EXHIBIT 2.2
MERGER AGREEMENT
THIS MERGER AGREEMENT (the "Agreement"), dated as of May 21,
1998, is made among XXX X. XXXXXX CO., a Delaware corporation
("Seller"), XXXXXXX INC., a Virginia corporation ("Buyer"), and
XXXXXXX ACQUISITION SUBSIDIARY, INC., a Delaware corporation and a
wholly owned subsidiary of Buyer ("PAS").
RECITALS
The Boards of Directors of Seller, Buyer and PAS deem a merger
of PAS into Seller (the "Merger"), pursuant to which Seller will
become a wholly owned subsidiary of Buyer, advisable and in the
best interests of their respective shareholders and have authorized
the Merger in accordance with the laws of Delaware.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties and agreements herein contained, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The following terms, as used herein, have
the following meanings:
"Acquisition Proposal" means any proposal (other than any
proposal by Buyer) regarding (i) any merger, consolidation, share
exchange, business combination or other similar transaction or
series of related transactions involving Seller; (ii) any sale,
lease, exchange, transfer or other disposition of the assets of
Seller constituting more than 50% of the consolidated assets of
Seller or accounting for more than 50% of the consolidated revenues
of Seller in any one transaction or in a series of related
transactions; and (iii) any offer to purchase, tender offer,
exchange offer or any similar transaction or series of related
transactions made by any Person involving more than 50% of the
outstanding shares of the capital stock of Seller.
"Adjustable Rate Cumulative Preferred Stock Series A" means
the Adjustable Rate Cumulative Preferred Stock Series A of Seller.
"Affiliate" of a Person means a Person, who, directly or
indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, such Person.
"Audited Seller Financial Statements" has the meaning set
forth in Section 3.9.
"Bankruptcy Claims" means the currently outstanding claims of
the Class 6 and Class 6A creditors as contemplated in the Third
Amended Plan of Reorganization of Xxx X. Xxxxxx Co., as confirmed
on November 10, 1993 by the United States District Court for the
Eastern District of Tennessee.
"Closing" has the meaning set forth in Section 8.1.
"Closing Date" has the meaning set forth in Section 8.1.
"Commitment" has the meaning set forth in Section 4.6.
"Common Merger Consideration" means the product of the number
of Outstanding Shares of Common Stock multiplied by the Per Share
Merger Consideration.
"Common Stock" means the unclassified common stock of Seller.
"Controlled Group Liability" has the meaning set forth in
Section 3.20 (g).
"DGCL" means the Delaware General Corporation Law.
"Dissenting Shares" has the meaning set forth in Section 2.11.
"Distribution Amount" means that portion of the Escrow Amount,
if any, to be distributed to Shareholders in accordance with
Article IX hereof and the Escrow Agreement.
"Effective Time" has the meaning set forth in Section 2.2.
"Employee Plans" has the meaning set forth in Section 3.20
(a).
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" means, with respect to any person, entity,
trade or business, any other person, entity, trade or business that
is a member of a group described in Section 414(b), (c), (m) or (o)
of the Internal Revenue Code or Section 4001(b)(1) of ERISA that
includes the first person, entity, trade or business, or that is a
member of the same "controlled group" as the first person, entity,
trade or business pursuant to Section 4001(a)(14) of ERISA.
"Escrow Agent" shall mean Sun Trust Bank, in its role as
escrow agent under the Escrow Agreement.
"Escrow Agreement" means the Escrow Agreement among Buyer, one
or more shareholders of Seller or agent therefor and the Escrow
Agent, in the form attached hereto as Exhibit B, to be executed in
connection with the consummation of the transactions contemplated
by this Agreement.
"Escrow Amount" means that portion of the total Merger
Consideration equal to $703,745 to be held in escrow pursuant to
the Escrow Agreement.
"Escrow Committee" means Xxxxxxx X. Xxxxxx and Xxxxx X.
Xxxxxxx.
"Escrow Period" has the meaning set forth in Section 9.4.
"Escrowed Funds" has the meaning set forth in Section 9.3.
"ESOP" has the meaning set forth in Section 3.20(f).
"ESOP Audit" has the meaning set forth in Section 5.1.
"First Preferred Merger Consideration" has the meaning set
forth in Section 2.7(b).
"First Preferred Stock" means the First Preferred Stock of
Seller.
"Handling Hazardous Substances" has the meaning set forth in
Section 3.6.
"Harrisonburg Lease" means that certain indenture of lease,
dated January 23, 1978 originally between General Growth Properties
and Xxx X. Xxxxxx Co., as amended to date.
"Hazardous Emissions" has the meaning set forth in Section
3.6.
"HSR Act" means the Xxxx-Xxxxx Xxxxxx Antitrust Improvements
Act of 1976, as amended.
"Initial Merger Consideration" means the product of $5.00
times the Outstanding Shares of Common Stock.
"Initial Per Share Merger Consideration" means $5.00.
"Interim Seller Financial Statements" has the meaning set
forth in Section 3.9.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended.
"Intellectual Property" has the meaning set forth in Section
3.16.
"Knowledge" with respect to Seller means the actual knowledge
of Xxxxxxx X. Xxxxxx, Xxxxxx X. Xxxxxxxxx, Xxxxxx X. Xxxxxx or Xxx
Xxxxx.
"Lease" has the meaning set forth in Section 3.14.
"Licenses and Permits" has the meaning set forth in Section
3.7.
"Material Adverse Effect" has the meaning set forth in Section
3.17.
"Material Contracts" has the meaning set forth in Section
3.17.
"Merger" has the meaning set forth in the Recitals.
"Merger Consideration" means an amount in cash equal to the
sum of the Common Merger Consideration, plus the First Preferred
Merger Consideration, plus the Series A Merger Consideration.
"Outstanding First Preferred Stock" has the meaning set forth
in Section 2.7(b).
"Outstanding Series A Stock" has the meaning set forth in
Section 2.7(c).
"Outstanding Shares" shall mean Outstanding Shares of Common
Stock, Outstanding First Preferred Stock and Outstanding Series A
Stock.
"Outstanding Shares of Common Stock" means the number of
shares of Common Stock outstanding at the Effective Time, excluding
shares of Common Stock owned by the Seller, Buyer or any Subsidiary
of the Seller or Buyer, and excluding Dissenting Shares, if any.
"Paying Agent" has the meaning set forth in Section 2.10(a).
"Per Share Common Merger Consideration" means the sum of $5.00
plus the Per Share Distribution Amount.
"Per Share Distribution Amount" means the quotient of the
Distribution Amount divided by the number of Outstanding Shares of
Common Stock.
"Per Share First Preferred Merger Consideration" shall mean
the sum of $78.40.
"Per Share Series A Merger Consideration" shall mean the sum
of $69.40.
"Permitted Exceptions" has the meaning set forth in Section
3.13.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including
a governmental or political subdivision or an agency or
instrumentality thereof.
"Real Property" has the meaning set forth in Section 3.13.
"Seller's Auditors" means Xxxxxxx & Xxxxxx, P.C.
"Seller Disclosure Schedule" means the disclosure schedule
delivered by Seller to Buyer prior to the execution and delivery of
this Agreement, which schedule constitutes an integral part of this
Agreement.
"Series A Merger Consideration" has the meaning set forth in
Section 2.7(c).
"Shareholders" has the meaning set forth in Section 9.3.
"Shoppers Charge" means Shoppers Charge Accounts Co.
"Stock Certificate" has the meaning set forth in Section
2.10(b).
"Subsidiary" with respect to any party to this Agreement means
any corporation or other business entity, whether or not
incorporated, of which at least 50% of the securities or interests
having, by their terms, ordinary voting power to elect members of
the board of directors, or other persons performing similar
functions with respect to such entity is held, directly or
indirectly, by such party.
"Survival Date" has the meaning set forth in Section 9.8.
"Surviving Corporation" has the meaning set forth in
Section 2.1.
"Tax" or "Taxes" means:
(a) Any federal or state income or franchise
tax; and
(b) Any interest, additions and penalties
(civil or criminal) imposed in connection with any Tax
and any interest in respect of any such additions or
penalties.
"Tax Law" means the Internal Revenue Code, federal, state or
local laws relating to Taxes and any regulations or official
administrative pronouncements released thereunder.
"Tax Returns" means all federal, state and local returns,
reports and declarations with respect to Taxes, including, without
limitation, consolidated United States federal income tax returns.
"Termination Agreement" means the agreement to be entered into
between Seller and Shoppers Charge Accounts Co. providing for the
termination of the Credit Card Plan Agreement between Seller and
Shoppers Charge Accounts Co.
"Trustee" has the meaning set forth in Section 3.20(f).
"West Knoxville Lease" means that certain lease agreement,
dated August 23, 1993, between Olde Kingston Towne II, Ltd. and Xxx
X. Xxxxxx Co. and all amendments thereto.
ARTICLE II
THE MERGER
2.1 The Merger. Upon the terms and subject to the
satisfaction or waiver, if permissible, of the conditions hereof,
and in accordance with the DGCL, at the Effective Time, PAS shall
be merged with and into Seller. Following the Merger, the separate
corporate existence of PAS shall cease, Seller shall continue as
the surviving corporation (the "Surviving Corporation") and shall
become a wholly-owned Subsidiary of Buyer.
2.2 Effective Time. As soon as practicable after the
satisfaction or waiver, if permissible, of all the conditions to
the Merger, the parties shall cause the Merger to be consummated by
causing a certificate of merger with respect to the Merger to be
executed and filed in accordance with the relevant provisions of
the DGCL. The Merger shall become effective at the time of the
filing of the certificate of merger with the Secretary of State of
the State of Delaware in accordance with the relevant provisions of
the DGCL (the "Effective Time").
2.3 Effects of the Merger. The Merger shall have the effects
set forth in Section 259 of the DGCL.
2.4 Certificate of Incorporation and By-Laws. The
Certificate of Incorporation of Seller, as in effect immediately
prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation.
The Bylaws of PAS, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation.
2.5 Directors. The directors of PAS immediately prior to the
Effective Time shall be the initial directors of the Surviving
Corporation and shall hold office until their respective successors
are duly elected and qualified, or their earlier death, resignation
or removal.
2.6 Officers. The officers of PAS immediately prior to the
Effective Time shall be the initial officers of the Surviving
Corporation and shall hold office until their respective successors
are duly elected and qualified, or their earlier death, resignation
or removal.
2.7 Conversion of Shares.
(a) Each share of Common Stock outstanding immediately
prior to the Effective Time (other than Common Stock, if any, owned
by Buyer, PAS, Seller or any Subsidiary of Seller, Buyer or PAS,
and Dissenting Shares, if any) shall, by virtue of the Merger and
without any action on the part of the holder thereof, automatically
be converted into the right to receive, subject to Section 2.10(d),
the Per Share Merger Consideration upon surrender of the
certificate representing such Share as provided in Section 2.10.
(b) Each share of First Preferred Stock outstanding
immediately prior to the Effective Time (other than First Preferred
Stock, if any, owned by Buyer, PAS, Seller or any Subsidiary of
Buyer, PAS or Seller and Dissenting Shares, if any) (such number,
the "Outstanding First Preferred Stock") shall, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically be converted into the right to receive the Per Share
First Preferred Merger Consideration upon surrender of the
certificate representing such shares of Outstanding First Preferred
Stock as provided in Section 2.10. The product of the Per Share
First Preferred Merger Consideration times the Outstanding First
Preferred Stock is referred to herein as the "First Preferred
Merger Consideration."
