AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of April 14,
1998, is between ACI Acquisition Partners, Inc., a Georgia
corporation ("ACIA") and Aloette Cosmetics, Inc., a Pennsylvania
corporation (the "Company").
RECITALS
A. The Boards of Directors of ACIA and the Company
have determined that it is in the best interests of their
respective shareholders that ACIA acquire all of the outstanding
capital stock of the Company on the terms and subject to the
conditions set forth herein (the "Transaction").
B. The respective Boards of Directors of ACIA and the
Company have approved the merger of ACIA with and into the
Company in accordance with the Business Corporation Law of the
Commonwealth of Pennsylvania, as amended ("Pennsylvania Law") and
the Georgia Business Corporation Code ("Georgia Law" and
together with Pennsylvania Law, "Applicable Law"), wherein each
issued and outstanding share of Common Stock, no par value of the
Company (the "Shares") will be converted into the right to
receive the Merger Consideration (as hereinafter defined), on the
terms and subject to the conditions of this Agreement (the
"Merger").
C. The Company is entering into this Agreement in
reliance upon the ACIA Shareholders (as defined herein) entering
into and delivering that certain Guaranty Agreement of even date
herewith.
D. The parties desire to make certain
representations, warranties and covenants in connection with the
Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the
representations, warranties and covenants contained in this
Agreement, and intending to be legally bound hereby, ACIA and the
Company hereby agree as follows:
I. THE MERGER
1.1. The Merger. On the terms and subject to the
conditions set forth in this Agreement, including, but not
limited to, Section 6.1 with respect to the time of the
effectiveness of this Agreement, and in accordance with
Applicable Law, ACIA will be merged with and into the Company at
the Effective Time of the Merger. Following the Effective Time,
the Company will be the surviving entity in the Merger (the
"Surviving Entity") and will succeed to and assume all the rights
and obligations of ACIA in accordance with Applicable Law.
1.2. Closing. The closing of the Merger (the
"Closing") will take place at 10:00 a.m. at the offices of Xxxxxx
Xxxxxxxx LLP, 0000 Xxxxxxxxx Xxxxx, Xxxxxx, XX 00000-0000 on a
date to be specified by the parties (the "Closing Date"), which
(subject to satisfaction or waiver of the conditions set forth in
Article VII) will be no later than the second business day after
satisfaction or waiver of the conditions set forth in Article
VII, (other than those conditions that by their nature are to be
satisfied at the Closing, but subject to the fulfillment or
waiver of those conditions) unless another date, time or place is
agreed to in writing by the parties hereto.
1.3. Effective Time. Subject to the provisions of this
Agreement, as soon as practicable on or after the Closing Date,
the parties will file certificates and/or articles of merger or
other appropriate documents (the "Certificates of Merger")
executed in accordance with the relevant provisions of Applicable
Law and will make all other filings or recordings required under
Applicable Law in order to effect the Merger. The Merger will
become effective at such time as the Certificates of Merger for
the Merger have been duly filed with the Secretaries of State for
the Commonwealth of Pennsylvania and the State of Georgia or at
such subsequent date or time as ACIA and the Company agree and
specify in the Certificates of Merger (the time the Merger
becomes effective being hereinafter referred to as the "Effective
Time").
1.4. Effects of the Merger. The Merger will have the
effects set forth in Section 1929 of Pennsylvania Law and Section
14-2-1106 of Georgia Law.
1.5. Articles of Incorporation and Bylaws. (a) The
Articles of Incorporation of the Company will be the Articles of
Incorporation of the Surviving Entity, until thereafter changed
or amended as provided therein or by Law (as hereinafter
defined).
(b) The bylaws of the Company will be the bylaws of
the Surviving Entity until thereafter changed or amended as
provided therein or by applicable Law.
1.6. Company Actions. The Company hereby consents to
the Merger and represents that the Board of Directors of the
Company (the "Company Board") (at a meeting duly called and held
on April 10, 1998) has (a) approved this Agreement and the
transactions contemplated hereby, including the Merger, and such
approval constitutes approval of this Agreement and the
transactions contemplated hereby, including the Merger, which
satisfies in full the requirements of Pennsylvania Law and the
Company's Articles of Incorporation, and (b) resolved to
recommend that the shareholders of the Company approve and adopt
this Agreement and the Merger; provided, that such recommendation
may be withdrawn, modified or amended only in accordance with
Section 4.2(b). The Company represents that Berwind Financial,
L.P. ("Berwind") has delivered to the Company Board the Fairness
Opinion as described in Section 3.1(t). The Company represents
that the actions set forth in this Section 1.6 and all other
actions it has taken in connection therewith, including without
limitation, the adoption of opt-out bylaw provisions by the
Company Board on July 24, 1990, are sufficient to render the
relevant provisions of Sections 2535 through 2588 of Pennsylvania
Law inapplicable to the Merger.
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1.7. Boards, Committees and Officers. The Board of
Directors, committees of the Board of Directors, composition of
such committees (including chairmen thereof) and officers of ACIA
as of the Effective Time will serve in such capacities as the
directors and officers of the Surviving Entity until the earlier
of the resignation or removal of any such individual or until
their respective successors are duly elected and qualified, as
the case may be.
II. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT ENTITIES; EXCHANGE OF CERTIFICATES
2.1. Effect on Capital Stock. As of the Effective
Time, by virtue of the Merger and without any action on the part
of the holder of any Shares:
(a) Cancellation of Treasury Stock and Sub-Owned
Stock. Each Share that is owned by the Company or by any wholly-
owned Subsidiary of the Company will automatically be canceled
and retired and will cease to exist, and no consideration will be
delivered in exchange therefor.
(b) Conversion of Company Shares. Each issued and
outstanding Share (other than (i) Shares to be canceled in
accordance with Section 2.1(a), and (ii) any Shares which are
held by shareholders exercising appraisal rights pursuant to
Sections 1571, et seq. and 1930 of Pennsylvania Law ("Dissenting
Shareholders") will be converted into the right to receive five
dollars and twenty-five cents ($5.25) per Share, payable to the
holder thereof, without interest (the "Merger Consideration").
As of the Effective Time, all such Shares will no longer be
outstanding and will automatically be canceled and retired and
will cease to exist, and each holder of a certificate
representing any such Shares (a "Certificate") will cease to have
any rights with respect thereto, except the right to receive the
Merger Consideration to be paid in consideration therefor upon
surrender of such Certificate in accordance with Section 2.2,
without interest, or the right, if any, to receive payment from
the Surviving Corporation of the "fair value" of such Shares as
determined in accordance with Sections 1571-1580 of Pennsylvania
Law.
(c) Conversion of ACIA Shares. At the Effective Time,
each share of common stock of ACIA issued and outstanding
immediately prior to the Effective Time will be converted into
one share of common stock in the Surviving Entity.
2.2. Exchange of Certificates. (a) Paying Agent. As
of the Effective Time, ACIA will designate a bank or trust
company to act as agent for the holders of the Shares in
connection with the Merger (the "Paying Agent") to receive the
funds to which holders of the Shares will become entitled
pursuant to Section 2.1 (the "Exchange Fund").
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(b) Exchange Procedures. As soon as reasonably
practicable after the Effective Time, the Paying Agent will mail
to each holder of record of a Certificate, which immediately
prior to the Effective Time represented outstanding Shares, whose
Shares were converted into the right to receive the Merger
Consideration pursuant to Section 2.1 (i) a letter of transmittal
(which will specify that delivery will be effected, and risk of
loss and title to the Certificates will pass, only upon delivery
of the Certificates to the Paying Agent and will be in such form
and have such other provisions as ACIA may specify consistent
with this Agreement) 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
(or affidavits of loss in lieu thereof) to the Paying Agent or to
such other agent or agents as may be appointed by ACIA, 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 will be entitled to receive in
exchange therefor the Merger Consideration for each Share
formerly represented by such Certificate, and the Certificate so
surrendered will forthwith be canceled. If payment of the Merger
Consideration is to be made to a Person (as hereinafter defined)
other than the Person in whose name the Certificate so
surrendered is registered, it shall be a condition of payment
that the Certificate so surrendered be properly endorsed or
otherwise in proper form for transfer and that the Person
requesting such payment shall have paid any transfer or other
taxes required by reason of the payment of the Merger
Consideration to a Person other than the registered holder of
such Certificate surrendered or shall have established to the
satisfaction of ACIA that such tax has been paid or is not
applicable. Until surrendered as contemplated by this Section
2.2, each Certificate will be deemed at any time after the
Effective Time to represent only the right to receive upon such
surrender the Merger Consideration in cash, which the holder
thereof has the right to receive in respect of such Certificate
pursuant to the provisions of this Article II. No interest will
be paid or will accrue on any cash payable to holders of
Certificates pursuant to the provisions of this Article II.
(c) Transfer Books; No Further Ownership Rights in the
Shares. Payment in full of the Merger Consideration payable in
respect of Shares upon the surrender of Certificates representing
such Shares in accordance with the terms of this Article II will
be deemed full satisfaction of all rights pertaining to the
Shares theretofore represented by such Certificates, and there
will be no further registration of transfers on the stock
transfer books of the Surviving Entity of previously outstanding
Shares. If, after the Effective Time, Certificates are presented
to the Surviving Entity or the Paying Agent for any reason, they
will be canceled and exchanged as provided in this Article II.
(d) Termination of Exchange Fund. Any portion of the
Exchange Fund which remains undistributed to the holders of the
Certificates for twenty-four (24) months after the Effective Time
will be delivered to the Surviving Entity, upon demand, and any
holders of the Certificates who have not theretofore complied
with this Article II will thereafter look only to the Surviving
Entity for payment of their claim for Merger Consideration.
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(e) No Liability. None of ACIA, the Company or the
Paying Agent will be liable to any Person in respect of any cash
from the Exchange Fund properly delivered to a public official
pursuant to any applicable abandoned property, escheat or similar
Law. If any Certificate has not been surrendered prior to three
years after the Effective Time (or immediately prior to such
earlier date on which any Merger Consideration payable to the
holder of such Certificate representing Shares pursuant to this
Article II would otherwise escheat to or become the property of
any Governmental Entity (as hereinafter defined)), any such
Merger Consideration in respect of such Certificate will become
the property of the Surviving Entity, free and clear of all
claims or interest of any Person previously entitled thereto.
(f) Investment of Exchange Fund. The Paying Agent
will invest the cash included in the Exchange Fund, as directed
by ACIA, on a daily basis. Any interest and other income
resulting from such investments will be paid to ACIA.
(g) Lost Certificates. If any Certificate is lost,
stolen or destroyed, upon the making of an affidavit of that fact
by the Person claiming such Certificate to be lost, stolen or
destroyed and, if required by the Surviving Entity, the posting
by such Person of a bond in such reasonable amount as the
Surviving Entity may direct as indemnity against any claim that
may be made against it with respect to such Certificate, the
Paying Agent will issue in exchange for such lost, stolen or
destroyed Certificate, the Merger Consideration pursuant to this
Agreement.
(h) Dissenters' Rights. The Company shall give ACIA
notice of any notices or demands for payment by Dissenting
Shareholders pursuant to Section 1571 et seq. of Pennsylvania Law
and ACIA shall have the right to participate in all negotiations
and proceedings with respect to any such demands. Neither the
Company nor the Surviving Entity shall, except with the prior
written consent of ACIA, voluntarily make any payment with
respect to, or settle or offer to settle, any such demand for
payment. If any Dissenting Shareholder shall fail to perfect or
shall have effectively withdrawn or lost the right to dissent,
the Shares held by such Dissenting Shareholder shall thereupon be
treated as though such Shares had been converted into the Merger
Consideration pursuant to Section 2.1.
(i) Transfer of Shares After the Effective Time. No
transfer of Shares shall be made on the stock transfer books of
the Surviving Entity at or after the Effective Time.
