Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
by and among
GOLFSMITH INTERNATIONAL, INC.
GOLFSMITH INTERNATIONAL HOLDINGS, INC.
and
BGA ACQUISITION CORPORATION
Dated as of September 23, 2002
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINED TERMS
1.1 Defined Terms...................................................... 1
1.2 References and Titles.............................................. 11
ARTICLE 2
THE MERGER
2.1 Merger............................................................. 12
2.2 Effective Time..................................................... 12
2.3 Effects of the Merger.............................................. 12
2.4 Certificate of Incorporation and By-Laws........................... 12
2.5 Directors and Officers............................................. 12
2.6 Conversion of Shares............................................... 12
2.7 Treatment of Options............................................... 13
2.8 Closing of Transfer Books.......................................... 14
2.9 Payment............................................................ 14
2.10 Redemption of Partnership Interests and Warrants................... 15
2.11 Adjustment of Cash Enterprise Value Prior to Closing............... 15
2.12 Payments Based on Cash Enterprise Value After Closing.............. 16
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company...................... 18
3.2 Representations and Warranties of Parent and Sub................... 34
ARTICLE 4
COVENANTS OF THE COMPANY
4.1 Conduct of Business................................................ 37
4.2 Access and Information............................................. 39
4.3 Third Party Consents............................................... 39
4.4 Notification of Certain Matters.................................... 39
4.5 Insurance.......................................................... 40
4.6 Interim Financials................................................. 40
4.7 Payment of Debt and Expenses....................................... 40
4.8 Run-Off Insurance Coverage......................................... 40
4.9 No-Solicitation.................................................... 40
ARTICLE 5
COVENANTS OF PARENT AND SUB
5.1 Notification of Certain Matters.................................... 41
5.2 Employee Matters................................................... 41
5.3 Access to Information.............................................. 43
5.4 Solvency Letter.................................................... 43
5.5 Indemnification of Officers, Directors, Employees and Agents....... 43
5.6 Financing.......................................................... 45
5.7 Notification of Breach............................................. 46
ARTICLE 6
MUTUAL COVENANTS
6.1 Governmental Consents.............................................. 46
6.2 Investigation and Agreement by Parent and Sub; No Other
Representations or Warranties...................................... 46
6.3 Tax Matters........................................................ 47
ARTICLE 7
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation.............................. 49
7.2 Conditions to Obligation of Parent and Sub......................... 49
7.3 Conditions to Obligations of the Company........................... 51
ARTICLE 8
CLOSING
8.1 Closing............................................................ 52
8.2 Actions to Occur at Closing........................................ 52
8.3 Certificate of Merger.............................................. 53
ARTICLE 9
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination........................................................ 53
9.2 Effect of Termination.............................................. 54
9.3 Return of Documentation............................................ 54
ARTICLE 10
INDEMNIFICATION
10.1 Indemnification by Parent.......................................... 54
10.2 Indemnification by the Stockholders................................ 55
10.3 Procedures......................................................... 56
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ARTICLE 11
GENERAL PROVISIONS
11.1 Amendment and Modification......................................... 58
11.2 Waiver of Compliance............................................... 59
11.3 Severability....................................................... 59
11.4 Expenses and Obligations........................................... 59
11.5 Parties in Interest................................................ 59
11.6 Notices............................................................ 60
11.7 Counterparts....................................................... 61
11.8 Entire Agreement................................................... 61
11.9 Governing Law...................................................... 61
11.10 Public Announcements............................................... 61
11.11 Assignment......................................................... 61
11.12 Director and Officer Liability..................................... 61
11.13 Stockholder Representatives........................................ 62
Exhibit A - Form of Letter of Transmittal
Exhibit B - Form of Option Surrender Agreement
Exhibit C - Form of Opinion of Counsel to the Company
Exhibit D - Forms of Employment Agreements
Exhibit E - Escrow Agreement
Exhibit F - Indemnification Agreement
Exhibit G - Form of Opinion of Counsel to Parent and Sub
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
September 23, 2002, is made by and among Golfsmith International, Inc., a
Delaware corporation (the "Company"), Golfsmith International Holdings, Inc., a
Delaware corporation ("Parent"), and BGA Acquisition Corporation, a Delaware
corporation and a wholly-owned Subsidiary of Parent ("Sub").
PRELIMINARY STATEMENTS
A. The respective Boards of Directors of the Company, Parent and Sub
deem it advisable that Sub merge with and into the Company, and, accordingly,
have each approved this Agreement and the transactions contemplated hereby, upon
the terms and subject to the conditions set forth herein.
B. The holders of all of the shares of Common Stock (as hereinafter
defined) of the Company outstanding on the date of this Agreement have approved
the Merger (as hereinafter defined).
C. The Company, First Atlantic Capital, Ltd. and Atlantic Equity
Partners III, L.P. have entered into a letter agreement, dated as of the date
hereof, affirming certain obligations of Parent and Sub hereunder (the "Side
Letter").
D. The Company, Parent and Sub desire to make certain representations,
warranties, covenants and agreements in connection with the Merger (as
hereinafter defined).
AGREEMENTS
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
upon the terms and subject to the conditions hereinafter set forth, the parties
hereto, intending to be legally bound, hereby agree as follows:
ARTICLE 1
DEFINED TERMS
1.1 DEFINED TERMS. The following terms shall have the following
meanings in this Agreement:
"Additional Equity Consideration" means the aggregate number of shares
of common stock of Parent issuable pursuant to Sections 2.6(d), which shall have
an aggregate value at the time of issuance of $10,250,000.00 based on the price
per share of common stock of Parent paid pursuant to the consummation of the
transactions contemplated by the Equity Financing Commitment at the Closing.
"Affiliate" means, with respect to any person, any other person
controlling, controlled by or under common control with such person. For
purposes of this definition, the term "control"
(and correlative terms) means the power, whether by contract, equity ownership
or otherwise, to direct the policies or management of a person.
"Aggregated Group" has the meaning set forth in Section 3.1(p).
"Agreement" has the meaning given in the first paragraph of this
Agreement.
"Applicable Laws" means all laws, statutes, rules, regulations,
ordinances, judgments, orders, decrees, injunctions and writs of any
Governmental Entity having jurisdiction over the business or operations of the
Company and its Subsidiaries, as may be in effect from time-to-time.
"Appraiser" has the meaning set forth in Section 5.4.
"Balance Sheet" has the meaning set forth in Section 3.1(e).
"Balance Sheet Date" has the meaning set forth in Section 3.1(e).
"Business Day" means any day other than (i) a Saturday, Sunday or
federal holiday or (ii) a day on which commercial banks in New York, New York or
Austin, Texas are authorized or required to be closed.
"Cap" has the meaning set forth in Section 10.2(c).
"Cash Enterprise Value" means $115.0 million, as it may be adjusted
pursuant to Section 2.11.
"CERCLA" has the meaning set forth in the definition of Environmental
Laws contained in this Section 1.1.
"CERCLIS" has the meaning set forth in Section 3.1(m).
"Certificate" has the meaning set forth in Section 2.9(a).
"Certificate of Merger" has the meaning set forth in Section 2.2.
"Closing" has the meaning set forth in Section 8.1.
"Closing Date" has the meaning set forth in Section 8.1.
"Closing Working Capital" has the meaning set forth in Section 2.12(a).
"Closing Working Capital Statement" has the meaning set forth in
Section 2.12(a).
"Code" means the United States Internal Revenue Code of 1986, as
amended. All references to the Code, U.S. Treasury regulations or other
governmental pronouncements shall be deemed to include references to any
applicable successor regulations or amending pronouncement.
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"Common Stock" has the meaning set forth in Section 2.6(b).
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company 401(k) Plan" means the retirement plan maintained by the
Company and designed to comply with Section 401 of the Code.
"Company Permits" has the meaning set forth in Section 3.1(f).
"Company's Accountants" has the meaning set forth in Section 2.11(b).
"Confidentiality Agreement" means the Confidentiality Agreement, dated
as of April 29, 2002, by and between Parent and First Union Securities Inc.
(d/b/a Wachovia Securities), on behalf of the Company.
"Consents" means all governmental consents and approvals, and all
consents and approvals of third parties, in each case that are necessary in
order to consummate the transactions contemplated herein.
"Cure Period" has the meaning set forth in Section 9.1(c).
"DGCL" means the General Corporation Law of the State of Delaware.
"Debt" means, without duplication and excluding accounts and
obligations owed by the Company to its Subsidiaries or owed by a Subsidiary of
the Company to the Company and/or one or more of its Subsidiaries, the aggregate
amount of (a) all indebtedness of the Company or any of its Subsidiaries, for
the repayment of money borrowed, whether or not represented by bonds,
debentures, notes or other securities and all accrued and unpaid interest
thereon, (b) all deferred indebtedness of the Company or any of its Subsidiaries
for the payment of the purchase price of property or long-term assets purchased,
(c) all obligations of the Company or any of its Subsidiaries to pay rent or any
payment amounts under a lease of real or personal property that is required to
be classified as a capital lease or a liability on the face of a balance sheet
prepared in accordance with GAAP, but excluding all deferred rent, (d) any
outstanding reimbursement obligations of the Company or any of its Subsidiaries
with respect to amounts drawn under letters of credit, bankers' acceptances or
similar facilities issued for the account of the Company or any of its
Subsidiaries, (e) any payment obligation of the Company or any of its
Subsidiaries under any interest rate swap agreement, forward rate agreement,
interest rate collar agreement or other financial agreement or arrangement
entered into for the purpose of limiting or managing interest rate risks, (f)
all indebtedness for borrowed money secured by any Lien on property owned by the
Company or any its Subsidiaries, whether or not indebtedness secured thereby
shall have been assumed, (g) all guarantees, endorsements (other than
endorsements of checks in the ordinary course of business), assumptions and
other contingent obligations of the Company or any of its Subsidiaries in
respect of or to purchase or to otherwise acquire, indebtedness for borrowed
money of others and (h) all premiums, prepayment penalties, change of control
payments, fees, expenses and other amounts that are paid or required to be paid
in respect of any of the foregoing as a result of the consummation of the
transactions contemplated by this Agreement and the other Transactions
Documents, but excluding the Option Merger Consideration and the value of any
Rollover Options.
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"Debt Financing Commitment" has the meaning set forth in Section
3.2(e).
"Designated Accounting Arbitrator" has the meaning set forth in Section
2.12(c).
"Dispute Notice" has the meaning set forth in Section 2.12(c).
"DOJ" means the United States Department of Justice.
"Effective Time" has the meaning set forth in Section 2.2.
"Employee Benefit Plan" means each plan, program, policy and other
contractual arrangement (whether written or oral) pursuant to which the Company,
any Subsidiary of the Company or Aggregated Group (as defined in Section 3.1(p))
member has any current or contingent liabilities or obligations for the payment
of cash or the provision of other benefits to, or on behalf of, an employee or
other individual for services rendered (or to be rendered) to such organization,
including but not limited to, any "employee benefit plan" as defined in Section
3(3) of ERISA (without regard to whether such plan is subject to ERISA).
"Employment Agreements" has the meaning set forth in Section 3.1(p).
"Environmental Costs or Liabilities" has the meaning set forth in
Section 3.1(m).
"Environmental Laws" means the following Applicable Laws pertaining to
the environment, natural resources and public or employee health and safety: the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42
U.S.C. Sections 9601 et seq.), as amended ("CERCLA"); the Emergency Planning
and Community Right to Know Act (42 U.S.C. Sections 11001 et seq.), as
amended; the Solid Waste Disposal Act (42 U.S.C. Sections 6901 et seq.), as
amended; the Clean Air Act (42 U.S.C. Sections 7401 et seq.), as amended;
the Clean Water Act (33 U.S.C. Sections 1251 et seq.), as amended; the
Toxic Substances Control Act (15 U.S.C. Sections 2601 et seq.), as amended;
the Occupational Safety and Health Act of 1970 (29 U.S.C. Sections 651 et
seq.), as amended; the Oil Pollution Act of 1990 (33 U.S.C. Sections 2701 et
seq.), as amended; and the Hazardous Materials Transportation Act (49
U.S.C. Sections 5101 et seq.), as amended, as each of the foregoing are in
effect on the date of this Agreement.
"Equity Financing Commitment" has the meaning set forth in Section
3.2(e).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" shall mean a financial institution party to the Escrow
Agreement selected by the mutual agreement of Parent and the Company prior to
the Closing Date.
"Escrow Agreement" has the meaning set forth in Section 7.2(h).
"Escrow Funds" means $6,250,000.
"Exchange Act" means the Securities Exchange Act of 1934 and the rules
and regulations promulgated thereunder.
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"Existing ESAs" means environmental site assessments conducted on or
before the date of this Agreement with respect to the Real Property described on
Schedule 3.1(i) and Schedule 3.1(j).
"Expiration Date" has the meaning set forth in Section 10.1(c).
"Final Working Capital Statement" has the meaning set forth in Section
2.12(e).
"Financial Statements" has the meaning set forth in Section 3.1(e).
"Financing Commitments" has the meaning set forth in Section 3.2(e).
"FTC" means the United States Federal Trade Commission.
"GAAP" means generally accepted accounting principles in the United
States.
"Gains and Transfer Taxes" has the meaning set forth in Section 3.1(d).
"Governmental Entity" means any governmental department, commission,
board, bureau, agency, court or other instrumentality, whether foreign or
domestic, of any country, nation, republic, federation or similar entity or any
state, county, parish or municipality, jurisdiction or other political
subdivision thereof.
"Hazardous Substances" has the meaning set forth in Section 3.1(m).
"HSR Act" has the meaning set forth in Section 3.1(d).
"Indemnification Agreement" has the meaning set forth in Section
7.2(h).
"Indemnified Liabilities" has the meaning set forth in Section 5.5(a).
"Indemnified Parties" has the meaning set forth in Section 5.5(a).
"Indenture" means that certain Indenture, attached as Exhibit A to the
Senior Notes.
"Intellectual Property" means (i) inventions, whether or not
patentable, whether or not reduced to practice, and whether or not yet made the
subject of a pending patent application or applications, (ii) ideas and
conceptions of potentially patentable subject matter, including, without
limitation, any patent disclosures, whether or not reduced to practice and
whether or not yet made the subject of a pending patent application or
applications, (iii) Patents, (iv) Trademarks and domain names, (v) copyrights
(registered or otherwise) and registrations and applications for registration
thereof, and all rights therein provided by international treaties or
conventions, (vi) moral rights (including, without limitation, rights of
paternity and integrity), and waivers of such rights by others, (vii) computer
software, including, without limitation, source code, operating systems and
specifications, data, data bases, files, documentation and other materials
related thereto, data and documentation, (viii) trade secrets and confidential,
technical and business information (including, without limitation, ideas,
formulas, compositions, inventions, and conceptions of inventions whether
patentable or unpatentable and whether or not
5
reduced to practice), (ix) whether or not confidential, technology (including
know-how and show-how), manufacturing and production processes and techniques,
research and development information, drawings, specifications, designs, plans,
proposals, technical data, copyrightable works, financial, marketing and
business data, pricing and cost information, business and marketing plans and
customer and supplier lists and information, (x) copies and tangible embodiments
of all the foregoing, in whatever form or medium, (xi) all rights to obtain and
rights to apply for patents, and to register trademarks and copyrights, and
(xii) all rights to xxx or recover and retain damages and costs and attorneys'
fees for present and past infringement of any of the foregoing.
"Knowledge" means (i) with respect to the Company, the actual or
constructive knowledge after reasonable inquiry concerning the subject matter in
question of Xxxx Xxxx, Xxxxx Xxxx, Xxxx Xxxxxx, Xxx Xxxxxxxx and Xxx Xxxxx and
(ii) with respect to Parent or Sub, the actual or constructive knowledge after
reasonable inquiry concerning the subject matter in question of the directors
and executive officers of Parent and Sub.
"Leased Real Property" means all of the real property leased pursuant
to the leases identified in Schedule 3.1(j).
"Licensed Intellectual Property" means all Intellectual Property
licensed or sublicensed by Company from a third party.
"Liens" has the meaning set forth in Section 3.1(l).
"Losses" has the meaning set forth in Section 10.1(a).
"LP" has the meaning set forth in Section 2.10.
"Major Supplier" has the meaning set forth in Section 3.1(u).
"Material Adverse Effect" means a material adverse effect on the
business, operations, financial condition or results of operations of the
Company and its Subsidiaries, in each case taken as a whole; provided, however,
that any change, effect, fact, event or condition that affects general economic
conditions or the golf industry or the retail industry shall not be considered
in determining whether a Material Adverse Effect has occurred, to the extent
that such change, effect, fact, event or condition does not affect the Company
or any of its Subsidiaries to a degree or in a manner proportionally greater
than they affect other companies in the golf industry or the retail industry.
"Material Contract" has the meaning set forth in Section 3.1(o).
"Merger" has the meaning set forth in Section 2.1.
"Merger Consideration" means the sum of the Cash Enterprise Value and
the Additional Equity Consideration, less the Purchase Price Adjustments.
"Minimum" has the meaning set forth in Section 10.1(b).
6
"Monthly Working Capital Amount" means, with respect to the applicable
fiscal month end of the Company, the difference between:
(a) the sum of the amounts in the "Net Accounts Receivable",
"Inventory", "Prepaid and Other Current Expenses" and "Other Current Assets"
line items on the applicable fiscal month end balance sheet; less
(b) the sum of the amounts in the "Accounts Payable" and
"Accrued Expenses" line items on the applicable fiscal month end balance sheet;
in each case determined on a consolidated basis for the Company and its
Subsidiaries in accordance with GAAP, applied consistently in the manner in
which GAAP was applied in the Financial Statements for the year ended December
29, 2001; provided, that "Accrued Expenses" as used in subpart (b) above shall
not include any amounts with respect to (i) liabilities for gift certificates,
(ii) liabilities for product recalls or (iii) pro-forma accrued Taxes.
"NPL" has the meaning set forth in Section 3.1(m).
"Optionholder" and "Optionholders" have the meanings set forth in
Section 2.9(a).
"Option Merger Consideration" has the meaning set forth in Section
2.7(a).
"Options" means the collective reference to all options to purchase
shares of Common Stock.
"Option Surrender Agreement" has the meaning set forth in Section
2.9(a).
"Outstanding Share" and "Outstanding Shares" have the meanings set
forth in Section 2.6(b).
"Owned Intellectual Property" means all Intellectual Property in and to
which Company holds all right, title and interest.
"Owned Real Property" means those parcels of real property owned in fee
and used or held for use by the Company and its Subsidiaries as described in
Schedule 3.1(i), and all buildings, structures, improvements, and fixtures
thereon, together with all rights of way, easements, privileges and
appurtenances pertaining or belonging thereto, including any right, title and
interest of the Company and its Subsidiaries in and to any street or other
property adjoining any portion of such property.
"Parent" has the meaning set forth in the first paragraph of this
Agreement.
"Parent's Accountants" has the meaning set forth in Section 2.11(b).
"Patent" means national (including the United States) and multinational
statutory invention registrations, patents, patent registrations and patent
applications (including all reissues, divisionals, continuations,
continuations-in-part, extensions and reexaminations) and all
7
rights therein provided by international treaties or conventions and all
improvements to the inventions disclosed in each such registration, patent or
application.