(c) Each share of Adjustable Rate Cumulative Preferred
Stock Series A outstanding immediately prior to the Effective Time
(other than Adjustable Rate Cumulative Preferred Stock Series A, if
any, owned by Buyer, PAS, Seller or any Subsidiary of Buyer, PAS or
Seller and Dissenting Shares, if any) (such number the "Outstanding
Series A Stock") shall, by virtue of the Merger and without any
action on the part of the holder thereof, automatically be
converted into the right to receive the Per Share Series A Merger
Consideration upon surrender of the certificate representing such
share of Outstanding Series A Stock as provided in Section 2.10.
The product of the Per Share Series A Merger Consideration times
the Outstanding Series A Stock is referred to herein as the "Series
A Merger Consideration."
(d) Each share of Common Stock, First Preferred Stock
and Adjustable Rate Cumulative Preferred Stock Series A owned by
Buyer, PAS, Seller or any Subsidiary of Seller, Buyer or PAS
immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically be canceled and cease to exist at and after the
Effective Time and no consideration shall be paid with respect
thereto.
2.8 Conversion of PAS Common Stock. Each share of common
stock, par value $1.00 per share, of PAS issued and outstanding
immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically be converted into and thereafter represent one
validly issued, fully paid and nonassessable common share, par
value $1.00 per share, of the Surviving Corporation, so that
thereafter Buyer will be the sole and exclusive owner of the
outstanding Common Stock of the Surviving Corporation.
2.9 Shareholders' Approval. Seller, acting through its Board
of Directors (which shall have recommended approval of the Merger
and approval and adoption of this Agreement to its shareholders),
shall, in accordance with applicable law and subject to the
provisions of Section 5.3 herein, use its best efforts to obtain
the approval of the Merger and the approval and adoption of this
Agreement by its shareholders.
2.10 Exchange of Shares; Payment.
(a) Sun Trust Bank (or such other Person as may be
selected by Seller with the prior written consent of Buyer, which
consent shall not be unreasonably withheld) shall act as Paying
Agent in the Merger (the "Paying Agent"). At the Effective Time,
Buyer will take all steps necessary to enable and cause PAS or the
Surviving Corporation to deposit (X) with the Paying Agent an
amount equal to the sum of (i) the product of the Initial Merger
Consideration times the Outstanding Shares of Common Stock, plus,
(ii) the First Preferred Merger Consideration and plus (iii) the
Series A Merger Consideration and (Y) with the Escrow Agent the
Escrow Amount, in each case in immediately available funds, for
disbursement to the holders of the Outstanding Shares in the manner
set forth herein. Such disbursement will be the responsibility of
the Paying Agent and the Escrow Agent and not Seller.
(b) As soon as practicable after the Effective Time,
Seller shall hand deliver or mail to each holder of record of an
outstanding certificate or certificates representing any
Outstanding Shares (or each such holder's duly authorized
attorney-in-fact), a form letter of transmittal, which shall
specify that delivery shall be effected, and risk of loss of and
title to such certificate shall pass, only upon proper delivery of
such certificate to the Paying Agent, and instructions for use of
such letter of transmittal in effecting the surrender of any such
certificate and obtaining payment therefor of the shareholder's
allocable portion of the Merger Consideration, as provided in this
Section 2.10. Subject to Section 2.10(d) hereof and the Paying
Agent's agreement to such procedures, upon the later of the
Effective Time and surrender to the Paying Agent of a certificate
which immediately prior to the Effective Time represented
Outstanding Shares of Common Stock, Outstanding First Preferred
Stock or Outstanding Series A Stock (a "Stock Certificate"), or
indemnity reasonably satisfactory to the Paying Agent if any such
Stock Certificate has been lost, stolen or destroyed together with
such letter of transmittal duly executed, such Stock Certificate
shall in exchange therefor be entitled to receive an amount, in
immediately available funds, equal to (i) in the case of
Outstanding Common Stock, the product of the number of shares
represented by such Stock Certificate multiplied by sum of the
Initial Per Share Merger Consideration plus the Per Share
Distribution Amount, (ii) in the case of Outstanding First
Preferred Stock, the product of the number of shares of Outstanding
First Preferred Stock represented by such Stock Certificate times
the Per Share First Preferred Merger Consideration and (iii) in the
case of Outstanding Series A Stock, the product of the number of
shares of Outstanding Series A Stock represented by such
certificate times the Per Share Series A Merger Consideration. No
interest will be paid or accrued on any amount payable upon the
surrender of a Stock Certificate. If payment is to be made to a
Person other than the Person in whose name a Stock Certificate
surrendered is registered, it shall be a condition of payment that
the Stock Certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the Person
requesting such payment shall pay transfer or other taxes required
by reason of the payment to a Person other than the registered
holder of the Stock Certificate surrendered, or establish to the
satisfaction of the Paying Agent that such tax has been paid or is
not applicable, or provide assurances satisfactory to the Paying
Agent that any such tax will be paid by such Person. Until
surrendered in accordance with the provisions of this Section 2.10,
each Stock Certificate shall represent for all purposes only the
right to receive, as provided by this Agreement, the allocable
portion of the Merger Consideration and shall have no other rights.
Any funds (including interest earned on funds on deposit with the
Paying Agent) remaining with the Paying Agent one year following
the Effective Time shall be returned to Buyer or the Surviving
Corporation, as specified by Buyer, after which time former
shareholders of Seller, subject to applicable law, shall look only
to the Surviving Corporation for payment of the allocable portion
of the Merger Consideration, without interest thereon, and shall
have no greater rights against the Surviving Corporation than may
be accorded to general creditors of the Surviving Corporation under
Delaware law. Notwithstanding anything to the contrary contained
herein, neither the Paying Agent nor any party hereto shall be
liable to a holder of capital stock of the Company for any amount
paid to a public official pursuant to applicable abandoned
property, escheat or similar law.
(c) After the Effective Time, there shall be no
transfers of capital stock of the Company on the stock transfer
books of the Surviving Corporation. If, after the Effective Time,
Stock Certificates are presented to the Surviving Corporation, they
shall be canceled and exchanged as provided in this Section 2.10.
(d) Notwithstanding anything to the contrary set forth
herein, the allocable portion of the Merger Consideration to be
received by each shareholder upon surrender to the Paying Agent of
a certificate representing capital stock of the Company and any
other required documents, as provided in this Section 2.10, shall
be reduced by the amount, if any, the Paying Agent is required to
deduct and withhold with respect to the making of such payment
under any provision of Tax Law; provided that if any amounts are so
deducted and withheld, such amounts shall be treated as having been
paid to the transferring holder of such certificate.
2.11 Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, shareholders of the Company who have
properly exercised, perfected and not subsequently withdrawn or
lost their appraisal rights with respect thereto in accordance with
Section 262 of the DGCL (the "Dissenting Shares") shall not have
any of such shares converted into the right to receive, or become
exchangeable for, their allocable portion of the Merger
Consideration. The holders of Dissenting Shares shall be entitled
to receive payment of the fair value of Dissenting Shares in
accordance with the provisions of such Section 262 unless and until
such holders fail to perfect or shall have effectively withdrawn or
lost their dissenters' rights to payment under Section 262 of the
DGCL. If, after the Effective Time, any such holder fails to
perfect or shall have effectively withdrawn or lost such right,
each of such shareholder's shares shall thereupon be treated as if
it had been converted into the right to receive, and become
exchangeable for, at the Effective Time, the allocable portion of
the Merger Consideration, without interest thereon, as provided in
Section 2.10 hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer and PAS the following:
3.1 Organization; Qualification. Each of Seller and its
Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its
incorporation and has corporate power and authority to own all of
its properties and assets and to carry on its business as it is
presently being conducted. Each of Seller and its Subsidiary is
duly qualified and in good standing to do business in each
jurisdiction in which the property owned, leased or operated by it
or the nature of the business conducted by it makes such
qualification necessary except where the failure to so qualify or
be in good standing could not reasonably be expected to have a
Material Adverse Effect. Seller has heretofore delivered to Buyer
complete and correct copies of the Certificate of Incorporation and
Bylaws of Seller and its Subsidiary as currently in effect.
Schedule 3.1 of the Seller Disclosure Schedule contains a complete
and correct list of (i) any Person who is a Subsidiary of Seller
and (ii) the jurisdictions in which Seller and its Subsidiary,
respectively, are qualified to do business.
3.2 Authority Relative to this Agreement. Seller has
corporate power and authority to execute and deliver this Agreement
and to consummate the Merger, except that this Agreement and the
Merger must be approved by Seller's shareholders in accordance with
the DGCL. The execution and delivery by Seller of this Agreement
and the consummation of the Merger have been duly authorized by the
Board of Directors of Seller and, except for obtaining the approval
of the holders of a majority of the outstanding shares of Common
Stock and of the First Preferred Stock, no other corporate
proceedings on the part of Seller are necessary with respect
thereto. Subject to the aforementioned shareholder approval, and
assuming that Buyer and PAS have duly authorized the execution and
delivery of this Agreement, this Agreement constitutes the valid
and binding obligation of Seller and is enforceable against Seller
in accordance with its terms, subject to applicable bankruptcy,
insolvency, moratorium or other similar laws relating to creditors'
rights and general principles of equity.
3.3 Capitalization of Seller. The authorized capital stock
of Seller consists of 500,000 shares of Common Stock, no par value,
1,000 shares of First Preferred Stock, par value $100.00 per share,
5,000 shares of Adjustable Rate Cumulative Preferred Stock Series
A, par value $100.00 per share, 5,000 shares of Adjustable Rate
Cumulative Preferred Stock Series B, par value $100.00 per share,
50,000 shares of Junior Cumulative Preferred Stock, par value
$100.00 per share, of which, as of the date hereof, 325,504 shares
of Common Stock, 463 shares of First Preferred Stock and 5,000
shares of Adjustable Rate Cumulative Preferred Stock Series A are
outstanding, validly issued, fully paid and nonassessable, and each
of which was not issued in violation of any preemptive rights.
Seller has no commitment to issue or sell any shares of its capital
stock or any securities, options or obligations convertible into or
exercisable or exchangeable for, or giving any person the right to
acquire from it, any shares of its capital stock, and no such
securities or obligations are issued or outstanding.
3.4 Consents and Approvals. Except as set forth in Schedule
3.4 of the Seller Disclosure Schedule and except for (i) approvals
required under the HSR Act and (ii) the filing of a Certificate of
Merger in the Office of the Secretary of State of the State of
Delaware, there is no requirement applicable to Seller to make any
filing with, or to obtain any permit, authorization, consent or
approval of any public body as a condition to the consummation of
the Merger where the failure to so make or obtain would prevent or
materially restrict consummation of the Merger or fulfillment in
any material respect of any of the conditions to this Agreement.