(j) Options, Warrants and Company Plans. (i) ACIA and
the Company shall, effective as of the Effective Time, (A) cause
each outstanding stock option or warrants to purchase Shares (the
"Options" or "Warrants" as the case may be) granted, whether or
not then exercisable or vested, to become fully exercisable and
vested, (B) cause each Option and Warrant that is then
outstanding to be canceled, and (C) in consideration of such
cancellation, and except to the extent that ACIA and the holder
of any such Option and Warrant otherwise agree, cause the Company
(or, at ACIA's option, ACIA) to pay to such holders of Options
and Warrants an amount in respect thereof equal to the product of
(I) the excess, if any, of the Merger Consideration over the
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exercise price of each such Option and Warrant and (II) the
number of Shares previously subject to the Option and Warrant
immediately prior to its cancellation (such payment to be net of
withholding taxes).
(ii) Except as may be otherwise agreed to by ACIA
and the Company, the Company's Director's Stock Warrant Plan and
its Incentive Stock Option Plan, as amended (collectively, the
"Option Plans") shall terminate as of the Effective Time and the
provisions in any other plan, program or arrangement 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 be
deleted as of the Effective Time and no holder of Options or any
participant in the Option Plans or any other plans, programs or
arrangements shall have any right thereunder to acquire any
equity securities of ACIA, the Company, the Surviving Entity or
any Subsidiary thereof.
2.3. Shareholders' Meeting. (a) If required by
applicable law in order to consummate the Merger, the Company,
acting through the Company Board, shall, in accordance with
applicable Law:
(i) duly call, give notice of, convene and hold a
special meeting of its shareholders (the "Company
Shareholders Meeting") as promptly as practicable
following the execution of this Agreement for the
purpose of considering and taking action upon the
approval of the Merger and the adoption of this
Agreement;
(ii) prepare and file with the Securities and
Exchange Commission (the "SEC") a preliminary proxy or
information statement relating to the Merger and this
Agreement and use its best efforts (a) to obtain and
furnish the information required to be included by the
SEC in the Proxy Statement(as hereinafter defined) and,
after consultation with ACIA, to respond promptly to
any comments made by the SEC with respect to the
preliminary proxy or information statement and cause a
definitive proxy or information statement, including
any amendment or supplement thereto (the "Proxy
Statement") to be mailed to its shareholders, provided
that no amendment or supplement to the Proxy Statement
will be made by the Company without consultation with
ACIA and its counsel and (b) to obtain the necessary
approvals of the Merger and this Agreement by its
shareholders; and
(iii) subject to the fiduciary obligations of the
Company Board under Applicable Law as advised by
independent counsel and subject to the provisions of
Section 4.2(b), include in the Proxy Statement the
recommendation of the Company Board that shareholders
of the Company vote in favor of the approval of the
Merger and the adoption of this Agreement.
(b) ACIA shall vote, or cause to be voted, all of the
Shares then owned, if any, by it in favor of the approval of the
Merger and the adoption of this Agreement.
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III. REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of the Company.
Except as disclosed in the Company SEC Documents (as hereinafter
defined) (with respect to subsections (e), (g) and (h) below) or
as set forth on the schedules attached hereto (the "Company
Disclosure Schedules"), the Company represents and warrants to
ACIA as follows:
(a) Organization, Standing and Corporate Power.
Except as set forth on Schedule 3.1(a), the Company and each of
its Subsidiaries (as hereinafter defined) is a corporation or
other legal entity duly organized, validly existing and in good
standing (with respect to jurisdictions which recognize such
concept) under the Laws of the jurisdiction in which it is
organized and has the requisite corporate or other power, as the
case may be, and authority to carry on its business as now being
conducted. The Company and each of its Subsidiaries is duly
qualified or licensed to do business and is in good standing
(with respect to jurisdictions which recognize such concept) in
each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification
or licensing necessary, other than in such jurisdictions in which
the failure to be so qualified or licensed or to be in good
standing individually or in the aggregate could not be reasonably
expected to have a material adverse effect on the business,
financial condition or results of operations of the Company and
each of its Subsidiaries, taken as a whole, or on the ability of
the Company to perform any of its obligations under this
Agreement (any such effect, a "Company MAE"). The Company has
delivered to Parent prior to the execution of this Agreement
complete and correct copies of its articles of incorporation and
bylaws and has made available to ACIA the certificate or articles
of incorporation and bylaws (or comparable organizational
documents) of each of its Subsidiaries, in each case as amended
to date.
(b) Subsidiaries. Except as set forth on Schedule
3.1(b), Exhibit 21 to the Company's Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1997 includes all
subsidiaries of the Company (each a "Subsidiary", and
collectively, the "Subsidiaries"). All the outstanding shares of
capital stock of, or other equity interests in, each such
Subsidiary have been validly issued and are fully paid and non-
assessable and are owned directly or indirectly by the Company,
free and clear of all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature
whatsoever (collectively, "Liens"). There are no minority
interests, equity investments or joint ventures with any other
party.
(c) Capital Structure. The authorized capital stock
of the Company consists of twenty million (20,000,000) shares of
common stock. At the close of business on the last business day
immediately preceding the date hereof (the "Measurement Date"),
(i) two million one hundred four thousand two hundred fifty-three
(2,104,253) shares were issued and outstanding, (ii) eight
hundred fifty-eight thousand eight hundred eighty-one (858,881)
shares were held by the Company in its treasury, (iii) nine
hundred thousand (900,000) shares were reserved for issuance upon
exercise of then outstanding Options, and (iv) one hundred
thousand (100,000) shares reserved for issuance under outstanding
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Warrants. A full and complete list of all material terms of the
Options and Warrants are attached hereto as Schedule 3.1(c).
Except as set forth in the preceding sentences, at the close of
business on the Measurement Date, no shares of capital stock or
other voting securities of the Company or any Subsidiary were
issued, reserved for issuance or outstanding. Except as set
forth above, at the close of business on the Measurement Date,
there were no shares of capital stock underlying outstanding
stock options, stock appreciation rights or rights to receive
Shares on a deferred basis. All outstanding shares of capital
stock of the Company are, and all shares which may be issued will
be, when issued, duly authorized, validly issued, fully paid and
non-assessable and not subject to preemptive rights. As of the
close of business on the Measurement Date, there were no bonds,
debentures, notes, other indebtedness or securities of the
Company having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any
matters on which shareholders of the Company may vote. Except as
set forth above, as of the close of business on the Measurement
Date, there were no outstanding securities, options, warrants,
calls, rights, commitments, agreements, arrangements or
undertakings of any kind to which the Company or any of its
Subsidiaries is a party or by which any of them is bound
obligating the Company or any of its Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock or other voting securities of
the Company or of any of its Subsidiaries or obligating the
Company or any of its Subsidiaries to issue, grant, extend or
enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. As of the
close of business on the Measurement Date, there were no
outstanding contractual obligations of the Company or any of its
Subsidiaries to issue, repurchase, redeem, exchange or otherwise
acquire any shares of capital stock of the Company or any of its
Subsidiaries. As of the close of business on the Measurement
Date, there were no outstanding contractual obligations of the
Company to vote or to dispose of any shares of the capital stock
of any of its Subsidiaries.
(d) Authority; Noncontravention. The Company has all
requisite corporate power and authority to enter into this
Agreement, and, subject to the Company Shareholder Approval (as
hereinafter defined), to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject to Company
Shareholder Approval. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and
binding obligation of the Company, enforceable against the
Company in accordance with its terms. The execution and delivery
of this Agreement does not, and the consummation of the
transactions contemplated hereby and compliance with the
provisions hereof will not, conflict with, breach or result in
any violation of, or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of a
material benefit under, or result in the creation of any Lien
upon any of the properties or assets of the Company or any of its
Subsidiaries under, (i) the articles of incorporation or bylaws
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of the Company or the comparable organizational documents of any
of its Subsidiaries, (ii) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument,
permit, concession, franchise or license applicable to the
Company or any of its Subsidiaries or their respective properties
or assets, except those set forth on Schedule 3.1(d) hereto, or
(iii) subject to the governmental filings and other matters
referred to in the following sentence, any judgment, order or
decree ("Order"), or statute, law, ordinance, rule or regulation
("Law") applicable to the Company or any of its Subsidiaries or
their respective properties or assets, other than, in the case of
clauses (ii) and (iii), any such conflicts, breaches, violations,
defaults, rights, losses or Liens that individually or in the
aggregate could not be reasonably expected to have a Company MAE.
No Order, consent, approval or authorization of, or registration,
declaration or filing with, any federal, state, local or foreign
government or any court, administrative or regulatory agency or
commission or other governmental authority, agency or
instrumentality (a "Governmental Entity") is required by or with
respect to the Company or any of its Subsidiaries in connection
with the execution and delivery of this Agreement by the Company
or the consummation by the Company of the transactions
contemplated hereby except for (1) the filing with the SEC of the
Proxy Statement and the receipt of a "no review" or "no further
comments" communication from the staff of the SEC with respect to
the Proxy Statement, and the filing of such reports, forms and
notices (including certification and notice of termination of
registration on Form 15 or a successor form) under the Exchange
Act as may be required in connection with this Agreement and the
transactions contemplated hereby; (2) the filing of the
Certificates of Merger with the Pennsylvania and Georgia
Secretaries of State and appropriate documents with the relevant
authorities of other states in which the Company is qualified to
do business and such filings with Governmental Entities to
satisfy the applicable requirements of state franchise,
securities or "blue sky" laws; and (3) the filing with Nasdaq of
any required notifications and other forms with respect to the
delisting of the Shares from the Nasdaq National Market.
(e) SEC Documents; Undisclosed Liabilities. The
Company has filed all required reports, schedules, forms,
statements and other documents with the SEC since December 31,
1995 (the "Company SEC Documents"). As of their respective
dates, the Company SEC Documents complied in all material
respects with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), or the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as the case may be, and
the rules and regulations of the SEC promulgated thereunder
applicable to such Company SEC Documents, and none of the Company
SEC Documents when filed contained any untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading. Except to the extent that information
contained in any Company SEC Document has been revised or
superseded by a later Company Filed SEC Document, none of the
Company SEC Documents contains any untrue statement of a material
fact or omits to state any material fact required to be stated
therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in
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the Company SEC Documents comply as to form, as of their
respective dates of filing with the SEC, in all material respects
with applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting
principles (except, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis
during the periods involved (except as may be indicated in the
notes thereto) and fairly present in all material respects the
consolidated financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements,
to normal recurring year-end audit adjustments). Except (i) as
reflected in such financial statements or in the notes thereto,
(ii) for liabilities incurred in connection with this Agreement
or the transactions contemplated hereby, and (iii) for
liabilities and obligations incurred since March 31, 1998 in the
ordinary course of business consistent with past practice,
neither the Company nor any of its Subsidiaries has any
liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise), including, to the Company's
knowledge, liabilities arising under any Laws relating to the
protection of health, safety or the environment ("Environmental
Laws"), required by generally accepted accounting principles to
be reflected in a consolidated balance sheet of the Company and
its consolidated Subsidiaries and which, individually or in the
aggregate, could reasonably be expected to have a Company MAE.
(f) Information Supplied. None of the information
supplied or to be supplied by the Company specifically for
inclusion or incorporation by reference in the Proxy Statement,
at the date it is first mailed to the Company's shareholders or
at the time of the Company Shareholders Meeting 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. The Proxy Statement will comply
as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations thereunder, except
that no representation or warranty is made by the Company with
respect to statements made or incorporated by reference therein
based on information supplied by Parent or Sub specifically for
inclusion or incorporation by reference in the Proxy Statement or
contained in any ACIA SEC Documents (as hereinafter defined)
incorporated by reference in the Proxy Statement.