"Per Share Merger Consideration" means (A) the sum of (x) the Cash
Enterprise Value plus (y) the dollar value of the Additional Equity
Consideration plus (z) the Purchase Price Adjustments, less (i) the Option
Merger Consideration (including the dollar value of the amount by which the Per
Share Merger Consideration exceeds the exercise price for the Rollover Options),
(ii) the Redemption Amount and (iii) the Warrant Redemption Amount, divided by
(B) the number of Outstanding Shares on the Closing Date.
"Permitted Encumbrances" means (a) statutory liens for current Taxes
not yet due and payable or being contested in good faith by appropriate
proceedings, (b) mechanics', carriers', workers', repairers' and other similar
liens imposed by Applicable Law arising or incurred in the ordinary course of
business for obligations that are not overdue for a period of more than 120 days
or that are being contested in good faith by appropriate proceedings, (c) in the
case of leases of vehicles, rolling stock and other personal property,
encumbrances that do not materially impair the operation of the business at the
facility at which such leased equipment or other personal property is located,
(d) Liens on leases of real property arising from the provisions of such leases,
including, in relation to Leased Real Property, any agreements and/or conditions
imposed on the issuance of land use permits, zoning, business licenses, use
permits or other entitlements of various types issued by any Governmental
Entity, necessary or beneficial to the continued use and occupancy of such
Leased Real Property or the continuation of the business conducted by the
Company and its Subsidiaries that do not materially impair the use of such real
property by the Company or its Subsidiaries, (e) pledges or deposits made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other social security legislation, (f) deposits to
secure the performance of bids, contracts (other than for borrowed money),
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature incurred in the ordinary course of business,
(g) zoning regulations and restrictive covenants and easements of record that do
not detract in any material respect from the value of the Real Property and do
not materially and adversely affect, impair or interfere with the use of any
property affected thereby, (h) public utility easements of record, in customary
form, to serve the Real Property, (i) Liens not otherwise included as Permitted
Encumbrances that are disclosed in the real estate title reports for real estate
owned by the Company and its Subsidiaries provided to Parent prior to the date
hereof, (j) landlords' liens (whether statutory, common law or contractual) in
favor of landlords under the leases with respect to the Leased Real Property,
and (k) mortgages, deeds of trust and other security instruments, and ground
leases or underlying leases covering the title, interest or estate of such
landlords with respect to the Leased Real Property and to which the leases with
respect to the Leased Real Property are subordinate.
"Permitted Liens" has the meaning set forth in Section 3.1(l).
"person" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization or other
entity.
"Preliminary Closing Working Capital Statement" has the meaning set
forth in Section 2.11(a).
8
"Preliminary Excess Amount" has the meaning set forth in Section
2.11(a).
"Purchase Price Adjustments" means, without duplication, the positive
or negative remainder of (a) all cash and cash equivalents of the Company and
its Subsidiaries immediately prior to Closing (provided that cash and cash
equivalents held outside the U.S. shall only be included up to an amount equal
to 100,000 Canadian Dollars in Canada and up to an amount equal to 100,000
United Kingdom Pounds in the United Kingdom), minus (b) to the extent not paid
prior to Closing or from cash (or cash equivalents) of the Company at Closing,
the sum of (i) total Debt, preferred stock and capitalized leases as of the
Closing; (ii) any accrued interest and pre-payment penalties due from the
payment of the Debt and leases referred to in clause (i) above; (iii) an amount
equal to one-half of the sum of (A) 65% of the reserves for gift certificate
liabilities plus (B) the reserves for product recall liabilities, in each case
as included in the fiscal month end balance sheet for the month of September
2002 and determined on a consolidated basis with the Company and its
Subsidiaries in accordance with GAAP, applied consistently with the manner in
which GAAP was applied in the Financial Statements for the year ended December
29, 2001, (iv) all costs, sale bonuses, change of control payments (regardless
of when paid or payable), obligations pursuant to incentive or bonus plans (but
excluding the Option Merger Consideration and the value of the Rollover
Options), payments required to get third party consents and expenses of the
Company and its Subsidiaries on behalf of itself or its Securityholders, in each
case incurred in connection with the transactions contemplated by this
Agreement; (v) all fees and expenses of Wachovia Securities payable by the
Company or its Subsidiaries and all other fees, costs and expenses (including
legal and accounting fees, costs and expenses) payable by the Company and its
Subsidiaries in connection with the transactions contemplated by this Agreement
(including fees, costs and expenses of obtaining the updated Phase I
environmental report pursuant to Section 4.9); provided, that such fees, costs
and expenses shall not include those incurred in connection with the Financing
Commitments or the transactions contemplated thereby (other than legal fees and
costs incurred by the Company and its Subsidiaries in the review of such
Financing Commitments or the transactions contemplated thereby); (vi) the cost
of the run-off insurance to be purchased pursuant to Section 4.8 and (vii) the
cost of a solvency letter, if any, purchased by the Company prior to the Closing
pursuant to the second sentence of Section 5.4.
"Real Property" means the Leased Real Property and the Owned Real
Property.
"Receivables" has the meaning set forth in Section 3.1(w).
"Redemption Agreement" has the meaning set forth in Section 2.10.
"Redemption Amount" has the meaning set forth in Section 2.10.
"Rollover Option Holder" has the meaning set forth in Section 2.7(b).
"Rollover Options" has the meaning set forth in Section 2.7(b).
"Schedules" means the Schedules attached hereto.
"SEC" means the United States Securities and Exchange Commission.
9
"Section 338(h)(10) Election" has the meaning set forth in Section
6.3(a).
"Securities Act" means the Securities Act of 1933 and the rules and
regulations promulgated thereunder.
"Securityholders" means the Stockholders and the Optionholders,
collectively.
"Senior Notes" means the Senior Subordinated Notes Due 2005 issued in
the original aggregate principal amount of $30,000,000 pursuant to the Indenture
attached as Exhibit A to each such note and dated as of August 17, 1998, among
Golfsmith Holdings, L.P., Golfsmith GP Holdings, Inc. and the guarantors party
thereto.
"Side Letter" has the meaning set forth in item C of the Preliminary
Statements.
"Solvency Letter" has the meaning set forth in Section 5.4.
"Stock Option Plan" means the Golfsmith International, Inc. 1997
Incentive Plan, as amended.
"Stockholder Indemnitors" has the meaning set forth in Section 2.12(f).
"Stockholder Representatives" means Xxxx Xxxx and Xxxxx Xxxx.
"Stockholders" has the meaning set forth in Section 2.9(a).
"Stockholders Agreement" means the Stockholders Agreement, dated as of
Closing Date, by and among Parent and the stockholders of Parent.
"Sub" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its board of directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such person.
"Surviving Corporation" has the meaning set forth in Section 2.1.
"Target Closing Working Capital Amount" means an amount equal to the
average of the Monthly Working Capital Amounts for each of the twelve fiscal
month-ends of the Company, beginning with the Company's fiscal month end for
October 2001 and ending with the Company's fiscal month end for September 2002.
"Taxes" means taxes, charges, fees, imposts, levies, interest,
penalties, additions to tax or other assessments or fees of any kind, including,
but not limited to, income, corporate, capital, excise, property, sales, use,
turnover, value added and franchise taxes, deductions, withholdings and customs
duties, imposed by any Governmental Entity.
10
"Tax Returns" means any return, report, statement, information return
or other document (including any related or supporting information) filed or
required to be filed with any Governmental Entity in connection with the
determination, assessment, collection or administration of any Taxes or the
administration of any laws, regulations or administrative requirements relating
to any Taxes.
"Termination Date" has the meaning set forth in Section 9.1(c).
"Trademark" means trademarks, service marks, trade dress, logos,
slogans, trade names and corporate names, whether or not registered, including
all common law rights, and registrations and applications for registration
thereof, including, but not limited to, all marks registered in the United
States Patent and Trademark Office, the Trademark Offices of the States and
Territories of the United States of America, and the Trademark Offices of other
nations throughout the world, and all rights therein provided by international
treaties or conventions.
"Transaction Documents" means, collectively, this Agreement and each
other agreement, document and instrument required to be executed in accordance
herewith.
"Units" has the meaning set forth in Section 2.7(b).
"Warrant Redemption Amount" equals the aggregate sum of, for all
warrants to purchase Common Stock outstanding as of the Closing Date, the
excess, if any, of (a) the product of (i) the number of shares of Common Stock
issuable upon exercise of such warrant and (ii) the Per Share Merger
Consideration less (b) the product of (x) the exercise price for a share of
Common Stock issuable upon exercise of such warrant and (y) the number of shares
of Common Stock issuable upon exercise of such warrant.
1.2 REFERENCES AND TITLES. All references in this Agreement to
Exhibits, Schedules, Articles, Sections, subsections and other subdivisions
refer to the corresponding Exhibits, Schedules, Articles, Sections, subsections
and other subdivisions of this Agreement unless expressly provided otherwise.
Titles appearing at the beginning of any Articles, Sections, subsections or
other subdivisions of this Agreement are for convenience only, do not constitute
any part of such Articles, Sections, subsections or other subdivisions, and
shall be disregarded in construing the language contained therein. The words
"this Agreement," "herein," "hereby," "hereunder" and "hereof" and words of
similar import, refer to this Agreement as a whole and not to any particular
subdivision unless expressly so limited. The words "this Section," "this
subsection" and words of similar import, refer only to the Sections or
subsections hereof in which such words occur. The word "including" (in its
various forms) means "including, without limitation." Pronouns in masculine,
feminine or neuter genders shall be construed to state and include any other
gender and words, terms and titles (including terms defined herein) in the
singular form shall be construed to include the plural and vice versa, unless
the context otherwise expressly requires. Unless the context otherwise requires,
all defined terms contained herein shall include the singular and plural and the
conjunctive and disjunctive forms of such defined terms.
11
ARTICLE 2
THE MERGER
2.1 MERGER. Upon the terms and subject to the conditions set forth in
this Agreement, at the Effective Time, Sub shall be merged with and into the
Company (the "Merger") in accordance with terms of, and subject to the
conditions set forth in, this Agreement and the DGCL. Following the Merger, the
Company shall continue as the surviving corporation in the Merger (sometimes
hereinafter referred to as the "Surviving Corporation") and the separate
corporate existence of Sub shall cease. The corporate existence of the Company,
with all its purposes, rights, privileges, franchises powers and objects shall
continue unaffected and unimpaired by the Merger and, as the Surviving
Corporation, it shall be governed by the Laws of the State of Delaware.
2.2 EFFECTIVE TIME. Immediately following the Closing, the parties
hereto shall cause the Merger to be consummated by filing a certificate of
merger (the "Certificate of Merger"), with the Secretary of State of the State
of Delaware and by making all other filings or recordings required under the
DGCL in connection with the Merger, in such form as is required by, and executed
in accordance with the relevant provisions of, the DGCL. The Merger shall become
effective at such time as the Certificate of Merger is duly filed with the
Secretary of State of the State of Delaware, or at such other time as the
parties hereto agree in writing shall be specified in the Certificate of Merger
(the date and time the Merger becomes effective, the "Effective Time").
2.3 EFFECTS OF THE MERGER. The Merger shall have the effects set forth
in the DGCL. Without limiting the generality of the foregoing and subject
thereto, at the Effective Time all the property, rights, privileges, immunities,
powers and franchises of the Company and Sub shall vest in the Surviving
Corporation, and all debts, liabilities, obligations and duties of the Company
and Sub shall become the debts, liabilities, obligations and duties of the
Surviving Corporation.
2.4 CERTIFICATE OF INCORPORATION AND BY-LAWS. The certificate of
incorporation and by-laws of Sub in effect immediately prior to the Effective
Time shall be the certificate of incorporation and by-laws of the Surviving
Corporation as of the Effective Time, until duly amended in accordance with
Applicable Law; provided that the provisions relating to the indemnification of
directors, officers, employees and agents of the Company, its Subsidiaries and
other entities as described in Section 5.5(b) shall be included in such
certificate of incorporation and by-laws.
2.5 DIRECTORS AND OFFICERS. The directors and officers of Sub
immediately prior to the Effective Time shall be the directors and officers of
the Surviving Corporation as of the Effective Time.
2.6 CONVERSION OF SHARES. At the Effective Time, by virtue of the
Merger and without any action on the part of any party:
(a) Each share of common stock, par value $.01 per share, of
Sub issued and outstanding immediately prior to the Effective Time shall remain
outstanding and shall represent
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one share of common stock, par value $.01 per share, of the Surviving
Corporation, so that, after the Effective Time, Parent shall be the holder of
all of the issued and outstanding shares of the Surviving Corporation's common
stock.
(b) Subject to Section 2.6(d), each share of the Company's
common stock, par value $0.01 per share ("Common Stock"), outstanding
immediately prior to the Effective Time (each, an "Outstanding Share" and
collectively, the "Outstanding Shares") shall be converted, subject to Section
2.9, into the right to receive the Per Share Merger Consideration in cash,
payable to the holder thereof without interest and shall otherwise cease to be
outstanding, shall be canceled and retired and cease to exist.
(c) Each share of Common Stock held in the treasury of the
Company or by any of the Company's Subsidiaries immediately prior to the
Effective Time shall be canceled and retired without any conversion thereof, and
no payment or distribution shall be made with respect thereto.
(d) In lieu of the conversion of a portion of the Outstanding
Shares held by them, Xxxxx Xxxx and Xxxx Xxxx shall receive shares of common
stock of Parent upon conversion of such shares of Outstanding Shares. The number
of shares of Outstanding Shares of each of Xxxx Xxxx and Xxxxx Xxxx that shall
be converted into shares of common stock of Parent shall equal the quotient of
(i) with respect to Xxxxx Xxxx, $3,547,525.00 and (ii) with respect to Xxxx
Xxxx, $6,702,475.00, in each case divided by the Per Share Merger Consideration,
rounded to the nearest whole share. The number of shares of common stock of
Parent issuable upon the conversion of each such share of Outstanding Shares
shall equal the quotient of the Per Share Merger Consideration divided by the
price per share of common stock of Parent paid pursuant to the consummation of
the transactions contemplated by the Equity Financing Commitment, rounded to the
nearest whole share.
2.7 TREATMENT OF OPTIONS
(a) At the Effective Time, each outstanding Option, whether or
not then exercisable, shall be canceled and, subject to the terms and conditions
set forth in Sections 2.7(b) and 2.9, the holder thereof shall be entitled to
receive, at the Effective Time or as soon as practicable thereafter, in
consideration for such cancellation, an amount in cash (the "Option Merger
Consideration") equal to the excess, if any, of (a) the product of (i) the
number of shares of Common Stock previously issuable, whether at or upon the
passage of time or the occurrence of future events, upon the exercise of such
Option and (ii) the Per Share Merger Consideration less (b) the product of (x)
the exercise price for a share of Common Stock previously issuable pursuant to
such Option and (y) the number of shares of Common Stock previously issuable,
whether at or upon the passage of time or the occurrence of future events, upon
the exercise of such Option.
(b) At the Effective Time, the Company shall cause each holder
of the outstanding Options, or portions thereof, as set forth on Schedule 2.7(b)
(each individually, a "Rollover Option," and collectively, the "Rollover
Options"), to surrender such Rollover Options in exchange for the number of
units ("Units") in the form attached hereto as Exhibit A, convertible into
shares of common stock of Parent, as set forth on Schedule 2.7(b). Each holder
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of Rollover Options (a "Rollover Option Holder") will be entitled to receive, in
full settlement of such holder's Rollover Options, a Unit convertible into a
number of shares of common stock of Parent as set forth on Schedule 2.7(b) and
shall not be entitled to receive the Option Merger Consideration for such
Rollover Options. The Units and the shares of common stock of Parent into which
they are convertible shall be subject to all restrictions (x) imposed under any
securities laws, including but not limited to the Securities Act of 1933, as
amended, and (y) set forth in the Stockholders Agreement.
2.8 CLOSING OF TRANSFER BOOKS. From and after the Effective Time, the
stock transfer books of the Company shall be closed and no transfer of Common
Stock shall thereafter be made. From and after the Effective Time, the holders
of Certificates evidencing ownership of Outstanding Shares immediately prior to
the Effective Time shall cease to have any rights with respect to such
Outstanding Shares, except as otherwise provided for herein or by Applicable
Law.
2.9 PAYMENT.
(a) At the Closing, Parent and Sub shall, for each holder
(each a "Stockholder," and collectively, the "Stockholders") of a stock
certificate that immediately prior to the Effective Time represented Outstanding
Shares (a "Certificate") who surrenders a Certificate for cancellation to
Parent, together with the letter of transmittal in the form attached hereto as
Exhibit A, duly completed and validly executed in accordance with the
instructions thereto, and such other documents as may be reasonably required
pursuant to such instructions, pay to each such Stockholder cash equal to the
product obtained when the number of Outstanding Shares previously represented by
such Certificate is multiplied by the Per Share Merger Consideration (as
proportionately reduced by the amount deposited with the Escrow Agent pursuant
to Section 8.2(a)(ii)), payable by wire transfer of immediately available funds
to an account designated in writing by such Stockholder to Parent at least two
Business Days prior to the Closing Date or, if applicable, issue to each of the
Stockholders identified in Section 2.6(d) the number of shares of common stock
of Parent contemplated by Section 2.6(d), and the Certificates so surrendered
shall forthwith be canceled. At or following Closing, Parent and Sub shall pay
each holder of an Option (each an "Optionholder" and collectively, the
"Optionholders") who delivers to Parent a duly executed Option Surrender
Agreement in the form attached hereto as Exhibit B (each, an "Option Surrender
Agreement") cash equal to the Option Merger Consideration for such Option,
payable by check or wire transfer of immediately available funds to an account
designated in writing by such Optionholder to Parent (or, if applicable, the
Units into which such Options are convertible pursuant to Section 2.7(b)). Until
so surrendered, each such Certificate shall, at and after the Effective Time,
represent for all purposes, only the right to receive such Per Share Merger
Consideration or the applicable number of shares of Parent's common stock. If
any Certificate shall have been lost, stolen or destroyed, upon making of an
affidavit of that fact by the person claiming such Certificate to be lost,
stolen or destroyed and, if required by the Surviving Corporation or Parent, the
posting by such person of a bond, in such reasonable amount as the Surviving
Corporation or Parent may direct, as indemnity against any claim that may be
made against it with respect to such Certificate, the Surviving Corporation will
issue in exchange for such lost, stolen or destroyed Certificate the applicable
Merger Consideration such holder is entitled to receive pursuant to Section 2.6.
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(b) If any Stockholder or Optionholder fails to surrender a
Certificate, letter of transmittal or Option Surrender Agreement, as applicable,
at or prior to Closing, Parent and Sub shall not pay the portion of the Merger
Consideration applicable to the related Outstanding Shares or Options and Parent
and Sub shall deposit such portion of the Merger Consideration in a segregated
account maintained by the Surviving Corporation for the benefit of such
Stockholders or Optionholders. Promptly upon delivery of such Certificate,
letter of transmittal or Option Surrender Agreement, as applicable, the
Surviving Corporation shall pay to such Stockholder or Optionholder, without
interest, the portion of the Merger Consideration applicable to the related
Outstanding Shares or Options. Parent and the Company may, at their discretion,
waive the requirement of a Certificate, letter of transmittal or Option
Surrender Agreement, as applicable, for any or all such Stockholders or
Optionholders.