Except as set forth in Schedule 3.4 of the Seller Disclosure
Schedule, there is no requirement that any party (including any
successor in title to the landlord's interest in any Lease) to any
Material Contract, Lease, license or permit for the use of
Intellectual Property or loan agreement to which Seller is a party
or by which it is bound, consent to the execution of this Agreement
by Seller or to the consummation of the Merger.
3.5 Non-Contravention. The execution and delivery by Seller
of this Agreement do not, and subject to the requisite approval of
the shareholders of Seller, the consummation of the Merger will not
(i) violate or result in a breach of any provision of the
Certificate of Incorporation or Bylaws of Seller or its Subsidiary,
(ii) except as set forth in Schedule 3.5 of the Seller Disclosure
Schedule, result in a default (or give rise to any right of
termination, cancellation or acceleration) under the terms,
conditions or provisions of any note, bond, mortgage, indenture,
license, agreement, Lease or other instrument or obligation to
which Seller or its Subsidiary is a party or by which Seller or its
Subsidiary or the business conducted by Seller or its Subsidiary,
may be bound, other than a default which, singly or in the
aggregate, would have an Material Adverse Effect or (iii) violate
any order, writ, injunction, decree, statute, rule or regulation
applicable to Seller or its Subsidiary, or to the business
conducted by Seller or its Subsidiary other than any violation
which, singly or in the aggregate, would not have a Material
Adverse Effect.
3.6 Environmental Matters. The term "Environmental Permits"
as used herein means federal, state and local governmental
licenses, permits and other authorizations and approvals, whether
foreign or domestic, which relate to the business of Seller as it
may be affected by the environment or to public health and safety
or worker health and safety as they may be affected by the
environment. Seller and its Subsidiary have obtained all material
Environmental Permits required to conduct their business as it is
presently being conducted including, without limitation, those
relating to (i) emissions or discharges of pollutants,
contaminants, hazardous or toxic substances or petroleum into the
air, surface water, ground water or the ocean, or on or into the
land ("Hazardous Emissions") and (ii) the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, hazardous or toxic
substances, or petroleum ("Handling Hazardous Substances").
Schedule 3.6 of the Seller Disclosure Schedule shall be amended
within ten (10) days hereof setting forth a complete and correct
list of all such Environmental Permits, all of which are in full
force and effect and none of which are subject to termination,
amendment or review or reauthorization as a consequence of the
consummation of the transactions contemplated hereby. Seller and
its Subsidiary are in compliance in all material respects with all
of the terms and conditions set forth in such Environmental Permits
and are also in compliance in all material respects with all of the
terms and conditions contained in or required of them by any law,
regulation, order, judgment or decree of any federal, state, local
or foreign court or governmental authority applicable to or having
jurisdiction over them or their business which relate to the
environment or to public health and safety or worker health and
safety as they may be affected by the environment. Except as set
forth on Schedule 3.6 of the Seller Disclosure Schedule, no
conditions exist which (w) interfere with, prevent, or, to the
Knowledge of Seller, with the passage of time, could interfere with
or prevent continued compliance with any of the aforementioned
Environmental Permits or any of the aforementioned laws,
regulations, orders, judgments or decrees, (x) may give rise to any
liability (including, without limitation, liability based in
contract, tort, implied or express warranty or criminal or civil
statute) under any existing law or regulation relating to the
Hazardous Emissions or Handling Hazardous Substances, (y) obligate
Seller or its Subsidiary or, to the Knowledge of Seller, with the
passage of time, could cause Seller or its Subsidiary to be
obligated to clean up, remedy or otherwise restore to a former
condition, by itself or jointly with others, any contaminated
surface water, ground water, soil or any natural resources
associated therewith, or (z) require the filing of any additional
information as a consequence of the consummation of the
transactions contemplated hereby. Except as set forth on Schedule
3.6 of the Seller Disclosure Schedule, none of the real property
owned, leased or occupied by Seller or its Subsidiary contains any
"hazardous substances" (as defined in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. 9601, et seq. and regulations promulgated thereto or as
defined under similar state law or regulations), petroleum or
petroleum products or to the Knowledge of Seller, any asbestos,
whether or not friable.
3.7 Licenses and Permits. The term "Licenses and Permits" as
used herein means federal, state and local governmental licenses,
permits, approvals and authorizations, whether foreign or domestic,
other than Environmental Permits. Seller and its Subsidiary have
all of the material Licenses and Permits required to conduct their
business as it is presently being conducted. To the Knowledge of
Seller, all of such Licenses and Permits are in full force and
effect and none of which are subject to termination, amendment,
review or reauthorization as a consequence of the consummation of
the transactions contemplated hereby. No written notice of a
violation of any such License or Permit has been received by Seller
or its Subsidiary or, to the Knowledge of Seller, threatened in
writing, and no proceeding is pending or, to the Knowledge of
Seller, threatened in writing, to revoke or limit any of them.
3.8 Compliance with Laws. In addition to the
representations and warranties contained in Section 3.6 relating to
environmental matters and in Section 3.7 relating to Licenses and
Permits, Seller represents and warrants that it and its Subsidiary
have operated their business in compliance with all laws,
regulations, orders, policies, guidelines, judgments or decrees of
any federal, state, local or foreign court or governmental
authority applicable to them or their business including, without
limitation, those related to antitrust and trade matters, civil
rights, zoning and building codes, public health and safety, worker
health and safety and labor and nondiscrimination, the failure to
comply with which could reasonably be expected to have a Material
Adverse Effect. Except as disclosed in Schedule 3.7 of the Seller
Disclosure Schedule, neither Seller nor its Subsidiary have
received any written notice within the past three years alleging
non-compliance with any of the aforementioned laws, regulations,
policies, guidelines, orders, judgments or decrees.
3.9 Financial Statements. Seller has previously furnished
to Buyer true and complete copies of (i) audited consolidated
financial statements of Seller for the years ended December 28,
1996 and January 3, 1998, including the notes thereto (the "Audited
Seller Financial Statements"), together with the report on such
statements of Seller's Auditors, and (ii) unaudited consolidated
financial statements of Seller for the three month period ended
April 4, 1998 (the "Interim Seller Financial Statements"). Such
financial statements present fairly in all material respects the
consolidated financial position of Seller and its Subsidiary as of
such dates and the results of its operations and changes in
financial position for such periods and have been prepared in
accordance with generally accepted accounting principles applied on
a consistent basis (except, in the case of the Interim Seller
Financial Statements, for the absence of notes).
3.10 Litigation. Except as set forth in Schedule 3.10 of
the Seller Disclosure Schedule, there are no actions, suits,
claims, investigations or proceedings (legal, administrative or
arbitrative) pending or, to the Knowledge of Seller, threatened in
writing, against Seller or its Subsidiary, whether at law or in
equity and whether civil or criminal in nature, before any federal,
state, municipal or other court, arbitrator, governmental
department, commission, agency or instrumentality, domestic or
foreign, nor are there any judgments, decrees or orders of any such
court, arbitrator, governmental department, commission, agency or
instrumentality outstanding against Seller and its Subsidiary
which have, or if adversely determined, could reasonably be
expected to have, a Material Adverse Effect or which seek
specifically to prevent, restrict or delay consummation of the
Merger or fulfillment of any of the conditions of this Agreement.
3.11 Absence of Changes. Except as set forth in Schedule 3.11
of the Seller Disclosure Schedule, since January 3, 1998 there has
not been:
(i) any damage, destruction or loss (whether
or not covered by insurance) which can reasonably be
expected to have a Material Adverse Effect;
(ii) any obligation or liability incurred by
Seller or its Subsidiary, other than in the ordinary and
usual course of business or involving more than $10,000;
(iii) any general uniform increase in the
compensation of the employees of Seller or its Subsidiary
(including, without limitation, any increase pursuant to
any bonus, pension, profit sharing or other plan);
(iv) any increase (other than normal increases
consistent with past practices and those required by law
or collective bargaining agreements) in the compensation
payable to any employee (including officers) of Seller or
its Subsidiary;
(v) any amendment to any employment agreement
to which any employee of Seller or its Subsidiary is a
party;
(vi) any sale of assets by Seller or its
Subsidiary other than in the ordinary course of business
or in connection with the closing of any store of Seller
or its Subsidiary;
(vii) except as contemplated by Section 5.5, any
direct or indirect redemption, purchase or other
acquisition of any shares of the capital stock of Seller
or its Subsidiary;
(viii) any split, combination or other similar
change in the outstanding capital stock of Seller or its
Subsidiary;
(ix) any declaration, setting aside or payment
of any dividend (whether in cash, capital stock or
property) with respect to the capital stock of Seller or
its Subsidiary; or
(x) any issuance by Seller or its Subsidiary
of any shares of its capital stock, or any securities or
obligations convertible into or exchangeable for, or
giving any person the right to acquire from it, any
shares of its capital stock.
3.12 No Undisclosed Liabilities. Other than liabilities
disclosed in the Seller's Disclosure Schedule, Seller has no
liabilities or obligations, whether absolute, accrued, contingent
or otherwise, including, without limitation, any uninsured
liabilities (i) which were not accrued or reserved against in the
Interim Seller Financial Statements, or (ii) which were incurred
after April 4, 1998 other than in the ordinary course of business,
in each case which have or can reasonably be expected to have a
Material Adverse Effect.
3.13 Title to Properties. Schedule 3.13 of the Seller
Disclosure Schedule contains a complete and correct list of all of
the real property, together with the fixtures and other
improvements located thereon and the appurtenances thereto, owned
by Seller (the "Real Property"). Except as set forth in Schedule
3.13 of the Seller Disclosure Schedule and except for Permitted
Exceptions, Seller has good and marketable title to all of the Real
Property free and clear of any liens, charges, pledges, security
interests or other encumbrances. The term "Permitted Exceptions"
as used in this Agreement means (i) statutory liens for current
taxes or assessments not yet due or delinquent; (ii) mechanics',
carriers', workers', repairers' and other similar liens arising or
incurred in the ordinary course of business relating to obligations
as to which there is no default, provided that the same shall be
fully discharged of record before the Effective Time; (iii)
exceptions shown on the surveys, if any, furnished by Seller to
Buyer on or before the date hereof and agreed to by Buyer; and (iv)
imperfections of title and encumbrances, if any, which do not
materially detract from the value of the property subject thereto
and do not materially impair the use of the property thereto in
connection with the operations of the business of Seller.
3.14 Leases.
(a) Schedule 3.14 of the Seller Disclosure Schedule sets
forth a complete and correct list of each lease and amendment
thereto to which Seller is a party (whether as signatory or by
assignment), whether as lessor or lessee, which relates to either
real or personal property, other than monthly leases of personal
property which may be canceled upon not more than 30 days notice
and require the payment of not more than $100 per month. The
documents listed in Schedule 3.14 of the Seller Disclosure Schedule
are referred to herein as "Leases". Except as set forth in
Schedule 3.14 of the Seller Disclosure Schedule, each of the Leases
is in full force and effect and neither Seller nor, to the
Knowledge of Seller, any other party thereto has breached any such
Lease and no event has occurred which, with the giving of notice or
the passage of time or both, would cause a default under, or permit
the termination, modification or acceleration of any such Lease by
any party thereto, except for such of the foregoing as would not
have a Material Adverse Effect. No written notice from any
governmental body or official has been given to Seller claiming
that any of the property subject to any of the Leases violates any
law, building, zoning or other ordinance, code or regulation
applicable to it, or calling attention to the need for any work,
repairs, construction, alterations or installations on or in
connection with those properties that has not been fully complied
with. Complete copies of all of the Leases have been delivered to
Buyer.