(g) Absence of Certain Changes or Events. Except (i)
as disclosed in the Company SEC Documents filed and publicly
available prior to the date of this Agreement, (ii) for the
transactions provided for herein or permitted by Section 4.1(a),
and (iii) for liabilities incurred in connection with or as a
result of this Agreement, since March 31, 1998, the Company has
conducted its business only in the ordinary course, and there has
not been (1) any material adverse change in the business,
financial condition, or results of operations of the Company and
each of its Subsidiaries, taken as a whole, other than such
material adverse changes resulting, directly or indirectly, from
a continuing decline in the Company's revenues on a consolidated
basis, (2) any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or
property) with respect to any of the Company capital stock, (3)
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any split, combination or reclassification of any of the
Company's capital stock or any issuance or the authorization of
any issuance of any other securities in respect of, in lieu of or
in substitution for shares of the Company's capital stock, (4)
any granting by the Company or any of its Subsidiaries to any
director, executive officer or other key employee of the Company
of any increase in compensation, (5) any granting by the Company
or any of its Subsidiaries to any such director, executive
officer or key employee of any increase in severance or
termination pay, (6) any entry by the Company or any of its
Subsidiaries into any employment, severance or termination
agreement with any such director, executive officer or key
employee, (7) except insofar as may be required by a change in
generally accepted accounting principles, any change in
accounting methods, principles or practices by the Company, or
(8) any action taken which is proscribed by Section 4.1. For
purposes of this Agreement, "key employee" means any employee
whose current salary and targeted bonus exceeds fifty thousand
dollars ($50,000) per annum or who would exceed fifty thousand
dollars ($50,000) per annum based upon any increase in salary or
bonus.
(h) Litigation. Except as set forth on Schedule
3.1(h), there are no suits, actions or proceedings pending or, to
the Knowledge (as hereinafter defined) of the Company, threatened
against or affecting the Company or any of its Subsidiaries that
individually or in the aggregate could reasonably be expected to
have a Company MAE, nor are there any Orders of any Governmental
Entity or arbitrator outstanding against the Company or any of
its Subsidiaries having, or which could reasonably be expected to
have, individually or in the aggregate, a Company MAE.
(i) Taxes. The Company and its Subsidiaries have (i)
duly filed with the appropriate taxing authorities all material
Tax Returns (or, with respect to its Tax Returns for its year-
ended December 31, 1997, extensions therefor) required to be
filed by or with respect to the Company, and all such duly filed
Tax Returns are true, correct and complete in all material
respects, and (ii) paid in full or made adequate provisions for
on its balance sheet (in accordance with U.S. GAAP) all Taxes
shown to be due on such Tax Returns. There are no liens for
Taxes upon the assets of the Company or any Subsidiary, except
for statutory liens for current Taxes not yet due and payable or
that may thereafter be paid without penalty or are being
contested in good faith. Except as set forth on Schedule 3.1(i),
the Company and its Subsidiaries have not received any notice of
audit, are not undergoing any audit of its Tax Returns, and have
not received any notice of deficiency or assessment from any
taxing authority with respect to liability for Taxes of the
Company or any Subsidiary, which has not been fully paid or
finally settled. There have been no waivers of statutes of
limitations by the Company and its Subsidiaries with respect to
any Tax Returns that relate to the Company or any Subsidiary.
The Company has not filed a request with the Internal Revenue
Service for changes in accounting methods within the last two
years, which change would affect the accounting for tax purposes,
directly or indirectly, of the Company. As used in this Section
3.1(i), (i) the term "Taxes" shall mean all taxes, charges, fees,
levies or other assessments, including, without limitation,
income, gross receipts, excise, property, sales, license, payroll
and franchise taxes, imposed by the United States, or any state,
local or foreign government or subdivision or agency thereof
whether computed on a unitary, combined or any other basis; and
-11-
such term shall include any interest and penalties or additions
to tax; and (ii) the term "Tax Return" shall mean any report,
return or other information required to be filed with, supplied
to or otherwise made available to a taxing authority in
connection with Taxes.
(j) Employee Matters. (i) Listed on Schedule 3.1(j)
is a true, accurate and complete list of all pension, retirement,
profit-sharing, deferred compensation, bonus, stock option or
other incentive plan, or other employee benefit program,
arrangement, agreement or understanding, or medical, vision,
dental or other health plan, or life insurance or disability
plan, or any other employee benefit plan as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), (whether or not any such employee benefit
plans are otherwise exempt from the provisions of ERISA, whether
or not legally binding), adopted, established, maintained or
contributed to by the Company or under which it would otherwise
be a party or have liability and under which employees or former
employees (whether or not retired employees) of the Company and
its Subsidiaries (or their beneficiaries) are eligible to
participate or derive a benefit (collectively, the "Employee
Benefit Plans"). There shall be included within the meaning of
the Company, solely for this purpose and for the purpose of the
representations in this Section 3.1(j), all "affiliates," whether
or not incorporated, within the meaning of Section 407(d)(7) of
ERISA.
(ii) Full payment has been made of all material amounts
that the Company is required, under applicable law or under any
Employee Benefit Plan or any agreement relating to any Employee
Benefit Plan to which it is a party, to have paid as
contributions to or benefits under any Employee Benefit Plan as
of the last day of the most recent fiscal year of such Employee
Benefit Plan ended prior to the date hereof or the Company has
made adequate provision therefor. The Company has made adequate
provisions in accordance with GAAP for liabilities to meet
current contributions or benefit payments.
(iii) Except as provided in Schedule 3.1(j), a
favorable determination letter has been issued by the Internal
Revenue Service (the "Service") with respect to the qualified
status of each of the Employee Benefit Plans intended or required
to be qualified under Section 401(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), and with respect to the tax
exempt status under Section 501(a) of the Code of (A) any trust
through which such Employee Benefit Plans are funded and (B) any
trust or other entity established with respect to an Employee
Benefit Plan and intended to be qualified as a tax exempt
organization under Section 501(c) of the Code. Since the date of
the most recent determination letter, each such qualified
Employee Benefit Plan has been, or can be (within 120 days of the
date hereof), filed with the Service within the time required to
preserve the rights of the Company to adopt such amendment as may
be required by the Service in order to issue a favorable
determination letter with respect to each such Plan's continued
tax-qualified and/or exempt status. To the Company's Knowledge,
no act or omission has occurred since the date of the last
favorable determination letter issued with respect to an Employee
Benefit Plan that resulted or is likely to result in the
revocation of the Plan's tax-qualified or exempt status.
-12-
(iv) The Company has performed all material obligations
required to be performed by it under the Employee Benefit Plans.
The Company has not engaged in any transaction with respect to
the Employee Benefit Plans that would subject it or the Buyer to
a tax, penalty or liability for a prohibited transaction under
Sections 406, 407 or 502(i) of ERISA or Section 4975 of the Code,
nor have its directors, officers, employees or agents, to the
extent they or any of them are fiduciaries under Title I of
ERISA. The Company and any "administrator(s)" (as described in
Section 3(16)(A) of ERISA) of the Employee Benefit Plans have
complied in all material respects with the applicable
requirements of ERISA, the Code and all other statutes, orders,
rules or regulations, specifically including, without limitation,
material compliance with all reporting and disclosure
requirements of Part 1 of Title 1 of ERISA and of the Code in a
timely and accurate manner, and no penalties have been or can
reasonably be expected to be imposed, nor is the Company or any
administrator liable for any penalties imposed, under ERISA, the
Code or otherwise with respect to the Employee Benefit Plans or
any related trusts. The Company is not delinquent in the payment
of any federal, state or local taxes with respect to the Employee
Benefit Plans. There is no pending litigation, arbitration, or
disputed claim, settlement adjudication or proceeding with
respect to the Employee Benefit Plans, and neither the Company,
nor any administrator knows of any threatened litigation,
arbitration or disputed claim, adjudication proceeding, or any
governmental or other proceeding, or investigation with respect
to the Employee Benefit Plans or with respect to any fiduciary or
administrator thereof (in their capacities as such), or any
party-in-interest thereto (with respect to their relationship as
such). There is no multiemployer plan to which the Company has
been a party or has been required to make any contributions at
any time during the 10-year period prior to the date hereof.
Except as set forth on Schedule 3.1(j), since September 30, 1997,
the Company has not terminated any Employee Benefit Plan.
(v) The Company has delivered or caused to be
delivered to the Buyer, true and complete copies of (A) all
Employee Benefit Plans and any related trust agreements,
custodial agreements, investment management agreements, insurance
contracts or policies, and administrative service contracts, all
as in effect, together with all amendments thereto which will
become effective at a later date; (B) the latest Summary Plan
Description and any modifications thereto for each Employee
Benefit Plan requiring same under ERISA; (C) the latest Service
determination letter obtained with respect to any such Employee
Benefit Plan qualified under Section 401 or 501 of the Code; (D)
the Summary Annual Report for 1996 and 1995 for each Employee
Benefit Plan requiring same under ERISA; and (E) except as set
forth on Schedule 3.1(j), each Form 5500 and/or Form 990 series
filing (including required schedules and financial statements)
for 1996 and 1995 for each Employee Benefit Plan required to file
such form. Neither the Company nor any officer, and, to the
Company's Knowledge no employee representative or agent thereof,
has made any written or oral representations or statements to any
current or former employees, dependents, participants or
beneficiaries or other persons that are inconsistent in any
material manner with the provisions of these documents.
-13-
(vi) With respect to any of the Company's employee
welfare plans (as defined in Section 3(1) of ERISA and including
those Employee Benefits Plans which qualify as such) that are
"group health plans" under Section 162(k) or Section 4980B of the
Code and Section 607(1) of ERISA and related regulations
(relating to the benefit continuation rights imposed by COBRA),
there has been timely compliance in all material respects with
all requirements imposed thereunder, as and when applicable to
such plans, so that the Company has no (or will not incur any)
material loss, assessment, penalty, loss of federal income tax
deduction or other sanction, arising on account of or in respect
of any failure to comply with any COBRA benefit continuation
requirement, that is capable of being assessed or asserted
directly or indirectly against the Buyer or any of its
subsidiaries or other member of the Buyer's corporate control
group, with respect to any such plan.
(vii) Schedule 3.1(j) identifies by name all written
employment agreements and severance agreements and arrangements
with employees of the Company and its Subsidiaries in effect or
committed to be put into effect as of the date hereof (an
"Employee Agreement") and provides the 1998 compensation rate for
each employee that is a party to an Employee Agreement. No
changes have been made to any Employee Agreement on or after
January 1, 1998.
(k) Labor Matters. Except as set forth on Schedule
3.1(k), neither the Company nor any Subsidiary is a party to any
collective bargaining agreement or other labor contract
applicable to persons employed by the Company or any Subsidiary.
The Company has not received any notice from any labor union or
group of employees that such union or group represents or
believes or claims it represents or intends to represent any of
the employees of the Company or any Subsidiary; no strike or work
interruption by any of its employees is planned, under
consideration, threatened or imminent; and neither the Company,
any Subsidiary nor any officer or director thereof has made any
loan or given anything of value, directly or indirectly, to any
officer, official, agent or representative of any labor union or
group of employees. At no time during the past five years has
the Company or any Subsidiary experienced any threats of strikes,
work stoppages or demands for collective bargaining by any union
or labor organization or any other group or other organization of
employees, any grievances, disputes or controversies with any
union or any other group or other organization of employees, or
any pending or threatened court of arbitration proceedings
involving an employment grievance, dispute or controversy. The
Company and its Subsidiaries are not delinquent in payments to
any of its employees for any wages, salaries, commissions,
bonuses or other direct compensation for any services performed
by them to the date hereof or amounts required to be reimbursed
to such employees. Except as may be required by Canadian law or
as set forth on Schedule 3.1(j), in the event of termination of
the employment of any Company employees, neither the Company nor
any Subsidiary will by reason of anything done prior to the
Closing be liable to any of said employees for so-called
"severance pay" or any other payments. The Company and each
Subsidiary is in compliance with all federal, state and local
laws and regulations respecting labor, employment and employment
practices, terms and conditions of employment and wages and hours
-14-
and there is no unfair labor practice complaint against the
Company pending before the National Labor Relations Board or any
comparable state or local agency such that there will not be a
Company MAE.