(c) All payments to Securityholders shall be subject to any
required withholding of Taxes, if any. Parent and Sub shall be responsible for
the remittance to the appropriate Governmental Entity of any required income Tax
withholding, FICA payments, and FUTA payments that arise in connection with a
payment to a Securityholder pursuant to this Section 2.9. To the extent that
amounts are so withheld by Parent or the Surviving Corporation, such amounts
shall be treated for all purposes of this Agreement as having been paid to the
holder of the shares of Common Stock and Options in respect of which such
deduction and withholding was made by Parent or the Surviving Corporation. No
interest shall accrue or be paid on the cash payable upon the delivery of
Certificates or Option Surrender Agreements.
2.10 REDEMPTION OF PARTNERSHIP INTERESTS AND WARRANTS. Concurrently
with the execution and delivery hereof, Xxxxxxxxx, Lufkin & Xxxxxxxx, the
Company, Parent and Sub are entering into that certain Redemption Agreement of
even date herewith (the "Redemption Agreement"), pursuant to which Xxxxxxxxx,
Lufkin & Xxxxxxxx shall, among other things, agree to sell to the Company its
interest in Golfsmith Holdings, L.P., a Delaware limited partnership ("LP"), and
each outstanding warrant to purchase shares of Common Stock. At the Closing,
pursuant to the Redemption Agreement, the Company shall purchase from Xxxxxxxxx,
Lufkin & Xxxxxxxx all of its interests in LP. In addition, at the Closing,
pursuant to the Redemption Agreement, the Company shall purchase each
outstanding warrant to purchase shares of Common Stock of the Company from
Xxxxxxxxx, Lufkin & Xxxxxxxx. The aggregate consideration to be paid by the
Company pursuant to the Redemption Agreement shall be a cash amount equal to the
sum of (i) 8.108% of the aggregate Per Share Merger Consideration for all
Outstanding Shares as of the Closing Date (the "Redemption Amount") and (ii) the
Warrant Redemption Amount.
2.11 ADJUSTMENT OF CASH ENTERPRISE VALUE PRIOR TO CLOSING.
(a) At least five (5) Business Days prior to the Closing Date,
the Company shall, in good faith and in consultation with Parent, prepare and
deliver to Parent a statement of its reasonable, good faith estimate of the
Closing Working Capital (as hereinafter defined) (the "Preliminary Closing
Working Capital Statement"). The calculation of the Closing Working Capital
included in the Preliminary Closing Working Capital Statement shall be prepared
on a basis consistent with the calculations contemplated for the determination
of the Final Working Capital Statement as provided in Section 2.12. If the
preliminary estimate of the Closing Working Capital as set forth in the
Preliminary Closing Working Capital Statement exceeds the
15
Target Closing Working Capital Amount, the Cash Enterprise Value shall be
increased by the amount of such excess (the "Preliminary Excess Amount"). If the
preliminary estimate of the Closing Working Capital as set forth in the
Preliminary Closing Working Capital Statement is less than the Target Closing
Working Capital Amount, the Cash Enterprise Value shall be reduced by the amount
of such difference.
(b) Parent and its representatives, including Parent's
independent accountants ("Parent's Accountants"), will be entitled to review all
work papers, if any, of the Company and its representatives, including the
Company's independent accountants ("Company's Accountants"), prepared in
connection with the delivery of the Preliminary Closing Working Capital
Statement.
2.12 PAYMENTS BASED ON CASH ENTERPRISE VALUE AFTER CLOSING.
(a) Within ninety (90) days after the Closing Date, Parent
shall prepare and deliver to the Stockholder Representatives a statement of the
Closing Working Capital, which shall be audited by Ernst & Young, L.L.P. (New
York), together with the related audit report of such firm (the "Closing Working
Capital Statement"). "Closing Working Capital" means, as of the close of
business on the date immediately preceding the Closing Date, the difference
between:
(i) the sum of the amounts in the "Net Accounts
Receivable", "Inventory", "Prepaid and Other Current Expenses" and "Other
Current Assets" line items on the Closing Working Capital Statement or the
Preliminary Closing Working Capital Statement, as applicable; less
(ii) the sum of the amounts in the "Accounts Payable"
and "Accrued Expenses" line items on the Closing Working Capital Statement or
the Preliminary Closing Working Capital Statement, as applicable;
in each case determined on a consolidated basis for the Company and its
Subsidiaries in accordance with GAAP, applied consistently in the manner in
which GAAP was applied in the Financial Statements for the year ended December
29, 2001; provided, that "Accrued Expenses" as used in Section 2.12(a)(ii) above
shall not include any amounts with respect to (A) liabilities for gift
certificates, (B) liabilities for product recalls or (C) pro-forma accrued
Taxes; and provided, further, that "Accounts Payable" and "Accrued Expenses" as
used in Section 2.12(a)(ii) above shall not include any amounts included in the
Purchase Price Adjustments or that are paid on the Closing Date (and would
otherwise have been included in the Purchase Price Adjustments).
(b) The Stockholder Representatives and their representatives,
including the Stockholders' independent accountants ("Stockholders'
Accountants"), will be entitled to review all work papers, if any, of Parent and
its representatives, including Parent's Accountants, prepared in connection with
the delivery of the Closing Working Capital Statement.
(c) The Closing Working Capital Statement delivered by Parent
to the Stockholder Representatives will be the Final Working Capital Statement
and will be conclusive and binding on the parties unless the Stockholder
Representatives, acting jointly and in good
16
faith, within thirty (30) days after the delivery to the Stockholder
Representatives of the Closing Working Capital Statement, notify Parent in
writing that the Stockholder Representatives dispute any of the amounts set
forth therein, specifying the nature of each dispute and the basis therefor (the
"Dispute Notice"). Failure by the Stockholder Representatives to dispute the
amounts reflected in the Closing Working Capital Statement within such thirty
days after delivery to the Stockholder Representatives will be deemed an
acquiescence thereto by the Stockholder Representatives. Parent and the
Stockholder Representatives will attempt in good faith to reach agreement
resolving all of the disputes set forth in the Dispute Notice within thirty (30)
days after the Dispute Notice is delivered by the Stockholder Representatives to
Parent, in which event the Closing Working Capital Statement, as amended to the
extent necessary to reflect resolution of all such disputes, will be the Final
Working Capital Statement and will be conclusive and binding on the parties. If
Parent and the Stockholder Representatives are unable to resolve any or all of
such disputes within the aforesaid thirty days, Parent and the Stockholder
Representatives will, promptly after the expiration of such time period, submit
for resolution all unresolved disputes to a nationally recognized accounting
firm (other than Parent's Accountants or Stockholders' Accountants) chosen by
agreement of Parent and the Stockholder Representatives (the "Designated
Accounting Arbitrator") as an arbiter for resolution. Promptly, but no later
than thirty (30) days after its acceptance of its appointment as Designated
Accounting Arbitrator, the Designated Accounting Arbitrator shall determine
those items in dispute on the Closing Working Capital Statement and shall render
a written report as to the resolution of each dispute and the resulting
calculation of the Final Working Capital Statement and the Closing Working
Capital. In resolving any disputed item, the Designated Accounting Arbitrator
may not assign a value to such item greater than the greatest value for such
item claimed by Parent or the Stockholder Representatives or less than the
smallest value for such item claimed by Parent or the Stockholder
Representatives. The Designated Accounting Arbitrator will have exclusive
jurisdiction over, and the Designated Accounting Arbitrator's services will be
the sole recourse and remedy of, Parent and the Stockholder Representatives
against one another or any other Person (including the Stockholders' Accountants
or Parent's Accountants) with respect to any disputes arising out of or relating
to the Closing Working Capital Statement and/or the Final Working Capital
Statement. The Designated Accounting Arbitrator's determination will be
conclusive and binding on Parent and the Stockholder Representatives and will be
enforceable in a court of law.
(d) The Stockholder Indemnitors shall pay the fees and
expenses of the Stockholders' Accountants pursuant to the Indemnification
Agreement. Parent shall pay the fees and expenses of Parent's Accountants. The
fees and expenses of the Designated Accounting Arbitrator shall be borne
proportionately by Parent and the Stockholder Indemnitors to the extent that
Parent's and the Stockholder Representatives' determination of the Closing
Working Capital differs from the determination of the Designated Accounting
Arbitrator. For purposes of clarification only, if the Closing Working Capital
amount shown on the Closing Working Capital Statement delivered by Parent were
$100, the Closing Working Capital amount set forth in the Dispute Notice were
$200 and the determination of Closing Working Capital made by the Designated
Accounting Arbitrator in the Final Working Capital Statement were $160, then
Parent would pay 60% of such fees and expenses and the Stockholder Indemnitors
would pay 40% of such fees and expenses.
17
(e) As used herein, the term "Final Working Capital Statement"
means (i) the Closing Working Capital Statement, if no Dispute Notice is
delivered by the Stockholder Representatives within the time period set forth in
Section 2.12(c) or (ii) if the Dispute Notice is delivered in a timely manner
and all of the disputed items are resolved by mutual agreement of Parent and the
Stockholder Representatives, the Closing Working Capital Statement, as amended,
if necessary, to reflect such resolution of all disputes or (iii) if any or all
of the disputed items are submitted to the Designated Accounting Arbitrator for
resolution, the Closing Working Capital Statement, as amended, if necessary, to
reflect any resolution of any disputes by mutual agreement of Parent and the
Stockholder Representatives and the resolution of all other disputes by the
Designated Accounting Arbitrator.
(f) If the Closing Working Capital as set forth in the Final
Working Capital Statement exceeds the preliminary estimate of the Closing
Working Capital as set forth in the Preliminary Closing Working Capital
Statement, Parent shall pay the Stockholder Representatives the amount of such
excess, and the Stockholder Representatives shall distribute such amount to the
Stockholders on a pro rata basis in relation to the number of Common Shares that
were held by such persons immediately prior to Closing. If the Closing Working
Capital as set forth in the Final Working Capital Statement is less than the
preliminary estimate of the Closing Working Capital as set forth in the
Preliminary Closing Working Capital Statement, Parent and the Stockholder
Representatives shall jointly instruct the Escrow Agent in writing to pay
Parent, from the Escrow Funds, the amount of such deficiency; provided, however,
any such deficiency in excess of $1.25 million, shall not be paid out of the
Escrow Funds, but shall be paid pursuant to the Indemnification Agreement by the
Stockholders party thereto (collectively, the "Stockholder Indemnitors"). Any
payments made by Parent or the Stockholder Representatives through the Escrow
Agent, as the case may be, pursuant to this Section 2.12(f) will be made
together with interest thereon from the Closing Date to the date of payment at a
rate of 6.0% per annum within five (5) Business Days of the date on which the
Final Working Capital Statement is determined by wire transfer of immediately
available funds to the account designated by the payee, provided, however, that
if payment is not made within such five Business Day period, the applicable rate
of interest is to be 7.0% per annum for the period from the day following such
date through the date such payment is made.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to Parent and Sub as follows (with the understanding
that Parent and Sub are relying upon such representations and warranties in
entering into and performing their respective obligations under this Agreement):
(a) ORGANIZATION, GOOD STANDING AND OTHER MATTERS. Each of the
Company and its Subsidiaries is a corporation, limited partnership or private
limited company duly organized, validly existing and in good standing under the
Applicable Laws of its respective jurisdiction of incorporation or formation,
has all requisite power and authority to own, lease and operate its properties
and to carry on its business as now being conducted, and is duly qualified to do
business as a foreign corporation, limited partnership or private limited
company in good standing to conduct business in each jurisdiction in which the
business it is conducting, or the
18
operation, ownership or leasing of its properties, makes such qualification
necessary, other than in such jurisdictions where the failure so to qualify
would not be reasonably likely to have a Material Adverse Effect. The Company
has made available to Parent or its representatives complete and correct copies
of its Certificate of Incorporation and Bylaws and its Subsidiaries' respective
certificates of incorporation and bylaws (or comparable charter or
organizational documents), as in effect on the date of this Agreement. All
Subsidiaries of the Company, their respective jurisdictions of incorporation or
organization and their respective jurisdictions where qualified to do business
are identified on Schedule 3.1(a). Except as set forth on Schedule 3.1(a), all
outstanding shares of capital stock or other equity interests of the Company's
Subsidiaries are owned by the Company or a direct or indirect Subsidiary of the
Company, free and clear of all Liens. Except as set forth on Schedule 3.1(a),
the Company does not own an equity interest in any other corporation,
association, partnership, limited liability company or other entity, other than
in the Subsidiaries. Each outstanding share of capital stock of each Subsidiary
is duly authorized, validly issued, fully paid and nonassessable.
(b) CAPITAL STRUCTURE. As of the date of this Agreement, the
authorized capital stock of the Company consists of 20,000,000 shares of Common
Stock. As of the date of this Agreement, (i) 10,000,000 shares of Common Stock
are issued and outstanding and (ii) no shares of Common Stock are held by the
Company in treasury. No bonds, debentures, notes or other instruments or
evidence of indebtedness having the right to vote (or convertible into or
exercisable or exchangeable for, securities having the right to vote) on any
matters on which the Company's stockholders may vote are issued or outstanding.
All outstanding shares of Common Stock are validly issued, fully paid and
nonassessable and were not issued in violation of any preemptive or other
similar rights. All issuances of Common Stock of the Company and capital stock
of each Subsidiary have been in material compliance with all applicable
securities laws and regulations, and all Taxes thereon have been paid (except
for Taxes not yet due and payable and for Taxes being contested in good faith).
Except as referenced in Section 2.10 and as set forth in Schedule 3.1(b), there
are outstanding (A) no shares of capital stock or other voting securities of the
Company or any of its Subsidiaries, (B) no securities of the Company or any
Subsidiary of the Company convertible into, or exchangeable or exercisable for,
shares of capital stock or other voting securities of the Company or any
Subsidiary of the Company and (C) no options, warrants, calls, rights,
commitments or agreements to which the Company or any Subsidiary of the Company
is a party or by which it is bound, in any case obligating the Company or any
Subsidiary of the Company to issue, deliver, sell, purchase, redeem or acquire,
or cause to be issued, delivered, sold, purchased, redeemed or acquired, shares
of capital stock or other voting securities of the Company or of any Subsidiary
of the Company, or obligating the Company or any Subsidiary of the Company to
grant, extend or enter into any such option, warrant, call, right, commitment or
agreement.
(c) AUTHORITY. The Company has the requisite power and
authority to enter into this Agreement and the other Transaction Documents to
which the Company is a party and to consummate the transactions contemplated
herein and therein. The Transaction Documents to which the Company is or will be
a party have been, or upon execution and delivery thereof will be, duly executed
and delivered by the Company and, assuming that such Transaction Documents
constitute the valid and binding agreement of the other parties hereto and
thereto, constitute, or upon execution and delivery will constitute, the valid
and binding obligations of the Company, enforceable against the Company in
accordance with their respective terms and
19
conditions, except that the enforcement hereof and thereof may be limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar Applicable Laws now or hereafter in effect relating
to creditors' rights generally and (ii) general principles of equity (regardless
of whether enforceability is considered in a proceeding at law or in equity).
The execution and delivery of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated herein or therein
have been duly authorized by all necessary corporate action on the part of the
Company. The Merger has been duly and validly adopted and approved by the
unanimous written consent of the Stockholders. Except for the execution by each
Optionholder of an Option Surrender Agreement, no other corporate proceedings on
the part of the Company or the Stockholders are necessary to authorize this
Agreement or to consummate the Merger or the other transactions contemplated by
this Agreement.
(d) NO CONFLICT; REQUIRED FILINGS AND CONSENTS. The execution
and delivery by the Company of the Transaction Documents to which it is a party
do not, and the performance by the Company of the transactions contemplated
herein and therein will not, subject to obtaining the consents, approvals,
authorizations and permits and making the filings described in this Section
3.1(d) or as otherwise described on Schedule 3.1(d), (i) violate, conflict with,
or result in any breach of any provision of the Company's Certificate of
Incorporation or Bylaws or its Subsidiaries' respective certificates of
incorporation and bylaws (or comparable charter or organizational documents),
(ii) except for Material Contracts identified on Schedule 3.1(o) with an
asterisk, if any, conflict in any material respect with or result in a material
violation or material breach of, or constitute a default (with or without due
notice or lapse of time or both) under, any of the terms, conditions or
provisions of any Material Contract or (iii) violate any material order, writ,
judgment, injunction, decree, statute, Applicable Law, rule or regulation of any
Governmental Entity binding upon the Company or any of its Subsidiaries or by
which or to which any material portion of their respective assets is bound or
subject. No Consent of, or registration, declaration, or filing with, any
Governmental Entity is required by the Company or any of its Subsidiaries in
connection with the execution and delivery by the Company of this Agreement and
the other Transaction Documents to which it is a party or the consummation by
the Company of the transactions contemplated hereby or thereby, except for (A)
the filing of a premerger notification and report form by the Company under the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and the expiration or termination of the applicable waiting period
thereunder, (B) the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware and appropriate documents with the relevant
authorities of other states in which the Company and its Subsidiaries do
business, (C) such filing and approvals as may be required by any applicable
state securities, "blue sky" or takeover laws, (D) such filings in connection
with any state or local tax that is attributable to the beneficial ownership of
the Real Property ("Gains and Transfer Taxes"), if any, and (E) such other
filings and consents as may be required under any environmental, health or
safety law or regulation pertaining to any notification, disclosure or required
approval necessitated by the Merger or the transactions contemplated in this
Agreement and the other Transaction Documents to which the Company is a party.
(e) FINANCIAL STATEMENTS; ABSENCE OF CERTAIN CHANGES OR EVENTS.
20
(i) The Company has delivered to Parent copies of (A) the
audited consolidated balance sheet of the Company and its consolidated
Subsidiaries as of December 29, 2001, together with the related audited
consolidated statements of income for the fiscal year then-ended and (B) the
unaudited consolidated balance sheet of the Company and its consolidated
Subsidiaries as of June 29, 2002 (the "Balance Sheet"), together with the
related unaudited consolidated statement of income for the six-month period then
ended (such audited and unaudited financial statements being collectively
referred to as the "Financial Statements"). Except as set forth on Schedule
3.1(e)(i), the Financial Statements were prepared in accordance with the books
and records of the Company and each of its Subsidiaries and in accordance with
GAAP (except that the unaudited Financial Statements do not contain footnotes
and do not reflect year end adjustments) applied on a consistent basis
throughout the periods covered thereby (except to the extent disclosed therein
or required by changes in GAAP) and fairly present in all material respects the
consolidated financial position of the Company and its consolidated Subsidiaries
at the dates thereof and the consolidated results of the operations of the
Company and its Subsidiaries for the respective periods indicated.
(ii) Except as disclosed in Schedule 3.1(e)(ii), there is no
liability, contingent or otherwise, of the Company or any of its consolidated
Subsidiaries that is not reflected or reserved against in the Balance Sheet,
other than (A) liabilities incurred in the ordinary course of business since
June 29, 2002 (the "Balance Sheet Date"), (B) any such liability which would not
be required to be presented in unaudited interim financial statements prepared
in conformity with GAAP, (C) liabilities under this Agreement, (D) liabilities
for fees and expenses incurred in connection with the transactions contemplated
in the Transaction Documents and (E) liabilities that are not material to the
Company and its Subsidiaries, taken as a whole.