(b) Seller has good and marketable leasehold title to
the real property leased by the Leases.
3.15 Inventory.
(a) Except as set forth on Schedule 3.15 of the Seller
Disclosure Schedule, the retail prices of Seller's inventory are
marked at levels consistent with Seller's past practice and any
markdowns of such inventory have been taken at times and in amounts
consistent with Seller's past practice.
(b) The difference between the retail book value of
Seller's inventory as reflected on Seller's perpetual retail stock
ledger as of the close of Seller's business on the Saturday
immediately preceding the Effective Time and the retail value
determined by a physical inventory conducted by Seller and Buyer on
such date, expressed as a percentage of the net sales of the Seller
for the period from January 4, 1998 to the Effective Time, shall
not be greater than 4%.
3.16 Intellectual Property. The term "Intellectual Property"
as used herein means the rights of the owner thereof in all trade
names, trademarks and service marks, patents, patent rights,
copyrights, whether domestic or foreign, (as well as applications,
registrations or certificates for any of the foregoing),
inventions, trade secrets, proprietary processes, software and
other industrial and intellectual property rights. Seller owns or
is licensed or otherwise has the right to use all of the
Intellectual Property which is being used in its business as it is
presently being conducted. There is no claim, suit, action or
proceeding, pending or, to the Knowledge of Seller, threatened,
against Seller asserting that its use of any Intellectual Property
infringes the rights of any third party or otherwise contesting its
rights with respect to any Intellectual Property, and to the
Knowledge of Seller no third party is infringing upon the rights of
Seller in the Intellectual Property. Except as set forth on
Schedule 3.16 of the Seller Disclosure Schedule, all letters,
patents, registrations and certificates issued by any governmental
agency relating to the Intellectual Property are valid and
subsisting and have been properly maintained.
3.17 Material Contracts. Schedule 3.17 of the Seller
Disclosure Schedule sets forth a complete and correct list of each
contract, agreement or commitment of Seller, other than Leases:
(i) upon which any substantial part of its
business is dependent or which, if breached, could
reasonably be expected to have a Material Adverse Effect
on the earnings, assets, financial condition or
operations of the business of Seller and its Subsidiary,
taken as a whole (a "Material Adverse Effect");
(ii) which provides as of May 11, 1998 for
aggregate future payments of more than $5,000, except for
purchase orders arising in the ordinary and usual course
of business (a complete and accurate list of which has
been provided to Buyer), in which case they are listed
only if any party thereto is obligated to make payments
pursuant thereto aggregating more than $10,000;
(iii) which extends for more than one year from
the date hereof and is not cancelable by either party on
less than 31 days' notice;
(iv) which provides for the sale, after the
date hereof and other than in the ordinary course of
business or other than in connection with the closing of
any store, of any of its assets;
(v) which relates to the employment,
retirement or termination of the services of any officer
or former officer;
(vi) which provides for the payment of
severance or similar benefits to any employee of Seller;
or
(vii) which contains covenants pursuant to which
any person has agreed not to compete with any business
conducted by Seller or not disclose to others information
concerning Seller.
Each of the foregoing is referred to in this Agreement as a
"Material Contract." Except as set forth in Schedule 3.17 of the
Seller Disclosure Schedule, all of the Material Contracts are in
full force and effect and there has not occurred, with respect to
any Material Contract, any default or event of default which, with
or without due notice or with the lapse of time, or both, would
constitute a default or event of default on the part of Seller or,
to the Knowledge of Seller, any other party thereto, except for
such defaults as would not have a Material Adverse Effect.
Complete copies of all of the Material Contracts have been
delivered to Buyer.
3.18 Insurance. Schedule 3.18 of the Seller Disclosure
Schedule sets forth a list of insurance policies maintained by
Seller. Seller is not in default in any material respect under any
provision of any such policy nor to the Knowledge of Seller, has it
failed to give notice or present any claim thereunder in a timely
manner so as to bar recovery of any valid claim. Complete copies
of all insurance contracts have been delivered to Buyer.
3.19 Labor Matters. Seller is not a party to any collective
bargaining agreement covering employees of Seller. There are no
controversies pending or, to the Knowledge of Seller, threatened in
writing between Seller and any of its employees which can
reasonably be expected to have a Material Adverse Effect, or relate
to any specific effort to prevent, restrict or delay consummation
of the Merger.
3.20 Employee Benefit Plans.
(a) Schedule 3.20 of the Seller Disclosure Schedule
contains a complete list of all employee benefit plans, programs,
policies, practices, agreements, contracts and other arrangements
providing benefits to any employee or former employee or any
beneficiary or dependent thereof, whether or not written, whether
or not subject to ERISA, and whether covering one person or more
than one person, that are sponsored or maintained by the Seller, to
which the Seller is a party, or to which the Seller contributes or
is obligated to contribute (collectively, "Employee Plans").
Without limiting the generality of the foregoing, the term
"Employee Plans" includes employee welfare benefit plans within the
meaning of Section 3(1) of ERISA, employee pension benefit plans
within the meaning of Section 3(2) of ERISA and employment
agreements. No Employee Plan is a multiemployer plan as defined in
Section 3(37) of ERISA. For purposes of this Section 3.20, the
term "Seller" shall include the Seller and each of its ERISA
Affiliates.
(b) Seller has heretofore delivered to Buyer complete
and correct copies of the following with respect to each Employee
Plan: (A) all plan documents, trust agreements and insurance
contracts and other funding vehicles; (B) the three most recent
annual reports (Form 5500 Series, where applicable) and
accompanying schedules, if any; (C) the current summary plan
description, if any; (D) the three most recent annual financial
reports, valuations, or other appraisals of plan assets, if any;
and (E) the most recent determination letter from the Internal
Revenue Service, if any. Except as specifically provided in the
foregoing documents delivered to Buyer, there are no amendments to
any Employee Plan that have been adopted or approved, nor has the
Seller undertaken to make any such amendments.
(c) Except as set forth in Schedule 3.20 of the Seller
Disclosure Schedule, all Employee Plans are in all material
respects in compliance with, and have been administered in
compliance with, all applicable requirements of law, including but
not limited to the Internal Revenue Code and ERISA. All
contributions required to be made to each Employee Plan under the
terms of such plans, ERISA or the Internal Revenue Code for all
periods of time prior to the Closing Date have been or, as
applicable, will by the Closing Date be timely made or paid in
full.
(d) A favorable Internal Revenue Service determination
letter as to the qualification of each Employee Plan intended to be
qualified under Section 401(a) of the Internal Revenue Code has
been issued and remains in effect, and the related trust has been
determined to be exempt from taxation under Section 501(a) of the
Internal Revenue Code. Any amendment made or event relating to
such Employee Plan subsequent to the date of such determination
letter has not adversely affected the qualified status of such
Employee Plan. No issue concerning qualification of any Employee
Plan is pending before or threatened by the Internal Revenue
Service. The Seller has performed all material obligations
required to be performed by it under, and is not in default or in
violation of, the terms of any Employee Plan in any material
respect. No non-exempt "prohibited transaction" (as such term is
defined in Section 4975 of the Internal Revenue Code or Section 406
of ERISA) has occurred with respect to any Employee Plan. No
Employee Plan is a "top-heavy plan" within the meaning of Section
416 of the Internal Revenue Code or has ever been a "top-heavy
plan."
(e) No Employee Plan is subject to Title IV or Section
302 of ERISA, or Section 412 or 4971 of the Internal Revenue Code.
(f) Neither the execution, delivery or performance of
this Agreement, nor the consummation of any transactions
contemplated hereunder, will violate or conflict with any governing
document of the Xxx X. Xxxxxx Co. Stock Bonus (ESOP) Retirement
Plan (the "ESOP"), any contract, agreement or other arrangement
binding upon the ESOP or its assets, or will subject the Seller or
any of its ERISA Affiliates (as defined in subsection (g) below) to
an excise tax described in Section 4978 of the Internal Revenue
Code. During the 3-year period ending on the Closing Date, there
have been no sales of securities to the ESOP to which Section 1042
of the Internal Revenue Code applied or was intended to apply.
Except as set forth in Schedule 3.20 of the Seller Disclosure
Schedule, there are no outstanding loans with respect to the ESOP
(including exempt loans within the meaning of Section 4975 of the
Internal Revenue Code and regulations thereunder) and there are no
unallocated shares held in a suspense account under the ESOP.
(g) There does not now exist, nor do any circumstances
exist that could result in, any Controlled Group Liability that
would be a liability of the Seller following the Closing Date.
"Controlled Group Liability" means any and all liabilities under
(i) Title IV of ERISA, (ii) Section 302 of ERISA, (iii) Sections
412 and 4971 of the Internal Revenue Code,(iv) the continuation
coverage requirements of Section 601 et seq. of ERISA and section
4980B of the Internal Revenue Code, and (v) the group health plan
requirements of Section 701 et seq. of ERISA, Section 4980D of the
Internal Revenue Code, and Section 9801 et seq. of the Internal
Revenue Code. "ERISA Affiliate" means, with respect to any person,
entity, trade or business, any other person, entity, trade or
business that is a member of a group described in Section 414(b),
(c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA that
includes the first person, entity, trade or business, or that is a
member of the same "controlled group" as the first person, entity,
trade or business pursuant to Section 4001(a)(14) of ERISA.
(h) There are no pending or threatened claims (other
than claims for benefits in the ordinary course), lawsuits, audits,
investigations or arbitrations which have been threatened, asserted
or instituted against the Employee Plans, any fiduciaries thereof
with respect to their duties to the Employee Plans or the assets of
any of the trusts under any of the Employee Plans which could
reasonably be expected to result in any material liability of the
Seller.
(i) The Seller has no liability for life, health,
medical or other welfare benefits to former employees or
beneficiaries or dependents thereof, except for health continuation
coverage as required by Section 4980B of the Internal Revenue Code
or Part 6 of Title I of ERISA.
(j) Except as set forth in Schedule 3.20 of the Seller
Disclosure Schedule, neither the execution or delivery of this
Agreement, nor the consummation of the transactions contemplated
hereunder, will (either alone or in conjunction with any subsequent
or related event, including without limitation, termination of
employment) (i) result in any material payment becoming due under
any Employee Plan (including, without limitation, severance,
unemployment compensation, or golden parachute payments), (ii)
materially increase any compensation or benefits otherwise payable
under any Employee Plan, or (iii) accelerate any material liability
under any Employee Plan because of an acceleration of the time of
payment or vesting of any rights or benefits to which employees may
be entitled thereunder. Neither the execution or delivery of this
Agreement, nor the consummation of the transactions contemplated
hereunder, has resulted or will result in payments to "disqualified
individuals" of the Seller which, individually or in the aggregate,
will constitute "excess parachute payments" (as such terms are
defined in Section 280G of the Internal Revenue Code).
(k) Schedule 3.17 of the Seller Disclosure Schedule sets
forth an accurate list of the accrued vacation pay due each
employee of Seller as of April 4, 1998.