(l) Environmental Matters. (i) The Company and its
Subsidiaries are not the subject of, or to the Company's
Knowledge, being threatened to be the subject of (A) any
enforcement proceeding, or (B) any investigation, brought in
either case under any federal, state or local environmental law,
rule, regulation, or ordinance at any time in effect or (C) any
third party claim relating to environmental conditions on or off
the properties of the Company. Neither the Company nor any
Subsidiary has been notified that it must obtain any permits and
licenses or file documents for the operation of its business
under federal, state and local laws relating to pollution
protection of the environment. To the Company's Knowledge, no
conditions exist on or off the properties of the Company or its
Subsidiaries that will give rise to any material liabilities^
under any federal, state or local environmental law, rule,
regulation or ordinance, or as the result of any claim of any
third party. For the purposes of this Section 3.1(l), an
investigation shall include, without limitation, any written
notice received by the Company that relates to the onsite or
offsite disposal, release, discharge or spill of any waste, waste
water, pollutant or contaminants.
(ii) To the Company's Knowledge and except as set
forth in the reports identified on Schedule 3.1(l), there are no
toxic wastes or other toxic or hazardous substances or materials,
pollutants or contaminants that the Company (or, to the Company's
Knowledge, any previous occupant of the Company's facilities) has
used, stored or otherwise held in or on any of the facilities of
the Company or its Subsidiaries, which are present at or have
migrated from such facilities, whether contained in ambient air,
surface water, groundwater, land surface or subsurface strata.
During its ownership and possession of its facilities, the
facilities have been maintained by the Company in material
compliance with all environmental protection, occupational,
health and safety or similar laws, ordinances, restrictions,
licenses, and regulations such that there will not be a Company
MAE. The Company has not disposed of or arranged (by contract,
agreement or otherwise) for the disposal of any material or
substance that was generated or used by the Company at any off-
site location that has been or is listed or proposed for
inclusion on any list promulgated by any Governmental Authority
for the purpose of identifying sites that pose a danger to health
and safety. Except as set forth on Schedule 3.1(l), there have
been no environmental studies, reports and analyses made or
prepared in the last five years relating to the facilities of the
Company or its Subsidiaries. Neither the Company nor any
Subsidiary has installed any underground storage tanks in any of
its facilities and, to the Company's Knowledge, none of such
facilities contain any underground storage tanks.
(m) Compliance with Laws. Except as set forth on
Schedule 3.1(m), neither the Company nor any Subsidiary is in
violation of, or has violated, any law, statute, ordinance, rule,
regulation, arbitral determination, order, writ, decree or
injunction that is applicable to or binding upon the Company, any
Subsidiary or any of their respective properties that
individually or in the aggregate could reasonably be expected to
have a Company MAE.
-15-
(n) Insurance. Schedule 3.1(n) sets forth a list and
brief description of all existing insurance policies maintained
by the Company and its Subsidiaries pertaining to their
respective business properties, personnel or assets. Neither the
Company nor any Subsidiary is in default with respect to any
provision contained in any insurance policy, or has failed to
give any notice or present any claim under any insurance policy
in due and timely fashion. All such policies shall have been
delivered to the Parent prior to the Closing and at all times
prior to the Closing shall be in full force and effect. All
payments with respect to such policies are current and the
Company has not received any notice threatening a suspension,
revocation, modification or cancellation of any such policy.
(o) Trademarks, Patents and Copyrights. (i) For
purposes of this Agreement, the term "Company Rights" shall mean
to the Company's Knowledge all worldwide industrial and
intellectual property rights, including, without limitation, each
patent, patent rights, license, patent application, trade name,
trademark, trade name and trademark registration, copyright,
copyright registration, copyright application, service xxxx,
brand xxxx and brand name, trade secret relating to or arising
from any proprietary process, formula, source or object code,
owned or possessed by the Company or any if its Subsidiaries
necessary for the conduct of the Company's business. Except as
set forth on Schedule 3.1(o), to the Company's Knowledge, the
Company or its Subsidiaries own or has the right to use, sell or
license all Company Rights and such Company Rights are sufficient
for the conduct of the Company's businesses as being conducted as
of the date hereof. Schedule 3.1(o) hereto lists each patent,
patent right, patent application, tradename registration,
trademark registration, copyright registration, copyright
application, source and object code owned or possessed by the
Company.
(ii) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated
hereby will not constitute a breach of any instrument or
agreement governing any Company Rights, will not cause the
forfeiture or termination or give rise to a right of forfeiture
or termination of any Company Rights or impair the right of the
Company to use, sell or license any Company Rights or any portion
thereof, except for breaches, forfeitures, terminations, rights
of forfeiture or termination, or impairments that would not have
a Company MAE.
(iii) To the Knowledge of the Company, neither the
manufacture, marketing, license, sale or intended use of any
product currently licensed or sold by the Company or any
Subsidiary or currently under development by the Company or and
Subsidiary violates any license or agreement between the Company
or any Subsidiary and any third party relating to such product or
infringes any intellectual property right of any other Person,
and there is no pending or, to the Knowledge of the Company,
threatened claim or litigation contesting the validity, ownership
or right to use, sell, license or dispose of any Company Right
nor, to the Knowledge of the Company is there any basis for any
such claim, nor has the Company received any notice asserting
that any Company Right or the proposed use, sale, license or
disposition thereof conflicts or will conflict with the rights of
-16-
any other party, nor, to the Knowledge of the Company, is there
any basis for any such assertion, except for such violations,
infringements, threatened claims or litigations or conflicts that
would not have a Company MAE.
(iv) To the Knowledge of the Company, no current or
prior officers, employees or consultants of the Company or any
Subsidiary claim an ownership interest in any Company Rights as a
result of having been involved in the development of such
property while employed by or consulting to the Company or
otherwise.
(p) Material Contracts. Schedule 3.1(p) sets forth a
complete and accurate list as of the Closing Date of all
contracts or agreements to which the Company is a party involving
aggregate consideration payable to or by the Company of thirty
thousand dollars ($30,000) or more in a twelve (12) month period
or otherwise material to the business, operations, condition
(financial or otherwise), performance or properties of the
Company ("Material Contracts"). Each of such Material Contracts
is valid and binding, in full force and effect and enforceable
against the parties thereto in accordance with their respective
provisions. The Company has not assigned, mortgaged, pledged,
encumbered, or otherwise hypothecated any of its right, title or
interest under any of the Material Contracts. Neither the
Company nor, to the Knowledge of the Company any other party
thereto is in violation of, in default in respect of, nor has
there occurred an event or condition which, with the passage of
time or giving of notice (or both), would constitute a violation
or a default of or under the Material Contracts. Except as set
forth on Schedule 3.1(p), no written or oral notice has been
received by the Company claiming any default by the Company or
indicating the desire or intention of any other party thereto to
amend, modify, rescind or terminate any Material Contract.
(q) Voting Requirements. The affirmative vote of a
majority of the votes cast by all shareholders entitled to vote,
voting as a single class, at the Company Shareholders Meeting
(the "Company Shareholder Approval") to adopt this Agreement is
the only vote of the holders of any class or series of the
Company's capital stock necessary to approve and adopt this
Agreement and the transactions contemplated hereby.
(r) Board Approval. The Company Board has approved
this Agreement and the consummation of the Merger and the other
transactions contemplated hereby. Such approval constitutes the
appropriate approval by the Company Board of the Merger and the
other transactions contemplated hereby under the provisions of
Section 1924(a) of the Pennsylvania Law.
(s) Brokers. No broker, investment banker, financial
advisor or other Person, other than Berwind, is entitled to any
broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of
the Company. The fees of Berwind are two hundred ninety thousand
dollars ($290,000) (of which ten thousand dollars ($10,000) has
been paid) and the expenses of Berwind are not to exceed five
thousand dollars ($5,000). The Company will pay the fees and
expenses of Berwind.
-17-
(t) Opinion of Financial Advisor. The Company has
received the opinion of Berwind (the "Fairness Opinion") to the
effect that, as of the date thereof, the Merger Consideration to
be received by the Company's shareholders pursuant to this
Agreement is fair to the Company's shareholders from a financial
point of view, a signed copy of which opinion has been delivered
to ACIA.
3.2. Representations and Warranties of ACIA. Except as
disclosed in the disclosure schedule delivered by ACIA to the
Company prior to the execution of this Agreement (the "ACIA
Disclosure Schedule"), ACIA represents and warrants to the
Company as follows:
(a) Organization, Standing and Corporate Power. ACIA
is a corporation duly organized, validly existing and in good
standing (with respect to jurisdictions which recognize such
concept) under the Laws of the jurisdiction in which it is
organized and has the requisite power and authority to carry on
its business as now being conducted. ACIA is duly qualified or
licensed to do business and is in good standing (with respect to
jurisdictions which recognize such concept) in each jurisdiction
in which the nature of its business or the ownership or leasing
of its properties makes such qualification or licensing
necessary, other than in such jurisdictions in which the failure
to be so qualified or licensed or to be in good standing
individually or in the aggregate could not be reasonably expected
to have a material adverse effect on the business, financial
condition or results of operations of ACIA and each of its
Subsidiaries, taken as a whole, or on the ability of ACIA to
perform its obligations under this Agreement (any such effect, an
"ACIA MAE"). ACIA has delivered to the Company prior to the
execution of this Agreement complete and correct copies of its
Articles of Incorporation and bylaws, in each case as amended to
date (the "ACIA Charter Documents").
(b) Authority; Noncontravention. ACIA has all
requisite power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement. The
execution and delivery of this Agreement by ACIA and the
consummation by ACIA of the transactions contemplated by this
Agreement have been duly authorized by all necessary action on
the part of ACIA. This Agreement has been duly executed and
delivered by ACIA and constitutes valid and binding obligations
of ACIA, enforceable against ACIA in accordance with its terms.
The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby and
compliance with the provisions hereof will not, conflict with,
breach, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to
a right of termination, cancellation or acceleration of any
obligation or loss of a material benefit under, or result in the
creation of any Lien upon any of the properties or assets of ACIA
under, (i) the charter documents, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license
directly or indirectly applicable to ACIA, or (iii) subject to
the governmental filings and other matters referred to in the
following sentence, any Order or Law directly or indirectly
applicable to ACIA other than, in the case of clauses (ii) and
(iii), any such conflicts, breaches, violations, defaults,
rights, losses or Liens that individually or in the aggregate
-18-
could not be reasonably expected to have an ACIA MAE. No
consent, approval, Order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required
by or with respect to ACIA or any of its Subsidiaries in
connection with the execution and delivery of this Agreement by
ACIA or the consummation by ACIA of the transactions contemplated
hereby, except for (1) such reports under the Exchange Act as may
be required in connection with this Agreement and the
transactions contemplated hereby; (2) the filing of the
Certificates of Merger with the Pennsylvania and Georgia
Secretaries of State and appropriate documents with the relevant
authorities of other states in which ACIA is qualified to do
business and such filings with Governmental Entities to satisfy
the applicable requirements of state franchise, securities or
"blue sky" laws; (3) such other filings and consents as may be
required under any Environmental Law pertaining to any
notification, disclosure or required approval necessitated by the
Merger or the transactions contemplated by this Agreement; and
(4) such consents, approvals, Orders or authorizations the
failure of which to be made or obtained could not reasonably be
expected, individually or in the aggregate, to have an ACIA MAE.
