the Company, the granting of
Liens by the Company or lines of credit by the Company, in each case, involving
an amount in excess of $100,000; (vii) collective bargaining agreements, if any;
(viii) material licenses, agreements, assignments or contracts (whether as
licensor or licensee, assignor or assignee) relating to any patent and trademark
rights; (ix) brokerage or finder's agreements; (x) joint venture agreements,
partnership agreements or similar agreements; (xi) stock purchase agreements,
asset purchase agreements or other acquisition or divestiture agreements
executed within the last five years, in each case, involving an amount in excess
of $100,000; (xii) employment, consulting or management agreements; or (xiii)
agreements or other arrangements with any director or executive officer of the
Company or its affiliates (other than customary at will employment arrangements)
(all items required to be disclosed in Section 3.17 of the Company Disclosure
Statement being hereinafter referred to as "CONTRACTS"). True and correct copies
of all the Contracts have been made available to Merger Sub. Except as disclosed
in Section 3.17 of the Company Disclosure Statement, (i) all Contracts are valid
and subsisting and in full force and effect in all material respects, and each
of the Company and its subsidiaries has duly performed its obligations
thereunder in all material respects to the extent such obligations have accrued,
and (ii) there has not occurred thereunder any breach or default by the Company,
its subsidiaries, or, to the Company's Knowledge, by any other party thereto
that continues to exist, or any event which with the passage of time or the
giving of notice, or both, would result in a breach or default or event of
non-compliance thereunder by the Company, its subsidiaries, or, to the Company's
Knowledge, by any other party thereto.
SECTION 3.18 INSURANCE POLICIES. Section 3.18 of the Company
Disclosure Statement contains a list of all material insurance policies of the
Company and its subsidiaries, and each such policy is in full force and effect.
No written notice of cancellation or termination has been received by the
Company or its subsidiaries with respect to any such policy. Except as disclosed
in Section 3.18 of the Company Disclosure Statement, to the Company's Knowledge,
there are no pending claims against such insurance by the Company or its
subsidiaries as to which the insurers have denied coverage or otherwise reserved
rights.
SECTION 3.19 COMPLIANCE WITH LAWS.
(a) Except as disclosed in Section 3.19 of the Company Disclosure
Statement, neither the Company nor its subsidiaries are in violation of
or have violated or failed to comply with any Law or judgment applicable
to its business or operations, except for violations and failures to
comply that would not, individually or in the aggregate, be reasonably
likely to result in a Company Material Adverse Effect.
(b) (i) The Company has not received any written notices,
regarding any disputes related to any of the Company or any of its
subsidiaries' cost reports, from any Governmental
21
Authorities responsible for administering the Medicare program for the
Company's three (3) most recent fiscal years; and (ii) to the Company's
Knowledge, there is no actual or threatened proceeding or investigation
to which the Company is a party related to the United States Federal
Medicare or Medicaid programs, other than routine audits by the Health
Care Financing Administration of the U.S. Department of Health and Human
Services ("HCFA").
(c) To the Company's Knowledge, none of the Company or any of its
subsidiaries have knowingly filed a false claim, or filed a claim
without a reasonable basis therefor, with HCFA, its fiscal
intermediaries or any state agency, or any other third party payor, or
knowingly violated the so-called "Medicare fraud and abuse" laws
contained in the Social Security Act or any similar Laws addressing
fraud and abuse in government funded health care programs.
(d) To the Company's Knowledge, all cost reports and other
filings filed by the Company or any of its subsidiaries are complete and
in compliance in all material respects with applicable Laws.
SECTION 3.20 TAX MATTERS.
(a) Except as disclosed in Section 3.20(a) of the Company
Disclosure Statement: the Company and each subsidiary of the Company
have filed all federal and state income Tax Returns and all other
material Tax Returns that were required to be filed prior to the date
hereof by any of them; all such Tax Returns were correct and complete in
all material respects; all Taxes owed by any of the Company and each
subsidiary of the Company (whether or not shown on any Tax Return) have
been paid or accrued for and reflected on the most recent consolidated
balance sheet of the Company filed with the SEC; none of the Company or
any subsidiary of the Company currently is the beneficiary of any
extension of time within which to file any Tax Return; no claim has ever
been made by an authority in a jurisdiction where any of the Company or
any subsidiary of the Company does not file Tax Returns that the entity
so not filing is or may be subject to taxation by that jurisdiction; and
to the Company's Knowledge, there are no Liens on any of the assets of
any of the Company or any subsidiary of the Company that arose in
connection with any failure (or alleged failure) to pay any Tax.
(b) Except as disclosed in Section 3.20(b) of the Company
Disclosure Statement, the Company and each subsidiary of the Company
have withheld and paid all Taxes required to have been withheld and paid
by applicable Law.
(c) Except as disclosed in Section 3.20(c) of the Company
Disclosure Statement, to the Company's Knowledge, there is no dispute or
claim concerning any Tax liability of any of the Company or any
subsidiary of the Company. Section 3.20 of the Company Disclosure
Statement lists all federal, state, local, and foreign income Tax
Returns filed with respect to any of the Company and any subsidiary of
the Company for taxable periods ended on or after October 31, 1995 that
have been audited or currently are the subject of audit. The Company has
delivered to the Merger Sub correct and complete copies of all federal
income
22
Tax Returns, examination reports, and statements of deficiencies
assessed against or agreed to by any of the Company or any subsidiary of
the Company since October 31, 1995.
(d) Except as disclosed in Section 3.20(d) of the Company
Disclosure Statement, neither the Company nor any subsidiary of the
Company has waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax assessment or
deficiency.
(e) Except as disclosed in Section 3.20(e) of the Company
Disclosure Statement, neither the Company nor any subsidiary of the
Company has filed a consent under Code Section341(f) concerning
collapsible corporations. Neither the Company nor any subsidiary of the
Company has made any payments, is obligated to make any payments, or is
a party to any agreement that under certain circumstances could obligate
it to make any payments that will not be deductible under Code
Section 280G or Code Section 162(m). Neither the Company nor any
subsidiary of the Company has been a United States real property holding
corporation within the meaning of Code Section 897(c)(2) during the
applicable period specified in Code Section 897(c)(1)(A)(ii). The
Company and each of its subsidiaries has disclosed on its federal,
state, local and foreign Tax Returns all positions taken therein that
could give rise to a substantial understatement of, federal, state,
local and foreign Tax within the meaning of Code Section 6662 or similar
provisions under any state, local or foreign Law. Neither the Company
nor any subsidiary of the Company is a party to any Tax allocation or
sharing agreement. Neither the Company nor any of its subsidiaries has
been a member of an affiliated group filing a consolidated federal
income Tax Return other than a group the common parent of which is the
Company.
(f) Except as disclosed in Section 3.20(f) of the Company
Disclosure Statement, neither the Company nor any subsidiary of the
Company has any liability for the Taxes of any person other than the
Company and the subsidiaries of the Company (i) under Treas. Reg.
Section 1.1502-6 (or any similar provision of state, local, or foreign
Law), (ii) as a transferee or successor, (iii) by contract, or (iv)
otherwise.
(g) Neither the Company nor any subsidiary of the Company will be
required to make any material adjustment to taxable income under Code
Section 481 (or any similar provision of state, local, or foreign Law)
for any period ending on or after the Closing Date by reason of a
voluntary change in accounting method initiated by the Company or any of
its subsidiaries on or prior to the Closing Date and neither the
Internal Revenue Service nor any other governmental authority has
initiated or proposed any such change in accounting method.
(h) Except as disclosed on Section 3.20(h) of the Company
Disclosure Statement, no subsidiary of the Company is a "controlled
foreign corporation" within the meaning of Code Section 957.
(i) Except as disclosed in Section 3.20(i) of the Company
Disclosure Statement, neither the Company nor any subsidiary of the
Company owns an interest in an entity either
23
treated as a partnership or whose separate existence is ignored for
federal income tax purposes.
(j) The Company shall not be required (i) as a result of any
"closing agreement," as described in Section 7121 of the Code (or any
corresponding provision of state, local or foreign income Tax Law), 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, (ii) as a result of any sale reported on the
installment method where such sale occurred on or prior to the Closing
Date, to include any material item of income in, or exclude any material
item of deduction from, taxable income for any taxable period (or
portion thereof) ending after the Closing Date, or (iii) as a result of
any prepaid amount received on or prior to the Closing Date (other than
amounts prepaid in the ordinary course of business consistent with past
custom and practice), to include any material item of income in, or
exclude any material item of deduction from, taxable income for any
taxable period (or portion thereof) ending after the Closing Date.
SECTION 3.21 EMPLOYMENT AGREEMENTS. Except as disclosed on
Section 3.21 of the Company Disclosure Statement, there are no employment,
consulting, severance or indemnification arrangements, agreements or
understandings between the Company and any directors, officers, or other
employees of the Company or any of its subsidiaries providing for (i) a term
more than 90 days past the date hereof, (ii) payments in excess of $100,000 per
year, (iii) any severance payments, or (iv) any bonus or special payment
obligation of the Company or any of its subsidiaries payable in connection with
the sale, acquisition, or change of control of the Company or any of its
subsidiaries.
SECTION 3.22 CHANGE OF CONTROL PROVISIONS. Except as disclosed on
Section 3.22 of the Company Disclosure Statement, none of the arrangements,
agreements or understandings set forth in Article III hereof and none of the
Company's employee benefit plans, programs or arrangements contain any provision
that would become operative as the result of a change of control of the Company
or that will become operative as a result of the Transactions.
SECTION 3.23 EMPLOYEES. Except as disclosed in Section 3.23 of
the Company Disclosure Statement, to the Company's Knowledge, as of the date of
this Agreement, no key employee, or group of key employees, of the Company or
its subsidiaries has any plans to terminate employment with the Company. Except
as disclosed in Section 3.23 of the Company Disclosure Statement, each of the
Company and its subsidiaries has complied in all material respects with all Laws
relating to the employment of labor, including provisions thereof relating to
wages, hours, equal opportunity and collective bargaining, and does not have any
other material labor relations problems.
SECTION 3.24 PERMITS. Each of the Company and its subsidiaries
has all Permits, except for those Permits the failure to have would not,
individually or in the aggregate, have a Company Material Adverse Effect.
Section 3.24 of the Company Disclosure Statement contains a complete list of the
material Permits, exclusive of any Permits with respect to state or local sales,
use or other Taxes or business or occupational licenses. To the Company's
Knowledge, all of such
24
material Permits are in full force and effect except where the failure to be so
in effect would not have a Company Material Adverse Effect. No outstanding
notice of cancellation or termination has been delivered to the Company or its
subsidiaries in connection with any such material Permit nor, to the Company's
Knowledge, has any such cancellation or termination been threatened. To the
Company's Knowledge, no application, action or proceeding for the modification
of any such material Permits is pending or threatened that may result in the
revocation, modification, nonrenewal or suspension of any material Permits. Each
of the Company and its subsidiaries has filed when due all documents required to
be filed with any Governmental Authority in connection with such material
Permits and, at the time of the filing thereof, all such filings were accurate
and complete in all material respects.
SECTION 3.25 EMPLOYEE BENEFIT PLANS.
(a) Section 3.25 of the Company Disclosure Statement contains a
list of each employee benefit plan (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
and each other plan, program, policy, practice, arrangement or contract
(whether group or individual) providing for payments, deferred
compensation or benefits or reimbursements to employees or former
employees (or their beneficiaries or dependents) of the Company or with
respect to which the Company has any material liability or potential
liability. For purposes of Section 3.25 of the Company Disclosure
Statement, "Company" shall be deemed to include any entity required to
be aggregated with the "Company" under Section 414(b), (c), (m) or (o)
of the Code or Section 4001 of ERISA, at any relevant time. Each item
listed in Section 3.25 of the Company Disclosure Statement is a "BENEFIT
PLAN."
(b) Each Benefit Plan that is intended to be qualified within the
meaning of Section 401(a) of the Code has received a determination from
the Internal Revenue Service (the "IRS") that such Benefit Plan is
qualified under Section 401(a) of the Code, and nothing has occurred
since the date of such determination that could adversely affect the
qualification of such Benefit Plan. Each such Benefit Plan has been
maintained in compliance with the requirements of Sections 401(a)(4) and
410(b) of the Code.
(c) The Company does not have any liability or potential
liability (including, but not limited to, withdrawal liability) with
respect to (i) any "employee pension benefit plan" (as such term is
defined in Section 3(2) of ERISA) that is subject to Section 302 of
Title I of ERISA, Title IV of ERISA or Section 412 of the Code, or (ii)
any "multiemployer plan" (as such term is defined in Section 3(37) of
ERISA).
(d) Except as disclosed on Section 3.25 of the Company Disclosure
Statement, none of the Benefit Plans obligates the Company to pay any
separation, severance, termination or similar benefit solely as a result
of any transaction contemplated by this Agreement or solely as a result
of a change in control or ownership within the meaning of Section 280G
of the Code.