(iii) Except as disclosed in Schedule 3.1(e)(iii), since the
Balance Sheet Date, the Company and each of its Subsidiaries has conducted its
respective business in all material respects in the ordinary course consistent
with past practice and there has not been any action of the type described in
Section 4.1 which had such action been taken after the date of this Agreement
would be in violation of such section. Since the Balance Sheet Date, there has
not occurred and neither the Company nor any of its Subsidiaries has incurred or
suffered, any event, circumstance or fact that has resulted in a Material
Adverse Effect.
(iv) Schedule 3.1(e)(iv) sets forth a complete list of all the
Debt outstanding as of the date hereof of the Company and each of its
Subsidiaries as of the date hereof, which list indicates the principal amount
and the person to whom such Debt is owed.
(f) COMPLIANCE WITH APPLICABLE LAWS. Each of the Company and its
Subsidiaries has been operated at all times in compliance in all material
respects with all Applicable Laws. Except as set forth on Schedule 3.1(f), the
Company and its Subsidiaries hold all material permits, licenses, variances,
exemptions, orders, franchises and approvals of all Governmental Entities
necessary for the lawful conduct of their respective businesses (the "Company
Permits"). Except as set forth on Schedule 3.1(f), the Company and its
Subsidiaries are in material compliance with the terms of the Company Permits.
As of the date of this Agreement, except as set forth on Schedule 3.1(f), no
investigation or review by any
21
Governmental Entity with respect to the Company or any of its Subsidiaries is
pending or, to the Knowledge of the Company, threatened.
(g) ABSENCE OF LITIGATION. Except as set forth on Schedule 3.1(g), as
of the date of this Agreement there is no claim, action, suit, inquiry, judicial
or administrative proceeding, grievance or arbitration pending or, to the
Knowledge of the Company, threatened against the Company or any of its
Subsidiaries by or before any arbitrator or Governmental Entity, nor, to the
Knowledge of the Company, are there any investigations relating to the Company
or any of its Subsidiaries pending or threatened by or before any arbitrator or
any Governmental Entity. There are no judgments, orders, injunctions, decrees,
stipulations or awards (whether rendered by a court, administrative agency, or
by arbitration, pursuant to a grievance or other procedure) against or relating
to the Company or any of its Subsidiaries.
(h) INSURANCE. Schedule 3.1(h) sets forth as of the date of this
Agreement an accurate list of all title, fire, general liability, malpractice
liability, theft and other forms of property and casualty insurance and all
fidelity bonds held by the Company and each of its Subsidiaries. As of the date
hereof, all insurance policies and bonds with respect to the Company and its
Subsidiaries are in full force and insured claims, including paid and reserved
amounts, of the Company have not reached or exceeded the policy limits for any
insurance policies in effect at any time during the past five (5) years. As of
the date hereof, there is no claim by the Company or any of its Subsidiaries
pending under any of such policies or bonds as to which coverage has been
questioned, denied or disputed by the underwriters of such policies or bonds or
in respect of which such underwriters have reserved their rights. All premiums
payable under all such policies and bonds have been timely paid and the Company
has otherwise complied in all material respects with the terms and conditions of
all such policies and bonds. As of the date hereof, the Company does not know of
any threatened termination of, premium increase with respect to, or materially
adverse alteration of coverage under, any of such policies or bonds.
(i) OWNED REAL PROPERTY. Schedule 3.1(i) contains an accurate
description in all material respects of all the Owned Real Property. Except as
set forth on Schedule 3.1(i) and in the real estate title reports for real
estate owned by the Company and its Subsidiaries provided to Parent prior to the
date hereof, the Company or a Subsidiary of the Company has good and
indefeasible, fee simple title in and to the Owned Real Property, free and clear
of all Liens other than Permitted Liens. The Company or a Subsidiary of the
Company has sufficient title to such easements, rights of way and other rights
appurtenant to each of the Owned Real Properties as are necessary to permit
ingress and egress as are reasonably necessary for the Company or its Subsidiary
to conduct its business in the ordinary course at the location in question. The
material improvements on the Owned Real Property have access to such sewer,
water, gas, electric, telephone and other utilities as are necessary to allow
the business of the Company and each of its Subsidiaries operated thereon to be
operated in the ordinary course as currently operated. Except as set forth on
Schedule 3.1(i), the material improvements located on the Owned Real Property
are in good condition and in a state of good maintenance and repair (except for
ordinary wear and tear) and are adequate and suitable to allow the business of
the Company and its Subsidiaries to be operated in the ordinary course as
currently operated. The current use of the Owned Real Property by the Company
and its Subsidiaries does not violate in any material respect any restrictive
covenants of record affecting any of the Owned Real
22
Property. To the actual Knowledge of the Company, there are no pending, nor has
the Company received written notice of any threatened, condemnation or
appropriation or similar proceedings against any of the Owned Real Property or
the improvements thereon.
(j) LEASED REAL PROPERTY. Schedule 3.1(j) contains a list of all real
property leases to which the Company or any of its Subsidiaries is a party. Each
lease described in Schedule 3.1(j) is valid, binding and enforceable in
accordance with its terms (except that the enforcement hereof and thereof may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar Applicable Laws now or hereafter in
effect relating to creditors' rights generally and (ii) general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity)) and is in full force and effect without amendment other than
as described in Schedule 3.1(j). Except as otherwise disclosed on Schedule
3.1(j), neither the Company nor any of its Subsidiaries, and to the Knowledge of
the Company, no other party, is in default in any material respect under any
lease listed in Schedule 3.1(j). The material improvements on the Leased Real
Property that are required to be maintained by the Company or the applicable
Subsidiary, as tenant under the lease with respect thereto, are in good
condition and in a state of good maintenance and repair (except for ordinary
wear and tear) and are adequate and suitable to allow the business of the
Company and its Subsidiaries to be operated in the ordinary course as currently
operated. To the actual Knowledge of the Company, there are no pending, nor has
the Company received written notice of any threatened, condemnation or
appropriation or similar proceedings against any of the Leased Real Property or
the improvements thereon.
(k) TANGIBLE PROPERTY. The Company or its Subsidiaries have good title
to, or hold pursuant to valid and enforceable leases, all the tangible
properties and assets of the Company and its Subsidiaries (excluding Real
Property) that are material to the conduct of the businesses of the Company and
its Subsidiaries. Except as disclosed in Schedule 3.1(k), such tangible
properties and assets of the Company and its Subsidiaries (a) are in good
operating condition and in a state of good maintenance and repair (and in the
case of buildings and structures are structurally sound), ordinary wear and tear
excepted, (b) are usable in the regular and ordinary course of business and (c)
conform in all material respects to Applicable Laws. Except as set forth on
Schedule 3.1(k), no Person other than the Company or a Subsidiary owns any
equipment or other tangible personal property or assets situated on the premises
of the Company or a Subsidiary which are necessary to the operation of the
business of the Company and its Subsidiaries, except for the leased items that
are subject to personal property leases.
(l) LIENS AND ENCUMBRANCES. As of the date of this Agreement, all of
the material assets of the Company and each of its Subsidiaries are free and
clear of all liens, pledges, voting agreements, voting trusts, proxy agreements,
security interests, restrictions, mortgages, tendencies, and other possessory
interests, conditional sale or other title retention agreements, assessments,
easements, rights-of-way, covenants, restrictions, rights of first refusal,
defects in title, encroachments, and other burdens, options or encumbrances of
any kind (collectively, "Liens") except (i) Permitted Encumbrances and (ii)
Liens set forth on Schedule 3.1(l) (the Liens referred to in clauses (i) and
(ii) being "Permitted Liens").
(m) ENVIRONMENTAL MATTERS. Except as disclosed in the Existing ESAs or
on Schedule 3.1(m), as of the date of this Agreement:
23
(i) The Real Property and the operations of the Company and
its Subsidiaries thereon comply in all material respects with all applicable
Environmental Laws.
(ii) No judicial proceedings are pending or, to the Knowledge
of the Company, threatened against the Company or any of its Subsidiaries
alleging the violation of any Environmental Laws, and there are no
administrative proceedings pending or, to the Knowledge of the Company,
threatened, against the Company or any of its Subsidiaries alleging the
violation of any Environmental Laws and no written notice from any Governmental
Entity or any private or public person has been received by the Company or any
of its Subsidiaries claiming any violation of any Environmental Laws by any Real
Property, or requiring any remediation, clean-up, modification, repairs, work,
construction, alterations or installations on any Real Property that are
necessary to comply with any Environmental Laws and that have not been complied
with or otherwise resolved to the satisfaction of the party giving such notice.
(iii) All material permits, registrations, licenses and
authorizations required to be obtained or filed by the Company or any of its
Subsidiaries under any Environmental Laws in connection with the Company's or
any of its Subsidiaries' operations, including those activities relating to the
generation, use, storage, treatment, disposal, release or remediation of
Hazardous Substances, have been duly obtained or filed, and the Company and each
of its Subsidiaries is in compliance in all material respects with the terms and
conditions of all such permits, registrations, licenses and authorizations.
(iv) All Hazardous Substances used or generated by the Company
or any of its Subsidiaries at or on any of the Owned Real Property or Leased
Real Property have been managed in such manner as not to result in any material
Environmental Costs or Liabilities. "Hazardous Substances" means (A) any
hazardous materials, hazardous wastes, hazardous substances, toxic wastes and
toxic substances as those or similar terms are defined under any Environmental
Laws, (B) any asbestos or any material that contains any hydrated mineral
silicate, including chrysolite, amosite, crocidolite, tremolite, anthophylite
and/or actinolite, whether friable or non-friable, (C) PCBs, PCB-containing
materials or fluids, (D) radon, (E) any other hazardous, radioactive, toxic or
noxious substance, material, pollutant, contaminant, constituent, or solid,
liquid or gaseous waste regulated under any Environmental Law, (F) any
petroleum, petroleum hydrocarbons, petroleum products, crude oil and any
fractions or derivatives thereof, any oil or gas exploration or production waste
and any natural gas, synthetic gas and any mixtures thereof and (G) any
substance that, whether by its nature or its use, is subject to regulation under
any Environmental Laws or with respect to which any Environmental Laws or
Governmental Entity requires environmental investigation, monitoring or
remediation. "Environmental Costs or Liabilities" means any material losses or
liabilities in connection with (1) any violation of any Environmental Laws or
(2) a claim by any private or public person arising out of any exposure of any
person or property to Hazardous Substances.
(v) Neither the Company nor any of its Subsidiaries has
received any written notification from any source advising the Company or any of
its Subsidiaries that (A) it is a potentially responsible party under CERCLA or
any other Environmental Laws, (B) any Real Property is identified or proposed
for listing as a federal National Priorities List ("NPL") (or state-equivalent)
site or a Comprehensive Environmental Response, Compensation and Liability
Information System ("CERCLIS") list (or state-equivalent) site or (C) any
facility to which it
24
currently transports or otherwise arranges for the disposal of Hazardous
Substances is identified or proposed for listing as an NPL (or state-equivalent)
site or CERCLIS (or state-equivalent) site.
(n) TAXES.
(i) Tax Returns. Except as set forth on Schedule 3.1(n), the
Company and each of its Subsidiaries has timely filed all Tax Returns required
to be filed by, or with respect to, the Company or any of its Subsidiaries on or
prior to the date of this Agreement, and will timely file all federal and other
Tax Returns required to be filed by, or with respect to, the Company or any of
its Subsidiaries after the date of this Agreement and on or prior to the Closing
Date. Except as set forth on Schedule 3.1(n), all such Tax Returns are true and
correct in all material respects and accurately reflect the Company's or its
Subsidiaries' liabilities for the Taxes which are the subject of such Tax
Returns for the periods covered thereby. Except as set forth on Schedule 3.1(n),
the Company has delivered or made available to Parent or its agents true and
complete copies of (A) all federal income Tax Returns (including information
returns) of or with respect to each of the Company or any of its Subsidiaries
for the three most recent taxable years ending prior to the date of this
Agreement for which such Tax Returns have been filed and (B) all other income
Tax Returns (including information returns) of or with respect to each of the
Company or any of its Subsidiaries for the three most recent taxable years
ending prior to the date of this Agreement for which such Tax Returns have been
filed.
(ii) Payment of Taxes. Except as set forth on Schedule 3.1(n),
the Company and each of its Subsidiaries have timely paid or will timely pay all
Tax liabilities of the Company or any of its Subsidiaries that have or will
become due and payable on or before the Closing Date.
(iii) Tax Audits and Other Examinations. Schedule 3.1(n) sets
forth (A) each taxable year or other taxable period of the Company or any of its
Subsidiaries for which an audit or other examination of Taxes is currently in
progress (or for which the Company or any Subsidiary of the Company has been
notified that such an audit or other examination has been scheduled) as of the
date hereof together with the names of the respective tax authorities conducting
(or scheduled to conduct) such audits or examinations and a description of the
subject matter of such audits or examinations, (B) the most recent taxable year
or other taxable period for which an audit or other examination relating to
United States Federal income taxes of the Company or any of its Subsidiaries has
been finally completed and the disposition of such audits or examinations, (C)
the amount of any proposed adjustments relating to any Tax Returns of the
Company or any of its Subsidiaries which have not been settled or otherwise
resolved, and (D) a list of all written notices received by the Company or any
of its Subsidiaries from any taxing authority relating to any issue which could
materially affect the Tax liability of the Company or its Subsidiaries, taken as
a whole, which issue has not been finally determined and which, if determined
adversely to the Company or any of its Subsidiaries, could result in a Tax
liability that would be reasonably likely to have a Material Adverse Effect. The
Company has provided or made available to Parent or its agents copies of all
revenue agents' reports, deficiency notices and other written statements or
summaries relating to the Tax liabilities of the Company or its Subsidiaries
received from the Internal Revenue Service or other taxing authorities in
connection with any Tax audits or other examinations conducted in the last three
years.
25
(iv) Withholding Liability. All Taxes relating to the income,
properties or operations of the Company or any of its Subsidiaries, including,
but not limited to, (A) any and all taxes related to the employees and
independent contractors of the Company or its Subsidiaries and (B) any and all
withholding taxes required to be withheld from any payments or distributions
made by the Company or its Subsidiaries to any of their respective stockholders,
which the Company or any of its Subsidiaries is required by law to withhold or
collect have been duly withheld or collected, and have been timely paid over to
the proper Governmental Authorities to the extent due and payable.
(v) Tax Liens. There are no Liens for Taxes on any of the
assets of the Company or any of its Subsidiaries, other than Liens for Taxes not
yet due and payable, nor are there any such Liens pending or threatened.
(vi) Statute of Limitations. As of the date of this Agreement,
neither the Company nor any of its Subsidiaries has entered into or is subject
to an agreement or waiver or been requested in writing to enter into an
agreement or waiver extending any statute of limitations relating to the payment
or collection of any Taxes.
(vii) Tax Controversies. As of the date of this Agreement,
neither the Company nor any of its Subsidiaries is presently contesting or knows
of any reason to contest any Tax liability of the Company or any of its
Subsidiaries before any court, tribunal or agency.
(viii) Consolidated Returns. Except as set forth on Schedule
3.1(n), neither the Company nor any of its Subsidiaries has been included in any
combined, consolidated, unitary or affiliated group's Tax Return provided for
under the law of the United States, any foreign jurisdiction or any state or
locality.
(ix) Tax Sharing Agreements. There are no tax sharing,
allocation, indemnification, gross-up or similar agreements in effect as between
the Company and any other Person under which the Surviving Corporation or any of
its Affiliates could be liable for any Taxes of another party, or other claims
determined by reference to Taxes.
(x) Tax-Exempt Use Property. No property owned by the Company
or any of its Subsidiaries is "tax-exempt use property" within the meaning of
Section 168(h) of the Code or is required to be treated as being owned by
another person pursuant to Section 168 of the Code (or any corresponding
provision of prior law).
(xi) Excess Parachute Payments. Except as set forth on
Schedule 3.1(n), neither the Company nor any of its Subsidiaries is a party to
any agreement that would require the Company or any of its Subsidiaries to make
any payment that would constitute an "excess parachute payment" for purposes of
Sections 280G and 4999 of the Code.
(xii) Consenting Corporation Election. Neither the Company nor
any of its Subsidiaries has made or will make an election under Section 341(f)
of the Code prior to the Closing Date to treat the Company or any of its
Subsidiaries as a "consenting corporation," as defined in Section 341 of the
Code.
26
(xiii) Accounting Method Changes. Except as set forth on
Schedule 3.1(n), neither the Company nor any of its Subsidiaries has applied
for, been granted, nor agreed to any accounting method change for which it will
be required to take into account any material adjustment under Section 481 of
the Code or the corresponding Tax laws of any nation, state or locality.
(xiv) USRPHC Status. Neither the Company nor any of its
Subsidiaries is or has been a "United States real property holding corporation"
within the meaning of Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code.
(xv) Corporate Acquisition Indebtedness. No indebtedness of
the Company or any of its Subsidiaries consists of "corporate acquisition
indebtedness" within the meaning of Section 279 of the Code.
(xvi) Built-In Gains Tax. The Company shall not be liable for
any Tax under Section 1374 of the Code in connection with the deemed sale of the
Company's assets (including the assets of any qualified subchapter S subsidiary)
caused by the Section 338(h)(10) Election. Neither the Company nor any of its
Subsidiaries has, in the past 10 years, (A) acquired assets from a "C"
corporation within the meaning of Section 1361(a)(2) of the Code in a
transaction in which the Company's tax basis for the acquired assets was
determined, in whole or in part, by reference to the tax basis of the acquired
assets (or any other property) in the hands of the transferor or (B) acquired
the stock of any "C" corporation which became a qualified subchapter S
subsidiary.
(o) MATERIAL CONTRACTS. The Company has provided to Parent true and
complete copies of, and Schedule 3.1(o) sets forth a list of, all of the
following contracts, agreements, commitments, arrangements, leases (including
with respect to personal property), policies and other instruments to which, as
of the date of this Agreement, the Company or any of its Subsidiaries is a party
or by which the Company or any such Subsidiary is bound, whether written or oral
(collectively, "Material Contracts"):
(i) all bonds, debentures, notes, loans, credit or loan
agreements or loan commitments, mortgages, indentures, guarantees or
other contracts relating to the borrowing of money;
(ii) all leases relating to the Leased Real Property or other
leases or licenses involving any properties or assets (whether real,
personal or mixed, tangible or intangible) involving an annual
commitment or payment of more than $50,000;
(iii) all contracts or agreements which limit or restrict the
Company or any Subsidiary of the Company or any officers or employees
of the Company or any Subsidiary of the Company from engaging in any
business in any jurisdiction;
(iv) all franchising and licensing agreements;
(v) any contract or agreement for capital expenditures or the
acquisition or construction of fixed assets requiring the payment by
the Company or any Subsidiary of
27
the Company of an amount in excess of $100,000;
(vi) any contract that provides for an increased payment or
benefit, or accelerated vesting, upon the execution of this Agreement
or in connection with the transactions contemplated hereby;
(vii) any contract or agreement granting any person a Lien on
all or any part of any of the assets of the Company or any of its
Subsidiaries;
(viii) any contract or agreement granting to any person an
option or a first refusal, first-offer or similar preferential right to
purchase or acquire any assets;
(ix) any contract or agreement with any agent, distributor or
representative which is not terminable without penalty on sixty (60)
calendar days' or less notice;
(x) any contract or agreement for the granting or receiving of
a license or sublicense or under which any person is obligated to pay
or has the right to receive a royalty, license fee or similar payment;
(xi) any contract providing for the indemnification or holding
harmless of any officer, director or employee of the Company or its
Subsidiaries;
(xii) any joint venture or partnership contract;
(xiii) any customer contract for the provision of goods or
services by the Company or any Subsidiary of the Company, outside the
ordinary course of business;
(xiv) any employment agreement or consulting agreement;
(xv) any outstanding power of attorney empowering any person
to act on behalf of the Company or any Subsidiary of the Company; and
(xvi) all existing contracts and commitments (other than those
described in subparagraphs (i) through (xv) above) to which the Company
or a Subsidiary is a party or by which any of their assets are bound
involving an annual commitment or annual payment to or from the Company
or a Subsidiary of more than $250,000 individually or which is
otherwise material to the business of the Company or any Subsidiary of
the Company.