(c) Voting Requirements. The affirmative vote of a
majority of all the votes entitled to be cast on this Agreement
by all shares entitled to vote on the Agreement, voting as a
single voting group, is the only vote of the holders of any stock
in ACIA necessary to approve and adopt this Agreement and the
transactions contemplated hereby.
(d) Brokers. No broker, investment banker, financial
advisor or other Person, the fees and expenses of which will be
paid by ACIA or, if the Merger occurs, the Surviving Entity, is
entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or
on behalf of ACIA.
(e) Ownership of Shares. Neither ACIA nor any of its
Affiliates, (i) beneficially owns (as such term is defined in
Rule 13d-3 under the Exchange Act, as amended), directly or
indirectly, or (ii) is a party to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of, in each case, shares of capital stock of Company.
(f) Due Diligence. ACIA has made such due diligence
review of the Company as it deems necessary to enter into this
Agreement.
(g) Shareholders of ACIA. A complete list of the
shareholders of ACIA (the "ACIA Shareholders") and their
respective holdings in ACIA is set forth on Schedule 3.2(g).
-19-
(f) Financing. ACIA will have sufficient funds
available at the Closing (through cash on hand and existing
credit arrangements or otherwise) to purchase all of the Shares
outstanding on a fully diluted basis, and to pay all fees and
expenses related to the transactions contemplated by this
Agreement. ACIA and the ACIA Shareholders have furnished to the
Company true and complete records regarding the assets of ACIA
and the ACIA Shareholders as requested by the Company, including
the personal bank records and financial statements of the ACIA
Shareholders, which records show sufficient funds available in
accordance with the preceding sentence.
(h) Information Supplied. The information supplied or
to be supplied by ACIA for inclusion in the Company's Proxy
Statement or any amendment or supplement thereto will not, at the
time the Company's Proxy Statement is first mailed to
shareholders of the Company, at the time such shareholders vote
on the approval and adoption of this Agreement and at the
Effective Time contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under
which they were made, not misleading.
IV. COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1. Conduct of Business. (a) Conduct of Business by
the Company. During the period from the date of this Agreement
to the Effective Time, the Company will, and will cause its
Subsidiaries to, carry on their respective businesses in the
usual, regular and ordinary course in substantially the same
manner as heretofore conducted and in compliance in all material
respects with all applicable Laws and, to the extent consistent
therewith, use reasonable efforts to preserve intact their
current business organizations. Without limiting the generality
or effect of the foregoing, during the period from the date of
this Agreement to the Effective Time, the Company will not, and
will not permit any of its Subsidiaries to, without the prior
consent of ACIA:
(i) other than dividends and distributions
(including liquidating distributions) by a direct or
indirect wholly-owned Subsidiary of the Company to its
parent, or by a Subsidiary that is partially owned by the
Company or any of its Subsidiaries, provided that the
Company or any such Subsidiary receives or is to receive its
proportionate share thereof (based upon equity ownership),
(A) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock,
(B) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its
capital stock, or (C) purchase, redeem or otherwise acquire
any shares of capital stock of the Company or any of its
Subsidiaries or any other securities thereof or any rights,
warrants or options to acquire any such shares or other
securities;
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(ii) issue, deliver, sell, pledge or otherwise
encumber any shares of its capital stock, any other voting
securities or any securities convertible into, or any
rights, warrants or options to acquire, any such shares,
voting securities or convertible securities;
(iii) amend its articles of incorporation, bylaws
or other comparable organizational documents;
(iv) acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by
any other manner, any business or any corporation, limited
liability company, partnership, joint venture, association
or other business organization or division thereof;
(v) sell, lease, license, mortgage or otherwise
encumber or subject to any Lien or otherwise dispose of any
of its properties or assets, other than (A) in the ordinary
course of business consistent with past practice and (B)
sales of assets, the net book value of which does not
individually or in the aggregate exceed twenty-five thousand
dollars ($25,000);
(vi)(A) incur any indebtedness for borrowed money
or guarantee any such indebtedness of another Person, issue
or sell any debt securities or warrants or other rights to
acquire any debt securities of the Company or any of its
Subsidiaries, guarantee any debt securities of another
Person, enter into any "keep well" or other agreement to
maintain any financial statement condition of another Person
or enter into any arrangement having the economic effect of
any of the foregoing, except for short-term debt not to
exceed one hundred thousand dollars ($100,000) pursuant to
existing credit facilities incurred in the ordinary course
of business consistent with past practice, or (B) make any
loans, advances or capital contributions to, or investments
in, any other Person, other than to the Company or any
Subsidiary of the Company or to officers and employees of
the Company or any of its Subsidiaries for travel, business
or relocation expenses in the ordinary course of business;
(vii) make or agree to make any capital
expenditure or capital expenditures other than capital
expenditures set forth in the operating budget of the
Company previously furnished to ACIA, the relevant portions
of which are set forth in Schedule 4.1(a)(vii);
(viii) make any change to its accounting methods,
principles or practices, except as may be required by
generally accepted accounting principles;
(ix) except as required by Law or contemplated
hereby, enter into, adopt or amend in any material respect
or terminate any benefit plans maintained or contributed to
by the Company or any of its Subsidiaries or any other
agreement, plan or policy involving the Company or any of
its Subsidiaries and one or more of their directors,
officers or employees, or materially change any actuarial or
other assumption used to calculate funding obligations with
respect to any Company pension plans, or change the manner
in which contributions to any Company pension plans are made
or the basis on which such contributions are determined;
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(x) increase the compensation of any director,
executive officer or other key employee of the Company or
pay any benefit or amount not required by a plan or
arrangement as in effect on the date of this Agreement to
any such Person;
(xi) enter into any contract or agreement, written
or oral, with any affiliate, associate or relative of the
Company, or make any payment to or for the benefit of,
directly or indirectly, any of the foregoing;
(xii) authorize, or commit or agree to take, any
of the foregoing actions.
(b) Other Actions. Except as required by Law
(including fiduciary duties applicable to the Company Board
consistent with their obligations under this Agreement), neither
the Company, on the one hand, nor ACIA, on the other hand, will,
and will not permit any of their respective Subsidiaries to,
voluntarily take any action that would, or that could reasonably
be expected to, result in (i) any of the representations and
warranties of such party set forth in this Agreement that are
qualified as to materiality becoming untrue, (ii) any of such
representations and warranties that are not so qualified becoming
untrue in any material respect, or (iii) any of the conditions to
the Merger set forth in Article VII not being satisfied.
(c) Advice of Changes. The Company and ACIA will
promptly advise the other party orally and in writing of (i) any
representation or warranty made by them contained in this
Agreement that is qualified as to materiality becoming untrue or
inaccurate in any respect or any such representation or warranty
that is not so qualified becoming untrue or inaccurate in any
material respect, (ii) the failure by them to comply in any
material respect with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied
by it under this Agreement, or (iii) any change or event having,
or which, insofar as can reasonably be foreseen, could reasonably
be expected to have, a material adverse effect on such party or
on the truth of their respective representations and warranties
or the ability of the conditions set forth in Article VII to be
satisfied.
4.2. No Solicitation by the Company. (a) The Company
shall immediately cease all activities or negotiations with other
parties pertaining to any extraordinary corporate transaction
which were conducted prior to the execution of this Agreement.
The Company will not, nor will it permit any of its Subsidiaries
to, nor will it authorize or permit any of its officers,
directors or employees or any investment banker, financial
advisor, attorney, accountant or other representative retained by
it or any of its Subsidiaries to, directly or indirectly through
another Person, (i) solicit, initiate or encourage (including by
way of furnishing information), or take any other action designed
to facilitate, any inquiries or the making of any proposal which
constitutes any Company Takeover Proposal (as hereinafter
defined) or (ii) participate in any discussions or negotiations
regarding any Company Takeover Proposal; provided, however, that
-22-
if, at any time prior to the Effective Time, the Company Board
determines in good faith, after consultation with its financial
advisor and outside counsel, that such action is necessary for
the Company Board to comply with its fiduciary duties to the
Company's shareholders under applicable Law, the Company may, in
response to a bona fide written Company Takeover Proposal which
was not solicited by it or which did not otherwise result from a
breach of this Section 4.2(a) and which is a superior transaction
to the Merger and which is not subject to financing (a "Superior
Proposal"): (A) furnish information with respect to the Company
and each of its Subsidiaries to any Person pursuant to a
customary confidentiality agreement (as determined by the Company
after consultation with its outside counsel), (B) participate in
negotiations regarding such Company Takeover Proposal, (C)
provide access to employees, franchisees, accountants, lawyers,
financial advisors and other advisors to the Company, and (D)
conduct meetings with Company management regarding such Company
Takeover Proposal. For purposes of this Agreement, "Company
Takeover Proposal" means any inquiry, proposal or offer from any
Person relating to any direct or indirect acquisition or purchase
of fifteen percent (15%) or more of the assets of the Company and
its Subsidiaries or fifteen percent (15%) or more of any class of
equity securities of the Company or any of its Subsidiaries, any
tender offer or exchange offer that if consummated would result
in any Person beneficially owning fifteen percent (15%) or more
of any class of equity securities of the Company or any of its
Subsidiaries, or any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction
involving the Company or any of its Subsidiaries, other than the
transactions contemplated by this Agreement.
(b) Except as expressly permitted by this Section
4.2(b), neither the Company Board nor any committee thereof may
(i) withdraw or modify, or propose publicly to withdraw or
modify, the approval or recommendation by the Company Board or
such committee of the Merger or this Agreement, (ii) approve or
recommend, or propose publicly to approve or recommend, any
Company Takeover Proposal, or (iii) cause the Company to enter
into any letter of intent, agreement in principle, acquisition
agreement or other similar agreement related to any Company
Takeover Proposal (each, a "Company Acquisition Agreement").
Notwithstanding the foregoing, in the event that prior to the
Effective Time the Company Board determines in good faith, after
the Company has received a Superior Proposal and after
consultation with its financial adviser and outside counsel, that
it is necessary to do so in order to comply with its fiduciary
duties to the Company's shareholders under applicable Law, the
Company Board may withdraw or modify its approval or
recommendation of the Merger or this Agreement, approve or
recommend a Superior Proposal or terminate this Agreement.
(c) In addition to the obligations of the Company set
forth in paragraphs (a) and (b) of this Section 4.2, the Company
will (i) immediately advise ACIA orally and in writing of any
request for information or of any Company Takeover Proposal and
the material terms and conditions of such request or Company
Takeover Proposal and (ii) keep ACIA reasonably informed of the
-23-
status and details (including amendments or proposed amendments)
of any such request or Company Takeover Proposal, provided,
however, that the Company will not be required to provide to ACIA
any information if and to the extent that the Company Board
determines in good faith, following consultation with outside
counsel, that it is necessary to refrain from doing so in order
to comply with its fiduciary duties to the Company's shareholders
under applicable Law.
(d) Nothing contained in this Section 4.2 will
prohibit the Company from taking and disclosing to its
shareholders a position contemplated by Rule 14e-2(a) promulgated
under the Exchange Act or from making any disclosure to the
Company's shareholders if, in the good faith judgment of the
Company Board, after consultation with outside counsel, the
failure so to disclose would violate applicable Law; provided,
however, that neither the Company nor the Company Board nor any
committee thereof may, except as expressly permitted by Section
4.2(b), withdraw or modify, or propose publicly to withdraw or
modify, its position with respect to this Agreement or the Merger
or approve or recommend, or propose publicly to approve or
recommend, a Company Takeover Proposal.