3.21 Tax Matters. All Tax Returns required to be filed on or
before the date hereof with respect to Taxes have been duly filed,
and all Taxes shown or required to be shown thereon to be payable
have been paid or provided for in the Audited Seller Financial
Statements and the Interim Seller Financial Statements. No
deficiencies for any Taxes with respect to Seller have been
asserted, assessed or, to the Knowledge of Seller, proposed that
have not been paid in full. There is no pending or, to the
Knowledge of Seller, threatened in writing Tax audit of any Tax
Return filed with respect to Seller. There are no agreements by
Seller for the extension of time for the assessment of any Taxes.
There are no liens for Taxes (other than for Taxes not yet due and
payable) on the assets of Seller.
3.22 Insider Interests. Except as described on Schedule 3.22
of the Seller Disclosure Schedule, no officer, director or holder
of 5% or more of the shares of Common Stock (i) competes with or is
involved in or has a direct or indirect interest in any business
entity which competes with the business conducted by Seller, (ii)
has any agreement with Seller or (iii) has any interest, direct or
indirect, in any property, real or personal, tangible or
intangible, including, without limitation, Intellectual Property,
used in or pertaining to the business of Seller, except as a
shareholder or employee of Seller.
3.23 Certain Practices. Neither Seller nor any director,
officer, employee or agent of Seller has, directly or indirectly,
made or agreed to make, any improper or illegal payment, gift or
political contribution to, or taken any other improper or illegal
action, for the benefit of any customer, supplier, governmental
employee or other Person who is or may be in a position to assist
or hinder the business of Seller.
3.24 Finders. Except for Asset Services Investment
Securities, Inc. and Retail Consulting Services, the fees and
expenses of which will be paid by Seller, no broker, finder or
investment banker is entitled to any fee or commission from Seller
for services rendered on behalf of Seller in connection with the
transactions contemplated by this Agreement.
3.25 Full Disclosure. To the Knowledge of Seller, none of the
representations and warranties of Seller which are made in Article
III of this Agreement contains an untrue statement of a material
fact or omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under which
they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND PAS
Buyer and PAS, jointly and severally, represent and warrant to
Seller the following:
4.1 Organization; Qualification. Each of Buyer and PAS, a
wholly owned Subsidiary of Buyer, is a corporation duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation; and each of Buyer and PAS has
corporate power and authority to own all of its properties and
assets and to carry on its business as it is presently being
conducted.
4.2 Authority Relative to this Agreement. Buyer and PAS
have corporate power and authority to execute and deliver this
Agreement and to consummate the Merger. The execution and delivery
by Buyer and PAS of this Agreement and the consummation of the
Merger have been duly authorized by the Boards of Directors of
Buyer and PAS and no other corporate proceedings on the part of
Buyer or PAS are necessary with respect thereto. Assuming that
Seller has duly authorized the execution of this Agreement, this
Agreement constitutes valid and binding obligations of Buyer and
PAS and are enforceable against Buyer and PAS in accordance with
its terms, subject to applicable bankruptcy, insolvency, moratorium
or other similar laws relating to creditors' rights and general
principles of equity.
4.3 Consents and Approvals. Except for (i) approvals
required pursuant to the HSR Act and (ii) the filing of a
Certificate of Merger in the Office of the Secretary of State of
the State of Delaware, there is no requirement applicable to Buyer
or PAS to make any filing with, or to obtain any permit,
authorization, consent or approval of any public body as a
condition to the consummation of the Merger where the failure to so
make or obtain would prevent or materially restrict consummation of
the Merger or fulfillment of any of the conditions to this
Agreement.
4.4 Non-Contravention. The execution and delivery by Buyer
and PAS of this Agreement do not, and the consummation of the
Merger will not, (i) violate or result in a breach of any provision
of the Articles of Incorporation of Buyer or the Certificate of
Incorporation of PAS, or the Bylaws of Buyer or PAS, or (ii)
violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Buyer or any of its Subsidiaries, or the
businesses conducted by any of them, excluding from the foregoing
clause such defaults and violations which would not prevent or
materially restrict consummation of the Merger or fulfillment of
any of the conditions to this Agreement.
4.5 Litigation. There are no actions, suits, claims,
investigations or proceedings (legal, administrative or
arbitrative) pending or, to the knowledge of Buyer, threatened,
against Buyer or PAS, whether at law or in equity and whether civil
or criminal in nature, before any federal, state, municipal or
other court, arbitrator, governmental department, commission,
agency or instrumentality, domestic or foreign, nor are there any
judgments, decrees or orders of any such court, arbitrator,
governmental department, commission, agency or instrumentality
outstanding against Buyer or PAS which have, or if adversely
determined, could reasonably be expected to prevent, restrict or
delay consummation of the Merger or fulfillment of any of the
conditions of this Agreement.
4.6 Financing. Buyer has delivered to Seller a complete
and correct copy of a commitment letter (the "Commitment")
addressed to Buyer from Fleet Bank, N.A. for the provision of
financing pursuant to a credit agreement on the terms and
conditions described in the Commitment. Such financing is in
amounts sufficient to provide Buyer with sufficient funds to
consummate the transactions contemplated by this Agreement.
4.7 Finders. No broker, finder or investment banker is
entitled to any fee or commission from Buyer or PAS for services
rendered on behalf of Buyer or PAS in connection with the
transactions contemplated by this Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Conduct of Business of Seller. From the date hereof
until the Effective Time, Seller will (i) conduct its business only
in the ordinary and usual course and in a manner consistent with
past practices, (ii) use its reasonable best efforts to preserve
intact its present business organization and operations, keep
available the services of its officers and employees and preserve
its relationships with licensors, suppliers, dealers, customers and
others having business relationships with it and (iii) permit Buyer
and its representatives to participate in all meetings and
discussions held between Seller and its representatives of the
United States Department of Labor in connection with the audit of
the ESOP (the "ESOP Audit"). Seller's management will meet with
Buyer, at such times as Buyer reasonably determines are necessary,
to discuss the general status of the ongoing operations of Seller
and any problems relating to the conduct of its business. Seller
will notify Buyer (w) of any emergency or change in the normal
conduct of the business or operations of Seller, (x) of the threat
of, or initiation of, any litigation against Seller or any member
of its Board of Directors with respect to the operation or
management of Seller, (y) of the initiation of any investigation of
Seller by any party, whether private or governmental, and (z) of
any budget revisions approved by the Board of Directors of Seller
involving the business of Seller and Seller will keep Buyer fully
informed of material developments with respect to the ESOP Audit
and the events listed in the immediately preceding sentence and
afford Buyer's representatives reasonable access to all materials
in its possession relating thereto.
5.2 Forbearances by Seller. Except as contemplated by this
Agreement, without the written consent of Buyer, Seller will not,
from the date hereof until the Effective Time:
(i) sell, dispose of, transfer or encumber any
of its assets except in the ordinary and usual course of
business;
(ii) mortgage, pledge or otherwise encumber any
of its assets;
(iii) amend, modify or cancel any Material
Contract or Lease;
(iv) make any commitments for capital
expenditures or incur any obligation or liability for
borrowed money, other than commitments or obligations not
exceeding $10,000 in the aggregate;
(v) make any investment by means of the
purchase of stock or securities, contributions to capital
or the purchase of property or assets from any other
Person other than investments in U.S. Treasury securities
in the ordinary and usual course of business;
(vi) assume, guarantee, endorse or otherwise
become responsible for the obligations of any other
Person or make loans or advances to any Person except in
the ordinary and usual course of business;
(vii) except as described in Schedule 5.2 of the
Seller Disclosure Schedule, increase in any manner the
compensation of any of its officers; pay or agree to pay
any pension or retirement allowance not required by an
existing plan or agreement to any officer or employee or
enter into or amend any employment agreement or any
incentive compensation, profit sharing, stock purchase,
stock option, stock appreciation rights, savings,
consulting, deferred compensation, retirement, pension or
other benefit plan or arrangement with or for the benefit
of any of its officers, employees or for the benefit of
any other person;
(viii) enter into any contract which will require
expenditures of more than $10,000, other than orders
placed in the ordinary course of business;
(ix) alter in any way the manner in which it
regularly and customarily maintains its books of account
and records, provided the accounting period which
ordinarily ends May 30, 1998 will be extended to the
Saturday immediately preceding the Closing Date;
(x) conduct any "going out of business" or
"inventory reduction" or similar sales or otherwise
reduce the marked retail sale price of its inventory,
other than Knoxville West, Concord and Harrisonburg
stores;
(xi) declare, set aside or pay any dividend in
cash or property with respect to its capital stock;
(xii) except as contemplated by Section 5.5,
split, combine or otherwise change its capital stock, or
redeem any of its capital stock;
(xiii) authorize the creation or issuance of, or
issue or sell any shares of, its capital stock or any
securities or obligations convertible into or
exchangeable for, or giving any Person any right to
acquire any shares of its capital stock;
(xiv) merge or consolidate with any other Person
or acquire all of the stock or business of any Person;
(xv) amend its Certificate of Incorporation or
Bylaws;
(xvi) cancel or allow any of its existing
insurance policies to lapse;
(xvii) enter into a settlement agreement or
consent decree in respect of the ESOP Audit; or
(xviii) enter into an agreement to do any of the
things described in clauses (i) through (xvii) above.
5.3 Negotiations with Others. From the date hereof until
the Effective Time, Seller will not, directly or indirectly,
without the written consent of Buyer, initiate discussions or
engage in negotiations with any Person other than Buyer, concerning
any merger or sale of capital stock or a substantial portion of the
assets of Seller outside the ordinary and usual course of business
provided; however, that nothing contained in this Section 5.3 shall
prohibit the Board of Directors of Seller from furnishing
information to or entering into discussions or negotiations with,
any Person that makes an unsolicited bona fide written proposal to
acquire Seller pursuant to a merger, consolidation, share exchange,
purchase of a substantial portion of the assets, business
combination or other similar transaction (an "Acquisition
Proposal"), if, and only to the extent that, (A) the Board of
Directors of Seller determines in good faith that such action is
required for the Board of Directors to comply with its fiduciary
duties to shareholders imposed by law, (B) prior to furnishing such
information to, or entering into discussions or negotiations with,
such Person, Seller provides written notice to Buyer to the effect
that it is furnishing information to or entering into discussions
or negotiations with, such Person and provides Buyer with a copy of
any such written proposal, and (C) Seller keeps Buyer informed of
the status (not the terms) of any such discussions or negotiations.
Nothing in this Section 5.3 shall (x) permit any party to terminate
this Agreement (except as specifically provided in Article X
hereof), (y) permit Seller to enter into any agreement with respect
to an Acquisition Proposal during the term of this Agreement (other
than a confidentiality agreement in customary form), or (z) affect
any other obligation of any party under this Agreement.
5.4 Investigation of Business and Properties;
Confidentiality. From the date hereof until the Effective Time,
Seller will afford Buyer and its attorneys, accountants, financial
advisors and other representatives complete access at all
reasonable times and upon reasonable notice to its officers,
employees, properties, contracts, books and records. In addition
Seller shall furnish Buyer with such financial, operating and
additional data as Buyer may reasonably request concerning
Seller's business, operations, properties and personnel. Buyer and
PAS shall continue to comply with the terms of the Confidentiality
Agreement, dated August 5, 1997 (the "Confidentiality Agreement")
between Buyer and Seller.