Notwithstanding the foregoing, blanket purchase orders or similar arrangements
shall not be considered Material Contracts for purposes of this Agreement.
Neither the Company nor any of its Subsidiaries is, or has received any written
notice that it is, in default in any material respect under any such Material
Contract, except as listed on Schedule 3.1(o). To the Company's Knowledge, as of
the date of this Agreement there has not occurred any event or events that with
the lapse of time or the giving of notice or both would constitute a default by
the Company or any Subsidiary of the Company, except as listed on Schedule
3.1(o).
28
(p) ERISA COMPLIANCE; LABOR.
(i) Schedule 3.1(p)(i) lists each Employee Benefit Plan.
(ii) Except as set forth on Schedule 3.1(p)(ii), neither the
Company nor any other entity under common control or required to be aggregated
with the Company as determined under Sections 4001(a)(14) and 4001(b)(1) of
ERISA or Section 414 of the Code (the "Aggregated Group") has any current or
contingent liabilities or obligations with respect to any Employee Benefit Plan
which is (A) a "defined benefit plan" as such term is defined in Section 3(35)
of ERISA, (B) subject to Part 3 of Title I of ERISA or Section 412 of the Code,
(C) subject to Section 4064 of ERISA or (D) a "multiemployer plan" as such term
is defined in Sections 4001(a)(3) or 3(37)(A) of ERISA. No "prohibited
transaction," as such term is described in Section 4975 of the Code, has
occurred with respect to any of the Employee Benefit Plans that would subject
the Company or any member of the Aggregated Group, any officer of the Company or
any of such plans or any trust to any tax or penalty on prohibited transactions
imposed by Section 4975 of the Code. Except as described on Schedule 3.1(p)(ii),
there exists no condition that would subject the Company or any member of the
Aggregated Group to any material liability under the terms of the Employee
Benefit Plans or Applicable Laws other than any payment of benefits in the
normal course of plan operation.
(iii) True, correct and complete copies of each of the
Employee Benefit Plans, and related documents have been provided to Parent or
its representatives, including: (A) correct and complete copies of all trust
agreements or other funding arrangements for such Employee Benefit Plans
(including insurance contracts), and all amendments thereto, (B) with respect to
any such Employee Benefit Plans or amendments, all determination letters,
rulings, opinion letters, information letters, or advisory opinions issued by
the United States Internal Revenue Service, the United States Department of
Labor, or the Pension Benefit Guaranty Corporation with respect to which there
are any outstanding obligations or liabilities of any kind or description
(except with respect to determination letters from the Internal Revenue Service,
for which only the latest determination letter has been provided), (C) Form
5500s and other annual reports or returns, audited or unaudited financial
statements, actuarial valuations and reports, and summary annual reports
prepared for any Employee Benefit Plan with respect to the most recent three
plan years, and (D) the most recent summary plan descriptions and any other
material furnished to participants and beneficiaries. All reports, filings and
disclosures relating to the Employee Benefit Plans required to be filed with or
furnished to governmental agencies or plan participants or beneficiaries under
Applicable Law have been furnished in all material respects in accordance with
Applicable Laws in a timely manner.
(iv) Each Employee Benefit Plan has been maintained and
administered in all material respects in compliance with Applicable Laws. Except
as described on Schedule 3.1(p)(iv), as of the date of this Agreement, there are
no actions, suits or claims pending (other than routine claims for benefits) or,
to the Knowledge of the Company, threatened against, or with respect to, any of
the Employee Benefit Plans. All contributions required to be made to the
Employee Benefit Plans pursuant to their terms and Applicable Law have been
timely made. Except as described in Schedule 3.1(p)(iv), (A) the fair market
value of the assets of each Employee Benefit Plan which are held in a trust or
under another funding arrangement equaled or exceeded the liabilities of such
plan as of the most recent valuation date for such plan,
29
(B) to the extent required by GAAP, the liabilities of each other Employee
Benefit Plan are accurately set forth on the Balance Sheet and (C) to the extent
that liabilities of each other Employee Benefit Plan are not required by GAAP to
be set forth on the Balance Sheet, none of such liabilities are material to the
Company and its Subsidiaries, taken as a whole. There is no matter pending with
respect to any of the Employee Benefit Plans before the Internal Revenue Service
or the Department of Labor other than as described on Schedule 3.1(p)(iv), and
no event has occurred which reasonably might be expected to give rise to the
disqualification of any Employee Benefit Plan intended to be qualified under
Section 401(a) of the Code or to the loss of any tax benefits or consequences
under the Code or to any tax under Section 511 of the Code.
(v) Except as set forth on Schedule 3.1(p)(v), neither the
Company nor any Subsidiary maintains an Employee Benefit Plan providing welfare
benefits (as defined in Section 3(1) of ERISA) to employees after retirement or
other separation of service except to the extent required under Part 6 of Title
I of ERISA or Section 4980B of the Code.
(vi) Except as disclosed on Schedule 3.1(p)(vi), the
consummation of the transactions contemplated by this Agreement will not (A)
entitle any current or former officer, employee or director of the Company or
any Subsidiary of the Company or any other person to severance pay, unemployment
compensation, stay-on bonus or any payment contingent upon a change in control
or ownership of the Company, or (B) accelerate the time of payment or vesting,
or increase the amount, of any compensation due to any such employee or former
employee. Schedule 3.1(p)(vi) contains a true and complete list of all
employment contracts, consulting agreements, termination or severance agreements
(whether such termination occurs in conjunction with a change in control or
ownership of the Company or otherwise), change of control agreements or any
other agreements respecting the terms and conditions of employment or payment of
compensation, or of a consulting or independent contractor relationship in
respect to any current or former officer, employee, consultant or independent
contractor of the Company under which the Company or any Subsidiary of the
Company has any current or contingent liabilities or obligations of any kind or
description (collectively, "Employment Agreements"). The Company has provided to
Parent true, correct and complete copies of each such Employment Agreement.
Neither the Company nor any of its Subsidiaries has received a claim from any
Governmental Entity to the effect that the Company or any of its Subsidiaries
has improperly classified any Person as an independent contractor.
(vii) Except as disclosed on Schedule 3.1(p)(vii), the Company
has the right pursuant to the terms of each Employee Benefit Plan and all
agreements related to such plan unilaterally to terminate such plan (or its
participation in such plan) or to amend the terms of such plan at any time
without triggering a penalty or an obligation to make any additional
contributions to such plan, and Parent immediately after the Closing shall have
exactly the same rights as the Company unilaterally to take such action without
triggering any penalty or any obligation to make any additional contributions to
such plan.
(viii) Except as described in Schedule 3.1(p)(viii), neither
the Company nor any of its Subsidiaries is a party to any collective bargaining
agreement and the employees of the Company and each Subsidiary have not been and
currently are not represented by a labor organization or group that was
certified or recognized by the National Labor Relations Board or any other
governmental entity. Except as set forth on Schedule 3.1(p)(viii), neither the
Company
30
nor any of its Subsidiaries (A) is engaged in any unfair labor practices, has
any unfair labor practice charges or complaints before the National Labor
Relations Board pending or, to the Knowledge of the Company, threatened against
it or (B) has any written notice of any charges, complaints or proceedings
pending or, to the Knowledge of the Company, threatened against it before the
Equal Employment Opportunity Commission, Department of Labor or any other
Governmental Entity responsible for regulating employment practices.
(ix) Except as set forth on Schedule 3.1(p)(ix), no claim,
complaint, charge or investigation for unpaid wages, bonuses, commissions,
employment withholding taxes, penalties, overtime, or other compensation,
benefits, child labor, or record keeping violations has been filed or is
pending, or the Knowledge of the Company, threatened against the Company or any
Subsidiary of the Company under the Fair Labor Standards Act, Xxxxx-Xxxxx Act,
Xxxxx-Xxxxxx Act, Service Contract Act or any other law.
(x) To the knowledge of the Company, except as set forth on
Schedule 3.1(p)(x), no government agency has investigated or cited the Company
or any Subsidiary of the Company for violations of any employment or labor laws
under which the Company or any Subsidiary of the Company has any current or
contingent liabilities or obligations of any kind or description. Except as set
forth on Schedule 3.1(p)(x), no government agency has begun or threatened
enforcement proceedings under any employment or labor law, including any
citation issued by the Occupational Safety and Health Administration or any
state, local or provincial occupational safety and health board, under which the
Company or any Subsidiary of the Company has any current or contingent
liabilities or obligations of any kind or description.
(xi) Neither the Company nor any Subsidiary has taken any
action that would constitute a "mass layoff," "mass termination" or "plant
closing" within the meaning of the United States Worker Adjustment and
Retraining Notification Act or any other law or otherwise trigger notice
requirements or liability under and federal, state, local or foreign plant
closing notice or collective dismissal law.
(q) INTELLECTUAL PROPERTY.
(i) Schedule 3.1(q)(i) sets forth a true and complete list of
all Patents, registered Trademarks and pending applications therefor
(specifically excluding Trademarks protected by common law rights, only),
registered copyrights and pending applications therefor, and domain names that
constitute Owned Intellectual Property, identifying the owner of record for
each. The Company has delivered to Parent, or has caused to be delivered to
Parent, correct and complete copies of all Material Contracts involving Owned
Intellectual Property, including, but not limited to, licenses, sublicenses or
other documents or agreements by which the Company has granted any license or
other right to any other Person with respect to the Owned Intellectual Property
set forth on Schedule 3.1(q)(i), and any and all ancillary documents pertaining
thereto (including, without limitation, all amendments, consents and evidence of
commencement dates and expiration dates). Except for the Owned Intellectual
Property listed on Schedule 3.1(q)(i)(B), with regard to the Owned Intellectual
Property the Company represents and warrants that: (i) to the Company's
Knowledge, the Owned Intellectual Property does not infringe the rights of any
Person, (ii) except as disclosed in Schedule 3.1(g), the Company has
31
not received notice of any claim from any Person, and the Company has no
Knowledge of any threatened claim, which challenges the Company's right to use
any of the Owned Intellectual Property, and (iii) except as disclosed in
Schedule 3.1(q)(i)(C), to the Company's Knowledge, no Person is infringing upon
the Owned Intellectual Property, and the Company has no Knowledge of any claim
in which the Company may have the right or a reasonable basis to assert that a
Person is infringing the Owned Intellectual Property. With regard to the Owned
Intellectual Property listed on Schedule 3.1(q)(i)(B), the Company only
represents and warrants that it is the owner of the listed assets.
(ii) The Company has delivered to Parent, or has caused to be
delivered to Parent, correct and complete copies of all Material Contracts
involving Licensed Intellectual Property, including but not limited to, licenses
and sublicenses for Licensed Intellectual Property and any and all ancillary
documents pertaining thereto (including, without limitation, all amendments,
consents, and evidence of commencement dates and expiration dates). The Company
has not received notice of any claim from any Person, and the Company has no
Knowledge of any threatened claim, which challenges the Company's right to use
any of the Licensed Intellectual Property.
(iii) The Owned Intellectual Property, including, but not
limited to, the Owned Intellectual Property set forth in Schedule 3.1(q)(i),
constitutes all the Company's Owned Intellectual Property to the Company's
Knowledge and, together with the Licensed Intellectual Property, constitutes all
the Intellectual Property necessary and material to conducting the Company's
business.
(iv) To the Company's Knowledge, it has not conveyed to any
unrelated third party any interest in the Owned Intellectual Property or the
Licensed Intellectual Property, except as disclosed in Schedule 3.1(o).
(v) The Company is the exclusive owner of the Owned
Intellectual Property listed in Schedule 3.1(q)(i)(A) and, except as disclosed
in Schedule 3.1(o), has the exclusive right to use or license use of such Owned
Intellectual Property.
(r) AFFILIATE RELATIONSHIPS. Except with respect to health and other
insurance arrangements referred to in Schedule 3.1(h), as described in Schedule
3.1(r) hereof, agreements, contracts or interests solely among the Company and
its Subsidiaries, or advances to officers or directors of the Company of
business expenses incurred in the ordinary course of business consistent with
past practice, no director, officer, Stockholder or other Affiliate of the
Company or any Subsidiary of the Company, or any entity in which, to the
Knowledge of the Company, any such director, officer, Stockholder or other
Affiliate owns any beneficial interest (other than a publicly held corporation
whose stock is traded on a national securities exchange or in the
over-the-counter market and less than 5% of the stock of which is beneficially
owned by any such persons), has any interest in: (i) any contract, arrangement
or understanding with, or relating to the business or operations of Company or
any Subsidiary of the Company; (ii) any loan, arrangement, understanding,
agreement or contract for or relating to indebtedness of or to the Company or
any Subsidiary of the Company; or (iii) any property (real, personal or mixed),
tangible, or intangible, used or currently intended to be used in, and material
to, the business or operations of the Company or any Subsidiary of the Company.
32
(s) INVENTORY. Since December 29, 2001, the inventories of the
Company and the Subsidiaries have been maintained in the ordinary course of
business consistent with past practice. As of the Closing, all such inventories
will be owned free and clear of all Liens, other than Permitted Liens. Except as
reserved against on the Balance Sheet or the Final Working Capital Statement,
all of the inventories recorded on the Balance Sheet consist of, and all
inventories of the Company and the Subsidiaries on the Closing Date will consist
of, items of a good and merchantable quality usable or saleable in the normal
course of the business consistent with past practices. Except as reserved
against on the Balance Sheet or the Final Working Capital Statement, no
previously sold inventory is subject to returns in excess of those estimated (as
disclosed to Parent) prior to the date hereof by the Company or its
Subsidiaries. Except as set forth on Schedule 3.1(s), there have been no recalls
or withdrawals relating to the products produced or sold by the Company or any
of its Subsidiaries. Except as set forth on Schedule 3.1(s), the products
produced by the Company and its Subsidiaries are, and at all times up to and
including the sale thereof have been, (i) in compliance in all material respects
with all Applicable Laws and (ii) fit for the ordinary purposes for which they
are intended to be used and conform in all material respects to any promises or
affirmations of fact made on the container or label for such product or in
connection with its sale. Except as set forth on Schedule 3.1(s), with respect
to the products produced, manufactured or assembled by the Company and its
Subsidiaries, there is no material design defect with respect to any of such
products and each of such products contains adequate warnings, presented in a
reasonably prominent manner, in accordance with Applicable Laws and current
industry practice with respect to its contents and use, other than defects and
inadequate warnings that would not, individually or in the aggregate, be
reasonably likely to have a Material Adverse Effect. All inventories reflected
on the Financial Statements were as of their respective dates, and all
inventories of the Company and the Subsidiaries existing on the Closing Date
will be, valued in accordance with prior practices (subject to reserves for
obsolescence consistent with prior practices) and such values are in conformity
with GAAP consistently applied.
(t) BROKERS AND FINDERS. Except for the previously disclosed fees
payable by the Company to First Union Securities, Inc. (d/b/a Wachovia
Securities), which fees shall be paid by the Company at the Closing, no agent,
broker, investment banker, or other person engaged by the Company, any of its
Subsidiaries or any Stockholder is or will be entitled to any broker's or
finder's fee or any other commission or similar fee payable by Parent, the
Company, any of its Subsidiaries or the Surviving Corporation in connection with
any of the transactions contemplated by this Agreement.
(u) SUPPLIER RELATIONS.
(i) Schedule 3.1(u) sets forth a list of each supplier of
goods or services to the Company and its Subsidiaries to whom the Company or its
Subsidiaries paid in the aggregate more than $3,000,000 during the 12-month
period ended July 27, 2002 (each a "Major Supplier" and collectively, "Major
Suppliers"), together with in each case the amount paid during such period.
Neither the Company nor any of its Subsidiaries is engaged in any material
dispute with any Major Supplier and, to the Knowledge of the Company, no Major
Supplier intends to terminate, limit or reduce its business relations with the
Company or any Subsidiary of the Company. As of the date hereof, other than as a
result of the change in Debt and liquidity of the Company contemplated by this
Agreement and the Financing Commitments,
33
the Company has no reason to believe that the consummation of the transactions
contemplated by this Agreement may have an adverse effect on the business
relationship of the Company or any of its Subsidiaries with any Major Supplier.
(ii) There are no direct mail component customers of the
Company or its Subsidiaries that account for net revenue to the Company and its
Subsidiaries from purchases made on account or on credit of more than $250,000
during the 12-month period ended July 27, 2002.
(v) PRODUCT AND SERVICE WARRANTIES; PRODUCT LIABILITY. Except as set
forth in Schedule 3.1(v), neither the Company nor any of its Subsidiaries makes
any express warranties or guaranties on its own behalf as to goods sold or
services provided by the Company or any of its Subsidiaries, and there is no
pending or, to the Knowledge of the Company, threatened material claim alleging
any breach of any such warranty or guaranty.
(w) NOTES AND ACCOUNTS RECEIVABLE AND PAYABLE.
(i) All notes receivable of the Company and its Subsidiaries
owing by any Securityholder, director, officer or employee of the Company or any
of its Subsidiaries have been paid in full prior to the date hereof or shall
have been paid in full prior to the Closing Date. The Company has delivered to
Parent a schedule of the accounts receivable of the Company and its Subsidiaries
relating to open accounts and deferred billing arrangements for purchasers of
inventory (the "Receivables") as of July 27, 2002 showing the amount of each
Receivable and an aging of amounts due thereunder, which schedule is true and
complete as of that date. Except as set forth on Schedule 3.1(w), to the actual
knowledge of the Company, the debtors to which the Receivables relate are not in
or subject to a bankruptcy or insolvency proceeding and none of the Receivables
have been made subject to an assignment for the benefit of creditors. Except as
set forth on Schedule 3.1(w), all Receivables that are reflected in the Final
Working Capital Statement(net of any reserves shown thereon, which reserves
shall be established in accordance with the past practices of the Company) (A)
are valid and genuine, and (B) represent monies due for goods sold and delivered
or services rendered in the ordinary course of business. Neither the Company nor
any of its Subsidiaries has factored any of its Receivables.
(ii) The accounts payable of the Company and its Subsidiaries
reflected on the Financial Statements (or that are reflected in the Final
Working Capital Statement) arose from bona fide transactions in the ordinary
course of business, consistent with past practice.