V. ADDITIONAL COVENANTS
5.1. Reasonable Efforts. (a) Upon the terms and
subject to the conditions set forth in this Agreement, each of
the parties will use reasonable efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective,
the Merger and the other transactions contemplated by this
Agreement, including without limitation, (i) obtaining of all
necessary actions or nonactions, waivers, consents and approvals
from Governmental Entities and making of all necessary
registrations and filings (including filings with Governmental
Entities) and taking of such reasonable steps as may be necessary
to obtain an approval or waiver from, or to avoid an action or
proceeding by, any Governmental Entity, (ii) obtaining of all
necessary consents, approvals or waivers from third parties,
(iii) defending of any lawsuits or other legal proceedings by any
third party, whether judicial or administrative, challenging this
Agreement or the consummation of the transactions contemplated
hereby, including seeking to have any adverse Order entered by
any court or other Governmental Entity vacated or reversed, and
(iv) execution and delivery of any additional instruments
necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement. Nothing set
forth in this Section 5.1(a) will limit or affect actions
permitted to be taken pursuant to Section 4.2.
(b) In connection with and without limiting the
foregoing, the Company and ACIA will (i) take all reasonable
action necessary to ensure that no state takeover statute or
similar statute or regulation is or becomes applicable to the
Merger or any of the other transactions contemplated hereby, and
(ii) if any state takeover statute or similar statute or
regulation becomes applicable thereto, take all reasonable action
necessary to ensure that the Merger and such other transactions
may be consummated as promptly as practicable on the terms
contemplated hereby and otherwise to minimize the effect of such
statute or regulation thereon.
-24-
5.2. Employment Contracts. Following the Effective
Time, ACIA will cause the Surviving Entity to honor in accordance
with their terms all Employment Agreements.
5.3. Fees and Expenses. (a) All fees and expenses
incurred in connection with the Merger and this Agreement and the
transactions contemplated thereby will be paid by the party
incurring such fees or expenses, whether or not the Merger is
consummated.
(b) In the event that this Agreement is terminated
pursuant to Sections 8.1(b)(i), provided that ACIA is not in
breach of its obligations under the Agreement, 8.1(b)(ii) or
8.1(c), then the Company will, within thirty (30) days after the
termination date, pay ACIA a fee equal to one hundred twenty-five
thousand dollars ($125,000).
5.4. Public Announcements. ACIA and the Company will
consult with each other before issuing, and provide each other
the opportunity to review, comment upon and concur with, any
press release or other public statements with respect to the
transactions contemplated by this Agreement, and will not issue
any such press release or make any such public statement prior to
such consultation, except as either party may determine is
required by applicable Law, court process or by obligations
pursuant to any listing agreement with any national securities
exchange or NASDAQ. The parties agree that the initial press
release to be issued with respect to the transactions
contemplated by this Agreement will be in the form heretofore
agreed to by the parties.
5.5. Indemnification, Exculpation and Insurance. All
rights to indemnification and exculpation from liabilities to the
fullest extent possible for acts or omissions occurring at or
prior to the Effective Time (including, without limitation, acts
in connection with the transactions contemplated by this
Agreement) existing in favor of the current or former directors
or officers of the Company or each of its Subsidiaries as
permitted under Pennsylvania Law as in effect on the date hereof
and as provided in their respective articles or certificates of
incorporation or bylaws (or comparable organizational documents)
will be assumed by ACIA and ACIA will be directly responsible for
such indemnification (including the advancement by ACIA of
expenses as incurred by an Indemnified Person to the fullest
extent permitted under Pennsylvania Law), without further action,
as of the Effective Time and such indemnification will continue
indefinitely in full force and effect. In addition, from and
after the Effective Time, directors and officers of the Company
who become or remain directors or officers of ACIA will be
entitled to the same indemnity rights and protections (including
those provided by directors' and officers' liability insurance)
as are afforded to other directors and officers of ACIA. If the
ACIA (i) shall consolidate with or merge into any other
corporation or entity and shall not be the continuing or
surviving corporation or entity of such consolidation or merger
or (ii) shall transfer all or substantially all of its properties
and asses to any individual, corporation or other entity then in
each such case, proper provisions shall be made so that the
successors and assignees of ACIA shall assume all of the
obligations set forth in this Section 5.5. Notwithstanding any
other provision hereof, the provisions of this Section 5.5 (i)
are intended to be for the benefit of, and will be enforceable
-25-
by, each indemnified party, his or her heirs and his or her
representatives and (ii) are in addition to, and not in
substitution for, any other rights to indemnification or
contribution that any such person may have by contract or
otherwise.
VI. DEPOSIT
6.1. ACIA Deposit. Simultaneous with the execution of
this Agreement by the parties, ACIA shall pay to PNC Bank,
National Association (the "Escrow Agent") the amount of one
million one hundred seventy thousand dollars ($1,170,000) (the
"Deposit"), which shall be held by the Escrow Agent in accordance
with the terms of the Escrow Agreement among ACIA, the Company
and the Escrow Agent in the form attached hereto as Exhibit A.
This Agreement shall not be effective until ACIA has paid the
Deposit to the Escrow Agent. ACIA shall be entitled to have the
Deposit returned to ACIA only in the event that this Agreement is
terminated pursuant to Sections 8.1(b)(i), provided that ACIA is
not in breach of its obligations under the Agreement, 8.1(b)(ii)
or 8.1(c). The Deposit shall not be construed as liquidated
damages and shall in no way limit any rights or remedies of the
Company with respect to ACIA or any obligations of ACIA to the
Company.
VII. CONDITIONS PRECEDENT
7.1. Conditions to Each Party's Obligation To Effect
the Merger. The respective obligation of each party to effect
the Merger is subject to the satisfaction or waiver on or prior
to the Closing Date of the following conditions:
(a) Shareholder Approvals. The Company Shareholder
Approval shall have been obtained; and
(b) No Injunctions or Restraints. No Order or Law
enacted, entered, promulgated, enforced or issued by any court of
competent jurisdiction or other Governmental Entity or other
legal restraint or prohibition (collectively, "Restraints")
preventing the consummation of the Merger shall be in effect.
7.2. Conditions to Obligations of ACIA. The obligation
of ACIA to effect the Merger is further subject to satisfaction
or waiver on or prior to the Closing Date of the following
conditions:
(a) Performance of Obligations of the Company. The
Company shall have performed in all material respects all
obligations required to be performed by it under this Agreement
on or before the Closing Date; and ACIA shall have received a
certificate signed on behalf of the Company by the chief
executive officer and the chief financial officer of the Company
to such effect; and
-26-
(b) Decline in Retail Sales. Retail sales by the
Company's franchisees of the Company's products for the period
April 1, 1998 to the end of the month preceding the Closing shall
not have declined more than twenty percent (20%) from the
comparable period in 1997 based upon the reports of such
franchisees' sales delivered to the Company from the franchisees.
(c) Extraordinary Occurrences. Other than a decline
in the Company's financial position as a result of operations,
which circumstance is covered by Section 7.2(b), there shall not
have been any occurrence, or series of related occurrences,
outside the ordinary course of business that has resulted, or is
reasonably likely to result, in an expenditure, loss or damage to
the Company of greater than six hundred thousand dollars
($600,000) after the receipt of any applicable proceeds from
insurance or other sources.
(d) Representations and Warranties. The
representations and warranties of the Company contained in
Section 3.1 shall have been true and correct on the date of the
Agreement.
7.3. Conditions to Obligation of the Company. The
obligation of the Company to effect the Merger is further subject
to satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) Performance of Obligations of ACIA. ACIA shall
have performed in all material respects all obligations required
to be performed by it under this Agreement at or prior to the
Closing Date, and the Company shall have received a certificate
signed on behalf of ACIA by the chief executive officer and the
chief financial officer of ACIA to such effect.
(b) Deposit. ACIA shall have deposited into the
Exchange Fund with the Paying Agent funds sufficient to purchase
all of the Shares outstanding on a fully diluted basis, and to
pay all fees and expenses related to the transactions
contemplated by this Agreement.
(c) Representations and Warranties. The
representations and warranties of ACIA contained in Section 3.2
shall have been true and correct on the date of the Agreement.
7.4. Frustration of Closing Conditions. Neither ACIA
nor the Company may rely on the failure of any condition set
forth in Section 7.1, 7.2 or 7.3, as the case may be, to be
satisfied if such failure was caused by such party's failure to
use reasonable efforts to consummate the Merger and the other
transactions contemplated by this Agreement, as required by and
subject to Section 5.1.
VIII. TERMINATION, AMENDMENT AND WAIVER
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8.1. Termination. This Agreement may be terminated at
any time prior to the Effective Time, whether before or after
Company Shareholder Approval:
(a) by mutual written consent of ACIA and the Company;
(b) by either ACIA or the Company:
(i) if the Merger has not been consummated by
August 15, 1998; provided, however, that the right to
terminate this Agreement pursuant to this Section
8.1(b)(i) will not be available to any party whose
failure to perform any of its obligations under this
Agreement results in the failure of the Merger to be
consummated by such time;
(ii) if the Company Shareholder Approval shall not
have been obtained at a Company Shareholders Meeting
duly convened therefor or at any adjournment or
postponement thereof, subject to the provisions of
Section 2.3;
(iii) if any Governmental Entity shall have
issued a Restraint or taken any other action
permanently enjoining, restraining or otherwise
prohibiting the consummation of the Merger or any of
the other transactions contemplated by this Agreement
and such Restraint or other action shall have become
final and nonappealable;
(c) by the Company pursuant to the terms of Section
4.2(b).
8.2. Effect of Termination. In the event of
termination of this Agreement by either the Company or ACIA as
provided in Section 8.1, this Agreement, other than the
provisions of Section 5.3(b), this Section 8.2 and Article IX,
will forthwith become void and have no effect, without any
liability or obligation on the part of ACIA or the Company,
except to the extent that such termination results from the
material breach by a party of any of its covenants and agreements
set forth in this Agreement.
8.3. Amendment. This Agreement may be amended by the
parties at any time before or after the Company Shareholder
Approval; provided, however, that after any such approval, there
may not be made any amendment that decreases the Merger
Consideration or adversely affects the rights of the Company's
shareholders without the further approval of such shareholders.
This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
8.4. Extension; Waiver. At any time prior to the
Effective Time, a party may (a) extend the time for the
performance of any of the obligations or other acts of the other
parties, or (b) subject to the proviso of Section 8.3, waive
compliance by the other party with any of the agreements or
conditions contained in this Agreement. Any agreement on the
-28-
part of a party to any such extension or waiver will be valid
only if set forth in an instrument in writing signed on behalf of
such party. The failure of any party to this Agreement to assert
any of its rights under this Agreement or otherwise will not
constitute a waiver of such rights.
8.5. Procedure for Termination, Amendment, Extension or
Waiver. A termination of this Agreement pursuant to Section 8.1,
an amendment of this Agreement pursuant to Section 8.3 or an
extension or waiver pursuant to Section 8.4 will, in order to be
effective, require, in the case of ACIA or the Company, action by
its Board of Directors or, with respect to any amendment to this
Agreement, the duly authorized committee of its Board of
Directors or officer.
IX. GENERAL PROVISIONS
9.1. Nonsurvival of Representations and Warranties.
None of the representations and warranties in this Agreement or
in any instrument delivered pursuant to this Agreement will
survive the Effective Time. This Section 9.1 will not limit any
covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
9.2. Notices. All notices, requests, claims, demands
and other communications under this Agreement will be in writing
and will be deemed given if delivered personally, telecopied
(which is confirmed) or sent by overnight courier (providing
proof of delivery) to the parties at the following addresses (or
at such other address for a party as specified by like notice):
(a) if to the ACIA, to
ACI Acquisition Partners
0000 Xxxxxx Xxxxx Xxxx
Xxxxxxxx 0
Xxxxxxxx, Xxxxxxx 00000
Attention: Xxxxxx X. Xxxxx
with a copy to:
Xxxxxxxxxx Xxxxxxxx LLP
Suite 2800
0000 Xxxxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxx 00000
Attention: Xxxxx X. Xxxxxxxx, Esq.