25
(e) Each Benefit Plan and any related trust, insurance contract
or fund has been maintained, funded and administered in compliance in
all material respects with its respective terms and in compliance in all
material respects with all applicable Laws and regulations, including,
but not limited to, ERISA and the Code.
(f) The Company has complied with the health care continuation
requirements of Part 6 of Subtitle B of Title I of ERISA and Section
4980B of the Code ("COBRA"); and the Company has no obligation under any
Benefit Plan or otherwise to provide health or life insurance benefits
to former employees of the Company or any other person, except as
disclosed in Section 3.25 of the Company Disclosure Statement or as
specifically required by COBRA or applicable state Law.
(g) With respect to each Benefit Plan, the Company has made
available to Merger Sub true, complete and correct copies of (to the
extent applicable) (i) all documents pursuant to which the Benefit Plan
is maintained, funded and administered, (ii) the most recent annual
report (Form 5500 series) filed with the IRS (with applicable
attachments), (iii) the most recent financial statement, (iv) the most
recent summary plan description provided to participants, and (v) the
most recent determination letter received from the IRS.
(h) With respect to each Benefit Plan, all required or
recommended (in accordance with historical practices) payments,
premiums, contributions, reimbursements or accruals for all periods (or
partial periods) ending prior to or as of the Closing shall have been
made or properly accrued on the Company's October 31, 1999 balance
sheet. None of the Benefit Plans has any material unfunded liabilities.
(i) Except as set forth on Section 3.25 of the Company Disclosure
Statement, the Company does not maintain, contribute to or sponsor any
employee benefit plan, agreement or arrangement applicable to employees
outside the United States (the "FOREIGN PLANS"). Each Foreign Plan is in
compliance in all material respects with all Laws applicable thereto and
the respective requirements of such Foreign Plan's governing documents,
and no Foreign Plan has any unfunded liabilities.
SECTION 3.26 INTELLECTUAL PROPERTY RIGHTS.
(a) Section 3.26 of the Company Disclosure Statement sets forth a
complete and correct list of all: (i) patented or registered
Intellectual Property Rights and pending patent applications and other
applications for registrations of Intellectual Property Rights owned or
filed by or on behalf of the Company or its subsidiaries; (ii) all
registered trade names and unregistered trade names, trademarks and
service marks owned or used by the Company or its subsidiaries and
material to the conduct of its business; (iii) all computer software
owned and/or used by the Company or its subsidiaries (other than
mass-marketed software with a license fee of less than $1,000); and (iv)
all material licenses or similar agreements or arrangements for
Intellectual Property Rights to which the Company or its subsidiaries is
a party (either as a licensor or licensee).
26
(b) Except as disclosed in Section 3.26 of the Company Disclosure
Statement: (i) each of the Company and its subsidiaries owns and
possesses all right, title and interest in and to, or has a valid and
enforceable license to use, all of the Intellectual Property Rights
necessary or desirable for the operation of the business of the Company
and its subsidiaries as currently conducted free and clear of all
encumbrances, licenses or other restrictions; (ii) no claim by any third
party contesting the validity, enforceability, use or ownership of any
of the Intellectual Property Rights owned or used by the Company or its
subsidiaries has been made and is currently outstanding or, to the
Company's Knowledge is threatened, and to the Company's Knowledge, there
are no grounds for the same; (iii) the loss or expiration of any
Intellectual Property Right owned or used by the Company or its
subsidiaries would not have a Company Material Adverse Effect, and no
such loss or expiration is threatened, pending or reasonably
foreseeable; (iv) neither the Company nor its subsidiaries have received
any notices of, and, to the Company's Knowledge, there is no
infringement or misappropriation by, or conflict with, any third party
with respect to the Intellectual Property Rights owned or used by the
Company or its subsidiaries (including, without limitation, any demand
or request that the Company or its subsidiaries license any rights from
a third party); (v) neither the Company nor its subsidiaries, to the
Company's Knowledge, have infringed, misappropriated or otherwise
violated any Intellectual Property Rights or other rights of any third
parties and, to the Company's Knowledge, there is no infringement,
misappropriation or conflict which will occur as a result of the
continued operation of the business of the Company and its subsidiaries
as currently conducted; and (vi) each of the Company and its
subsidiaries has taken commercially reasonable steps to protect,
maintain and safeguard the material Intellectual Property Rights owned
or used by the Company or its subsidiaries.
SECTION 3.27 YEAR 2000. To the Company's Knowledge, the hardware,
software and embedded microcontrollers in noncomputer equipment (the "COMPUTER
SYSTEMS") owned, or used in the conduct of the business and operation of the
Company and its subsidiaries are Year 2000 Compliant. The Company and its
subsidiaries have taken reasonable steps to investigate whether the Computer
Systems of their material suppliers and customers are Year 2000 Compliant and
such investigation has not revealed any Year 2000 related dysfunction or
interruption. For purposes of this Agreement, "YEAR 2000 COMPLIANT" means that
all of the Computer Systems correctly recognize, manipulate and process
(including calculating, comparing and sequencing) date information relating to
dates on or after January 1, 2000 (including leap year calculations) and shall
continue to do so, and that the operation and functionality of such Computer
Systems were not, and will not be, adversely affected by the advent of the Year
2000 or any manipulation of data featuring date information relating to dates
before, on or after January 1, 2000. Neither the Company nor any of its
Subsidiaries have received any document which would indicate the likelihood of a
third party claim related to any of the foregoing.
SECTION 3.28 UNIONS. Except as set forth on Section 3.28 of the
Company Disclosure Statement, since January 1, 1995, no executive of the Company
or any of its subsidiaries and no group of employees of the Company or any of
its subsidiaries, has terminated, or to the Company's Knowledge, plans to
terminate, employment with the Company or any of its subsidiaries. There are no
collective bargaining or other labor union agreements applicable to any
employees or by which the Company or any of its subsidiaries is bound. Except as
set forth on
27
Section 3.28 of the Company Disclosure Statement, as of the date hereof, no work
stoppage, material grievance, material claim of unfair labor practice, or
dispute against the Company or any of its subsidiaries has occurred within the
past five (5) years, is pending or, to the Company's Knowledge, threatened, and
to the Company's Knowledge there is no basis for any of the foregoing. To the
Company's Knowledge, there is no organizational activity being made or
threatened by or on behalf of any labor union with respect to any employees of
Company or any of its subsidiaries. Section 3.28 of the Company Disclosure
Statement sets forth the current rate of base compensation, title, and years of
service of each of the executive officers of the Company listed thereon.
SECTION 3.29 FRANCHISE MATTERS.
(a) The Company has previously delivered, or made available, to
the Investor Group true and correct copies of the Uniform Franchise
Offering Circular ("CIRCULAR") of the Company or any of its subsidiaries
in use in the offer and sale by the Company or any of its subsidiaries
of franchise and area development rights pursuant to any Franchise
Agreements (as defined below), which are required to be delivered by the
Company or any of its subsidiaries to prospective franchisees in the
United States pursuant to the Rules and Regulations of the Federal Trade
Commission (the "RULES") or state Law including, without limitation,
franchise investment Laws, franchise registration and disclosure Laws,
business opportunity Laws, and seller assisted marketing plan Laws (the
"FRANCHISE LAWS"). The Circular complies in all material respects with
the requirements of the Rules and applicable Franchise Laws and does not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made therein, in light of
the circumstances in which they were made, not misleading.
(b) The Company has previously made available to the Investor
Group true and correct copies of all 1999 renewal applications
containing the Circular required to be filed with the appropriate state
authorities in those states where (i) such filings are required for the
sale by the Company or any of its subsidiaries of franchises or
franchise area development rights or (ii) franchise area development
rights or franchise rights have been offered for sale by the Company or
any of its subsidiaries at any time after January 1, 1995. Except as set
forth on Section 3.29 of the Company Disclosure Statement, each current
renewal application has been declared effective in all jurisdictions
where the Company or any of its subsidiaries is required to file such
applications, and there are no stop orders or other proceedings in
effect or, to the Company's Knowledge, threatened, which would prohibit
or impede the ability of the Company or any of its subsidiaries to sell
franchise area development rights or franchises in such jurisdictions.
(c) The Company and its subsidiaries have sold or solicited the
sale of franchises and franchise area development rights only in
compliance with all applicable Laws governing such activity. Except as
set forth on Section 3.29(c) of the Company Disclosure Statement, there
are no claims or actions pending or, to the Company's Knowledge,
threatened which allege any failure to comply by the Company or any of
its subsidiaries with the Rules or the Franchise Laws.
28
(d) The Company has made available to the Investor Group with
true and correct copies of all franchise agreements now in effect and to
which either the Company or any of its subsidiaries is a party (the
"FRANCHISE AGREEMENTS"), and except as set forth in Section 3.29(d) of
the Company Disclosure Statement, neither the Company nor any of its
subsidiaries is in violation in any material respect of any Franchise
Agreement to which it is a party or by which it is bound. Set forth on
Section 3.29(d) of the Company Disclosure Statement is a true and
correct list of all Franchise Agreements.
(e) Except as set forth on Section 3.29(e) of the Company
Disclosure Statement, to the Company's Knowledge, no franchisee is in
material violation of any term of any Franchise Agreement and no notice
of default or termination has been delivered to any franchisee pursuant
to the terms of any Franchise Agreement.
(f) The Company and its subsidiaries are in compliance with and
have complied at all times with all applicable Laws regulating the
relationship of the Company and its subsidiaries with its franchisees,
except where such non-compliance would not have a Company Material
Adverse Effect.
SECTION 3.30 NOTES AND ACCOUNTS RECEIVABLE. Except as disclosed
in Section 3.30 of the Company Disclosure Statement, all notes and accounts
receivable of the Company and its subsidiaries are reflected properly on their
books and records, and are valid receivables arising in the ordinary course of
business.
SECTION 3.31 AFFILIATED TRANSACTIONS. Set forth in Section 3.31
of the Company Disclosure Statement is a list of all arrangements, agreements
and contracts entered into by the Company or any of its subsidiaries with any
person who is an officer, director or affiliate of the Company or any of its
subsidiaries, or, to the Company's Knowledge, any immediate family member, any
relative of any of the foregoing or any entity of which any of the foregoing is
an affiliate. Correct and complete copies of such documents have previously been
made available to the Investor Group.
SECTION 3.32 CONTRIBUTIONS. Neither the Company or any of its
subsidiaries, nor any director or officer of the Company or any of its
subsidiaries, has, in the course of his or her actions for or on behalf of the
Company or any of its subsidiaries, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expense relating to
political activity or made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds.
Neither the Company or any of its subsidiaries, nor any director or officer of
the Company or any of its subsidiaries, has, in the course of his or her actions
for or on behalf of the Company or any of its subsidiaries violated or is in
violation of any provision of the Foreign Corrupt Practices Act of 1977, as
amended, or made any bribe, or unlawful rebate, payoff, influence payment,
kickback or other unlawful payment.
29
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MERGER SUB
AND THE INVESTOR GROUP
Except as disclosed in a separate disclosure schedule referring
to the Sections contained in this Agreement, which has been delivered by Merger
Sub to the Company prior to the execution of this Agreement (the "MERGER SUB
DISCLOSURE SCHEDULE"), Merger Sub and each member of the Investor Group hereby
severally, but not jointly, represents and warrants to the Company that:
SECTION 4.01 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Merger
Sub or such member of the Investor Group is a corporation, partnership or
limited liability company duly organized, validly existing and in good standing
under the Laws of the jurisdiction of its incorporation or organization and has
the requisite corporate, partnership or limited liability company power and
authority and all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as it is now being conducted. Merger Sub
or such member of the Investor Group is duly qualified or licensed as a foreign
corporation, partnership or limited liability company to do business, and is in
good standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failures to be so qualified or licensed
and in good standing that, individually or in the aggregate, would not have a
Merger Sub Material Adverse Effect. The term "MERGER SUB MATERIAL ADVERSE
EFFECT" means , when used in connection with the Merger Sub, any change, effect,
event, occurrence, condition or development that is or is reasonably likely to
be materially adverse to the business, assets, liabilities, properties, results
of operations, prospects or condition (financial or otherwise) of Merger Sub or
any member of the Investor Group or (ii) the ability of Merger Sub or any member
of the Investor Group to perform its obligations under this Agreement or the
Commitment Letters.
SECTION 4.02 CHARTER DOCUMENTS AND BY-LAWS. Merger Sub has
heretofore furnished to the Company a complete and correct copy of the
Certificate of Incorporation and Bylaws, each as amended to date, of Merger Sub.
Such charter documents are in full force and effect. Merger Sub is not in
violation of any provision of its charter documents.