5.5 INTENTIONALLY OMITTED
5.6 Severance Payments. Following consummation of the Merger,
if any employee of Seller who is an employee at the Effective Time
(other than Xxxxxxx Xxxxxx) is (i) discharged by the Surviving
Corporation within one year after the consummation of the Merger,
(ii) terminates employment with the Surviving Corporation after
having been asked to relocate for continued employment with the
Surviving Corporation beyond a thirty-mile radius of the employee's
current work place location or (iii) is required to accept
compensation from the Surviving Corporation which is 10% or more
less than the compensation of such employee immediately prior to
the Merger, then the Surviving Corporation shall pay to such
employee (A) accrued vacation due to such employee and (B) a
severance payment in an amount set forth on Schedule 5.6 to the
Seller Disclosure Schedule.
5.7 Shareholder Approvals. Promptly after the date of
execution and delivery of this Agreement by Buyer and PAS, Seller
will give notice of a meeting of its shareholders to be held
promptly for the purpose of considering and voting upon a proposal
to approve and adopt this Agreement and the transactions
contemplated hereby. Seller's Board of Directors will recommend
that its shareholders vote to approve and adopt this Agreement.
5.8 Expenses. Whether or not the Merger is consummated, Buyer
will pay all of its expenses incurred in connection with this
Agreement and the transactions contemplated hereby and the
Shareholders shall pay all expenses incurred by Seller or the
Shareholders in connection with the transactions contemplated by
this Agreement (including legal and investment banking fees) in
excess of $200,000, which expenses shall be deducted from the
Escrow Amount.
5.9 Public Announcements. The parties will consult with
each other before issuing any press release or otherwise making any
public statement with respect to this Agreement and the Merger and
will not issue any such press release or make any such public
statement without the consent of the other unless such action is
required by law.
5.10 Subsequent Events. If any event shall occur prior to the
Closing which, had it occurred prior to the execution of this
Agreement, should have been disclosed by a party to this Agreement
in a representation and warranty or otherwise, then as soon as
practicable after the happening of such event, such party shall
disclose the happening of such event to the other parties hereto.
5.11 Efforts to Consummate. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to
use its reasonable best efforts to take, or cause to be taken, all
action and to do, or cause to be done, all things necessary, proper
or advisable to consummate, as promptly as practicable, the
transactions contemplated hereby, including, but not limited to,
the obtaining of all necessary consents, waivers, authorizations,
orders and approvals of third parties, whether private or
governmental, required of it to enable it to comply with the
conditions precedent to consummating the Merger set forth in this
Agreement and, in the case of Buyer, obtaining financing to
consummate the transaction. Each party agrees to cooperate fully
with each of the other parties in assisting them to comply with the
provisions of this Section, and in the event any claim, action,
suit, investigation or other proceeding by any governmental body or
other person is commenced which questions the validity or legality
of the Merger or seeks damages in connection therewith, the parties
agree to cooperate and use their reasonable best efforts to defend
against such claim, action, suit, investigation or other
proceeding. If an injunction or other order is issued in any such
action, suit or other proceeding, the parties agree to use their
reasonable best efforts to have such injunction or other order
lifted. Notwithstanding the foregoing, no party hereto shall be
required to make any substantial payment or incur any material
economic burden, other than a payment otherwise required of it, to
obtain any consent, waiver, authorization order or approval, and
if, despite its efforts, any party is unable to obtain any material
consent, waiver, authorization, order or approval, the other
parties for whose benefit the consent, waiver, authorization, order
or approval is to be obtained may terminate this Agreement and
shall have no liability therefor, except as is provided in Section
10.2.
5.12 Performances by PAS. Buyer hereby agrees to cause PAS
to comply with its obligations under this Agreement and to cause
PAS to consummate the Merger as contemplated herein.
5.13 Estoppel Certificates. Seller shall obtain from each
lessor listed on Schedule 5.13 the applicable estoppel certificates
in substantially the form attached as Exhibit A and dated no sooner
than thirty days prior to the Effective Time. Seller warrants that
the representations set forth in each such estoppel certificate
will be true and accurate as of the Effective Time (except that
representations based on the lessor's knowledge shall not be so
qualified in the case of Seller's representation hereunder).
5.14 Title Insurance. Seller shall, at its expense, cause
to be issued owner's policy(ies) of title insurance covering the
Real Property in form and content reasonably satisfactory to Buyer
and in amount(s) equal to the fair market value thereof and
containing a non-imputation endorsement satisfactory to Buyer.
5.15 Filings. Seller and Buyer will each file or have filed
with the United States Federal Trade Commission and the Antitrust
Division of the United States Department of Justice, pursuant to
the HSR Act, Notification and Report Forms with respect to the
transactions contemplated by this Agreement, and each of them will
respond as promptly as is practicable to all inquiries received
from either agency for additional information or documentation.
Buyer shall pay the filing fees required in connection with such
filings.
5.16 Inventory Valuation. The retail price of all non-basic
merchandise for a season prior to Spring 1998 will be adjusted so
that the price does not exceed 25% of the original retail price if
the inventory is for a season prior to Fall 1997 or 50% of the
original retail price if the inventory is for the Fall 1997 season
(inventory delivered between July 1997 and December 1997). The
cost of the markdown that results from the price adjustment will be
determined by multiplying the markdown by the reciprocal of the
xxxx-on percentage for the Company's applicable merchandise
department. The resulting shortfall will be deducted from the
Escrow Amount.
5.17 Termination of the ESOP. The Seller shall adopt an
amendment to the ESOP (the "ESOP Amendment"), which ESOP Amendment
shall provide (i) that the portion of the ESOP consisting of shares
of common stock and shares of preferred stock allocated to ESOP
participants' accounts (the "Non-ESOP Portion") shall no longer be
considered part of an "employee stock ownership plan" or a "stock
bonus plan" (as defined in Sections 4975 and 401(a)(23) of the
Internal Revenue Code, respectively), (ii) that distributions to
participants in the form of "qualifying employer securities" (as
defined in Section 407 of ERISA) shall no longer be permitted under
the Non-ESOP Portion, (iii) that the entire balance of a
participant's account under the Non-ESOP Portion shall be
distributable solely in cash or rights to receive cash, and (iv)
that the ESOP shall be terminated effective as of the Closing Date,
subject to receipt of a favorable determination letter from the
Internal Revenue Service regarding the ESOP's termination.
5.18 Amendment to the 401(k) Plan. The Seller shall adopt an
amendment to the Xxx X. Xxxxxx Co. Profit Sharing and 401(k) Plan
(the "401(k) Plan") which shall provide that, effective as of the
day before the Closing Date, no more contributions shall be made to
the 401(k) Plan, no person other than those persons who are
participants in the 401(k) Plan shall be eligible to become
participants in the 401(k) Plan and all participants shall be fully
vested in their account balances.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF BUYER AND PAS
The obligations of Buyer and PAS to consummate the Merger
shall be subject, to the extent not waived, to the following
conditions.
6.1 Representations and Warranties. Except for changes
contemplated by this Agreement, each of the representations and
warranties of Seller contained in Article III of this Agreement and
in the estoppel certificates attached as Exhibit A that are
qualified as to materiality or references to Material Adverse
Effect shall be true in all respects and those not so qualified
shall be true and correct in all material respects, as of the date
of this Agreement and as of the Effective Time, and Seller shall
have delivered to Buyer a certificate to that effect signed by its
Chief Executive Officer.
6.2 Performance of this Agreement. Seller shall have
complied in all material respects with each of its obligations
under this Agreement and shall have delivered to Buyer a
certificate to that effect signed by its Chief Executive Officer.
6.3 Corporate Authorization. All corporate action required to
be taken by Seller (including receiving the requisite approval of
its shareholders) in connection with the Merger shall have been
taken, all documents incident thereto shall be reasonably
satisfactory in substance and form to Buyer and Buyer shall have
received such copies of such documents as it may reasonably
request.
6.4 Consents and Approvals.
(a) All consents, authorizations, orders or approvals of
governmental or regulatory authorities which Seller is required to
obtain in order to be able to consummate the Merger shall have been
obtained and all waiting periods specified by law with respect
thereto shall have passed.
(b) All consents of Persons which Seller is required to
obtain in connection with the Merger, the failure to obtain which
could reasonably be expected to have a Material Adverse Effect,
shall have been obtained.
6.5 Injunction, Litigation, etc. No order of any court or
governmental agency shall be in effect which restrains or prohibits
the consummation of the Merger, and there shall not have been
threatened, nor shall there be pending, any action or proceeding by
or before any such court or governmental agency (X) seeking to
prohibit or delay or challenging the validity of the Merger or (Y)
against Seller or any member of its Board of Directors by any
shareholder or former shareholder of Seller concerning the
operations or management of Seller.
6.6 Legislation. No statute, rule or regulation shall have
been proposed or enacted which prohibits or might prohibit,
restrict or delay the consummation of the Merger.
6.7 Resignations. Such officers and directors of Seller as
Buyer shall request shall have tendered resignations to become
effective as of the Effective Time.
6.8 Repayment of Indebtedness. All indebtedness to Seller of
any employee, officer or director of Seller (other than employee
layaway accounts and amounts due for purchases of goods not
exceeding $500) shall have been paid in full.
6.9 Opinion of Counsel for Seller. Buyer shall have received
an opinion from Bass, Xxxxx & Xxxx PLC, Counsel for Seller, in form
and substance reasonably satisfactory to Buyer.
6.10 Purchase of Stock. PAS shall have consummated the
purchase of (x) all of the Common Stock held by the ESOP, (y) all
of the outstanding shares of Adjustable Rate Cumulative Preferred
Stock Series A held by Persons other than Appalachian Distributing
Corporation and (z) not fewer than 400 shares of First Preferred
Stock.
6.11 Termination of Credit Card Program Agreement. Seller and
Shoppers Charge Accounts Co. shall have entered into the
Termination Agreement, the terms of which are otherwise reasonably
satisfactory to Buyer and all actions required to be taken by
Seller or Shoppers Charge pursuant to the Termination Agreement
(other than the payment of the repurchase price for such accounts
receivable by the Surviving Corporation and the redelivery of the
accounts receivable) shall have been taken.
6.12 Financing. Buyer shall have obtained, pursuant to the
Commitment or otherwise, the funds necessary to enable Buyer to
consummate the transactions contemplated by this Agreement on the
terms set forth herein.
6.13 Estoppel Certificates. Seller shall have obtained and
delivered to Buyer the estoppel certificates described in Section
5.13 and such amendments to the Leases as are a part of those
estoppel certificates.
6.14 Dissenter's Rights. Seller shall not have received
notice from the holders of Dissenting Shares equal to more than ten
percent (10%) of the shares of Common Stock outstanding immediately
prior to the Effective Time.
6.15 Absence of Material Change. There shall not have
occurred at any time after the date of this Agreement any material
adverse change in the assets, liabilities or financial condition of
Seller.
6.16 Escrow Agreement. Buyer and the Escrow Committee shall
have executed and delivered the Escrow Agreement.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF SELLER
The obligation of Seller to consummate the Merger shall be
subject, to the extent not waived, to the following conditions.