(b) if to the Company, to
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Aloette Cosmetics, Inc.
0000 Xxxxxx'x Xxxx Xxxx
Xxxx Xxxxxxx, XX 00000
Attention: Xxxxxxxx X. Xxxxxxxxx, Chief Executive Officer
with a copy to:
Xxxxxx Xxxxxxxx LLP
Suite 400
0000 Xxxxxxxxx Xxxxx
Xxxxxx, XX 00000-0000
Attention: Xxxxxxx X. Xxxxxx, Esq.
9.3. Certain Definitions. For purposes of this
Agreement:
(a) An "Affiliate" of any Person means another Person
that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, such
first Person;
(b) a "Subsidiary" of any Person means another Person,
an amount of the voting securities, other voting ownership or
voting partnership interests of which is sufficient to elect at
least a majority of its Board of Directors or other governing
body (or, if there are no such voting interests, fifty percent
(50%) or more of the equity interests of which) is owned directly
or indirectly by such first Person. A "Significant Subsidiary"
means any subsidiary of the Company or ACIA, as the case may be,
that would constitute a "significant subsidiary" of such party
within the meaning of Rule 1-02 of Regulation S-X of the SEC;
(c) "Person" means an individual, corporation,
partnership, limited liability company, joint venture,
association, trust, unincorporated organization or other entity;
and
(d) "Knowledge" of any Person which is not an
individual means the knowledge of any of such Person's executive
officers after reasonable inquiry.
9.4. Interpretation. When a reference is made in this
Agreement to an Article, Section, Annex or Exhibit, such
reference will be to an Article or Section of, or an Annex or
Exhibit to, this Agreement unless otherwise indicated. The table
of contents and headings contained in this Agreement are for
reference purposes only and will not affect in any way the
meaning or interpretation of this Agreement. Whenever the words
Ainclude," "includes" or "including" are used in this Agreement,
they will be deemed to be followed by the words "without
limitation." The words "hereof," "herein" and "hereunder" and
words of similar import when used in this Agreement will refer to
this Agreement as a whole and not to any particular provision of
this Agreement. All terms used herein with initial capital
letters have the meanings ascribed to them herein and all terms
defined in this Agreement will have such defined meanings when
used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein. The
definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the
-30-
masculine as well as to the feminine and neuter genders of such
term. Any agreement, instrument or statute defined or referred
to herein or in any agreement or instrument that is referred to
herein means such agreement, instrument or statute as from time
to time amended, modified or supplemented, including (in the case
of agreements or instruments) by waiver or consent and (in the
case of statutes) by succession of comparable successor statutes
and references to all attachments thereto and instruments
incorporated therein. References to a Person are also to its
permitted successors and assigns.
9.5. Counterparts. This Agreement may be executed in
one or more counterparts, all of which will be considered one and
the same agreement and will become effective when one or more
counterparts have been signed by each of the parties and
delivered to the other parties.
9.6. Entire Agreement; No Third-Party Beneficiaries.
This Agreement (including the documents and instruments referred
to herein), together with the Escrow Agreement, (a) constitutes
the entire agreement, and supersedes all prior agreements and
understandings, both written and oral, among the parties with
respect to the subject matter of this Agreement, including, but
not limited to, the letter agreement dated April 9, 1998 executed
by Xxxxxx X. Xxxxx and the Company, and (b) is not intended to
confer upon any Person other than the parties hereto any rights
or remedies.
9.7. Governing Law. This Agreement will be governed
by, and construed in accordance with, the Laws of the
Commonwealth of Pennsylvania, regardless of the Laws that might
otherwise govern under applicable principles of conflict of Laws
thereof.
9.8. Assignment. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement may be
assigned, in whole or in part, by operation of Law or otherwise
by either of the parties hereto without the prior written consent
of the other party. Any assignment in violation of the preceding
sentence will be void. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and
assigns.
9.9. Enforcement. Each of the parties hereto (a)
consents to submit itself to the personal jurisdiction of any
federal court located in the Commonwealth of Pennsylvania or any
Pennsylvania state court in the event any dispute arises out of
this Agreement or any of the transactions contemplated by this
Agreement, (b) agrees that it will not attempt to deny or defeat
such personal jurisdiction by motion or other request for leave
-31-
from any such court, and (c) agrees that it will not bring any
action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a federal
court sitting in the Commonwealth of Pennsylvania or a
Pennsylvania state court.
[SIGNATURES ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, ACIA and the Company have caused
this Agreement to be signed by their respective officers
thereunto duly authorized, all as of the date first written
above.
ALOETTE COSMETICS, INC.
By: /s/ Xxxxxx X. Xxxxx
Name: Xxxxxx X. Xxxxx
Title: Chief Operating Officer
ACI ACQUISITION PARTNERS, INC.
By: /s/ Xxxxxxxx X. Xxxxxxxxx
Name: Xxxxxxxx X. Xxxxxxxxx
Title: Chief Executive Officer
SCHEDULES RELATING TO ALOETTE COSMETICS, INC.
Dated as of April 10, 1998
Reference is made to the Agreement and Plan of Merger, dated
April 10, 1998, by and among ACI Acquisition Partners, Inc., a Georgia
corporation ("ACIA") and Aloette Cosmetics, Inc., a Pennsylvania
corporation (the "Agreement"). Words and expressions defined in the
Agreement have the same meanings in these Schedules.
(A) The attached schedules constitute the Company Disclosure Schedules
referred to in the Agreement.
(B) Any matter disclosed in any particular Schedule shall be deemed
incorporated by reference in each other Schedule herein and
disclosed in each such Schedule.
(C) Matters reflected in these Schedules are not necessarily limited to
matters required by the Agreement to be reflected in the
Schedules. Such additional matters are set forth for
informational purposes and do not necessarily include other
matters of a similar nature. In no event shall the listing of
such matters in the Schedules be deemed or interpreted to broaden
or otherwise amplify the representations and warranties or
covenants contained in the Agreement.
(D) Headings have been inserted on the Schedules and certain sections
thereof for convenience of reference only and shall be given no
substantive or interpretive effect whatsoever.
SCHEDULE 3.1(a)
ORGANIZATION, STANDING AND CORPORATE POWER
D.D. Cosmetic Sales Company, Inc. is not in good standing in Texas.
Aloette Cosmetics of Canada is not in good standing.
SCHEDULE 3.1(b)
SUBSIDIARIES
The following represent non-material inactive subsidiaries:
-- Aloette Cosmetics of Mexico
-- Aloette Cosmetics (UK) Ltd.
-- Aloette of New Zealand
SCHEDULE 3.1(c)
CAPITAL STRUCTURE
OPTIONS
-- Form of Standard Aloette Cosmetics, Inc. Stock Option Agreement
attached as Exhibit A.
-- Summary of Stock Options outstanding as of March 19, 1998:
Options Option Price
Grantee Outstanding Per Share
------- ----------- ------------
X. Xxxxx 75,000 $3.375
X. Xxxxxx 5,000 $3.375
X. Xxxxxxxxx 150,000 $3.375
X. XxXxxx * 24,000 $2.25
X. Xxxxx 75,000 $3.375
X. Xxxx 5,000 $3.375
X. Xxxxxx 2,000 $3.375
B. Toner 2,000 $3.375
J. Toner 1,000 $3.375
X. Xxxxxxxxxx * 10,000 $1.75
--------
Total 349,000
* terms of stock option agreements are slightly different than standard
agreement, primarily vesting and all shares being nonqualified
SCHEDULE 3.1(c)
CAPITAL STRUCTURE
(continued)
WARRANTS
-- Form of Standard Aloette Cosmetics, Inc. Directors Stock
Warrant Agreement attached as Exhibit B.
-- Summary of Directors Stock Warrants outstanding as of March
19, 1998:
Warrants Option Price
Grantee Outstanding Per Share
------- ------------ ------------
X. Xxxxxxxx 2,000 $2.25
3,000 $3.00
X. Xxxxxx 1,000 $6.75
E. Xxxxxx Xxxxxx 1,000 $9.00
2,000 $6.25
X. XxXxxx 3,000 $2.25
X. Xxxxxxxxx 1,000 $2.25
3,000 $3.75
X. Xxxxxxx 1,000 $9.00
2,000 $6.25
X.X. Xxxxxx 1,000 $9.00
2,000 $6.25
X. Xxxxxxxx 1,000 $9.00
X. Xxxxxxx 1,000 $9.00
X. Xxxxx 1,000 $9.00
5,000 $6.25
2,000 $3.00
-------
Total 32,000
SCHEDULE 3.1(d)
AUTHORITY; NONCONTRAVENTION
PNC BANK, N.A. LOAN AGREEMENTS & RELATED AGREEMENTS:
-- Loan Agreement dated January 4, 1996, by and between PNC Bank,
N.A. and Aloette Cosmetics, Inc. and Subsidiaries
-- Line of Credit Note dated January 4, 1996, by and between PNC
Bank, N.A. and Aloette Cosmetics, Inc. and Subsidiaries
-- Security Agreement dated January 4, 1996, by and between PNC Bank,
N.A. and Aloette Cosmetics, Inc. and Subsidiaries
-- Open-end Mortgage and Security Agreement dated January 4, 1996, by
and between PNC Bank, N.A. and Aloette Cosmetics, Inc. and
Subsidiaries
-- Subordination Agreement by and among PNC Bank, National
Association, Aloette Cosmetics, Inc. and Xxxx X. Xxxxxxxxx
-- Amendment to Loan Agreement dated January 4, 1996, by and between
PNC Bank, N.A. and Aloette Cosmetics, Inc. and Subsidiaries
effective as of December 31, 1996
-- Amendment to Line Of Credit Note dated January 4, 1996, by and
between PNC Bank, N.A. and Aloette Cosmetics, Inc. and
Subsidiaries effective as of December 31, 1996
SCHEDULE 3.1(h)
LITIGATION
Xxxxxx Xxxxxx, President (and owner) of Aloette Cosmetiques de Quebec
Inc. and Aloette Cosmetiques de Montreal-Sud Inc., has expressed
discontent regarding the Company's operations and support which this
franchisee believes may constitute a default under the franchise
agreement.
SCHEDULE 3.1(i)
TAXES
Correspondence with Revenue Canada Trade Administration Services dated
February 7, 1997 and September 19, 1997 regarding the Revenue Canada
Customs Audit
SCHEDULE 3.1(j)
EMPLOYEE MATTERS
Section 3.1(j)(i)
Aloette US
----------
I. BENEFIT PLANS:
-- Amended and Restated Aloette Cosmetics, Inc. Employee Stock
Ownership Plan
-- Aloette Cosmetics, Inc. Amended and Restated 1984 Stock Option
and Restricted Stock Plan
-- Amended and Restated Aloette Cosmetics, Inc. Profit Sharing and
Section 401(k) Salary Deferral Plan and Trust
-- Supplemental Benefit Plan
-- Amended and Restated Aloette Cosmetics, Inc. Directors' Warrant
Plan
II. MEDICAL & VISION INSURANCE (RENEWAL SEPTEMBER 1, 1998):
-- Keystone Health Plan East (a subsidiary of Independence Blue
Cross)
-- Independence Blue Cross Personal Choice (no employees opted for
this)
-- Blue Cross and Blue Shield Traditional Indemnity Plan
III. DENTAL INSURANCE (RENEWAL SEPTEMBER 1, 1998):
-- The Guardian DentalGuard Preferred Provider Organization (The
Guardian Life Insurance Company of America)
IV. ALOETTE COSMETICS, INC. SECTION 125 PLAN
V. LIFE AND ACCIDENTAL DENTAL DEATH AND DISMEMBERMENT INSURANCE:
-- Phoenix Home Life Mutual Insurance Company - Policy #057-0000D
(Renewal September 1, 1998)
VI. DISABILITY INSURANCE:
-- Short-term (first 60 days) - Self-funded
-- Long Term
* 61-90 days - Self-funded
* 90 days Insured by The Phoenix Home Life Mutual Insurance
Company Policy #057-0000D (Renewal - September 1, 1998)
SCHEDULE 3.1(j) (Continued)
EMPLOYEE MATTERS
VIII. EMPLOYMENT AND SEVERANCE AGREEMENTS
-- Employment Agreement, dated April 1, 1993, by and between
Xxxxxxxx X. Xxxxxxxxx and Aloette Cosmetics, Inc.