SECTION 4.03 AUTHORITY RELATIVE TO THIS AGREEMENT. Merger Sub
or such member of the Investor Group has all necessary corporate, partnership
or limited liability company power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
Transactions. The execution and delivery of this Agreement by Merger Sub or
such member of the Investor Group and the consummation by Merger Sub or such
member of the Investor Group of the Transactions have been duly and validly
authorized by all necessary corporate, partnership or limited liability
company action and no other corporate, partnership or limited liability
company proceedings on the part of Merger Sub or such member of the Investor
Group are necessary to authorize this Agreement or to consummate the
Transactions (other than, with respect to the Merger, the filing and
recordation of appropriate merger documents as required by the DGCL). This
Agreement has been duly and validly executed and delivered by Merger Sub or
such member of the Investor Group and, assuming the due authorization,
execution and delivery by the Company, constitutes a legal, valid and binding
obligation of Merger Sub or such member of the Investor
30
Group enforceable against Merger Sub or such member of the Investor Group in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar Laws of general
applicability relating to or affecting creditors' rights and to general
equity principles.
SECTION 4.04 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by Merger Sub or
such member of the Investor Group does not, and the consummation of the
Transactions by Merger Sub or such member of the Investor Group will not
(i) conflict with or violate the charter documents, By-laws or other
organizational documents of Merger Sub or such member of the Investor
Group, (ii) conflict with or violate any Law applicable to Merger Sub or
such member of the Investor Group or by which any property or asset of
Merger Sub or such member of the Investor Group is bound or affected,
except for such conflicts or violations which would not, individually or
in the aggregate, have a Merger Sub Material Adverse Effect, or (iii)
result in a violation or any breach of or constitute a default (or an
event which with notice or lapse of time or both would become a default)
under any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which
Merger Sub or such member of the Investor Group is a party or by which
Merger Sub or such member of the Investor Group or any property or asset
of Merger Sub or such member of the Investor Group is bound or affected,
except for any such breaches or defaults which, individually or in the
aggregate, would not have a Merger Sub Material Adverse Effect.
(b) The execution and delivery of this Agreement by Merger Sub or
such member of the Investor Group does not, and the consummation of this
Agreement by Merger Sub or such member of the Investor Group will not,
require any consent, approval, authorization or permit of, or filing
with or notification to, any government or subdivision thereof, or any
administration, governmental or regulatory authority, agency,
commission, tribunal or body, domestic, foreign or supranational, except
(i) for applicable requirements, if any, of the Exchange Act, the
Securities Act, Blue Sky Laws, the rules of any applicable stock
exchange, state takeover Laws, the pre-merger notification requirements
of the HSR Act, and filing and recordation of appropriate merger
documents as required by the DGCL or any other applicable state Law, and
(ii) where the failure to obtain such other consents, approvals,
authorizations, or permits, or to make such filings or notifications,
individually or in the aggregate is not reasonably likely to have a
Merger Sub Adverse Effect.
SECTION 4.05 INTERIM OPERATIONS OF MERGER SUB. Merger Sub was
formed solely for the purpose of engaging in the transactions contemplated
hereby, has engaged in no other business activities (other than those incident
to its organization and the execution of this Agreement) and has conducted its
operations only as contemplated hereby.
SECTION 4.06 INFORMATION SUPPLIED. None of the information
supplied or to be supplied by Merger Sub or any member of the Investor Group
specifically for inclusion or incorporation by reference in the Proxy Statement
or the Other Filings, at the respective time filed
31
with the SEC or such other Governmental Authority, and, in addition, in the case
of the Proxy Statement, at the date it is first mailed to the Company's
stockholders or at the time of the Stockholders Meeting (as defined below),
contains or will contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading.
SECTION 4.07 BROKERS. Except as disclosed in Section 4.07 of the
Merger Sub Disclosure Schedule, no broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the Merger based upon arrangements made by or on behalf of Merger Sub.
SECTION 4.08 FINANCING.
(a) Merger Sub has received written commitments from (i) Bank of
America, N.A. and Bank of America Securities LLC (collectively, "BOA"),
dated ________, 2000 (the "BOA COMMITMENT LETTER"), pursuant to which
BOA has committed, subject to the terms and conditions contained
therein, to provide up to $155 million in financing for the Transactions
and (ii) Albion Alliance L.L.C. ("ALBION") dated February 25, 2000 (the
"ALBION COMMITMENT LETTER", and together with the BOA Commitment Letter,
the "COMMITMENT LETTERS"), pursuant to which Albion has committed,
subject to the terms and conditions contained therein, to provide up to
$35 million in financing for the Transactions. Assuming that the
condition in 8.02(l) has been met, the proceeds from the Debt Financing,
to the extent funded pursuant to the Commitment Letters, together with
the Equity Contribution, shall provide sufficient funds to pay, pursuant
to the Merger, the Merger Consideration and the Option Consideration and
to pay all fees and expenses related to the Transactions. Merger Sub has
delivered true, correct and complete copies of the Commitment Letters to
the Company.
(b) Merger Sub and the Investor Group have delivered to each
person providing the Debt Financing true and complete copies of the
Company Disclosure Statement and have advised each such person of any
information of which Merger Sub or the Investor Group is aware which
could reasonably be expected to constitute a Company Material Adverse
Effect. As of the date of this Agreement, neither Merger Sub nor the
Investor Group have any reason to believe that (i) BOA or Albion will
fail to perform their respective material obligations under the
Commitment Letters, or (ii) any condition precedent to the respective
obligations of BOA or Albion to fund the Debt Financing will not be
satisfied prior to the Closing.
SECTION 4.09 LITIGATION. There is no (i) claim, action, suit or
proceeding pending or, to the best knowledge of the Merger Sub and the members
of the Investor Group, threatened against Merger Sub, before any court,
arbitrator or Governmental Authority, or (ii) outstanding judgment, order, writ,
injunction or decree of any court, arbitrator or Governmental Authority in a
proceeding to which Merger Sub or any of its assets is subject except, in the
case of clauses (i) and (ii) above, such as would not, individually or in the
aggregate, have a Merger Sub Material Adverse Effect.
32
SECTION 4.10 CAPITALIZATION. Immediately prior to the Effective
Time, the authorized capital stock of Merger Sub will consist of shares of
Common Stock, par value $0.01 per share and shares of preferred stock, par value
$0.01 per share. There are 1,000 shares of capital stock of Merger Sub issued
and outstanding, and no other shares of capital stock of Merger Sub are issued
or outstanding. Each outstanding shares of capital stock of Merger Sub is owned
by a member of the Investor Group. Except as provided in, or contemplated by,
this Agreement, there are no authorized or outstanding options, warrants,
convertible securities, calls, rights, commitments, preemptive rights or
agreements or instruments or understandings of any character, to which Merger
Sub is a party or by which Merger Sub is bound, obligating Merger Sub to issue,
deliver or sell, or cause to be issued, delivered or sold, contingently or
otherwise, additional shares of capital stock of Merger Sub or any securities or
obligations convertible into or exchangeable for such shares or to grant, extend
or enter into any such option, warrant, convertible security, call, right
commitment, preemptive right or agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder hereby severally, but not jointly, represents
and warrants to the Company that:
SECTION 5.01 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by such
Stockholder does not, and the consummation of the Transactions by such
Stockholder will not, (i) violate any Law applicable to such
Stockholder, (ii) prevent or materially delay the consummation of the
Merger or (iii) result in a violation or any breach of or constitute a
default (or an event which with notice or lapse of time or both would
become a default) under any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which any Stockholder is a party.
(b) The execution and delivery of this Agreement by such
Stockholder does not, and the consummation of the Transactions by such
Stockholder will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any government or
subdivision thereof, or any administrative, governmental or regulatory
authority, agency, commission, tribunal or body, domestic, foreign or
supranational, except for applicable requirements, if any, of the
Exchange Act, the Securities Act, Blue Sky Laws, the rules of any
applicable exchange, state takeover Laws, the pre-merger notification
requirements of the HSR Act, and filings and recordation of appropriate
merger documents as required by the DGCL or any other applicable state
Law.
SECTION 5.02 OWNERSHIP OF SHARES. Such Stockholder is the sole
record and beneficial owner of the Owned Shares listed on the STOCKHOLDER OWNED
SHARE SCHEDULE hereto, free and clear of any liens or encumbrances and free of
any other limitation or restriction (including, without limitation, any
restriction on the right to vote, sell or otherwise dispose of the Owned Shares
or any interest therein) except pursuant to this Agreement, the Support
Agreement (as defined below)
33
or applicable securities Laws. The Owned Shares indicated on such Schedule
constitute all of the capital stock of the Company owned of record or
beneficially owned by such Stockholder.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.01 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE
MERGER. The Company covenants and agrees that, between the date of this
Agreement and the Effective Time, except as set forth in Section 6.01 of the
Company Disclosure Statement or as otherwise expressly provided for in this
Agreement, unless Merger Sub shall otherwise agree in writing, the Company
shall, and shall cause its subsidiaries to, conduct its business in the ordinary
course and in a manner consistent in all material respects with past practice.
The Company shall, and shall cause its subsidiaries to, use commercially
reasonable efforts to (i) preserve intact its business organization, (ii) keep
available the services of the current officers, key employees and consultants of
the Company and its subsidiaries, (iii) preserve the current relationships of
the Company and its subsidiaries with customers, franchisees, distributors,
suppliers, licensors, licensees, contractors and other persons with which the
Company or its subsidiaries has significant business relations, (iv) maintain
all assets in good repair and condition (except for ordinary wear and tear)
other than those disposed of in the ordinary course of business, (v) maintain
all insurance necessary to the conduct of the Company's business as currently
conducted, (vi) maintain its books of account and records in the usual, regular
and ordinary manner, and (vii) maintain, enforce and protect all of the material
Intellectual Property Rights owned or used by the Company or its subsidiaries in
a manner consistent in all material respects with past practice. By way of
amplification and not limitation, except as contemplated by this Agreement, or
as set forth in Section 6.01 of the Company Disclosure Statement, the Company
shall not, and shall cause its subsidiaries not to, between the date of this
Agreement and the Effective Time, directly or indirectly do, or propose to do,
any of the following without the prior written consent of Merger Sub (which
shall not be unreasonably withheld).
(a) amend or otherwise change its Certificate of Incorporation or
By-laws, except to the extent contemplated by the Preference Amendment;
(b) issue, sell, pledge, dispose of, grant or encumber, or
authorize the issuance, sale, pledge, disposition, grant or encumbrance
of, (i) any shares of capital stock of any class of the Company (other
than pursuant to and in accordance with the Company Stock Option Plans
and the Company Employee Stock Purchase Plans and the agreements listed
in Section 3.03 of the Company Disclosure Statement or in connection
with the Preference Exchange or the Equity Contribution) or its
subsidiaries, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of such capital stock, or any
other ownership interest (including, without limitation, any phantom
interests), of the Company or its subsidiaries or (ii) any assets of the
Company or its subsidiaries, except for sales in the ordinary course of
business consistent with past practice and other asset sales for
consideration or having a fair market value aggregating not more than
$100,000;
34
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock (other than between any wholly-owned
subsidiary of the Company and the Company);
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, or propose to redeem, purchase or otherwise acquire,
directly or indirectly, any of its capital stock, other than in
connection with the Preference Exchange;
(e) acquire (including, without limitation, by merger,
consolidation or acquisition of stock or assets) or agree to acquire any
corporation, partnership, limited liability company, or other business
organization or division thereof;
(f) (i) incur or agree to incur any indebtedness for borrowed
money or issue any debt securities or assume, guarantee or endorse, or
otherwise as an accommodation become responsible for, the obligations of
any person, or make any loans, advances, or capital contributions to or
investments in, any other person, except in the ordinary course of
business consistent with past practice and in an amount not in excess of
$100,000; or (ii) authorize capital expenditures which are, in the
aggregate, in excess of $100,000;
(g) acquire, or agree to acquire, sell, lease or dispose of any
Real Property or other material assets, other than sales or leases or
other dispositions of fixed assets (other than Real Property) or sales
or other dispositions of inventory and the purchase of supplies and
equipment, in each case, in the ordinary course of business consistent
with past practice;
(h) enter into, establish, adopt, amend or renew any material
employment, consulting, severance or similar agreement or arrangements
with any director, executive officer, or employee, or grant any salary
or wage increase (other than in the ordinary course consistent with past
practice);
(i) establish, adopt, amend or increase benefits under any
pension, retirement, stock option, stock purchase, savings, profit
sharing, deferred compensation, consulting, welfare benefit contract,
plan or arrangement (other than as may be required by applicable Law);
(j) enter into any labor or collective bargaining agreement,
memorandum of understanding, grievance settlement or any other agreement
or commitment to or relating to any labor union;
(k) discharge or satisfy any material Lien or pay or satisfy any
material obligation or liability (fixed or contingent) except in the
ordinary course of business consistent with past practice, or commence
any voluntary petition, proceeding or action under any bankruptcy,
insolvency or other similar Law;
(l) make or institute any change in accounting procedures or
practices in its accounting procedures and practices unless mandated by
GAAP;
35
(m) take any action that, if taken after October 31, 1999 but
prior to the date hereof, would have been required to be disclosed in
Section 3.07 of the Company Disclosure Statement;
(n) enter into any agreement or other arrangement with any
director, executive officer, employee or stockholder of the Company or
its subsidiaries or, to the Company's Knowledge, any affiliate of the
foregoing, except in the ordinary course of business consistent with
past practice;
(o) enter into any agreement or other arrangement that is
reasonably likely to be material to the business of the Company or its
subsidiaries, except in the ordinary course of business consistent with
past practice;
(p) make or change any election, change an annual accounting
period, adopt or change any accounting method, file any amended Tax
Return, enter into any closing agreement, settle any Tax claim or
assessment relating to the Company or its subsidiaries, surrender any
right to claim a refund of Taxes, consent to any extension or waiver of
the limitation period applicable to any Tax claim or assessment relating
to the Company or its subsidiaries, fail to timely file any Tax Return,
take a position on a Tax Return not in keeping with prior practice 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 could have the effect of increasing
the present or future Tax liability or decreasing any present or future
Tax asset of the Company or its subsidiaries;
(q) license, assign or otherwise transfer to any person or entity
any rights to any material Intellectual Property Rights owned or used by
the Company or its subsidiaries, except in the ordinary course of
business consistent with past practice;
(r) amend, extend, renew or terminate any Lease, and shall not
enter into any new lease, sublease, license or other agreement for the
use or occupancy of any real property, except in the ordinary course of
business consistent with past practice, and for which annual rental
payments do not exceed $20,000;
(s) fail to maintain, enforce or protect any material
Intellectual Property Rights owned or used by the Company or its
subsidiaries, except in the ordinary course of business consistent with
past practice;
(t) settle any action, claim or suit with any Governmental
Authority or third party relating to this Agreement, the Merger or any
of the other transactions contemplated hereby; or
(u) authorize or propose, or agree to take, any of the foregoing
actions prohibited under Section 6.01.