3.2 REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB. Parent and Sub
jointly and severally represent and warrant to the Company as follows (with the
understanding that the Company is relying upon such representations and
warranties in entering into and performing its obligations under this
Agreement):
(a) ORGANIZATION, GOOD STANDING AND OTHER MATTERS. Each of Parent
and Sub is a corporation duly organized, validly existing and in good standing
under the Applicable Laws of its respective jurisdiction of incorporation, has
all requisite power and authority to own, lease and operate its properties and
to carry on its business as now being conducted, and is duly
34
qualified to do business as a foreign corporation in good standing to conduct
business in each jurisdiction in which the business it is conducting, or the
operation, ownership or leasing of its properties, makes such qualification
necessary, other than in such jurisdictions where the failure so to qualify
would not materially impair the ability Parent and Sub to consummate the
transactions contemplated in this Agreement. Parent directly owns all of the
issued and outstanding capital stock of Sub free and clear of all Liens. Parent
and Sub have heretofore made available to the Company complete and correct
copies of their respective Certificates of Incorporation and Bylaws, as in
effect on the date of this Agreement.
(b) AUTHORITY. Each of Parent and Sub has all requisite power and
authority to enter into this Agreement and the other Transaction Documents to
which it is a party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of such Transaction Documents by each of
Parent and Sub, as applicable, and the consummation of the transactions
contemplated herein and therein have been respectively duly authorized by all
necessary corporate action on the part of Parent and Sub. The Transaction
Documents to which either of Parent or Sub is or will be a party have been, or
upon execution and delivery will be, duly executed and delivered by each of
Parent and Sub, as applicable, and, assuming that such Transaction Documents
constitute the valid and binding agreement of the other parties thereto,
constitute, or upon execution and delivery will constitute, the valid and
binding obligations of Parent and Sub, as applicable, enforceable against Parent
and Sub in accordance with their respective terms and conditions, except that
the enforcement hereof and thereof may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar
Applicable Laws now or hereafter in effect relating to creditors' rights
generally and (ii) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
(c) NO CONFLICT; REQUIRED FILINGS AND CONSENTS. The execution and
delivery by Parent and Sub of the Transaction Documents to which either is a
party do not, and the performance by Parent and Sub of the transactions
contemplated herein and therein will not, subject to obtaining the consents,
approvals, authorizations, and permits and making the filings described in this
Section 3.2(c) or otherwise described on Schedule 3.2(c), (i) violate, conflict
with, or result in any breach of any provisions of the Certificate of
Incorporation or Bylaws of Parent or Sub, (ii) conflict in any material respect
with or result in a material violation or material breach of, or constitute a
default (with or without due notice or lapse of time or both) under, any of the
terms, conditions or provisions of any material loan or credit agreement, note,
bond, mortgage, indenture or deed of trust, or any license, lease, agreement, or
other instrument or obligation, to which Parent or Sub is a party or by which
Parent or Sub or any material portion of their respective assets is bound or
(iii) violate any material order, writ, judgment, injunction, decree, statute,
Applicable Law, rule or regulation or registration, declaration, or filing with
any Governmental Entity applicable to Parent or Sub or by which they or any
material portion of their respective assets is bound. No Consent of, or
registration, declaration or filing with, any Governmental Entity is required by
or with respect to Parent or Sub in connection with the execution and delivery
by Parent and Sub of this Agreement and the other Transaction Documents to which
either of them is a party or the consummation of the transactions contemplated
hereby or thereby, except for (A) filings under the HSR Act, (B) the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware,
(C) such filings and approvals as may be required by any applicable state
securities, "blue sky" or takeover laws, (D)
35
such filings in connection with any Gains and Transfer Taxes and (E) such
filings and consents as may be required under any environmental, health or
safety law or regulation pertaining to any notification, disclosure or required
approval necessitated by the Merger or the transactions contemplated by this
Agreement.
(d) LITIGATION. There is no action, suit or judicial or
administrative proceeding pending or, to the Knowledge of Parent or Sub,
threatened against Parent or Sub relating to the transactions contemplated by
this Agreement or which, if adversely determined, would adversely affect the
ability of Parent or Sub to consummate the transactions contemplated by this
Agreement and the other Transaction Documents or to perform their respective
obligations and agreements hereby and thereby.
(e) FINANCING. Prior to the date hereof, Parent has delivered to the
Company true and correct copies of fully executed commitment letters (and any
amendments or modifications thereto as of the date hereof) from the financing
sources identified in Schedule 3.2(e) (the "Debt Financing Commitment"),
pursuant to which such financing sources have committed, subject only to the
terms and conditions set forth therein, to provide Parent and Sub with
$60,000,000 of debt financing. Parent has sufficient funds available for, or has
a binding commitment letter for, (i) at least $62,500,000 of equity financing
for the transactions contemplated by this Agreement ("Equity Financing
Commitment"), and (ii) at least $10,000,000 of debt financing pursuant to a
revolving credit facility or similar financing (the "Revolving Credit
Commitment," and together with the Debt Financing Commitment and the Equity
Financing Commitment, the "Financing Commitments"). The Debt Financing
Commitment is valid and in full force and effect, and, as of the date hereof, no
event has occurred which (with or without notice or lapse of time or both) would
constitute a default thereunder on the part of Parent or Sub. Assuming that the
financing contemplated by the Debt Financing Commitment is consummated in
accordance with the terms thereof, the funds to be made available under the Debt
Financing Commitment, together with the Equity Financing Commitment, will be
sufficient to enable Parent to pay (i) the Merger Consideration and (ii) all
fees and expenses related to the transactions contemplated by this Agreement. As
of the date hereof, Parent is not aware of any facts or circumstances that
create a reasonable basis for Parent to believe that it will not be able to
obtain financing in accordance with the terms of the Financing Commitments.
Parent agrees to notify the Company promptly if the statements in the
immediately preceding sentence are no longer true and correct. Except as set
forth in Section 7.2(d), Parent and Sub hereby acknowledge that their
obligations under this Agreement are not subject to any conditions regarding
their ability to obtain financing for the transactions contemplated in this
Agreement and the other Transaction Documents.
(f) BROKERS OR FINDERS. Parent represents and warrants to the
Company that neither Parent, Sub nor any Affiliate of Parent has engaged any
broker, investment banker or other person that will be entitled to any broker's
or finder's fee or any other commission or similar fee from the Company, any of
its Subsidiaries or any Securityholder in connection with any of the
transactions contemplated by this Agreement.
36
ARTICLE 4
COVENANTS OF THE COMPANY
4.1 CONDUCT OF BUSINESS. Except as contemplated by or otherwise permitted
under this Agreement or in Schedule 4.1 or to the extent that Parent shall
otherwise consent in writing, from the date of this Agreement until the Closing,
the Company covenants and agrees with Parent that the Company shall not, and
shall not permit any of its Subsidiaries to:
(a) fail to act in the ordinary course consistent with past
practices of the Company, including failure to use commercially reasonable
efforts to (i) preserve substantially intact its present relationships with
customers, (ii) preserve substantially intact the Company's and each of its
Subsidiaries' present business structure and (iii) preserve substantially intact
its present relationships with suppliers and others having business dealings
with it; or
(b) fail to use commercially reasonable efforts to (i) maintain the
tangible assets of the Company and each of its Subsidiaries in all material
respects in their current physical condition, except for ordinary wear and tear
(any compliance with this Section 4.1(b) shall not be deemed to be a breach of
Section 4.1(g)) and (ii) maintain its rights to the Intellectual Property such
that the Intellectual Property may continue to be used as currently used by the
Company and its Subsidiaries in the conduct of their respective businesses; or
(c) fail to manage its working capital substantially in accordance
with past practices; or
(d) except for amendments, terminations or non-renewals in the
ordinary course of business and consistent with past practices of the Company,
amend, terminate or fail to use its commercially reasonable efforts to renew any
Material Contract; or
(e) merge or consolidate with or into any other legal entity,
dissolve or liquidate; or
(f) except in the ordinary course consistent with past practices of
the Company or as required by the terms and provisions of written contracts
identified in the Schedules to this Agreement between the Company or any of its
Subsidiaries and an employee thereof as in existence on the date of this
Agreement, (i) adopt or amend any Employee Benefit Plan or (ii) increase in any
manner the aggregate compensation or fringe benefits of any executive officer,
director or employee of the Company or any of its Subsidiaries; or
(g) except for capital expenditures of up to $1,000,000 in the
aggregate, acquire (including, without limitation, by merger, consolidation or
the acquisition of any equity interest or long-term assets), lease or dispose of
any long-term assets except in the ordinary course of business consistent with
past practices of the Company; or
(h) mortgage, pledge or subject to any Lien, other than Permitted
Liens, any of its assets; or
(i) except as required by GAAP, by Applicable Law or by accounting
rules, change any of the accounting principles or practices used by the Company
or its Subsidiaries; or
37
(j) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than in the ordinary course of business consistent with past
practices of the Company; or
(k) issue, sell, pledge, dispose of, encumber or deliver (whether
through the issuance or granting of any options, warrants, commitments,
subscriptions, rights to purchase or otherwise) any stock of any class or any
securities convertible into or exercisable or exchangeable for shares of stock
of any class (other than the issuance of certificates in replacement of lost
certificates); or
(l) change or amend its charter documents or bylaws; or
(m) except for current liabilities within the meaning of GAAP
incurred in the ordinary course of business, incur or assume any indebtedness
for borrowed money, assume, guarantee, endorse or otherwise become liable or
responsible for the obligations of any other person (other than endorsements of
checks in the ordinary course) or make any loans, advances or capital
contributions to, or investments in, any person (other than among the Company
and its Subsidiaries and among such Subsidiaries, and other than advances to
officers, directors or employees of the Company of business expenses incurred in
the ordinary course of business consistent with past practice); or
(n) make any settlement of or compromise any Tax liability, change
any Tax election or Tax method of accounting or make any new Tax election or
adopt any new Tax method of accounting; or
(o) revoke the Company's election to be taxed as an S corporation
within the meaning of Sections 1361 and 1362 of the Code or take or allow any
action that would result in the termination of the Company's status as a validly
electing S corporation within the meaning of Sections 1361 and 1362 of the Code;
or
(p) declare, pay or set aside for payment any dividend or other
distribution of any of its assets with respect to the Common Stock or the
capital stock of the Subsidiaries, other than (i) distributions of assets made
by a Subsidiary to the Company or another Subsidiary in the ordinary course of
business consistent with past practice or (ii) cash dividends or distributions
to the holders of Common Stock of the Company not to exceed the federal taxable
income of the Company for the period beginning January 1, 2002, through the
Closing Date, multiplied by 40%, net of any amounts previously distributed with
respect to Taxes for such period; or
(q) redeem or otherwise acquire or issue any shares of, or make any
change in or to, its capital stock or any option, warrant, or right relating
thereto; or
(r) engage in any transactions with any of its Affiliates (other
than among the Company and its Subsidiaries and among such Subsidiaries) other
than transactions with Affiliates pursuant to contracts, agreements or
arrangements in effect on the date of this Agreement; or
38
(s) use commercially reasonable efforts to not cause a breach of any
representation, warranty or obligation contained in this Agreement or any
obligations contained in any Material Contract; or
(t) organize any subsidiary, acquire any capital stock or other
equity securities of any corporation or other entity or acquire any equity or
other ownership interest in any business or entity; or
(u) write down the value of any inventory of the Company or any
Subsidiary or write off as uncollectible any notes or accounts receivable or any
portion thereof or increase its allowance for doubtful accounts, in each case
other than in all material respects in the ordinary course of business
consistent with past practice; or
(v) enter into any lease with respect to real property or other
material commitment, transaction, or contract other than in the ordinary course
of business, consistent with past practice, affecting the operations of the
Company or any Subsidiary of the Company; or
(w) agree, orally or in writing, to do any of the foregoing.
4.2 ACCESS AND INFORMATION. Until the Closing, the Company shall, at the
sole cost and expense of Parent, afford to Parent and its representatives
(including accountants and counsel) reasonable access, in each case, during
normal business hours, upon reasonable prior notice and in such manner as will
not unreasonably interfere with the conduct of the business of the Company or
any of its Subsidiaries, to all properties, books, records, and Tax Returns of
the Company and each of its Subsidiaries and all other information with respect
to their respective businesses, together with the opportunity, at the sole cost
and expense of Parent, to make copies of such books, records and other documents
and to discuss the business of the Company and each of its Subsidiaries with
such officers, directors and counsel for the Company as Parent may reasonably
request for the purposes of familiarizing itself with the Company and each of
the Company's Subsidiaries, provided, that Parent shall not contact any
personnel of the Company or its Subsidiaries regarding the transactions
contemplated by this Agreement without the express prior consent of the Company.
All information provided pursuant to this Agreement shall remain subject in all
respects to the Confidentiality Agreement until the Effective Time.
4.3 THIRD PARTY CONSENTS. After the date hereof and prior to the Closing,
the Company shall use its commercially reasonable efforts, but excluding making
any payments, to obtain the Consent from any party to a Material Contract that
is required to permit the consummation of the transactions contemplated by the
Transaction Documents.
4.4 NOTIFICATION OF CERTAIN MATTERS. If the Company receives an
administrative or other order or notification relating to any violation or
claimed violation of the rules and regulations of any Governmental Entity that
could affect the ability of the Company to consummate the transactions
contemplated hereby, the Company shall promptly notify Parent thereof and shall
use its commercially reasonable efforts to take such steps as are necessary to
remove any such impediment to the transactions contemplated by this Agreement.
In addition, the Company shall give prompt written notice to Parent of (a) the
occurrence, or failure to occur, of any event of which it has Knowledge that has
caused any representation or warranty of the
39
Company contained in this Agreement to be untrue or inaccurate in any material
respect as of the date of this Agreement and (b) the failure of the Company to
comply with or satisfy in any material respect any covenant to be complied with
by it hereunder. No such notification shall affect the representations or
warranties of the parties or the conditions to their respective obligations
hereunder.
4.5 INSURANCE. The Company shall use commercially reasonable efforts to
keep all insurance policies that are in effect on the date hereof, or equivalent
replacements therefor, in full force and effect to the Closing.
4.6 INTERIM FINANCIALS. As promptly as practicable after each regular
monthly accounting period subsequent to the Balance Sheet Date and prior to the
Closing Date, the Company will deliver to Parent periodic financial reports in
the form which it customarily prepares for its internal purposes concerning the
Company and the Subsidiaries, and, if available, unaudited consolidated
statements of the financial position of the Company and its Subsidiaries as of
the last day of each such accounting period and consolidated statements of
income and changes in financial position of such entities for the period then
ended. The Company covenants that such interim statements (i) will present
fairly the financial condition of the Company and each Subsidiary as of their
respective dates and the related results of their respective operations for the
respective periods then ended and (ii) will be prepared on a basis consistent in
all material respects with prior interim periods.
4.7 PAYMENT OF DEBT AND EXPENSES. At or prior to the Closing, the Company
shall, to the extent it has sufficient cash or cash equivalents, (i) pay all
amounts due under, and obtain releases of, all Debt then outstanding, including
the Indenture, the Senior Notes and all principal, interest, prepayment
penalties, fees, expenses and other amounts that may be payable in connection
with such repayment and (ii) pay all amounts due with respect to expenses
relating to the transactions contemplated by this Agreement, including, but not
limited to, all amounts due (including fees and expenses) of Wachovia Securities
and all legal and accounting advisors. If the Company does not have cash or cash
equivalents sufficient to pay all such amounts, then all such amounts shall be
paid at the Closing by Parent or Sub and the amount of such payments shall be
included in the Purchase Price Adjustments.
4.8 RUN-OFF INSURANCE COVERAGE. The Company shall purchase an insurance
policy insuring for the Company's pre-Closing indemnification obligations to the
officers and directors of the Company and each of its Subsidiaries, which
insurance policy shall be reasonably satisfactory to Parent. Such policy shall
provide for aggregate coverage of at least $7,000,000 and shall have a minimum
six (6) year tail.
4.9 NO-SOLICITATION. Neither the Company nor any of its Affiliates will,
directly or indirectly, through any officer, director or agent of any of them or
otherwise, initiate, solicit or encourage (including by way of furnishing
non-public information or assistance), or enter into negotiations of any type,
directly or indirectly, or enter into a confidentiality agreement, letter of
intent or purchase agreement, merger agreement or other similar agreement with
any person, firm or corporation other than Parent or its Affiliates with respect
to a sale of any substantial portion of the assets of the Company or any of its
Subsidiaries, or a merger, consolidation, business combination, sale of all or
any substantial portion of the capital stock of the Company
40
or any of its Subsidiaries, or the liquidation or similar extraordinary
transaction with respect to the Company or any of its Subsidiaries that may
prevent or materially delay the performance by the Company of any of its
obligations under this Agreement or the consummation of the transactions
contemplated hereby.
ARTICLE 5
COVENANTS OF PARENT AND SUB
5.1 NOTIFICATION OF CERTAIN MATTERS. If Parent, Sub or any other Affiliate
of Parent receives an administrative or other order or notification relating to
any violation or claimed violation of the rules and regulations of any
Governmental Entity that could affect the ability of Parent or Sub to consummate
the transactions contemplated hereby, Parent and Sub shall promptly notify the
Company thereof and shall use their respective commercially reasonable efforts
to take such steps as are necessary to remove any such impediment to the
transactions contemplated by this Agreement. In addition, Parent and Sub shall
give to the Company prompt written notice of (a) the occurrence, or failure to
occur, of any event of which either of them has Knowledge that has caused any
representation or warranty of Parent or Sub contained in this Agreement to be
untrue or inaccurate in any material respect as of the date of this Agreement
and (b) the failure of Parent or Sub to comply with or satisfy in any material
respect any covenant to be complied with by it hereunder. No such notification
shall affect the representations or warranties of the parties or the conditions
to their respective obligations hereunder.
5.2 EMPLOYEE MATTERS.
(a) Parent shall take such action as may be necessary so that on and
after the Effective Time and for one year thereafter, directors, officers and
employees of the Company and its Subsidiaries immediately prior to the Effective
Time as a whole shall be provided employee benefits, plans and programs that, in
the aggregate, are no less favorable than those made available by the Company
and its Subsidiaries to such directors, officers and employees as a whole
immediately prior to the Effective Time. For purposes of eligibility to
participate and vesting in all such benefits to be provided to such directors,
officers and employees on and after the Effective Time, the directors, officers
and employees of the Company and its Subsidiaries will be credited with their
years of service with the Company and its Subsidiaries and prior employers to
the extent so credited under similar benefit plans and programs maintained by
the Company or its Subsidiaries immediately prior to the Closing. The
eligibility of any director, officer or employee of the Company and its
Subsidiaries to participate in any welfare benefit plan or program of Parent and
its Subsidiaries shall not be subject to any exclusions for any pre-existing
conditions if such individual has met the participation requirements of similar
benefit plans and programs of the Company and its Subsidiaries. All individuals
eligible to participate in any plan or arrangement contemplated above shall be
immediately eligible to participate in the similar plan or arrangement
maintained by Parent or its Subsidiaries (or the same plan or arrangement if
still maintained). Amounts paid before the Effective Time by directors, officers
and employees of the Company and its Subsidiaries under any health plans of the
Company or its Subsidiaries shall, after the Effective Time, be taken into
account in applying deductible and out-of-pocket limits applicable under the
health plans of Parent and its Subsidiaries provided as of the Effective Time to
the same extent as if such amounts had been paid under such health plans of
Parent and its Subsidiaries.