-- Severance Protection Agreement, dated April 1, 1993, by and
between Xxxxxxxx X. Xxxxxxxxx and Aloette Cosmetics, Inc.
-- Consulting Agreement for Franchise President dated March 1, 1996
by and between Aloette Cosmetics, Inc. and Xxxxxx Xxxxxxx
-- Aloette Cosmetics, Inc. Executive Severance Policy (US only)
ALOETTE COSMETICS OF CANADA
I. CANADIAN PENSION PLAN
-- Government Required Benefits
II. CANADIAN DEFINED CONTRIBUTION PLAN
-- Aloette Cosmetics of Canada Inc. Pension Plan
III. CANADIAN GROUP INSURANCE (MEDICAL, DENTAL, LIFE AND ADD) AND
DISABILITY PLAN
-- Government Required Benefits
SECTION 3.1(J)(V)(E)
The Company has not filed Form 5500 for its Section 125 Plan since its
inception.
SECTION 3.1(J)(VII)
EMPLOYEE AGREEMENTS
See Employment and Severance Agreements above.
1998
Individual Compensation Rate*
---------- ------------------
X. Xxxxxxxxx $237,000
X. Xxxxx $ 68,900
X. Xxxxx $101,900
* includes auto stipend
** 1998 compensation rate does not include amounts due for other
employment benefits (i.e. health, 401(k), etc.)
SCHEDULE 3.1(k)
LABOR MATTERS
Under Canadian law, terminated employees may have a right to appeal any
severance granted to them.
SCHEDULE 3.1(l)
ENVIRONMENTAL MATTERS
-- Phase I Environmental Site Assessment for Superior Products
Company dated March 31, 1995, prepared by ATEC Associates Inc.
-- Limited Phase II Subsurface Investigation and Contaminated Soil
Cleanup for Superior Products Company dated November 22, 1995,
prepared by ATEC Associates Inc.
SCHEDULE 3.1(m)
COMPLIANCE WITH LAWS
None
SCHEDULE 3.1(n)
INSURANCE
1997-98 INSURANCE COVERAGE
Line of Coverage Carrier Policy # Policy Period
---------------- ------- -------- -------------
Property & General CNA C 173802865 8/1/97-98
Liability:
Property Insurance-US " " " " "
General Liability -US " " " " "
Crime Insurance " " " " "
Inland Marine " " " " "
Boiler & Machinery " BM 1044992759 " "
Property & General " CBP 0854640 " "
Liability - CDA
Commercial Property * " C 173802882 " "
Workers Compensation " WCC 173802879 " "
Directors & Officers XXXX 000-000000-00 " "
Fiduciary Liability " 000-000000-00 " "
Foreign " "
* includes EDP & Business Interruption Coverage
SCHEDULE 3.1(o)
TRADEMARKS PATENTS AND COPYRIGHTS
See attached Exhibit C
SCHEDULE 3.1(p)
MATERIAL CONTRACTS
-- Manufacturing Agreement dated June 2, 1995 by and between Naterra
International, Inc. and Aloette Cosmetics, Inc., Aloette
Cosmetics, Inc. of Delaware and Aloette Cosmetics, Inc. of
Pennsylvania
-- Outstanding Purchase Orders over $30,000 as of March 19, 1995 (See
attached Exhibit D)
-- Employment Agreement, dated April 1, 1993, by and between Xxxxxxxx
X. Xxxxxxxxx and Aloette Cosmetics, Inc.
--- Severance Protection Agreement, dated April 1, 1993, by and
between Xxxxxxxx X. Xxxxxxxxx and Aloette Cosmetics, Inc.
-- Subordinated Promissory Note dated April 26, 1992, between Xxxx X.
Xxxxxxxxx and Aloette Cosmetics, Inc.
-- Amendment to Subordinated Promissory Note dated April 26, 1992, by
and between Xxxx X. Xxxxxxxxx and Aloette Cosmetics, Inc. dated
April, 1996
-- Standard Form Indemnification Agreement by and between Aloette
Cosmetics, Inc. and Officers and Directors
-- PNC BANK LOAN AGREEMENTS & RELATED AGREEMENTS:
Loan Agreement dated January 4, 1996, by and between PNC
Bank, N.A. and Aloette Cosmetics, Inc. and Subsidiaries
Line of Credit Note dated January 4, 1996, by and between PNC
Bank, N.A. and Aloette Cosmetics, Inc. and Subsidiaries
Security Agreement dated January 4, 1996, by and between PNC
Bank, N.A. and Aloette Cosmetics, Inc. and Subsidiaries
Open-end Mortgage and Security Agreement dated January 4,
1996, by and between PNC Bank, N.A. and Aloette Cosmetics,
Inc. and Subsidiaries
Subordination Agreement by and among PNC Bank, National
Association, Aloette Cosmetics, Inc. and Xxxx X. Xxxxxxxxx
Amendment to Loan Agreement dated January 4, 1996, by and
between PNC Bank, N.A. and Aloette Cosmetics, Inc. and
Subsidiaries effective as of December 31, 1996
Amendment to Line Of Credit Note dated January 4, 1996, by
and between PNC Bank, N.A. and Aloette Cosmetics, Inc. and
Subsidiaries effective as of December 31, 1996
SCHEDULE 3.1(p) (Continuted)
MATERIAL CONTRACTS
-- Consulting Agreement for Franchise President dated April 1, 1997
by and between Aloette Cosmetics, Inc. and Xxxxxx Xxxxxxx
(terminated March 14, 1998)
-- Consulting Agreement for Franchise President dated March 1, 1996
by and between Aloette Cosmetics, Inc. and Xxxxxx Xxxxxxx
-- Consulting Agreement for Area Developer dated July 16, 1997 by and
between Aloette Cosmetics, Inc. and Xxxxxx Xxxxxxx
-- Consultation Agreement dated November 1, 1994 by and between
Aloette Cosmetics of Canada, Inc. and Aloette Cosmetiques de
Quebec Inc.
-- NOTES RECEIVABLES:
Promissory Note dated May 19, 1997 by and between Xxxx Xxxxxxx
and Xxxxxxx Xxxxxxx and Aloette Cosmetics, Inc. (Aloette of
Appalachan Valley)
Promissory Note dated July 6, 1995 by and between Xxxxx X.
Xxxxxx and Xxxxx X. Xxxxxx and Aloette Cosmetics, Inc.
(Aloette of Arklahoma)
Promissory Note dated July 6, 1995 by and between Xxxxxxx X.
and Xxxxxxx X. Xxxxxxxxx and Aloette Cosmetics, Inc. (Aloette
of Mid-Mississippi)
Promissory Note dated July 6, 1995 by and between Xxxxx X.
XxXxx and Xxxxxxxxx X. Xxxxxx and Aloette Cosmetics, Inc.
(Aloette of Southern Coast)
Promissory Note dated January 2, 1992 by and between Xxxxxx
and Xxxxx Xxxxxxx and Aloette Cosmetics, Inc. (Aloette of Twin
Cities)
Promissory Note dated October 1, 1996 by and between Xxxx and
Xxxxx Xxxxxxx and Aloette Cosmetics, Inc. (Aloette of Pacific
Coast)
Promissory Note dated July 1, 1987 by and between Xxxxxxx and
Xxxxxx Xxxxxx and Aloette Cosmetics, Inc. (Aloette of Dallas
Fort Worth)
Promissory Note dated August 31, 1994 by and between Xxxxxxx
and Xxxxxxx Xxxxxxx and Aloette Cosmetics, Inc. (Aloette of
Eastern Michigan)
Promissory Note dated August 15, 1995 by and between Xxxxxx
Xxxxx and Aloette Cosmetics, Inc. (Aloette of West Toronto)
Promissory Note dated June 1, 1995 by and between Xxxxxx Xxxx
Xxxx and Aloette Cosmetics of Canada, Inc. (Aloette of Toronto
East)
Promissory Note dated February 27, 1996 by and between Xxxxx
Xxxxxx and Xxxxxx Xxxx and Aloette Cosmetics, Inc. (Aloette of
Calgary)
SCHEDULE 3.1(p) (Continuted)
MATERIAL CONTRACTS
Promissory Note dated May 19, 1996 by and between 671685
Alberta Ltd. carrying on business as Aloette of South Edmonton
and Xxxxx X. XxXxxxx and Aloette Cosmetics, Inc. (Aloette of
Edmonton)
Promissory Note dated June 1, 1998 by and between Xxxxxxx Xxxxx
and Xxxxxx Xxxxx and Aloette Cosmetics of Canada Inc. (Aloette
of London Region)
Promissory Note dated November 1, 1994 by and between Aloette
Cosmetiques de Quebec Inc. and Aloette Cosmetics, Inc. (Aloette
of Montreal Northeast)
Promissory Note dated August ,1995 by and between Xxxxxx
Xxxxxx and and Aloette Cosmetics, Inc.
-- Standard Form of Franchise Agreement attached as Exhibit E. Note
franchises under an older agreement are asterisked.
-- Listing of Franchises as of March 20, 1998 attached as Exhibit F
-- Xxxxxx Xxxxxx, President (and owner) of Aloette Cosmetiques de
Quebec Inc. and Aloette Cosmetiques de Montreal-Sud Inc., has
expressed discontent regarding the Company's operations and
support which this franchisee believes may constitute a default
under the franchise agreement.
-- Royalty Agreement effective as of January 1, 1992 by and between
Aloette Cosmetics, Inc. and Aloette of Canada, Inc.
-- Verbal Agreement with Jeweler (Xxxxxxx Xxxxx) to advance
approximately 50% of jewelry award costs with balance due upon
delivery
-- BEAUTY CONSULTANT TRIPS
Revised confirmation of Group Request dated September 17, 1997
by and between Carnival Cruise lines and Herricks Travel (on
behalf of Aloette Cosmetics of Canada, Inc)
Group Contract dated May 14, 1997 by and between Hotel Don
Xxxxxx Marbella and Herricks (on behalf of Aloette Cosmetics,
Inc.)
-- 1998 BEAUTY CONSULTANT AWARDS SEMINARS
Contractual Agreement executed on November 3, 1997 by and between
Aloette and the Xxxxxxx Xxxxxxxx Plaza Hotel (US Seminar)
Letter of Agreement dated September 29, 1997 by and between The
Sheraton Centre Toronto Hotel and Aloette Cosmetics (Canadian
Seminar)
SCHEDULE 3.1(p) (Continuted)
MATERIAL CONTRACTS
US FRANCHISE AGREEMENTS
SCHEDULE 3.1(p) (Continuted)
MATERIAL CONTRACTS
CDN FRANCHISE AGREEMENTS
EXHIBITS
* Form of Standard Aloette Cosmetics, Inc. Stock Option Agreement to be
attached as Exhibit A
* Form of Standard Aloette Cosmetics, Inc. Directors Stock Warrant
Agreement to be attached as Exhibit B
* Schedule 3.1(o) - Trademarks Patents and Copyrights to be attached
as Exhibit C
* Outstanding Purchase Orders over $30,000 as of March 19, 1995 to be
attached as Exhibit D.
* Standard Form of Franchise Agreement to be attached as Exhibit E.
* Listing of Franchises as of March 20, 1998 to be attached as Exhibit F.