36
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01 STOCKHOLDERS' MEETING.
(a) Subject to the provisions of Section 7.05 and Section 9.01,
the Company shall, consistent with applicable Law, call and hold a
meeting of the holders of shares of Company Common Stock (the
"STOCKHOLDERS' MEETING") as promptly as practicable for the purpose of
voting upon the approval and adoption of this Agreement and the
Transactions. The Company, through its Board of Directors or a committee
thereof, shall recommend to its stockholders approval and adoption of
this Agreement and the Transactions, which recommendation shall be
contained in the Proxy Statement (as defined below); PROVIDED, HOWEVER,
that the Board of Directors of the Company or a committee thereof may
fail to make its recommendation to the stockholders of the Company or
may withdraw, modify or change its recommendation to the stockholders of
the Company, in accordance with Section 7.05. The Company shall solicit
from the holders of shares of Company Common Stock proxies in favor of
the approval and adoption of the Merger, and shall take all other action
reasonably necessary or advisable to secure the vote or consent of such
holders required by the DGCL.
(b) Merger Sub shall vote (or consent with respect to) any shares
of Company Common Stock beneficially owned by it, or with respect to
which it has the power (by agreement, proxy or otherwise) or cause to be
voted (or to provide a consent), in favor of the approval and adoption
of this Agreement at any meeting of the stockholders of the Company at
which this Agreement shall be submitted for approval and adoption and at
all adjournments or postponements thereof (or, if applicable, by any
action of the stockholders of the Company by consent in lieu of a
meeting).
SECTION 7.02 PREPARATION OF PROXY STATEMENT.
(a) The Company shall, as soon as practicable, but in any event
(assuming prompt compliance by the other parties with their obligations
under this Section 7.02) within thirty (30) days after the date hereof,
prepare and file (after providing Merger Sub with a reasonable
opportunity to review and comment thereon) preliminary proxy materials
(including, without limitation, a Schedule 13e-3 filing, if required to
be filed under the Exchange Act) relating to the meeting of the holders
of shares of Company Common Stock to be held in connection with the
Transactions (together with any amendments thereof or supplements
thereto, the "PROXY STATEMENT") (or, if requested by Merger Sub and
applicable, an information statement in lieu of a proxy statement
pursuant to Rule 14C under the Exchange Act, with all references herein
to the Proxy Statement being deemed to refer to such information
statement, to the extent applicable) with the SEC (provided, that if the
Proxy Statement is not filed within 30 days after the date of this
Agreement, but the Company is using its best efforts to cause the Proxy
Statement to be promptly filed, it shall not be deemed a material breach
of this Agreement by the Company). The Company shall
37
thereafter use its commercially reasonable efforts to respond to
any comments of the SEC (after providing Merger Sub with a reasonable
opportunity to review and comment thereon) and to cause the Proxy
Statement to be mailed to the Company's stockholders as promptly
as practicable after responding to all such comments to the satisfaction
of the SEC staff. The Company shall notify Merger Sub promptly of the
receipt of any comments from the SEC and of any request by the SEC for
amendments or supplements to the Proxy Statement or for additional
information and shall supply Merger Sub with copies of all
correspondence between the Company or any of its representatives, on the
one hand, and the SEC, on the other hand, with respect to the Proxy
Statement or the Transactions. The Company will cause the Proxy
Statement (other than portions relating to the Merger Sub or the
Investor Group) to comply in all material respects with the applicable
provisions of the Exchange Act and the rules and regulations thereunder
applicable to the Proxy Statement and the solicitation of proxies for
the Stockholders' Meeting (including any requirement to amend or
supplement the Proxy Statement). Merger Sub and the members of the
Investor Group shall cooperate with the Company in the preparation of
the Proxy Statement, and without limiting the generality of the
foregoing, each party shall promptly furnish to the other such
information relating to it and its affiliates and the Transactions and
such further and supplemental information as may be reasonably requested
by the other party and shall promptly notify the other party of any
change in such information. If at any time prior to the Stockholders
Meeting there shall occur any event that should be set forth in an
amendment or supplement to the Proxy Statement, the Company shall
promptly prepare and mail to its stockholders such an amendment or
supplement; PROVIDED, that no such amendment or supplement to the Proxy
Statement will be made by the Company without providing the Merger Sub a
reasonable opportunity to review and comment thereon.
(b) The Company agrees to include in the Proxy Statement the
unanimous recommendation of the voting members of the Company's Board of
Directors, subject to any modification, amendment or withdrawal thereof,
and represents that the Company's Financial Advisor has, subject to the
terms of its engagement letter with the Company, consented to the
inclusion of references to its opinion in the Proxy Statement.
SECTION 7.03 APPROPRIATE ACTION; CONSENTS; FILINGS; FURTHER
ASSURANCES.
(a) The Company, each member of the Investor Group and Merger Sub
shall use commercially reasonable efforts to (i) take, or cause to be
taken, all appropriate action and do, or cause to be done, all things
necessary, proper or advisable under applicable Law or otherwise to
consummate the Transactions and make effective the Merger as promptly as
practicable, (ii) take all reasonable actions required for the
consummation of the financing of the transactions contemplated hereby by
Merger Sub; PROVIDED, HOWEVER, that the effectiveness of any such action
by the Company shall be conditioned upon consummation of the Merger,
(iii) obtain expeditiously from any Governmental Authorities any
consents, licenses, permits, waivers, approvals, authorizations or
orders required to be obtained or made by any member of the Investor
Group, Merger Sub, or the Company or any of its subsidiaries in
connection with the authorization, execution and delivery of this
Agreement and the consummation of the Transactions, and (iv) as promptly
as practicable, make all
38
necessary filings, and thereafter make any other required submissions,
with respect to this Agreement and the Transactions required under (A)
the Securities Act and the Exchange Act, and any other applicable
federal or state securities Laws, (B) the HSR Act and any related
governmental request thereunder and (C) any other applicable Law;
PROVIDED, that Merger Sub, each member of the Investor Group and the
Company shall cooperate with each other in connection with the making of
all such filings, including providing copies of all such documents to
the non-filing party and its advisors prior to filing. From the date of
this Agreement until the Effective Time, each party shall promptly
notify the other party in writing of any pending or, to the knowledge of
the first party, threatened action, proceeding or investigation by any
Governmental Authority or any other person (i) challenging or seeking
material damages in connection with the Merger or the conversion of the
Company Common Stock into cash pursuant to the Merger or (ii) seeking to
restrain or prohibit the consummation of the Transactions or otherwise
limit the right of Surviving Corporation to own or operate all or any
portion of the businesses or assets of the Company or its subsidiaries,
which in either case would have a Company Material Adverse Effect prior
to or after the Effective Time, or a Surviving Corporation Material
Adverse Effect after the Effective Time. The term "SURVIVING CORPORATION
MATERIAL ADVERSE EFFECT" means, when used in connection with the
Surviving Corporation, any change, effect, event, occurrence, condition
or development that is or is reasonably likely to be materially adverse
to the business, assets, liabilities, properties, results of operations,
prospects or condition (financial or otherwise) of the Surviving
Corporation or its subsidiaries, taken as a whole.
(b) The Company, the Stockholders, each member of the Investor
Group and Merger Sub shall promptly furnish to each other all
information required for any application or other filing to be made
pursuant to the rules and regulations of any applicable Law (including
all information required to be included in the Proxy Statement) in
connection with the transactions contemplated by this Agreement.
(c) (i) Merger Sub, each member of the Investor Group and, except
as expressly described in Section 3.05 of the Company Disclosure
Statement, the Company shall give (or shall cause its respective
subsidiaries to give) any notices to third parties and use, and cause
its respective subsidiaries to use, their reasonable efforts to obtain
any third party consents, (A) necessary, proper or advisable to
consummate the Transactions, (B) disclosed or required to be disclosed
in the Company Disclosure Statement or Merger Sub Disclosure Statement
or (C) required to prevent a Company Material Adverse Effect from
occurring prior to or after the Effective Time or a Surviving
Corporation Material Adverse Effect from occurring after the Effective
Time.
(ii) In the event that any of the parties hereto shall
fail to obtain any third party consent described in subsection (c)(i)
above, such party shall use its commercially reasonable efforts, and
shall take any such actions reasonably requested by the other parties
hereto, to minimize any adverse effect resulting, or which could
reasonably be expected to result, after the Effective Time, from the
failure to obtain such consent.
39
(d) If any state takeover statute or similar statute or
regulation becomes applicable to this Agreement or any of the
Transactions, the Company, the Investor Group and Merger Sub will take
all action necessary to ensure that the Merger and the other
Transactions may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise to minimize the effect of
such statute or regulation on the Merger and the other Transactions.
(e) If at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement,
including the execution of additional documents, the proper officers and
directors of each party to this Agreement (including the Stockholders)
shall take all such necessary action. At and after the Effective Time,
the officers and directors of the Surviving Corporation will be
authorized to execute and deliver, in the name and on behalf of the
Company, any other actions to vest, perfect or confirm of record or
otherwise in the Surviving Corporation any and all right, title and
interest in, to and under any of the rights, properties or assets of the
Company acquired or to be acquired by the Surviving Corporation as a
result of, or in connection with, the Merger.
SECTION 7.04 ACCESS TO INFORMATION; CONFIDENTIALITY.
(a) The parties shall comply with, and shall cause their
respective Representatives (as defined below) to comply with, to the
extent permitted by applicable Law, all of their respective obligations
under the Confidentiality Agreement dated September 8 and September 9,
1999 (the "CONFIDENTIALITY AGREEMENT") between the Company and members
of the Investor Group. Notwithstanding the Confidentiality Agreement,
the Company acknowledges that Merger Sub may cause an information
memorandum to be prepared and used in connection with the consummation
of the financing of the Transactions; PROVIDED, that any recipient of
such information memorandum shall be subject to customary
confidentiality requirements.
(b) Subject to the Confidentiality Agreement, from the date
hereof to the Effective Time, the Company shall (and shall cause each of
its subsidiaries to) provide to Merger Sub (and its officers, directors,
employees, accountants, consultants, legal counsel, agents and other
representatives, collectively, "REPRESENTATIVES") access to all
information and documents which Merger Sub may reasonably request
regarding the business, assets, liabilities, employees and other aspects
of the Company or its subsidiaries, except for attorney-client privilege
information and information that is attorney work product.
(c) From the date hereof to the Effective Time, the Company shall
(and shall cause each of its subsidiaries to): (i) provide to Merger Sub
and its Representatives access at reasonable times upon prior notice to
the officers, employees, agents, properties, offices and other
facilities of the Company and its subsidiaries and to the books and
records thereof and (ii) furnish promptly such information concerning
the business, properties, contracts, assets, liabilities, personnel and
other aspects of the Company and its subsidiaries as Merger Sub or its
Representatives may reasonably request, except for attorney-client
privilege information and information that is attorney work product.
40
(d) No investigation by Merger Sub, whether prior to the
execution of this Agreement or pursuant to this Section 7.04, shall
affect any representation or warranty in this Agreement of any party
hereto or any condition to the obligations of the parties hereto.
SECTION 7.05 NO SOLICITATION.