7.1 Representations and Warranties. Each of the
representations and warranties of Buyer and PAS contained in
Article IV of this Agreement shall be true and correct in all
material respects as of the date of this Agreement and as of the
Effective Time, and Buyer shall have delivered to Seller a
certificate to that effect signed by an executive officer.
7.2 Performance of this Agreement. Buyer and PAS shall have
complied in all material respects with each of their obligations
under this Agreement, and Buyer shall have delivered to Seller a
certificate to that effect signed by an executive officer.
7.3 Corporate Authorization. All corporate action required to
be taken by Buyer and PAS in connection with the Merger shall have
been taken, and Seller shall have received such copies of documents
incident to such approvals as it may reasonably request.
7.4 Consents and Approvals. All consents, authorizations,
orders or approvals of governmental or regulatory authorities which
Seller is required to obtain in order to enable it to consummate
the Merger shall have been obtained and all waiting periods
specified by law with respect thereto shall have passed.
7.5 Injunction, Litigation, etc. No order of any court or
governmental agency shall be in effect which restrains or prohibits
the consummation of the Merger and there shall not have been
threatened, nor shall there be pending, any action or proceeding by
or before any such court or governmental agency seeking to prohibit
or delay or challenging the validity of the Merger.
7.6 Legislation. No statute, rule or regulation shall have
been proposed or enacted which prohibits or might prohibit,
restrict or delay the consummation of the Merger.
7.7 Opinion of Counsel for Buyer and PAS. Seller shall have
received an opinion from McGuire, Woods, Battle & Xxxxxx LLP,
Counsel for Buyer and PAS, in form and substance reasonably
satisfactory to Seller.
ARTICLE VIII
CLOSING
8.1 Time and Place of Closing. The closing (the "Closing")
shall take place at the offices of McGuire, Woods, Battle & Xxxxxx
LLP in Richmond, Virginia at 10:00 a.m. local time on the later of
(i) June 15, 1998, (ii) the next business day after the last of the
closing conditions has been fulfilled or waived or (iii) such other
date as may be agreed upon by the parties (the "Closing Date"). At
the Closing the parties shall supply evidence to the other parties
of the fulfillment or waiver of the conditions to their obligations
under this Agreement. Concurrently with the Closing, or as
promptly as practicable thereafter, a Certificate of Merger shall
be filed with the Office of the Secretary of the State of Delaware.
ARTICLE IX
ESCROW
9.1 Appointment of Escrow Committee.
(a) By voting to approve the Merger or tendering
certificate representing shares of Common Stock for exchange in the
Merger, the Shareholders shall AUTOMATICALLY BE DEEMED TO HAVE
DESIGNATED XXXXXXX X. XXXXXX AND XXXXX X. XXXXXXX AS THE "ESCROW
COMMITTEE." The Escrow Committee shall have full power to act on
behalf of the Shareholders in the manner specified herein in
connection with all matters with respect to which action by the
Escrow Committee is contemplated by this Agreement. The Escrow
Committee shall be entitled to reimbursement from the Shareholders
of all reasonable expenses included in the performance of the
duties contemplated under this Agreement, including, but to limited
to the right to employ financial advisors and other agents to
undertake or assist in the assessment, arbitration, litigation
and/or settlement of such claims. The Escrow Committee is
expressly authorized to rely upon the advice of such consultants
and agents. THE SHAREHOLDERS SHALL AUTOMATICALLY BE DEEMED TO HAVE
WAIVED ANY RIGHT OR CAUSE OF ACTION FOR ANY ACTION, OF ANY NATURE
WHATSOEVER, TAKE OR OMITTED FROM BEING TAKEN BY THE ESCROW
COMMITTEE OR ANY SUCCESSOR, ABSENT A CLEAR SHOWING OF HIS, HER OR
ITS GROSS ERROR OR FRAUD.
(b) The Escrow Committee shall take all actions required
to be taken by the Escrow Committee under this Agreement and may
take any action contemplated by this Agreement on behalf of the
Shareholders. By giving notice to the Escrow Committee in the
manner provided by Section 11.1, Buyer shall be deemed to have
given notice to all of the Shareholders and any action taken by the
Escrow Committee may be considered by Buyer to be the action of
each Shareholder for whom such action was taken for all purposes of
this Agreement. The Escrow Committee's duties shall terminate upon
the final distribution of the Escrowed Funds under the Escrow
Agreement.
9.2 Escrow Agreement. Seller, Buyer, the Escrow Committee
and the Escrow Agent will at the Closing enter into an Escrow
Agreement (the "Escrow Agreement") in substantially the form of
Exhibit B hereto. The provisions of the Escrow Agreement shall be
incorporated herein as if fully stated herein. A portion of the
Merger Consideration, consisting of the Escrow Amount, shall be
deposited by Buyer or PAS and held in escrow, as contingent
consideration for the holders of Common Stock, by the Escrow Agent
in compliance with the terms and conditions of the Escrow
Agreement. The funds held in escrow pursuant to this Article IX
will be invested by the Escrow Agent only in short-term government
securities.
9.3 Non-Transferability of the Escrowed Funds. The funds held
in escrow shall be held for the benefit of those persons who own
Outstanding Shares of Common Stock at the Effective Time (the
"Shareholders") and Buyer only and shall not be transferable by any
potential recipient thereof, except by will, intestate succession
or operation of law.
9.4 Escrowed Funds. The moneys deposited under the Escrow
Agreement pursuant to this Agreement and all interest and other
earnings thereon (collectively, the "Escrowed Funds") shall be
applied as provided in the Escrow Agreement and this Agreement.
The Escrow Committee shall be entitled to obtain distributions from
the Escrowed Funds from time to time prior to the end of the Second
Escrow Period (as defined below) in an aggregate amount not to
exceed $50,000 to pay expenses incurred by the Escrow Committee in
accordance with Section 9.1. Subject to the following sentence,
that portion of the Escrowed Funds exceeding $300,000 shall be held
for a period ending on the first anniversary of the Closing Date
(the "First Escrow Period"), and the remainder of the Escrowed
Funds (less any amount which has been previously distributed to
Buyer during the First Escrow Period in respect of claims under
Section 9.5(b)(xvi)) shall be held for a period ending on the third
anniversary of the Closing Date (the "Second Escrow Period") and
applied to the payment of claims, if any, made by Buyer pursuant to
Section 9.5(b)(xvi). At the end of the Second Escrow Period, any
Escrowed Funds which have not been previously distributed and which
are not the subject to any objection with respect to the
distribution thereof as provided in the Escrow Agreement, shall be
first, distributed to the Escrow Committee for the payment of the
fees and expenses incurred by the Escrow Committee in accordance
with Section 9.1 and not otherwise previously reimbursed out of the
Escrowed Funds and second, the remainder, if any, shall be
distributed as provided in the Escrow Agreement to the former
holders of Common Stock.
9.5 Adjustments to Purchase Price.
(a) The Distribution Amount shall be determined as
provided in this Section 9.5.
(b) The Distribution Amount shall be equal to
(i) $703,745;
(ii) plus 0.8648 times the amount, if any, by
which the prepayment penalty incurred by Buyer, Seller,
PAS or the Surviving Corporation in connection with the
payment amounts due Congress Financial Corporation
pursuant to that certain Secured Revolving Credit
Facility dated as of August 31, 1993 by Seller is less
than $120,000;
(iii) plus 0.8648 times the amount, if any, by
which the cash payment made or contractually committed to
be made to Buyer, Seller, PAS or the Surviving
Corporation on or before September 30, 1998 in connection
with the termination and settlement of the Harrisonburg
Lease exceeds $500,000;
(iv) minus 0.8648 times the total of amounts
paid by Buyer, Seller, PAS or the Surviving Corporation
in connection with the disposition of the lawsuit styled
Xxxxxx X. Xxxxxx v. Xxx X. Xxxxxx Co., including amounts
paid pursuant to a judgment, amounts paid in settlement
and all attorneys fees, costs and expenses incurred in
connection therewith subsequent to the date of this
Agreement;
(v) minus 0.8648 times the sum of all amounts
paid by Buyer, Seller, PAS or the Surviving Corporation
to the landlord or third party consultants in connection
with the termination and settlement of the obligations of
the Seller under the West Knoxville Lease;
(vi) minus 0.8648 times the amount of
prepayment penalties or premiums paid by Buyer, Seller,
PAS or the Surviving Corporation in connection with the
prepayment of the principal and interest due the Fidelity
Mutual Life Insurance Company ("Fidelity Mutual") by
Seller pursuant to the Mortgage Loan Agreement dated as
of June 15, 1989, as amended by the First Amendment
thereto dated as of November 10, 1993, by and between
Fidelity Mutual and Seller;
(vii) minus 0.8648 times the amount of all
amounts owed on layaway receivables upon which no payment
has been made in 30 days per the layaway file report run
at each of Seller's stores as of the close of business on
the Saturday night immediately preceding the Effective
Date;
(viii) minus 0.8648 times the amount by which the
bad debt reserve maintained by Shoppers Charge on behalf
of Seller on the Closing Date is confirmed by Shoppers
Charge to exceed $105,000;
(ix) minus 0.8648 times the amount by which the
advertising receivable maintained by Xxxxxx'x with
respect to Shoppers Charge on the Closing Date is
confirmed by Shoppers Charge to be less than $46,821;
(x) minus 0.8648 times the amount by which the
cash collateral account maintained by Shoppers Charge on
behalf of Seller on the Closing Date is confirmed by
Shoppers Charge to be less than $143,403;
(xi) plus 0.8648 times the amount by which the
total amount of principal and interest obligated to be
paid by Buyer, Seller, PAS or the Surviving Corporation
after the date hereof in respect of the Bankruptcy Claims
is less than $2,458,703;
(xii) minus 0.8648 times the amount, if any, by
which Seller's loss before income taxes (after equity in
earnings of Subsidiary have been posted) for the period
beginning on April 5, 1998 and ending on the Closing Date
exceeds $545,000 (such amount to be increased by $11,000
for each day the Closing Date extends beyond June 15,
1998) (for the avoidance of doubt, a loss of $600,000
during such period would result in a reduction of the
Distribution Amount by $55,000); provided, Seller's loss
before income taxes for purposes of this subsection (xii)
shall not include any item affecting the Distribution
Amount pursuant to any other subsection of this Section
9.5 or any charges relating to store closings or lease
renegotiations;
(xiii) minus 0.8648 times the amount, if any, by
which the expenses incurred by Seller in connection with
the transactions contemplated by this Agreement exceed
$200,000, provided any fees paid to Retail Consulting
Services shall not be included in such amount;
(xiv) minus 0.8648 times the amount, if any, of
the shortfall computed in accordance with Section 5.16 of
this Agreement;
(xv) minus 0.8648 times the amount, if any,
distributed from the Escrow Account in respect of any
damage, loss, liability or expense (including, without
limitation, reasonable expenses of investigation and
litigation and reasonable attorneys', accountants' and
other professional fees) arising out of a breach of any
representation, warranty or covenant made by Seller in
this Agreement. For purposes of this Section 9.5(b)(xv),
the determination of whether a representation or warranty
made by Seller in this Agreement has been breached shall
be made by ignoring references to "material" or "Material
Adverse Effect;" and
(xvi) minus the amount, if any, distributed from
the Escrow Account in respect of any damage, loss,
liability or expense (including, without limitation,
reasonable expenses of investigation and litigation and
reasonable attorneys', accountants' and other
professional fees) arising out of (A) failure by the
Seller, its directors, officers, employees or agents, or
any third party administrator or trustee to comply with
all applicable laws in respect of the administration,
operation or maintenance with, the ESOP, (B) the ESOP
Audit or (C) those matters listed in paragraphs (c) and
(f) of Schedule 3.20 of the Seller Disclosure Schedule).