41
(b) After the Effective Time and for one year thereafter, Parent
shall either (i) cause the Surviving Corporation to continue to provide benefits
to the employees of the Company and its Subsidiaries pursuant to the Company
401(k) Plan or (ii) in accordance with Applicable Laws, maintain, adopt or cause
the Surviving Corporation to adopt, or participate in, a cash or deferred
arrangement that meets the requirements of Section 401(k) of the Code. Any
provisions of benefits pursuant to this Section 5.2(b) shall, with respect to
the Company 401(k) Plan only, also satisfy the requirements of Section 5.2(a).
(c) Subject to the other provisions set forth in this Section 5.2,
after the Closing Date and subject to Applicable Law and the terms of any
Employee Benefit Plan, Parent may amend, modify or terminate any Employee
Benefit Plan in existence prior to the Closing. Except as specifically provided
herein (including in Section 5.5), Parent, the Surviving Corporation and each of
their respective Subsidiaries are and shall remain liable for, and Parent, the
Surviving Corporation and each of their respective Subsidiaries shall be
responsible for and shall promptly discharge, all liabilities, duties and claims
(to or by any of the Company's or its Subsidiaries' employees or former
employees, any beneficiary under any Employee Benefit Plan, any Governmental
Entity or otherwise) arising out of or relating to the employment relationship
between the Company or any of its Subsidiaries and their respective employees
and former employees, whether imposed upon or made to Parent, Sub, the Company,
the Surviving Corporation, any of their respective Subsidiaries or any
Securityholder (or any Affiliate thereof), including, without limitation,
liabilities, duties and claims (i) for deferred compensation, incentive
compensation, retirement benefits, health and life benefits, severance
arrangements and benefits, disability benefits and other fringe benefits under
any Employee Benefit Plan, fund, program, arrangement, policy or practice, (ii)
relating to continuation health coverage pursuant to Section 4980B of the Code
and Title I, Subtitle B, Part 6 of ERISA, (iii) for unemployment and workers'
compensation or similar benefits and (iv) to file any and all annual reports,
filings or notices that may be required to be filed with Governmental Entities
or provided to participants and beneficiaries after the Closing. Without
limiting the foregoing, Parent and Sub agree to accept responsibility for the
remittance to the appropriate Governmental Entity of all required income Tax
withholding, FICA payments and FUTA payments that arise in connection with a
payment to a Securityholder pursuant to Section 2.9.
(d) Notwithstanding the last sentence of Section 5.2(c), Parent,
Sub, the Company, the Surviving Corporation and each of their respective
Subsidiaries hereby agree to indemnify each of the Securityholders and their
respective officers, directors, employees, consultants, stockholders and
Affiliates for, and to hold each of them harmless from and against, all damages,
losses, claims, liabilities, penalties, costs and expenses (including court
costs and reasonable attorneys' fees and expenses incurred in investigating and
preparing for any litigation or proceeding) that any of them may suffer by
reason of or in connection with any claim, proceeding or suit brought against
any of them under the Worker Adjustment Retraining and Notification Act, or any
local, state, federal or foreign Law, which relates to actions taken by Parent,
Sub, the Company, the Surviving Corporation or any of their respective
Subsidiaries or Affiliates at, or at any time after, the Closing (including,
without limitation, any failure of Parent or the Surviving Corporation to comply
with the terms and provisions set forth in this Section 5.2 or any constructive
discharge of any of the employees of the Company or any its Subsidiaries
resulting from the failure of Parent, the Surviving Corporation or any of their
respective Subsidiaries to offer such employees compensation and benefits
comparable to those currently
42
payable to such employees under the terms of the employment arrangements of the
Company and its Subsidiaries) with regard to any site of employment or one or
more facilities or operating units within any site of employment of the Company
or any of its Subsidiaries.
5.3 ACCESS TO INFORMATION. From and after the Closing Date, Parent shall
(and shall cause the Surviving Corporation and each of its Subsidiaries and
other Affiliates to), during normal business hours and upon reasonable notice,
make available and provide each Securityholder and their respective
representatives (including, without limitation, counsel and independent
auditors) with reasonable access to the facilities and properties of the
Surviving Corporation and each of its Subsidiaries and to all applicable
historical information, files, documents and records (written and computer)
relating to the Surviving Corporation and its Subsidiaries or any of their
businesses or operations for any and all periods prior to or including the
Closing Date that they may require in connection with the preparation of any Tax
return or any audit, investigation, dispute or litigation with respect to the
requesting Securityholder, and shall (and shall cause the Surviving Corporation
and each of its Subsidiaries to) provide reasonable cooperation with such
Securityholders and their respective representatives (including, without
limitation, counsel and independent auditors) in connection with the foregoing,
at the sole cost and expense of Parent, the Surviving Corporation and its
Subsidiaries, as applicable, including, without limitation, by making tax,
accounting and financial personnel and other appropriate employees and officers
of the Surviving Corporation and each of its Subsidiaries reasonably available
during normal business hours to such Securityholders and their respective
representatives (including, without limitation, counsel and independent
auditors), with regard to the aforesaid business purposes. Notwithstanding the
foregoing, any assistance provided by the Parent or the Surviving Corporation
and its representatives would be limited to the provision of historical
pre-Closing information. Access would only be permitted after execution by the
requesting party of a customary confidentiality agreement.
5.4 SOLVENCY LETTER. To the extent a solvency letter is required by
Parent's lenders pursuant to the Debt Financing Commitment or any revolving debt
facility entered into at or prior to Closing, Parent shall cause the Company to
be an additional addressee of such solvency letter. If Parent is not required by
its lenders pursuant to the Debt Financing Commitment or such revolving debt
facility to deliver a solvency letter, Parent and Sub shall reasonably cooperate
with the Company to obtain a solvency letter prior to the Closing from an
independent third party selected by the Company and reasonably satisfactory to
Parent (the "Appraiser") in a customary form and reasonably satisfactory to
Parent and the Company.
5.5 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS.
(a) From and after the Effective Time, Parent and the Surviving
Corporation shall indemnify, defend and hold harmless each person who is now, or
has been at any time prior to the date hereof or who becomes prior to the
Effective Time, a director, officer, employee or agent of the Company or any of
its Subsidiaries (the "Indemnified Parties") against all losses, claims,
damages, costs, expenses (including attorneys' fee and expenses), liabilities or
judgments or amounts that are paid in settlement with the approval of the
indemnifying party (which approval shall not be unreasonably withheld) of or in
connection with any threatened or actual claim, action, suit, proceeding or
investigation based in whole or in part on or arising in whole or in part out of
the fact that such person is or was a director, officer, employee or agent of
the
43
Company or any of its Subsidiaries or is or was serving at the request of the
Company or any of its Subsidiaries as a director, officer employee or agent of
another corporation, partnership, limited liability company, joint venture,
employee benefit plan, trust or other enterprise or by reason of anything done
or not done by such person in any such capacity whether pertaining to any act or
omission occurring or existing prior to, at or after the Effective Time and
whether asserted or claimed prior to, at or after the Effective Time
("Indemnified Liabilities"), including all Indemnified Liabilities based in
whole or in part on, or arising in whole or in part out of, or pertaining to the
Transaction Documents or the transactions contemplated hereby and thereby, in
each case to the fullest extent a corporation is permitted under the DGCL to
indemnify its own directors or officers (and Parent and the Surviving
Corporation, as the case may be, shall pay expenses in advance of the final
disposition of any such claim, action, suit, proceeding or investigation to each
Indemnified Party to the fullest extent permitted by Applicable Law). In
determining whether an Indemnified Party is entitled to indemnification under
this Section 5.5, if requested by such Indemnified Party, such determination
shall be made by special, independent counsel selected by the Surviving
Corporation and approved by the Indemnified Party (which approval shall not be
unreasonably withheld) and who has not otherwise performed services for the
Surviving Corporation or its affiliates within the last three years (other than
in connection with such matters). Without limiting the foregoing, in the event
any such claim, action, suit, proceeding or investigation is brought against any
Indemnified Parties (whether arising before or after the Effective Time), (i)
the Indemnified Parties may retain the Company's regularly engaged independent
legal counsel or other counsel satisfactory to them and reasonably satisfactory
to the Company (or satisfactory to them and reasonably satisfactory to Parent
and the Surviving Corporation after the Effective Time), and Parent and the
Surviving Corporation shall pay all reasonable fees and expenses of such counsel
for the Indemnified Parties as promptly as statements therefor are received and
(ii) Parent and the Surviving Corporation shall use their best efforts to assist
in the vigorous defense of any such matter, provided that neither Parent nor the
Surviving Corporation shall be liable for any settlement effected without its
prior written consent (which consent shall not be unreasonably withheld). Any
Indemnified Party wishing to claim indemnification under this Section 5.5, upon
learning of any such claim, action, suit, proceeding or investigation, shall
notify the Surviving Corporation (but the failure so to notify shall not relieve
a party from any liability that it may have under this Section 5.5 except to the
extent such failure materially prejudices such party's position with respect to
such claims) and shall deliver to Parent and the Surviving Corporation the
undertaking contemplated by Section 145(e) of the DGCL, but without any
requirement for the posting of a bond or any other terms or conditions other
than those expressly set forth herein. The Company, Parent, Sub and the
Surviving Corporation agree that the foregoing rights to indemnification,
including provisions relating to advances of expenses incurred in defense of any
action or suit, existing in favor of the Indemnified Parties with respect to
matters occurring through the Effective Time, shall survive the Merger and shall
continue in full force and effect for a period of not less than six years from
the Effective Time; provided, however, that all rights to indemnification
(including rights relating to advances of expenses) in respect of any
Indemnified Liabilities asserted or made within such period shall continue until
the disposition of such Indemnified Liabilities. Notwithstanding the foregoing,
the Surviving Corporation would not provide indemnification to any officer or
director in excess of any amounts actually received pursuant to D&O liability
insurance if such officer or director was a Securityholder immediately prior to
the Merger and
44
the indemnification claim relates to matters to which Parent or the Surviving
Corporation is entitled to indemnification pursuant to the Agreement.
(b) The certificate of incorporation and by-laws of the Surviving
Corporation and its Subsidiaries shall contain provisions no less favorable with
respect to indemnification and advancement of expenses than are set forth in the
certificate of incorporation and by-laws of the Company, as in effect on the
date hereof, which provisions shall not be amended, repealed or otherwise
modified for a period of six years from the Effective Time in any manner that
would affect adversely the rights thereunder of individuals who at any time
prior to the Effective Time were directors, officers, employees or agents of the
Company or any of its Subsidiaries.
(c) Parent and the Surviving Corporation shall indemnify any
Indemnified Party against all reasonable costs and expenses (including
attorneys' fees and expenses), such amounts to be payable in advance upon
request as provided in Section 5.5(a), relating to the enforcement of such
Indemnified Party's rights under this Section 5.5 or under the documents
referred to in this Section 5.5 regardless of whether or not such Indemnified
Party is ultimately determined to be entitled to indemnification hereunder or
thereunder. Any amounts due pursuant to the preceding sentence shall be payable
upon request by the Indemnified Party and shall bear interest from the date such
were originally due and payable at a rate equal to the prime rate of interest as
announced by Bank of America as in effect on the date of such initial request
plus 1%.
(d) For a period of six years after the Effective Time, Parent and
the Surviving Corporation shall cause to be maintained in effect the policies of
directors' and officers' liability insurance described in Section 4.8 (provided
that Parent may substitute therefor policies of at least the same coverage and
amounts containing terms and conditions that are no less advantageous to the
Indemnified Parties) with respect to matters arising before and acts or
omissions occurring or existing at or prior to the Effective Time.
(e) The provisions of this Section 5.5 are intended to be for the
benefit of, and shall be enforceable by, each of the Indemnified Parties, their
heirs and their personal representatives and shall be binding on all successors
and assigns of Parent, Sub, the Company and the Surviving Corporation.
(f) Parent and Surviving Corporation shall honor the indemnification
agreements identified in Schedule 5.5(f). The Company may enter into
substantially similar indemnification agreements with other directors of the
Company.
5.6 FINANCING. Parent and Sub shall use all commercially reasonable
efforts to cause the conditions to the funding contemplated by the Debt
Financing Commitment and the Equity Financing Commitment to be satisfied in full
or waived on or prior to the Closing, and to cause the cash contemplated by such
Debt Financing Commitments and Equity Financing Commitment to be provided or
made available to Parent on or prior to Closing. In addition, Parent and Sub
shall use all commercially reasonable efforts to cause a lender or lenders to
provide a revolving credit facility or similar financing of at least $10,000,000
at or prior to Closing, which facility shall be consistent with the terms
contained in the Debt Financing Commitment. If Parent and Sub are unable to
cause a lender or lenders to provide such revolving credit facility or similar
45
financing, then Parent and Sub shall cause such revolving credit facility or
similar financing to be provided pursuant to the Revolving Credit Commitment at
the Closing.
5.7 NOTIFICATION OF BREACH. If Parent, Sub or any of their Affiliates
obtains Knowledge of a breach by the Company of a representation, warranty,
covenant or agreement made by the Company contained in this Agreement, Parent
shall promptly notify the Company of such breach; provided that such
notification shall not result in the waiver by Parent or Sub of any of their
respective rights or remedies under this Agreement.
ARTICLE 6
MUTUAL COVENANTS
6.1 GOVERNMENTAL CONSENTS. Promptly following the execution of this
Agreement, but in no event later than ten Business Days following the date of
this Agreement, the parties shall file, or cause to be filed by their respective
"ultimate parent entities," with the FTC and the DOJ the notifications and other
information (if any) required to be filed under the HSR Act with respect to the
transactions contemplated in the Transaction Documents. Promptly following the
execution of this Agreement, the Company and Parent shall promptly proceed to
prepare and file with the appropriate Governmental Entities such additional
requests, reports or notifications as may be required in connection with this
Agreement and shall diligently and expeditiously prosecute, and shall cooperate
fully with each other in the prosecution of, such matters. Without limiting the
foregoing, promptly following the execution of this Agreement, the Company and
Parent shall use their reasonable best efforts to (a) cause all applicable
waiting periods under the HSR Act to expire or be terminated as of the earliest
possible date (provided that Parent shall pay all costs of the Company incurred
in connection with this Section 6.1), (b) make all necessary filings and (c)
thereafter, make any other required submissions with respect to the transactions
contemplated hereby under the Securities Act, the Exchange Act and the rules and
regulations thereunder and any other applicable federal or state securities
laws. The failure by the Company or Parent to use reasonable best efforts to
timely file or diligently prosecute its portion of any such application shall be
a material breach of this Agreement. The failure by the Company or Parent to use
reasonable best efforts to timely file or diligently prosecute its portion of
any such application on or before the Termination Date, shall be a material
breach of this Agreement.
6.2 INVESTIGATION AND AGREEMENT BY PARENT AND SUB; NO OTHER
REPRESENTATIONS OR WARRANTIES.
(a) Each of Parent and Sub acknowledges and agrees that it has made
its own inquiry and investigation into, and, based thereon, has formed an
independent judgment concerning, the Company and its Subsidiaries and their
businesses and operations, and Parent and Sub have been furnished with or given
full access to such information about the Company and its Subsidiaries and their
businesses and operations as they requested. In connection with Parent's and
Sub's investigation of the Company and its Subsidiaries and their businesses and
operations, Parent, Sub and their respective representatives have received from
the Company or its representatives certain projections and other forecasts for
the Company and its Subsidiaries and certain estimates, plans and budget
information. Parent and Sub acknowledge and agree that (i) there are
uncertainties inherent in attempting to make such projections, forecasts,
estimates, plans and budgets, (ii) Parent and Sub are familiar with such
uncertainties, (iii) except with
46
respect to representations, warranties and agreements made in this Agreement and
the related letters of transmittal, Parent and Sub are taking full
responsibility for making their own evaluations of the adequacy and accuracy of
all estimates, projections, forecasts, plans and budgets so furnished to them or
their representatives and (iv) Parent and Sub will not (and will cause all of
their respective Subsidiaries and other Affiliates and all other persons acting
on their behalf to not) assert any claim or cause of action against the Company,
its Subsidiaries or any of the Company's direct or indirect directors, officers,
employees, agents, stockholders, Affiliates, consultants, counsel, accountants,
investment bankers or representatives with respect thereto, or hold any such
other person liable with respect thereto, other than with respect to claims
pursuant to Article 10 hereof, claims based on the letters of transmittal, and
claims based on fraud, bad faith or willful misconduct.
(b) Each of Parent and Sub agrees that, except for the
representations and warranties made by the Company that are expressly set forth
in Section 3.1 of this Agreement and in the letters of transmittal to be
delivered at the Closing, neither the Company nor any of its respective
Affiliates has made and shall not be deemed to have made to Parent, Sub or to
any of their respective representatives or Affiliates any representation or
warranty of any kind. Without limiting the generality of the foregoing, and
notwithstanding any otherwise express representations and warranties made by the
Company in Section 3.1, each of Parent and Sub agrees that neither the Company
nor any of its Affiliates makes or has made any representation or warranty to
Parent, Sub or to any of their respective representatives or Affiliates with
respect to:
(i) any projections, forecasts, estimates, plans or budgets of
future revenues, expenses or expenditures, future results of operations (or any
component thereof), future cash flows (or any component thereof) or future
financial condition (or any component thereof) of the Company or any of its
Subsidiaries or the future business, operations or affairs of the Company or any
of its Subsidiaries heretofore or hereafter delivered to or made available to
Parent, Sub or their respective counsel, accountants, advisors, lenders,
representatives or Affiliates; or
(ii) any other information, statements or documents heretofore
or hereafter delivered to or made available to Parent, Sub or their respective
counsel, accountants, advisors, lenders, representatives or Affiliates with
respect to the Company or any of its Subsidiaries or the business, operations or
affairs of the Company or any of its Subsidiaries, except to the extent and as
expressly covered by a representation and warranty made by the Company and
contained in Section 3.1.
(c) The Company acknowledges and agrees that except for the
representations and warranties made by Parent or Sub as expressly set forth in
this Agreement, neither Parent, Sub nor any of their respective Affiliates has
made and shall not be construed as having made to the Company or any Affiliate
thereof any representation or warranty of any kind.
6.3 TAX MATTERS.
(a) The Company and each Stockholder of the Company shall join with
Parent in making an election under Section 338(h)(10) of the Code with respect
to the purchase
47
and sale of the Company's stock hereunder (the "Section 338(h)(10) Election").
The Stockholders shall include any income, gain, loss, deduction or other tax
item resulting from the Section 338(h)(10) Election on their Tax Returns to the
extent required by applicable law. The Stockholders shall also pay any Tax
imposed on the Company or its Subsidiaries attributable to the Section
338(h)(10) Election, including (i) any Tax imposed by Section 1374 of the Code
or (ii) any state, local or foreign Tax imposed on the Company's or its
Subsidiaries' gain.
(b) At least five days prior to the Closing Date, the Company shall
in good faith deliver to Parent an allocation of the Purchase Price and the
liabilities of the Company and its Subsidiaries (plus other relevant items)
among the assets of the Company and the Company's Subsidiaries that complies
with Sections 338 and 1060 of the Code and Treasury Regulations thereunder.