(a) The Company and the Stockholders shall not, and the Company
shall cause its subsidiaries not to, and the Company agrees that it
shall not authorize any of its directors, officers, employees, agents or
representatives to, directly or indirectly, solicit, initiate or
encourage (including by way of furnishing or disclosing non-public
information) any inquiries, discussions or the making of any proposal
with respect to any merger, consolidation or other business combination
involving the Company or the acquisition of any material portion of the
assets or capital stock of the Company or its subsidiaries (a "COMPETING
TRANSACTION") or negotiate, explore or otherwise communicate in any way
with any person (other than Merger Sub and the Investor Group and their
directors, officers, employees and representatives) with respect to any
Competing Transaction; PROVIDED, HOWEVER, that the Company and its
directors, officers, employees, agents or representatives may, to the
extent required by the fiduciary obligations of the Board of Directors
of the Company, as determined in good faith by a majority vote of the
Board of Directors of the Company or the Special Committee thereof,
following consultation with its outside counsel as to legal matters, in
response to any proposal for or request to discuss a Competing
Transaction from any person that was not solicited by the Company and
that did not otherwise result from the breach of this Section 7.05, (w)
furnish information with respect to the Company to such person pursuant
to a customary confidentiality agreement; (x) participate in discussions
or negotiations with such person regarding any Competing Transaction;
(y) conduct "due diligence" inquiries and (z) take all such other
actions as the Company's Board of Directors or the Special Committee
thereof determine are reasonable necessary in order to review or respond
to the proposed Competing Transaction.
(b) Neither the Company (or any of its subsidiaries) nor the
Board of Directors of the Company nor any committee thereof shall (i)
withdraw or modify, or propose to withdraw or modify, in a manner
adverse to Merger Sub, the approval, adoption or recommendation by the
Board of Directors of the Company or any such committee of this
Agreement, the Merger or the other Transactions, (ii) approve or
recommend, or propose to approve or recommend, any Competing
Transaction, (iii) approve or recommend, or propose to approve or
recommend, or execute or enter into, any letter of intent, agreement in
principle, merger agreement, acquisition agreement, option agreement or
other relating to any Competing Transaction or propose or agree to do
any of the foregoing, or (iv) submit any Competing Transaction at the
Stockholder's Meeting for purposes of voting upon approval and adoption
of the Competing Transaction; PROVIDED, HOWEVER, that the Company may,
to the extent required by the fiduciary obligations of the Board of
Directors of the Company, as determined in good faith by a majority vote
of the Board of Directors of the Company or the Special Committee
thereof following consultation with its outside counsel as to legal
matters, (A) terminate this Agreement pursuant to Section 9.01(g), (B)
approve
41
or recommend a Competing Transaction, (C) withdraw or modify its
recommendation of the Merger, the Preference Amendment or the execution
of this Agreement, (D) submit a Competing Transaction to the
stockholders of the Company or (E) take any other action consistent with
its fiduciary duties. Notwithstanding the foregoing or Section 7.05(a),
the Company and its Board of Directors at all times may take all such
actions as are reasonably necessary pursuant to Rule 14d-9 or Rule 14e-2
under the Securities Exchange Act.
(c) Subject to the fiduciary obligations of the Board of
Directors of the Company or a committee thereof, as determined in good
faith by a majority vote of the Board of Directors of the Company or the
Special Committee thereof following consultation with its outside
counsel as to legal matters, the provisions of Sections 7.05(a) and (b)
above and compliance with applicable securities Laws, (a) the Company
promptly (and in any event within 48 hours of the relevant event) shall
advise Merger Sub orally and in writing of any Competing Transaction and
the identity of the person making any such Competing Transaction, and,
in each case, the material terms and conditions thereof, including any
material amendment or other modifications to the terms of any such
Competing Transaction or inquiry and (b) the Company shall keep Merger
Sub reasonably apprised of the status of any proposal relating to a
Competing Transaction on a current basis.
(d) Contemporaneously with taking any action described in clauses
(B), (C) or (D) of Section 7.05(b), the Company shall terminate this
Agreement pursuant to Section 9.01(g).
(e) Notwithstanding anything contained herein to the contrary,
the initial press release issued by the Company announcing the execution
of this Agreement, which press release shall be issued in the manner
that is customary for issuing a press release for a transaction such as
the Merger or consistent with the past practices of the Company, may
include the following language and the inclusion of such language shall
not be a breach of any provision of this Section 7.05 and Merger Sub and
the Investor Group hereby consent to the inclusion of the following
language in any such press release:
"Notwithstanding its recommendation and consistent with the terms
of the Merger Agreement, the Special Committee of the Company's
Board of Directors requested that the Special Committee's
financial advisor, CIBC World Markets Corp. be available to
receive unsolicited inquiries from any other parties interested
in the possible acquisition of the Company. If the Special
Committee of the Company's Board of Directors concludes that the
failure to provide information to, or engage in discussions or
negotiations with, such parties would be inconsistent with its
fiduciary duties to the Company's stockholders, CIBC World
Markets Corp., in conjunction with the Special Committee of the
Company's Board of Directors, may provide information to and
engage in discussions and negotiations with such parties in
connection with any such indicated interest."
42
(f) Nothing in this Agreement shall require or be deemed to
require the Special Committee or the Company's Board of Directors to
take or refrain from taking any action which would violate any
obligation (including any fiduciary duty) under applicable Law. In
taking or refraining from taking such action, the Special Committee or
the Company's Board of Directors shall act in good faith following
consultation with outside counsel as to legal matters; PROVIDED, that,
in the event that the Special Committee or the Company's Board of
Directors, as the case may be, shall exercise any of its rights under
this Section 7.05(f) with respect to any action taken or any inaction,
the Special Committee or the Company's Board of Directors, as the case
may be, shall give prompt written notice to Merger Sub and the Investor
Group, of such action or inaction (along with a reasonable description
thereof) and the basis for the exercise of such right(s).
SECTION 7.06 INDEMNIFICATION AND INSURANCE.
(a) Merger Sub and the Company agree that, except to the extent
prohibited by applicable Laws, for six years from and after the
Effective Time, the indemnification obligations set forth in the
Company's or any subsidiary's Certificate of Incorporation and the
Company's By-Laws, as amended, or other organizational documents, in
each case as of the date of this Agreement, shall survive the Merger as
continuing obligations of the Surviving Corporation and shall not be
amended, repealed or otherwise modified after the Effective Time in any
manner that would adversely affect the rights thereunder of the
individuals who on or at any time prior to the Effective Time were
entitled to indemnification thereunder with respect to matters occurring
prior to the Effective Time. In addition, Merger Sub and the Company
agree that, except to the extent prohibited by applicable Laws, the
indemnification obligations of the Company or any Subsidiary as set
forth in other indemnification agreements to which it is a party shall
be continuing obligations of the Surviving Corporation and shall not be
amended, repealed or otherwise modified after the Effective Time, except
as permitted by the terms and provisions of those agreements.
(b) The Surviving Corporation and the Company shall maintain in
effect, for three years or until the applicable statute of limitations
expires, from and after the Effective Time, directors' and officers'
liability insurance policies covering the persons who are currently
covered in their capacities as directors and officers (the "COVERED
PARTIES") by the Company's current directors' and officers' policies and
on terms not materially less favorable than the existing insurance
coverage with respect to matters occurring prior to the Effective Time;
PROVIDED, HOWEVER, in the event the annual premium for such coverage
exceeds an amount equal to 200% of the last annual premium paid
immediately prior to the date hereof by the Company for such coverage,
the Surviving Corporation shall notify the Covered Parties who shall
then elect as a group either (i) to allow the Surviving Corporation to
obtain as much comparable insurance as possible for an annual premium
equal to 200% of the last annual premium paid immediately prior to the
date hereof by the Company, or (ii) to seek coverage from another
carrier, in which event the Surviving Corporation shall reimburse the
Covered Parties the cost of such alternate coverage up to an amount
equal to 200% of the last
43
annual premium paid immediately prior to the date hereof by the Company
for such coverage.
(c) In addition to, and not in lieu of the foregoing, the Merger
Sub agrees that Surviving Corporation shall indemnify, defend (with
mutually acceptable counsel) and hold harmless all current and former
officers and directors of the Company and its subsidiaries in their
capacities as such (the "INDEMNIFIED PARTIES") to the fullest extent
permitted by the DGCL and in the Certificate of Incorporation and
By-laws of the Company, as in effect as of the date hereof, from and
against all liabilities, costs, expenses and claims (including without
limitation reasonable legal fees and disbursements, which shall be paid,
reimbursed or advanced by the Surviving Corporation in a manner
consistent with applicable provisions of the Company's By-laws as in
effect on the date hereof) arising out of actions taken prior to the
Effective Time in performance of their duties as directors or officers
of the Company or any subsidiary, in connection with the Merger and the
other Transactions contemplated hereby, which may be asserted against
the Indemnified Parties from and after the date of this Agreement;
PROVIDED, HOWEVER, that the Surviving Corporation's obligations to the
Indemnified Parties under this Section 7.06(c) shall not be effective
until consummation of the Merger; PROVIDED, FURTHER, that the Surviving
Corporation shall not have any obligation hereunder to any Indemnified
Party if the indemnification of such Indemnified Party in the manner
contemplated hereby is determined pursuant to a final non-appealable
judgment rendered by a court of competent jurisdiction to be prohibited
by applicable Law or if the indemnification of the Indemnified Party is
not within the power of the Surviving Corporation under the DGCL.
(d) In the event that any action, suit, proceeding or
investigation relating thereto or to the transactions contemplated by
this Agreement is commenced, whether before or after the Effective Time,
the parties hereto agree to cooperate and use their respective
reasonable efforts to vigorously defend against and respond thereto.
SECTION 7.07 NOTIFICATION OF CERTAIN MATTERS. From and after the
date of this Agreement until the Effective Time, each party hereto shall
promptly notify the other parties hereto of:
(a) the occurrence, or non-occurrence, of any event the
occurrence or non-occurrence of which would be reasonably likely to
cause any (i) representation or warranty contained in this Agreement to
be untrue or inaccurate in any respect or (ii) any covenant or any
condition to the obligations of any party to effect the Merger not to be
complied with or satisfied;
(b) the failure of any party hereto to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
pursuant to this Agreement;
(c) the receipt of any notice or other communication from any
person alleging that the consent of such person is or may be required in
connection with the Transactions;
44
(d) the receipt of any notice or other communication from any
Governmental Authority in connection with the Transactions; and
(e) any actions, suits, claims, investigations or proceedings
commenced or, to the knowledge of the party, threatened against,
relating to or involving or otherwise affecting the Company or Merger
Sub, which relates to the consummation of the Transactions;
in each case, to the extent such event or circumstance is or becomes known to
the party required to give such notice; PROVIDED, HOWEVER, that the delivery of
any notice pursuant to this Section 7.07 shall not be deemed to be an amendment
of this Agreement or any Section in the Company Disclosure Statement or the
Merger Sub Disclosure Statement, as the case may be, and shall not cure any
breach of any representation or warranty requiring disclosure of such matter
prior to the date of this Agreement.
SECTION 7.08 PUBLIC ANNOUNCEMENTS. Except as otherwise provided
in Section 7.05, Merger Sub, the Company and the Stockholders shall use
reasonable efforts to consult with each other before issuing any press release
or otherwise making any public statements with respect to this Agreement or any
of the Transactions. Prior to the Closing, Merger Sub, members of the Investor
Group, the Company and the Stockholders shall not issue any such press release
or make any such public statement without the prior consent of the other (which
consent shall not be unreasonably withheld), except as may be required by Law or
any listing agreement with the NASD or any national securities exchange to which
Merger Sub or the Company is a party and, in such case, shall use reasonable
effects to consult with all the parties hereto prior to such release or
statement being issued. The parties shall agree on the text of a joint press
release by which Merger Sub and the Company will announce the execution of this
Agreement.
SECTION 7.09 ASSISTANCE WITH FINANCING. So long as Merger Sub
and the Investor Group are in compliance with their obligations under this
Agreement, in order to assist with the financing of the Transactions, at or
prior to Closing, the Company shall, and shall cause its subsidiaries to, take
such commercially reasonable steps as may be requested by Merger Sub in
connection with the following:
(a) At Merger Sub's request, with respect to each of the Leased
Property, the Company shall use reasonable efforts to deliver to Merger
Sub a nondisturbance agreement, a consent and waiver and/or an estoppel
letter executed by the landlord, lessor, and/or licensor of such Leased
Premise, in each case, in form and substance reasonably acceptable to
Merger Sub;
(b) At Merger Sub's request, the Company shall furnish such
financial statements as may be reasonably requested by Merger Sub in
connection with the financing of the Transactions;
(c) The Company shall take or cause to be taken any other actions
(not requiring an amendment to this Agreement) reasonably necessary to
consummate the financing of the Transactions; and
45
(d) No actions taken at the direction of Merger Sub by or on
behalf of the Company in connection with its obligations under this
Section 7.09 or arising as a result of the taking of such action shall
constitute a breach of any representation or warranty of the Company
contained in this Agreement for any purpose hereunder. Notwithstanding
anything to the contrary set forth herein, the effectiveness of any such
actions by the Company shall be conditioned upon the consummation of the
Merger.