The foregoing provisions notwithstanding, in no event
shall the Distribution Amount exceed the total of $703,745 plus
interest earned thereon and deposited in the Escrow Account.
(c) Buyer shall give written notice (a "Claim Notice")
to the Escrow Agent and the Escrow Committee if Buyer believes it
is entitled to distributions from the Escrow Fund with respect to
any of the matters set forth in Section 9.5(b). The Claim Notice
shall be provided promptly (but in no event later than ten days
prior to the time any response to an asserted claim is required)
after receipt of knowledge of the fact upon which such claim is
based and shall set forth in reasonable detail the facts giving
rise to any claim for a distribution hereunder.
(d) Upon receipt by the Escrow Committee of a Claim
Notice from Buyer with respect to any claim of a third party which
gives rise to Buyer's right to distribution pursuant to Section
9.5(b)(xv) or Section 9.5(b)(xvi),the Escrow Committee may assume
the defense thereof with counsel reasonably satisfactory to Buyer
and Buyer shall cooperate in the defense or prosecution thereof and
shall furnish such records, information and testimony and attend
all such conferences, discovery proceedings, hearing, trials and
appeals as may be reasonably requested in the connection thereof.
Buyer shall have the right to employ its own counsel in any such
case, but the fees and expenses of such counsel shall be at the
expense of Buyer unless (i) the Escrow Committee shall not have
promptly employed counsel reasonably satisfactory to Buyer to take
charge of the defense of any such action or (ii) counsel for Buyer
determines, in its reasonable judgment, that Buyer and the Escrow
Committee may have conflicting defenses or claims. Neither Buyer
nor the Escrow Committee shall make any settlement of any claim
without the written consent of the other, which consent shall not
be unreasonably withheld. Without limiting the generality of the
foregoing, it shall not be deemed unreasonable for Buyer to
withhold consent to a settlement involving injunctive or other
equitable relief against Buyer, the Surviving Corporation or their
respective assets, employees or business.
(e) The Escrow Committee shall have the right to object,
by written notice delivered within 20 days after a Claim Notice is
received to the Buyer and the Escrow Agent, to all or any portion
of a proposed distribution contained in any Claim Notice.
9.6 Limitations on Distributions. Notwithstanding the
foregoing provisions of this Article IX, and other than with
respect to claims for fraud, as to which no limitation set forth in
this Article IX shall apply, (i) Buyer shall not be entitled to any
distributions of Escrowed Funds for claims pursuant to Sections
9.5(b)(xv) and 9.5(b)(xvi) until the aggregate amount of
distributions to which Buyer is otherwise entitled for claims
pursuant to Sections 9.5(b)(xv) and 9.5(b)(xvi) exceeds $43,240,
and then entitlement for any claims related to matters arising
under Sections 9.5(b)(xv) and 9.5(b)(xvi) of this Agreement in
excess of $43,240 shall be limited to the Escrowed Funds.
9.7 Provision of Information. Buyer shall provide to the
Escrow Committee on request all information and documentation
reasonably necessary to support and verify any claims that Buyer
believes give rise to a claim for distribution of Escrowed Funds
and shall give the Escrow Committee reasonable access to all books,
records and personnel in the possession or under the control of the
Buyer or the Surviving Corporation that would have a bearing on
such claim.
9.8 Survival; Investigation. The representations and
warranties of Seller contained in this Agreement shall survive any
investigation by Buyer and shall not terminate until the first
anniversary of the Closing Date (the "Survival Date") at which time
they shall lapse. Notwithstanding the provisions of the preceding
sentence, any representation or warranty in respect of which
indemnification may be sought under this Article IX shall survive
the Survival Date if written notice, given in good faith, of a
specific breach thereof is given to Seller in accordance with
Section 9.5 prior to the Survival Date.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination. This Agreement may be terminated at any
time prior to the Effective Time, whether before or after approval
by the shareholders of Seller:
(i) by mutual consent of the Boards of
Directors of Seller and Buyer;
(ii) by Seller or Buyer if there has been a
material breach by the other of a representation,
warranty or agreement contained herein, which breach is
not curable or, if curable, is not cured within 20 days
after written notice of such breach is given to the other
party, or if any condition to the consummation of the
Merger which must be met by the other, becomes impossible
to fulfill;
(iii) by Seller if in the exercise of its good
faith judgment as to its fiduciary duties to its
shareholders imposed by law, the Board of Directors of
Seller determines that such termination is required by
reason of an Acquisition Proposal being made;
(iv) by either Buyer or Seller if Seller's
shareholders fail to approve this Agreement and the
Merger at the initial convening of the meeting of
Seller's shareholders held to consider and vote upon this
Agreement and the Merger; or
(v) by Seller or Buyer if the Closing has not
occurred by 11:59 p.m. July 15, 1998; provided, however,
that the right to terminate this Agreement pursuant to
this paragraph (v) shall not be available to any party
whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the
failure of the Closing to have occurred on or before such
date.
10.2 Effect of Termination.
(a) In the event of the termination of this Agreement as
provided in Section 10.1, this Agreement shall become wholly void
and of no further force and effect and, except as provided in
Sections 10.2(b) and 10.2(c), there shall be no further liability
or obligation on the part of any party hereto except to pay such
expenses as are required of it, but such termination shall not
constitute a waiver by any party of any claim it may have for
damages caused by reason of a breach of a representation or
warranty made by another party to in this Agreement.
(b) If Seller terminates this Agreement pursuant to
Section 10.1(iii), then Seller shall pay Buyer a fee of $500,000,
which amount shall be paid in same day funds no later than two
business days after the termination of this Agreement.
(c) If (A) either Buyer or Seller terminates this
Agreement pursuant to Section 10.1(iv) and prior to termination
pursuant to Section 10.1 (iv) Seller has received an Acquisition
Proposal, or (B) Seller terminates this Agreement pursuant to
Section 10.1(v) and prior to termination pursuant to Section
10.1(v) Seller has received an Acquisition Proposal, then, in
either event, Seller shall pay Buyer a fee of $500,000, which
amount shall be payable in same day funds on the date of
consummation of the transaction resulting from such Acquisition
Proposal, regardless of when such consummation occurs.
10.3 Amendment. This Agreement and the Exhibits and
Schedules hereto may be amended at any time prior to the Effective
Time provided that any such amendment is approved in writing by
each of the parties hereto; provided, however, that no amendment
may be made after approval of this Agreement by Seller's
shareholders without first obtaining such further approval from
Seller's shareholders as may be required by law. All
representations and warranties of Seller and Buyer which are true
and correct as modified and approved shall be deemed true and
correct for the purposes of Sections 6.1 and 7.1.
10.4 Extension, Waiver. At any time prior to the Effective
Time any party to this Agreement who is entitled to the benefits
thereof may (i) extend the time for the performance of any of the
obligations of another party hereto, (ii) waive a breach of a
representation or warranty of the other party hereto, whether
contained herein or in any exhibit, schedule or document delivered
pursuant hereto, or (iii) waive compliance by any other party
hereto with any of the agreements or conditions contained herein.
Any such extension or waiver shall be valid if set forth in a
written instrument signed by the party giving the extension or
waiver.
ARTICLE XI
GENERAL PROVISIONS
11.1 Notices. All notices required to be given hereunder
shall be in writing and shall be deemed to have been given if (i)
delivered personally, (ii) transmitted by telefax, (iii) mailed by
registered or certified mail (return receipt requested and postage
prepaid) or (iv) sent by a nationally recognized overnight
delivery courier with proof of delivery to the following listed
persons at the addresses and telefax numbers specified below, or to
such other persons, addresses or telefax numbers as a party
entitled to notice shall give, in the manner hereinabove described,
to the others entitled to notice:
(a) If to Seller to:
Xxx X. Xxxxxx Co.
000 Xxxxxxxx Xxxx
Xxxxxxxxx, Xxxxxxxxx 00000-0000
Attention: Xxxxxxx X. Xxxxxx
Telefax No.: (000) 000-0000
with a copy to:
Bass, Xxxxx & Xxxx PLC
0000 Xxxxx Xxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxx 00000-0000
Attention: J. Page Davidson
Telefax No.: (000)000-0000
(b) If to Buyer to:
Xxxxxxx Inc.
Xxx Xxxxxxx Xxxxxx
Xxxxx Xxxx, Xxxxxxxx 00000
Attention: E. Xxxxxxxx Xxxx
Telefax No.: (000) 000-0000
with a copy to:
McGuire, Woods, Battle & Xxxxxx LLP
One Xxxxx Center
000 Xxxx Xxxx Xxxxxx
Xxxxxxxx, Xxxxxxxx 00000
Attention: R. Xxxxxxxx Xxxxxxxx, Xx.
Telefax No.: (000) 000-0000
(C) If to Escrow Committee to:
Xxxxxxx X. Xxxxxx
0000 Xxxx Xxxxxx Xxx
Xxxxxxxxxx, XX 00000
and to:
Xxxxx X. Xxxxxxx
0000 Xxxx Xxxxx #000
Xxxxxxxxx, XX 00000
with a copy to:
Bass, Xxxxx & Xxxx PLC
0000 Xxxxx Xxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxx 00000-0000
Attention: J. Page Davidson
Telefax No.: (000)000-0000
If given personally or transmitted by telefax, a notice shall be
deemed to have been given when it is received. If given by mail,
it shall be deemed to have been given on the third business day
following the day on which it was posted.
11.2 Interpretation. The headings contained in this Agreement
are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
11.3 Schedules. The information contained in any exhibit or
schedule which is referred to in a representation and warranty
shall be deemed to have been disclosed in connection with and be a
part of, that particular representation and warranty only and shall
not be deemed a part of any other representation and warranty.
11.4 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
11.5 Miscellaneous. This Agreement, (i) together with the
Confidentiality Agreement among Buyer and Seller dated August 5,
1997 and the Seller Disclosure Schedule, constitute the entire
agreement and supersedes all other prior agreements and
understandings, both written and oral, between the parties with
respect to the subject matter hereof; (ii) is not intended to and
shall not confer upon any other person or business entity, other
than the parties hereto, any rights or remedies with respect to the
subject matter hereof; (iii) shall not be assigned by operation of
law or otherwise; and (iv) shall be governed by the laws of the
State of Delaware without regard to its choice of law rules.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized officers.
XXXXXXX INC.
By:_____________________________________
Title:__________________________________
XXXXXXX ACQUISITION SUBSIDIARY, INC.
By:_____________________________________
Title:__________________________________
XXX X. XXXXXX CO.
By:_____________________________________
Title:__________________________________
By:_____________________________________
Title:__________________________________