SECTION 7.10 STOCKHOLDER APPROVAL. The Company shall take all
action necessary in accordance with the DGCL and its Certificate of
Incorporation and By-laws to obtain the requisite approval and adoption of this
Agreement and the Transactions by the stockholders of the Company.
SECTION 7.11 EXCHANGE ACT AND NASDAQ FILINGS. Unless an exemption
shall be expressly applicable, or unless Merger Sub or the Company, as the case
may be, agrees otherwise in writing, the Company and Merger Sub and their
respective affiliates will timely file with the SEC and the National Association
of Security Dealers ("NASD") all reports required to be filed by it pursuant to
the rules and regulations of the SEC and NASD (including, without limitation,
all required financial statements). Such reports and other information shall
comply in all material respects with all of the requirements of the SEC and NASD
rules and regulations, and when filed, will not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
SECTION 7.12 ALTERNATIVE FINANCING; DISCLOSURE.
(a) So long as the Company is in compliance with its obligations
under this Agreement, Merger Sub shall use commercially reasonable
efforts to satisfy the requirements of the Commitment Letters and to
obtain the funding contemplated by and on the terms contained in the
Commitment Letters, or if any of the Commitment Letters is terminated or
such funds shall not otherwise be available, use commercially reasonable
efforts to obtain an alternative source of financing, in each case, on
financial and other terms no less favorable than those set forth in the
respective Commitment Letters or to the extent not set forth therein, on
terms reasonably acceptable to Merger Sub.
(b) Following the date hereof, any amendment, termination,
cancellation or modification of any Commitment Letter or any information
which becomes known to Merger Sub or the Investor Group which makes it
unlikely to obtain the financing on the terms set forth in the
Commitment Letters, shall be promptly disclosed to the Company and the
Special Committee of the Board of Directors; and Merger Sub shall
consult with the Company and the Special Committee of the Board of
Directors with respect to any such amendment or modification. Merger Sub
and the Investor Group shall make available to each person providing
Debt Financing or such alternative financing true and complete copies of
the Company Disclosure Statement and any supplement thereto delivered by
the Company pursuant to Section 7.07, and shall promptly advise each
such person of any information of
46
which it becomes aware which could reasonably be expected to constitute
a Company Material Adverse Effect.
SECTION 7.13 REPRESENTATIONS. Each of the Company and the Merger
Sub (a) will use reasonable efforts to take all action necessary to render true
and correct as of the Closing its respective representations and warranties
contained in this Agreement, (b) will refrain from taking any action that would
render any such representation or warranty untrue or incorrect as of such time
and (c) will perform or cause to be satisfied each agreement, covenant or
condition to be performed or satisfied by it.
SECTION 7.14 SUPPORT AGREEMENT. Each of the Stockholders and
Merger Sub shall comply with all of their respective obligations under the
Support Agreement.
SECTION 7.15 GUARANTEE; LIMITATION ON LIABILITY. Cornerstone and
Centre will be substantial equity investors in the Surviving Corporation. In
that regard, Cornerstone and Centre each have a substantial interest in and a
desire to assure that the Company enters into this Agreement and that the
Transactions are consummated. Therefore, as a material inducement to the Company
to enter into this Agreement and to consummate the Transactions, Cornerstone and
Centre each hereby guarantees (the "GUARANTEE"), as a primary obligor, to the
Company, the performance by Merger Sub of its covenants, duties and obligations
hereunder ("MERGER SUB OBLIGATIONS"); PROVIDED, that Cornerstone's aggregate
liability to the Company due to the Merger Sub Obligations shall not exceed, in
the aggregate an amount equal to 1.25% of the aggregate Merger Consideration to
be paid by Merger Sub in the Merger, and that Centre's aggregate liability to
the Company due to the Merger Sub Obligations shall not exceed, in the aggregate
an amount equal to 1.25% of the aggregate Merger Consideration to be paid by
Merger Sub in the Merger. The Guarantee shall be a continuing guaranty and shall
remain in effect until the earliest of (i) the Effective Time, (ii) except for
any obligation of Merger Sub pursuant to Sections 9.03 (c) and (e) hereof, the
termination of this Agreement and (iii) the time that the Merger Sub, and the
Investor Group and its assignees have, paid to the Company (whether pursuant to
this Section 7.15 or otherwise) an aggregate amount equal to 2.5% of the
aggregate Merger Consideration. Additionally, but notwithstanding anything in
this Agreement to the contrary, Cornerstone's liability to the Company for the
breach of any of its representations, warranties, covenants, duties and
obligations hereunder shall not exceed in the aggregate an amount equal to 1.25%
of the aggregate Merger Consideration to be paid by Merger Sub in the Merger,
and Centre's liability to the Company for the breach of any of its
representations, warranties, covenants, duties and obligations hereunder shall
not exceed in the aggregate an amount equal to 1.25% of the aggregate Merger
Consideration to be paid by Merger Sub in the Merger; PROVIDED that this
limitation on the liability of Cornerstone and Centre shall not apply (i) to any
breach of their respective obligations under Section 1.01(c) in the event all
conditions to their obligations to fund the Equity Contribution have been
satisfied or (ii) to the extent any such breach has been finally judicially
determined to be the result of fraud or any intentional breach of their
respective obligations under this
SECTION 7.16 PURCHASE OF PROMISSORY NOTE BY XXXXXX. In the event
that as of the Effective Time (i) the Indebtedness of the Company exceeds the
Maximum Indebtedness Amount by not more than $5 million and (ii) the days sales
outstanding (i.e., DSO's) exceeds 46 days, then
47
contemporaneously with the Closing Xxxxxx shall purchase an unsecured promissory
note of the Company (the "RECEIVABLES NOTE") on the terms described in this
Section 7.16. The initial principal amount and purchase price of the Receivables
Note shall be equal to the lesser of (x) the amount by which the Indebtedness of
the Company as of the Effective Time exceeds the Maximum Indebtedness Amount and
(y) the amount by which the net book value of the accounts receivable of the
Company as of the Effective Time exceeds the net book value of the accounts
receivable of the Company which would be outstanding if the days sales
outstanding was 46. The Receivables Note shall bear interest at the applicable
federal rate at the time of its issuance and shall be due and payable on the
75th day following the Effective Time. The principal amount of the Receivables
Note shall be reduced by an amount equal to the product of (a) (1) the amount of
any receivables of the Company which existed as of the Effective Time but have
not been collected as of the 75th day after the Effective Time MINUS (2) the
reserve for doubtful accounts as of the Effective Time MULTIPLIED BY (b) a
fraction, the numerator of which is the initial principal amount of the
Receivables Note, and the denominator of which is the net book value of the
accounts receivable of the Company as of the Effective Time. The Receivables
Note shall be subordinated to the Debt Financing in a manner which is not
inconsistant with the payment terms set forth above and shall be evidenced by a
note in a form reasonably acceptable to the providers of the Debt Financing. The
proceeds to the Company from the issuance of the Receivables Note shall be used
to repay Indebtedness of the Company outstanding as of the Effective Time.
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.01 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The
obligations of the Company, Merger Sub and the Stockholders to consummate the
Merger are subject to the satisfaction (or, if permitted by applicable Law,
waiver by the party for whose benefit such condition exist) of the following
conditions:
(a) this Agreement and the Transactions shall have been approved
and adopted by the affirmative vote of the Requisite Majority in
accordance with the DGCL and the Company's Certificate of Incorporation;
(b) any applicable waiting period under the HSR Act relating to
the Merger shall have expired or been terminated;
(c) no order, statute, rule, regulation, executive order, stay,
decree, judgment or injunction shall have been enacted, entered, issued,
promulgated or enforced by any Governmental Authority or a court of
competent jurisdiction which has the effect of making the Merger illegal
or otherwise prohibiting consummation of the Merger or of limiting or
restricting the Surviving Corporation's or Merger Sub's conduct or
operation of the business of the Company after the Merger; and
(d) all other necessary and material governmental and regulatory
clearances, consents, or approvals shall have been received.
48
SECTION 8.02 CONDITIONS TO THE OBLIGATIONS OF MERGER SUB. The
obligations of Merger Sub to consummate the Merger are subject to the
satisfaction or, if permitted by applicable Law, waiver by Merger Sub of the
following further conditions:
(a) (i) The Company shall have performed in all material respects
all of its obligations hereunder required to be performed by it at or
prior to the Effective Time; (ii) each of the representations and
warranties of the Company contained in this Agreement shall be true and
correct in all material respects, except to the extent any
representation and warranty is qualified by materiality, in which case
such representation and warranty shall be true and correct in all
respects, in each case as of the date of this Agreement; and (iii)
Merger Sub shall have received a certificate signed by an executive
officer of the Company as to compliance with the conditions set forth in
this paragraph 8.02(a);
(b) Merger Sub shall have received an opinion, dated on or about
the Closing Date, of counsel to the Company (which may include in-house
counsel) containing the opinions set forth in EXHIBIT D hereto;
(c) Surviving Corporation shall have obtained the Debt Financing
on the terms and conditions set forth in the Commitment Letters or
otherwise obtained debt financing sufficient to consummate the
Transactions and to pay all fees and expenses in connection therewith
and to provide working capital for the Surviving Corporation, all on
terms reasonably satisfactory to the Investor Group, the Surviving
Corporation and Merger Sub, it being acknowledged that if the parties to
the Commitment Letters or the Debt Financing other than the Surviving
Corporation, Merger Sub or the Investor Group are prepared to perform
thereon, or if a breach by the Investor Group or Merger Sub has been the
cause of or resulted in the failure to obtain Debt Financing, the
condition contained in this Section 8.02(c) shall be deemed to have been
satisfied;
(d) Since the date of this Agreement, no event shall have
occurred (whether or not described in any notice delivered by the
Company pursuant to Section 7.07 of this Agreement) which has or which
would reasonably be expected to have a Company Material Adverse Effect;
(e) The Company shall have amended its Certificate of
Incorporation to provide for the Preference Amendment or filed an
appropriate Certificate of Designation to provide for the Preference
Stock;
(f) The Preference Exchange shall have been completed on the
terms set forth in this Agreement;
(g) The Company shall have issued 632,900.4 shares of New
Preference Stock to the Investor Group in exchange for the Equity
Contribution;
49
(h) All Company Stock Options and rights under the Company's
Employee Stock Purchase Plan shall be extinguished as of immediately
prior to the Closing, or shall by their own terms be extinguished at the
Effective Time, and the Company thereafter shall have no liability or
obligation with respect to any such Company Stock Options or under the
Company's Employee Stock Purchase Plan, except as provided in Section
2.03;
(i) The Company shall have obtained all consents, authorizations,
approvals and waivers from third parties, in form reasonably acceptable
to Merger Sub, which are necessary in order to enable (i) the
consummation of the Transactions by the Company, and (ii) the Surviving
Corporation to conduct its business in all material respects after the
Closing Date on the same basis as conducted prior to the date hereof, in
each case, except for those the failure of which to obtain would not
have a Company Material Adverse Effect;
(j) Merger Sub shall have obtained no later than thirty (30) days
prior to the Closing, a commitment for an ALTA Owner's Title Insurance
Policy 1970 Form B, or other form acceptable to Merger Sub, for each
Owned Real Property identified by Merger Sub, issued by a title
insurance company satisfactory to Merger Sub (the "TITLE COMPANY"),
together with a copy of all documents referenced therein (the "TITLE
COMMITMENTS"). At Closing, the Company shall have caused the Title
Company to issue title insurance policies in accordance with the Title
Commitments, insuring Merger Sub's legal, binding and enforceable
interest in the Owned Real Property as of the Closing Date with gap
coverage from the Stockholders through the date of recording, subject to
those encumbrances that do not have a materially adverse affect on the
Owned Real Property, in such amount as Merger Sub reasonably determines
to be the value of the Owned Real Property. Each of the Title Policies
shall have the creditor's rights exception deleted, and shall include
extended coverage endorsement and all other endorsements reasonably
requested by Merger Sub. The Company shall use its reasonable efforts to
assist Merger Sub in obtaining the Title Commitments, Title Policies and
surveys in form and substance as set forth above, within the time
periods set forth therein, including, without limitation, removing from
title any liens or encumbrances which are not Permitted Encumbrances.
The Company shall provide the Title Company with any affidavit,
indemnity or other assurances requested by the Title Company to issue
the Title Policies;
(k) Not more than seven percent (7.0%) of the shares of Company
Common Stock outstanding immediately prior to the Effective Time shall
be Dissenting Shares; and
(l) The Company's Indebtedness shall not exceed the Maximum
Indebtedness Amount; provided that if (i) the Company's Indebtedness
does not exceed the Maximum Indebtedness Amount by more than $5 million,
(ii) Xxxxxx purchases the Receivables Note as contemplated by Section
7.16, and (iii) after giving effect to the repayment of Indebtedness as
provided in Section 7.16 the Indebtedness of the Company does not exceed
the Maximum Indebtedness Amount, then the condition contained in this
Section 8.02(l) shall be deemed to be satisfied.
50
SECTION 8.03 CONDITIONS TO THE OBLIGATION OF THE COMPANY. The
obligation of the Company to consummate the Merger is subject to the
satisfaction or, if permitted by applicable Law, waiver by the Company of the
following further conditions:
(a) (i) Merger Sub and the Investor Group shall have performed in
all material respects all of their respective obligations hereunder
required to be performed by them at or prior to the Effective Time; (ii)
each of the representations and warranties of Merger Sub and the
Investor Group contained in this Agreement shall be true and correct in
all material respects, in each case as of the date of this Agreement;
and (iii) the Company shall have received a certificate signed by an
executive officer of Merger Sub and by representatives of each member of
the Investor Group as to compliance with the conditions set forth in
this paragraph 8.03(a):
(b) The Company shall have received an opinion, dated on or about
the Closing Date, of Xxxxxxxx & Xxxxx, containing the opinions set forth
in EXHIBIT E hereto;
(c) The Investor Group shall have made the Equity Contribution in
exchange for New Preference Stock; and
(d) The Surviving Corporation shall have obtained the Debt
Financing on the terms and conditions set forth in the Commitment Letter
or otherwise obtained financing sufficient to consummate the
Transactions and to pay all the fees and expenses in connection
therewith, and representatives of the Investor Group shall have
delivered a certificate to the Company to that effect.
SECTION 8.04 CONDITIONS TO THE OBLIGATIONS OF THE INVESTOR GROUP.
The obligations of the Investor Group to make the Equity Contribution are
subject to the satisfaction or, if permitted by applicable Law, waiver by the
Investor Group of each of the conditions set forth in Section 8.01 and Section
8.02 of this Agreement.
SECTION 8.05 CONDITIONS TO THE OBLIGATIONS OF THE STOCKHOLDERS.
The obligations of the Stockholders to consummate the Preference Exchange are
subject to the satisfaction, or if, permitted by applicable Law, waiver by the
Stockholders of the following conditions:
(a) the conditions set forth in Section 8.01 of this Agreement;
(b) the conditions set forth in paragraphs (e) and (f) of
Section 8.02; and
(c) the conditions set forth in paragraphs (a) (other than
clause (iii)), (c) and (d) of Section 8.03.
51
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.01 TERMINATION. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time,
notwithstanding any requisite approval and adoption of this Agreement and the
transactions contemplated hereby by the stockholders of the Company:
(a) by written consent of the Company and Merger Sub;
(b) by Merger Sub or the Company if (i) the waiting period
applicable to the consummation of the Merger under the HSR Act shall not
have expired or been terminated prior to July 31, 2000, (ii) any court
of competent jurisdiction in the United States or other United States
Governmental Authority shall have issued an order (other than a
temporary restraining order), decree or ruling, or taken any other
action, restraining, enjoining or otherwise prohibiting the Merger
(PROVIDED, HOWEVER, that neither party may terminate this Agreement
pursuant to this Section 9.01(b)(ii) prior to July 31, 2000 if the party
subject to such order, decree or ruling is using its reasonable efforts
to have such order, decree or ruling removed, unless such order, decree
or ruling shall have become final and non-appealable), or (iii) the
Effective Time shall not have occurred on or before July 31, 2000;
PROVIDED, that the right to terminate this Agreement under this Section
9.01(b) shall not be available to any party whose failure to fulfill any
material obligation under this Agreement has been the cause of or
resulted in the failure of the Effective Time to occur on or before such
date;
(c) by Merger Sub or the Company, if the Stockholders' Meeting
shall have been held and the holders of outstanding shares of Company
Common Stock shall have failed to approve and adopt this Agreement at
such meeting (including any adjournment or postponement thereof);
PROVIDED, that subject to Section 7.05, the right to terminate this
Agreement under this Section 9.01(c) shall not be available to the
Company if its failure to fulfill any material obligation under this
Agreement has been the cause of or resulted in the failure to obtain
such stockholder approval; PROVIDED FURTHER, that the right to terminate
this Agreement under this Section 9.01(c) shall not be available to
Merger Sub if the Stockholder's failure to approve and adopt this
Agreement as provided in the Support Agreement at such meeting has been
the cause of or resulted in the failure to obtain such stockholder
approval;
(d) by Merger Sub if the Board of Directors of the Company or any
committee thereof (i) shall withdraw, modify in a manner adverse to
Merger Sub, or refrain from giving its approval or recommendation of the
Merger, Preference Amendment or the execution of this Agreement or (ii)
recommends a Competing Transaction with respect to the Company to the
Company's stockholders pursuant to Section 7.05;
(e) by the Company, upon a material breach of any representation,
warranty, or agreement set forth in this Agreement such that the
condition set forth in Section 8.03(a) would not be satisfied; PROVIDED,
HOWEVER, that, if such breach is curable by Merger Sub
52
through the exercise of its best efforts and Merger Sub continues to
exercise such best efforts, the Company may not terminate this Agreement
under this Section 9.01(e) unless such breach continues following a
period of 30 days from the date on which the Company delivers to Merger
Sub written notice setting forth in reasonable detail the circumstances
giving rise to such breach;
(f) by Merger Sub, upon a material breach of any representation,
warranty, or agreement set forth in this Agreement or the occurrence of
an event or occurrence such that the condition set forth in Section
8.02(a) or Section 8.02(d) would not be satisfied; PROVIDED, HOWEVER,
that, if such breach is curable by the Company through the exercise of
its best efforts and the Company continues to exercise such best
efforts, Merger Sub may not terminate this Agreement under this Section
9.01(f) unless such breach continues following a period of 30 days from
the date on which Merger Sub delivers to the Company written notice
setting forth in reasonable detail the circumstances giving rise to such
breach; or
(g) by the Company in accordance with Section 7.05.
SECTION 9.02 METHOD OF TERMINATION; EFFECT OF TERMINATION.
(a) Any such right of termination hereunder shall be exercised by
advance written notice of termination given by the terminating party to
the other parties hereto in the manner hereinafter provided in Section
10.02. Any such right of termination shall not be an exclusive remedy
hereunder but shall be in addition to any other legal or equitable
remedies that may be available to any non-defaulting party hereto
arising out of any default hereunder by any other party hereto.
(b) Except as provided in Section 10.01, in the event of the
termination of this Agreement pursuant to Section 9.01, this Agreement
shall forthwith become void, there shall be no liability under this
Agreement on the part of any of the parties hereto or any of their
respective officers or directors and all rights and obligations of any
party hereto shall cease, except as set forth in Section 9.03; PROVIDED,
HOWEVER, that nothing herein shall relieve any party from liability for,
or be deemed to waive any rights of specific performance of this
Agreement available to any other party, to the extent the matter giving
rise to such termination has been finally judicially determined to be
fraud or an intentional breach of this Agreement.
SECTION 9.03 FEES AND EXPENSES.
(a) In the event that it is judicially determined that
termination of this Agreement was caused by an intentional breach of
this Agreement, then, in addition to the remedies at Law or equity for
breach of this Agreement, the party so found to have intentionally
breached this Agreement shall indemnify and hold harmless the other
parties for their respective reasonable costs, fees and expenses of
their counsel, accountants, financial advisors and other experts and
advisors as well as reasonable fees and expenses incident to the
negotiation, preparation and execution of this Agreement and the
attempted financing and
53
consummation of the Transactions, the related documentation and the
stockholders' meetings and consents ("COSTS").
(b) In the event that this Agreement is terminated pursuant to
Section 7.05(d) or paragraphs (c) (except if the Stockholders' failure
to approve and adopt this Agreement at the Stockholders' meeting has
been the cause of or resulted in the failure to obtain such stockholder
approval), (d), (f) or (g) of Section 9.01, the Company shall, within
five business days of such termination, pay Merger Sub by wire transfer
of immediately available funds to an account specified by Merger Sub in
reimbursement for Merger Sub's expenses an amount in cash equal to the
aggregate amount of Merger Sub's reasonable out-of-pocket Costs incurred
in connection with pursuing the transactions contemplated by this
Agreement (including, without limitation, legal, accounting, investment
banking and commitment fees) and other reasonable out-of-pocket expenses
of Merger Sub and the Investor Group up to a maximum of $1,500,000
(except that if this Agreement is terminated pursuant to Section 9.01(f)
due to a failure to satisfy the condition set forth in Section 8.02(d),
up to a maximum of $1,000,000) (collectively, the "REIMBURSABLE
EXPENSES") (as such Reimbursable Expenses may be estimated by Merger Sub
in good faith prior to the date of such payment, subject to an
adjustment payment between the parties upon Merger Sub's definitive
determination of such Reimbursable Expenses); PROVIDED, HOWEVER, that
Merger Sub shall have no right to receive Reimbursable Expenses pursuant
to this Section 9.03(b) if Merger Sub's failure to fulfill any
obligation or material breach of any representation, warranty or
covenant under this Agreement caused or resulted in the termination of
this Agreement. For purposes of this Agreement, Merger Sub's Costs shall
include the Costs of the Investor Group incurred in connection with this
Agreement or on behalf of Merger Sub.
(c) In the event that this Agreement is terminated by the Company
pursuant to Section 9.01(e), Merger Sub shall, within five business days
of such termination, pay the Company by wire transfer of immediately
available funds to an account specified by the Company in reimbursement
for the Company's expenses an amount in cash equal to the aggregate
amount of the Company's reasonable out-of-pocket Costs incurred in
connection with pursuing the transactions contemplated by this Agreement
(including, without limitation, legal, accounting and investment banking
fees) and other reasonable out-of-pocket expenses of the Company up to a
maximum of $1,500,000 (collectively, the "COMPANY REIMBURSABLE
EXPENSES") (as such Company Reimbursable Expenses may be estimated by
the Company in good faith prior to the date of such payment, subject to
an adjustment payment between the parties upon the Company's definitive
determination of such Company Reimbursable Expenses); PROVIDED, HOWEVER,
that the Company shall have no right to receive Company Reimbursable
Expenses pursuant to this Section 9.03(c) if the Company's failure to
fulfill any obligation or material breach of any representation,
warranty or covenant under this Agreement caused or resulted in the
termination of this Agreement.
(d) In the event that this Agreement is terminated by Merger Sub
or the Company pursuant to Section 7.05, Section 9.01(d) or Section
9.01(g), the Company shall pay the Merger Sub by wire transfer of
immediately available funds to an account specified by the Merger Sub an
aggregate amount equal to 2.5% of the aggregate Merger Consideration
54
hereunder (including amounts payable to the Stockholders) (the
"TERMINATION FEE"). The Termination Fee shall be payable as follows:
(i) 50% of the Termination Fee shall be paid within five
(5) business days after such termination, and
(ii) if the Company enters into or consummates a Competing
Transaction within one (1) year after such termination, the
remaining 50% of the Termination Fee shall be paid within five
(5) business days after the date of consummation of such
Competing Transaction;
PROVIDED, HOWEVER, that the Merger Sub shall have no right to receive
the Termination Fee pursuant to this Section 9.03(d) if Merger Sub's or
the Investor Group's material failure to fulfill any obligation or
breach of any representation, warranty or covenant under this Agreement
caused or resulted in the termination of this Agreement.
(e) Except as provided in this Section 9.03, all expenses
incurred by the parties hereto shall be borne solely and entirely by the
party which has incurred the same; PROVIDED, HOWEVER, that (i) the
Company shall bear all expenses related to printing, filing and mailing
the Proxy Statement and all SEC and other regulatory filing fees
incurred in connection with the Proxy Statement, and (ii) Merger Sub and
the Company shall bear equally all expenses incurred by the parties
hereto and their respective affiliates, if applicable, in connection
with any filing under the HSR Act due to the transactions contemplated
herein.
SECTION 9.04 AMENDMENT. This Agreement may be amended by the
parties hereto at any time prior to the Effective Time; PROVIDED, that after the
approval and adoption of this Agreement by the stockholders of the Company as
contemplated in Section 8.01(a), no amendment may be made which would (a) change
the amount or the type of Merger Consideration to be received by the
stockholders of the Company pursuant to the Merger, (b) change any other term or
condition of the Agreement if such change would materially and adversely affect
the Company or the holders of shares of Company Common Stock or New Preference
Stock or (c) without the vote of the stockholders entitled to vote on the
matter, change any term of the Certificate of Incorporation of the Company. This
Agreement may not be amended except by an instrument in writing signed by all of
the parties hereto.
SECTION 9.05 WAIVER. At any time prior to the Effective Time, any
party hereto may (a) extend the time for the performance of any obligation or
other act of any other party hereto, (b) waive any inaccuracy in the
representations and warranties of the other party contained herein or in any
document, certificate or writing delivered by the other party pursuant hereto
and (c) waive compliance with any agreement or condition to its obligations
(other than the conditions set forth in paragraphs (a) and (b) of Section 8.01)
contained herein. Any such extension or waiver shall be valid if set forth in an
instrument in writing signed by the party or parties to be bound thereby.
55
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. The representations, warranties and agreements in this Agreement and
any certificate delivered pursuant hereto by any person shall terminate at the
Effective Time or upon the termination of this Agreement pursuant to Section
9.01, as the case may be, except that the agreements set forth in Articles I and
II and Sections 7.03(e), 7.06, 7.08 and 7.15 shall survive the Effective Time
indefinitely, and those set forth in Sections 7.05, 7.08, 9.02 and 9.03 and this
Article X shall survive termination indefinitely.
SECTION 10.02 NOTICES. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given upon receipt) by delivery in person, by
facsimile or by registered or certified mail (postage prepaid, return receipt
requested) or by a nationally recognized overnight courier service to the
respective parties at the following addresses (or at such other address for a
party as shall be specified in a notice given in accordance with this Section
10.02):
if to Merger Sub:
c/o Cornerstone Equity Investors L.L.C.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxx X'Xxxxx and Xxxxxxx Xxxxxx
c/o Centre Capital Investors III, L.P.
00 Xxxxxxxxxxx Xxxxx
Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxxx and Xxxxxx X. Xxxxxxx
with copies to:
Xxxxxxxx & Xxxxx
Citicorp Center
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxxxxxxx Xxxxx, Esq.
56
if to the Company:
Westaff, Inc.
000 Xxxxxx Xxxx
Xxxxxx Xxxxx, Xxxxxxxxxx 00000
Telecopy: (000) 000-0000
Attention: President
with a copy to:
Xxxxxxxx & Xxxxxxxx LLP
000 Xxxxxx Xxxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxx X. Xxxxxxxx, Esq.
SECTION 10.03 CERTAIN DEFINITIONS. For purposes of this Agreement, the
term:
(a) "AFFILIATE" of a specified person means a person who directly
or indirectly through one or more intermediaries controls, is controlled
by, or is under common control with, such specified person;
(b) "BENEFICIAL OWNER" with respect to any shares means a person
who shall be deemed to be the beneficial owner of such shares which such
person beneficially owns, as defined in Rule 12d-3 under the Securities
Exchange Act;
(c) "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 the New York, New York
or San Francisco, California;
(d) "CODE" means the Internal Revenue Code of 1986, as amended;
(e) "CONTROL" (including the terms "CONTROLLED BY" and "UNDER
COMMON CONTROL WITH") means the possession, directly or indirectly or as
trustee or executor, of the power to direct or cause the direction of
the management and policies of a person, whether through the ownership
of voting securities, as trustee or executor, by contract or credit
arrangement or otherwise;
(f) "ENVIRONMENTAL AND SAFETY REQUIREMENTS" shall mean all
federal, state, local and foreign statutes, regulations, ordinances and
similar provisions having the force or effect of Law, all judicial and
administrative orders and determinations, all contractual obligations
and all common law concerning public health and safety, worker health
and safety, and pollution or protection of the environment, including
without limitation all those relating to the presence, use, production,
generation, handling, transportation, treatment, storage,
57
disposal, distribution, labeling, testing, processing, discharge,
release, threatened release, control, or cleanup of any hazardous
materials, substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum
products or byproducts, asbestos, polychlorinated biphenyls, noise or
radiation, as such of the foregoing are enacted or in effect, prior to,
on, or after the Closing Date.
(g) "GOVERNMENTAL AUTHORITY" means any United States (federal,
state or local), foreign or supra-national Government, or governmental,
regulatory or administrative authority, agency or commission;
(h) "INDEBTEDNESS" means the sum of (i) any liability or
obligation of the Company or any of its subsidiaries, whether primary or
secondary, absolute or contingent for (x) borrowed money, (y) evidenced
by notes, bonds, debentures or similar instruments (but not including
the Receivables Note), or (z) secured by Liens on any assets of the
Company or any of its subsidiaries PLUS (ii) the aggregate reduction
after the date hereof in the value of any non-cash assets and any
liabilities asserted, imposed or incurred after the date hereof,
primarily related to the Company's home healthcare business in
connection with any adjustment, write-down, reserve or liability
asserted, impossed or incurred arising out of Medicare's audit of the
Company's and its subsidiaries' or any of their respective franchisees'
or licensees' 1998 or 1999 Medicare cost reports.
(i) "INTELLECTUAL PROPERTY RIGHTS" means all patents, patent
applications and patent disclosures; all inventions (whether or not
patentable and whether or not reduced to practice); all trademarks,
service marks, trade dress, trade names and corporate names and all the
goodwill associated therewith; all mask works; all registered and
unregistered statutory and common law copyrights; all registrations,
applications and renewals for any of the foregoing; and all trade
secrets, confidential information, ideas, formulae, compositions,
know-how, manufacturing and production processes and techniques,
research information, drawings, specifications, designs, plans,
improvements, proposals, technical and computer data, documentation and
software, financial business and marketing plans, customer and supplier
lists and related information, marketing materials and all other
proprietary rights;
(j) "KNOWLEDGE" with respect to the Company, means the actual
knowledge, after reasonable investigation, of any executive officer of
the Company;
(k) "LIEN" shall mean, with respect to any property or asset, any
mortgage, pledge, security interest, lien (statutory or other), charge,
encumbrance or other similar restrictions or limitations of any kind or
nature whatsoever on or with respect to such property or asset;
(l) "MAXIMUM INDEBTEDNESS AMOUNT" means $50 million MINUS the
amount of proceeds to the Company from the sale of Real Property as
contemplated by Section 3.15 of the Company Disclosure Statement.
58
(m) "OWNED SHARES" means the aggregate shares of Company Common
Stock owned beneficially and of record by the Stockholders as of the
date hereof (as such number may be reduced as a result of the conversion
of shares into New Preference Stock as contemplated by this Agreement);
(n) "PERMITS" shall mean all franchises, licenses,
authorizations, approvals, permits, consents or other rights granted by
any Governmental Authority and all certificates of convenience or
necessity, immunities, privileges, licenses, concessions, consents,
grants, ordinances and other rights, of every character whatsoever
required for the conduct of business and the use of properties by the
Company as currently conducted or used.
(o) "PERSON" means an individual, corporation, limited liability
company, partnership, limited partnership, syndicate, person (including,
without limitation, a "person" as defined in Section 13(d)(3) of the
Exchange Act), trust, association or entity or government, political
subdivision, agency or instrumentality of a government;
(p) "REAL PROPERTY" means, with respect to the Company or any
subsidiary, as applicable, all of the Owned Real Property and Leased
Real Property which is used by any such person in connection with the
operation of its business;
(q) "REQUISITE MAJORITY" means holders of 66 2/3% of the
outstanding shares of Company Common Stock.
(r) "SUBSIDIARY" or "SUBSIDIARIES" of any person means any
corporation, partnership, joint venture or other legal entity of which
such person (either above or through or together with any other
subsidiary), owns, directly or indirectly, 50% or more of the stock
or other equity 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;
(s) "SUPPORT AGREEMENT" means that certain Support Agreement,
dated as of the date hereof, by and among Merger Sub and the
Stockholders.
(t) "TAX" or "TAXES" means federal, state, county, local, foreign
or other income, gross receipts, ad valorem, franchise, profits, sales
or use, transfer, registration, excise, utility, environmental,
communications, real or personal property, capital stock, license,
payroll, wage or other withholding, employment, social security (or
similar), severance, stamp, unemployment, disability, occupation,
alternative or add-on minimum, estimated and other taxes of any kind
whatsoever (including deficiencies, penalties, additions to tax, and
interest attributable thereto) whether disputed or not;
(u) "TAX RETURN" means any declaration, report, claim for refund,
return, information report or filing with respect to Taxes, including
any schedules or attachments thereto and including any amendments
thereof; and
59
(v) "TRANSACTIONS" means the Merger, the Preference Amendment,
the Debt Financing and the other transactions contemplated hereby this
Agreement.
SECTION 10.04 ACCOUNTING TERMS. All accounting terms used herein
which are not expressly defined in this Agreement shall have the respective
meanings given to them in accordance with GAAP.
SECTION 10.05 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, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the Merger is not affected in any manner materially adverse
to any party. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the Merger be consummated as originally contemplated to the fullest
extent possible.
SECTION 10.06 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement
(including the Exhibits, the Merger Sub Disclosure Schedule and the Company
Disclosure Statement, which are hereby incorporated herein and made a part
hereof for all purposes as if fully set forth herein), the Support Agreement and
the Confidentiality Agreement constitute the entire agreement among the parties
with respect to the subject matter hereof and supersede all prior agreements and
undertakings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof. This Agreement shall not be assigned by
operation of Law or otherwise without the prior written consent of the other
parties, which shall not be unreasonably withheld, except that Merger Sub may
assign all or any of its rights and obligations hereunder to any affiliate of
Merger Sub, and Merger Sub and the Company may assign their respective rights
and obligations hereunder as collateral security to any person providing
financing to Merger Sub and/or the Company; PROVIDED, that no such assignment
shall change the amount or nature of the Merger Consideration or relieve the
assigning party of its obligations hereunder if such assignee does not perform
such obligations.
SECTION 10.07 PARTIES IN INTEREST. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and nothing
in this Agreement, express or implied, is intended to or shall confer upon any
other person any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement, other than Section 7.06 (which is intended to be for
the benefit of the persons covered thereby and may be enforced by such persons).
SECTION 10.08 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to specific performance of the terms hereof, in addition to any other remedy
at Law or in equity.
SECTION 10.09 GOVERNING LAW. The provisions of this agreement and
the documents delivered pursuant hereto shall be governed by and construed in
accordance with the Laws of the State of Delaware (excluding any conflict of
Law, rule or principle that would refer to
60
the Laws of another jurisdiction). EACH PARTY HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO
SO, TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING ARISING HEREUNDER.
SECTION 10.10 HEADINGS. The descriptive headings contained in
this Agreement are included for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Agreement.
SECTION 10.11 COUNTERPARTS. This Agreement may be executed and
delivered (including by facsimile transmission) in one or more counterparts, and
by the different parties hereto in separate counterparts, each of which when
executed and delivered shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
SECTION 10.12 CONSTRUCTION. This Agreement and any documents or
instruments delivered pursuant hereto or in connection herewith shall be
construed without regard to the identity of the person who drafted the various
provisions of the same. Each and every provision of this Agreement and such
other documents and instruments shall be construed as though all of the parties
participated equally in the drafting of the same. Consequently, the parties
acknowledge and agree that any rule of construction that a document is to be
construed against the drafting party shall not be applicable either to this
Agreement or such other documents and instruments.
61
IN WITNESS WHEREOF, Merger Sub, the Stockholders, the members of
the Investor Group and the Company have caused this Agreement to be executed as
of the date first written above by their respective officers thereunto duly
authorized.
WESTAFF ACQUISITION CORP.
By: /s/ Xxxxxxx X. Xxxxxx
------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: President and Secretary
WESTAFF, INC.
By:
------------------------------------
Name:
Title:
IN WITNESS WHEREOF, Merger Sub, the Stockholders, the members of
the Investor Group and the Company have caused this Agreement to be executed as
of the date first written above by their respective officers thereunto duly
authorized.
WESTAFF ACQUISITION CORP.
By:
------------------------------------
Name:
Title:
WESTAFF, INC.
By: /s/ Xxxxxxx X. Xxxxxxx
------------------------------------
Name: Xxxxxxx X. Xxxxxxx
Title: CEO President
FOR PURPOSES OF ARTICLES I, V, VII AND VIII
ONLY
THE XXXXXX REVOCABLE TRUST
By: /s/ W. Xxxxxx Xxxxxx
------------------------------------
Name: W. Xxxxxx Xxxxxx
Title: Trustee
By:
------------------------------------
Name: Xxxx X. Xxxxxx
Title: Trustee
THE XXXXXX 1999 CHARITABLE
REMAINDER UNITRUST
By: /s/ W. Xxxxxx Xxxxxx
------------------------------------
Name: W. Xxxxxx Xxxxxx
Title: Trustee
By: /s/ Xxxxxx Xxxxxxxxxx
------------------------------------
Name: Xxxxxx Xxxxxxxxxx
Title: Trustee
THE XXXXXX FOUNDATION
By: /s/ W. Xxxxxx Xxxxxx
------------------------------------
Name: W. Xxxxxx Xxxxxx
Title:
FOR PURPOSES OF
ARTICLE IV and SECTIONS 1.01(c), 7.02,
7.03 (a), (b), (c) and (d), 7.04, 7.08,
7.12(b) and 7.15 ONLY
CORNERSTONE EQUITY INVESTORS IV, L.P.
By: CORNERSTONE IV, L.L.C.
Its: General Partner
By: /s/ Xxxxxxx X. Xxxxxx
------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Managing Director
CENTRE CAPITAL INVESTORS III, L.P.
By: Centre Partners III, L.P.,
As general partner of such
partnership
By: Centre Partners Management LLC,
attorney-in-fact
By: /s/ Xxxxxx Xxxxxxxx
-------------------------
Name: Xxxxxx Xxxxxxxx
Title: Managing Director