Subject to the consent by Parent on or prior to the Closing Date (which consent
shall not be unreasonably withheld) to such allocation, Parent, the Company and
its Subsidiaries agree to file all Tax Returns (including amended returns and
claims for refund) and information reports in a manner consistent with such
allocation.
(c) Parent shall prepare or cause to be prepared and file or cause
to be filed all Tax Returns for the Company and its Subsidiaries for all periods
ending on or before the Closing Date which are due after the Closing Date. All
such Tax Returns shall be prepared in all material respects in a manner
consistent with practices followed in prior years to the extent in compliance
with Applicable Laws. Parent shall permit the Stockholder Representatives to
review and comment on each such Tax Return described in the preceding sentence
prior to filing, and Parent shall incorporate such comments of the Stockholder
Representatives in such Tax Returns, to the extent such comments are in
compliance with Applicable Laws and consistent with past practices. To the
extent permitted by law, the Stockholders shall include any income, gain, loss,
deduction or other tax items for such periods on their Tax Returns consistent
with the Schedule K-1s furnished by the Company to the Stockholders for such
periods.
(d) Parent, the Company and its Subsidiaries, and the Stockholders
shall cooperate fully, as and to the extent reasonably requested by the other
party in connection with the filing of Tax Returns and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation shall include the
retention and provision of records and information reasonably relevant to any
such audit, litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and explanation of
any material provided hereunder. Parent, the Company and its Subsidiaries, and
the Stockholders agree (i) to retain all books and records with respect to Tax
matters pertinent to the Company or its Subsidiaries relating to any taxable
period beginning before the Closing Date until the expiration of the statute of
limitations (including any extensions thereto) of such taxable periods and to
abide by any record retention agreements entered into with any taxing authority
and (ii) to give the other parties reasonable notice prior to transferring,
destroying or discarding any such books and records, and, if another party so
requests, to allow such other party to take possession of such books and
records. The parties further agree, upon request, to use their best efforts to
obtain any certificate or other document from any Governmental Authority or any
other Person as may be necessary to mitigate, reduce or eliminate any Tax that
could be imposed (including with respect to the transactions contemplated
herein).
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ARTICLE 7
CONDITIONS PRECEDENT
7.1 CONDITIONS TO EACH PARTY'S OBLIGATION. The respective obligations of
the Company, Parent and Sub to effect the transactions contemplated hereby are
subject to the satisfaction on or prior to the Closing Date of the following
conditions:
(a) CONSENTS AND APPROVALS. All authorizations, consents, orders or
approvals of, or declarations or filings with, or expirations of waiting periods
imposed by, any Governmental Entity necessary for the consummation of the
transactions contemplated by the Transaction Documents shall have been obtained,
occurred or been filed and the applicable waiting period under the HSR Act shall
have expired or terminated.
(b) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued, or reasonably likely
to be issued, by any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the transactions contemplated by the
Transaction Documents shall be in effect or reasonably likely to be in effect.
(c) NO ACTION. No action shall have been taken (or be reasonably
likely to be taken) nor any statute, rule or regulation shall have been enacted
(or be reasonably likely to be enacted) by any Governmental Entity that makes
the consummation of the transactions contemplated hereby illegal.
7.2 CONDITIONS TO OBLIGATION OF PARENT AND SUB. The obligation of Parent
and Sub to effect the transactions contemplated hereby is subject to the
satisfaction of the following conditions unless waived, in whole or in part, by
Parent:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations
and warranties of the Company set forth in this Agreement shall be true and
correct in all material respects (provided that any representation or warranty
of the Company contained herein that is qualified by a materiality standard
shall not be further qualified hereby) as of the date of this Agreement and as
of the Closing Date as though made on and as of the Closing Date (except for any
representation or warranty that expressly relates to an earlier date, in which
case such representation or warranty shall have been true and correct only as of
such earlier date), and the Company shall have performed in all material
respects the obligations required to be performed by the Company under this
Agreement on or prior to the Closing Date. The Company shall provide Parent with
a certificate signed on behalf of the Company by the chief executive officer or
chief financial officer of the Company certifying to the foregoing.
(b) CONSENTS UNDER AGREEMENTS. Parent shall have been furnished with
evidence reasonably satisfactory to it of the Consent of each person that is a
party to the Material Contracts indicated and identified on Schedule 3.1(o) with
an asterisk, if any, and such Consent shall be in form and substance reasonably
satisfactory to Parent.
(c) PAYMENT OF DEBT AND EXPENSES. The Company shall make provision
for the payment in full of all Debt, the release of all Liens (except for
Permitted Liens) and the payment of expenses of the Company in connection with
the transactions contemplated by this
49
Agreement (including all fees and expenses of Wachovia Securities, legal counsel
and accounting advisors) on the Closing Date after receipt by the Company of the
financing contemplated by Section 3.2(e).
(d) FINANCING. The conditions to the funding contemplated by the
Debt Financing Commitment shall have been satisfied in full or waived, and the
cash contemplated by such Debt Financing Commitment shall have been provided or
made available to Parent; provided, that this Section 7.2(d) shall not be a
condition to the obligations Parent and Sub hereunder if (i) Parent or Sub, or
another lender or lenders, has not provided, or is not prepared to provide at
the Closing, a revolving credit facility or similar financing sufficient to
satisfy the requirements of the Debt Financing Commitment or (ii) Parent or Sub
have not provided, or is not prepared to provide at the Closing, the funding
contemplated by the Equity Financing Commitment.
(e) RUN-OFF INSURANCE. The Company shall have purchased an insurance
policy, reasonably satisfactory to Parent, providing extended run-off coverage
for the Company's obligation to indemnify all of the officers and Directors of
the Company for post-Closing claims that arise from acts that occur or occurred
prior to Closing pursuant to Section 4.8 hereof.
(f) LEGAL OPINION. Parent shall have received an opinion of Xxxxxx &
Xxxxxx L.L.P., special counsel to the Company, dated as of the Closing Date, in
the form attached hereto as Exhibit C.
(g) EMPLOYMENT AGREEMENTS. Parent shall have received duly executed
employment agreements substantially in the forms attached as Exhibit D from each
of the employees identified on Schedule 7.2(g).
(h) ESCROW AGREEMENT. Parent, the Company and the Stockholder
Representatives shall have duly executed and delivered the Escrow Agreement (the
"Escrow Agreement"), in the form of Exhibit E hereto.
(i) 338(H)(10) ELECTION. Parent shall have received a completed Form
8023 executed by each Stockholder.
(j) INDEMNIFICATION AGREEMENT. Parent and the Stockholder
Indemnitors shall have duly executed and delivered the Indemnification Agreement
(the "Indemnification Agreement"), in the form of Exhibit F hereto.
(k) STOCKHOLDERS AGREEMENT. The Stockholders Agreement shall have
been executed and delivered by the Securityholders party thereto.
(l) REDEMPTION AGREEMENT CLOSING. The closing pursuant to the
Redemption Agreement shall have occurred, or shall occur simultaneously with the
Closing.
(m) BOARDS OF DIRECTORS. Each member of the board of directors of
the Company and each of its Subsidiaries shall have resigned their position as a
director of the Company or such Subsidiary, as applicable.
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(n) CLOSING DELIVERIES. All documents, instruments, certificates or
other items required to be delivered by the Company pursuant to Section 8.2
shall have been delivered.
7.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligation of the
Company to effect the transactions contemplated hereby is subject to the
satisfaction of the following conditions unless waived, in whole or in part, by
the Company:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations
and warranties of Parent and Sub set forth in this Agreement shall be true and
correct in all material respects (provided that any representation or warranty
of Parent and Sub contained herein that is qualified by a materiality standard
shall not be further qualified hereby) as of the date of this Agreement and as
of the Closing Date (except for any representation or warranty that expressly
relates to an earlier date, in which case such representation or warranty shall
have been true and correct only as of such earlier date), and Parent and Sub
shall have performed in all material respects the obligations required to be
performed by them under this Agreement on or prior to the Closing Date. The
Company shall have received a certificate signed on behalf of Parent and Sub by
the chief executive officer or chief financial officer of Parent and Sub,
respectively certifying to the foregoing.
(b) ESCROW AGREEMENT. Parent, the Company and the Stockholder
Representatives shall have duly executed and delivered the Escrow Agreement.
(c) INDEMNIFICATION AGREEMENT. Parent and the Stockholder
Indemnitors shall have duly executed and delivered the Indemnification
Agreement.
(d) STOCKHOLDERS AGREEMENT. The Stockholders Agreement shall have
been executed and delivered by the parties thereto.
(e) RUN-OFF INSURANCE. The Company shall have purchased an insurance
policy providing extended run-off coverage for the Company's obligation to
indemnify all of the officers and Directors of the Company for post-Closing
claims that arise from acts that occur or occurred prior to Closing pursuant to
Section 4.8 hereof.
(f) LEGAL OPINION. The Company shall have received an opinion of
King & Spalding, special counsel to Parent and Sub, dated as of the Closing
Date, in the form attached hereto as Exhibit G.
(g) SOLVENCY LETTER. The Company shall have received the solvency
letter described in Section 5.4, which will state to the satisfaction of the
Stockholder Representatives that, immediately after the effective time and after
giving effect to the Merger and the other transactions contemplated hereby
(including the financing contemplated by the Financing Commitments), the
Surviving Corporation will be solvent, will have adequate capital to engage in
its business and will not have incurred debts beyond its ability to pay as they
become due.
(h) CLOSING DELIVERIES. All documents, instruments, certificates or
other items (including, without limitation, the Merger Consideration) required
to be delivered by Parent or Sub pursuant to Section 8.2 shall have been
delivered.
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ARTICLE 8
CLOSING
8.1 CLOSING. Subject to the satisfaction or waiver of the conditions set
forth in Article 7, the closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of King & Spalding,
New York, at 10:00 a.m., local time (or at such other place and time as Parent
and the Company may agree) on a date selected by Parent and the Company, which
date, unless otherwise provided below, shall be no later than the third Business
Day after the day on which the last condition to Closing has been met or waived
as contemplated in Article 7 (the "Closing Date"). If Parent and the Company
fail to select the Closing Date, the Closing Date shall be such third Business
Day.
8.2 ACTIONS TO OCCUR AT CLOSING.
(a) At the Closing, Parent shall deliver to the Company, the
Securityholders and Escrow Agent, as indicated, the following:
(i) Merger Consideration. The cash portion of the Merger
Consideration (less the amount deposited with the Escrow Agent pursuant to
Section 8.2(a)(ii) below), as adjusted pursuant to the terms of this Agreement,
to the Securityholders by wire transfer of immediately available funds. In
addition, Parent shall deliver to the applicable Securityholders the number of
Units described in Section 2.6(d) and Section 2.7(b).
(ii) Escrow Funds. The Escrow Funds to the Escrow Agent by
wire transfer of immediately available funds.
(iii) Certificate. The certificate described in Section 7.3(a)
and such other documentation as the Company may reasonably require in order to
confirm that Parent has performed its obligations under Section 5.5.
(iv) Other Documents. The other documents and instruments
required to be delivered pursuant to Section 7.3.
(b) At the Closing, the Company shall deliver to Parent the
following:
(i) Certificate. The certificate described in Section 7.2(a).
(ii) Consents; Acknowledgments. The original of each Consent,
if any, required pursuant to Section 7.2(b).
(iii) Share Certificates and Option Surrender Agreements. The
Company shall deliver, or cause to be delivered, to Parent the Certificates and
the Option Surrender Agreements.
(iv) Other Documents. The other documents and instruments
required to be delivered by the Company pursuant to Section 7.2.
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(c) At the Closing, all payments and deliveries required pursuant to
the Redemption Agreement shall be made by the parties thereto.
8.3 CERTIFICATE OF MERGER. Immediately following the Closing, the
Surviving Corporation shall execute the Certificate of Merger and file the
Certificate of Merger with the Secretary of State of the State of Delaware.
ARTICLE 9
TERMINATION, AMENDMENT AND WAIVER
9.1 TERMINATION. This Agreement may be terminated prior to the Closing and
the Merger may be abandoned at any time prior to the Effective Time:
(a) by mutual written consent of Parent and the Company;
(b) by Parent if the cash contemplated by the Debt Financing
Commitment shall have not been provided or made available to Parent in
accordance with its terms by the 60th day following the date of this Agreement,
provided such failure is not caused by (x) a material breach of (i) this
Agreement by Parent or Sub or (ii) the Side Letter, (y) the failure to satisfy,
or be prepared at the Closing to satisfy, the revolving credit facility
condition contained in the Debt Financing Commitment, or (z) the failure to
provide, or be prepared to provide at the Closing, the funding contemplated by
the Equity Financing Commitment; and
(c) by either Parent or the Company:
(i) if there shall have been any breach by the other party
(or, in the case of termination by the Company, any breach by Sub) of any
representation, warranty, covenant or agreement set forth in this Agreement,
which breach (A) would give rise to the failure of a condition to the Closing
hereunder and (B) cannot be cured, or has not been cured within 20 days (the
"Cure Period"), following receipt by the breaching party of written notice of
such breach; and, without limiting the generality of the foregoing, there shall
be no Cure Period for Parent's failure to obtain all funds on or prior to the
Closing Date necessary to consummate the Merger and the other transactions
contemplated in the Transaction Documents in accordance with the terms and
conditions hereof (which failure shall constitute a breach hereunder);
(ii) if a court of competent jurisdiction or other
Governmental Entity shall have issued an order, decree or ruling or taken any
other action (which order, decree or ruling Parent and the Company shall use
their reasonable best efforts to lift), in each case permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by the
Transaction Documents and such order, decree, ruling or other action shall have
become final and nonappealable; or
(iii) if the Closing shall not have occurred on or before 60
days following the date of this Agreement (the "Termination Date"); provided,
however, that the right to terminate this Agreement under this clause (iii)
shall not be available to any party whose breach of this Agreement has been the
cause of, or resulted in, the failure of the Closing to occur on or before such
date; provided, further, that such 60 day period shall be extended for the
53
duration of the Cure Period with respect to any breach that can be cured and for
which the breaching party is using reasonable efforts to effect such cure.
9.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement by either the Company or Parent as provided in Section 9.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation hereunder on the part of Parent, Sub or the Company or their
respective affiliates, officers, directors, employees or stockholders, except
(i) Article 9 shall survive such termination and (ii) no such termination shall
relieve any party from liability for breach of any term or provision hereof.
9.3 RETURN OF DOCUMENTATION. Following termination of this Agreement in
accordance with Section 9.1, Parent shall return all agreements, documents,
contracts, instruments, books, records, materials and all other information
regarding the Company or any of its Subsidiaries or other Affiliates provided to
Parent, Sub or any of their Subsidiaries or other Affiliates or any
representatives of Parent, Sub or any of their Subsidiaries or other Affiliates
in connection with the transactions contemplated by this Agreement or the other
Transaction Documents.
ARTICLE 10
INDEMNIFICATION
10.1 INDEMNIFICATION BY PARENT.
(a) From and after the Closing, Parent and the Surviving Corporation
shall indemnify, defend and hold the Securityholders harmless from and against
any and all actual losses, judgments, liabilities, damages, obligations,
settlements, awards, offsets, costs and expenses (including, without limitation,
reasonable attorneys' fees, accounting fees, and defense and investigation
costs) (collectively, "Losses") that may be incurred by any Securityholders
arising out of or relating to (i) any inaccuracy in any representation or
warranty of Parent or Sub (disregarding for such purpose any materiality,
Material Adverse Effect or similar qualifiers) contained in Section 3.2 or any
breach of or noncompliance with any covenant or agreement of Parent or Sub
contained in this Agreement or (ii) the operation or control of the business of
the Company and its Subsidiaries after the Closing Date.
(b) Notwithstanding anything to the contrary in this Agreement:
(i) the Securityholders are not entitled to indemnification
under Section 10.1(a) for any Losses based upon any inaccuracy in any
representation or warranty of Parent or Sub contained in this Agreement until
such time as the Losses incurred by the Securityholders in the aggregate exceed
$1,250,000 (the "Minimum"), at which time Parent and the Surviving Corporation
shall be liable for all Losses in excess of the Minimum incurred by the
Securityholders, except for the representations and warranties contained in
Sections 3.2(a) (Organization), 3.2(b) (Authority) and 3.2(f) (Brokers and
Finders) for which the Minimum shall not be applicable.
(ii) Notwithstanding the foregoing, in no event will
Securityholders be entitled to indemnification under Section 10.1(a) with
respect to a particular matter unless and until the aggregate amount of Losses
incurred with respect to such matter for which
54
indemnification is sought (or the reasonable estimate of such Losses likely to
be incurred with respect to such matter) exceeds $10,000.
(iii) Securityholders' sole and exclusive remedy against
Parent or the Surviving Corporation for any Losses described in Section 10.1(a)
is the right to proceed for indemnification in the manner, and only to the
extent, provided by this Section 10, other than with respect to fraud.
(c) The representations and warranties of Parent and Sub contained
in this Agreement or in any certificate or instrument delivered under this
Agreement will survive for eighteen months after the Closing Date (the
"Expiration Date"), other than with respect to Sections 3.2(b) (Authority) which
shall survive indefinitely.
10.2 INDEMNIFICATION BY THE STOCKHOLDERS.
(a) From and after the Closing, each Stockholder (solely to the
extent of the Escrow Funds or, if such Stockholder is a party to the
Indemnification Agreement, pursuant to the terms of the Indemnification
Agreement) shall indemnify, defend and hold Parent and the Surviving Corporation
harmless from and against any and all Losses that may be incurred by Parent or
the Surviving Corporation arising out of or relating to (i) any inaccuracy in
any representation or warranty of the Company (disregarding for such purpose any
materiality, Material Adverse Effect or similar qualifiers) contained in Section
3.1 of this Agreement or any breach of or noncompliance with any covenant or
agreement of the Company to be performed or complied with at or prior to the
Closing contained in this Agreement, or (ii) fraud on the part of Xxxx Xxxx,
Xxxxx Xxxx and the Chief Financial Officer of the Company acting on behalf of
the Company in connection with the transactions contemplated hereby.
(b) From and after the Closing, each Stockholder (solely to the
extent of the Escrow Funds or, if such Stockholder is a party to the
Indemnification Agreement, pursuant to the terms of the Indemnification
Agreement) shall indemnify, defend and hold Parent and the Surviving Corporation
harmless from and against any and all Losses that may be incurred by Parent or
the Surviving Corporation arising out of or relating to any failure by the
Company to qualify as an "S" corporation within the meaning of Sections 1361 and
1362 of the Code for any period prior to the Closing Date; provided that such
indemnification and any indemnification under Section 10.2(a) shall not include
any Losses, if any, to Parent or the Surviving Corporation relating to Taxes
attributable to periods (or portions thereof) after the Closing Date or the
invalidity of the Section 338(h)(10) Election. Such indemnification obligation
would continue for thirty (30) days following the applicable statute of
limitations and would not be subject to the Minimum or the Cap.
(c) Notwithstanding anything to the contrary contained in this
Agreement:
(i) Parent and the Surviving Corporation are not entitled to
indemnification under Section 10.2(a) for any Losses based upon any inaccuracy
in any representation or warranty contained in this Agreement or any breach of
or noncompliance with the covenants and agreements of the Company contained in
Sections 4.1(s) and 4.4(a) until such time as the Losses incurred by Parent or
the Surviving Corporation in the aggregate exceed the
55
Minimum and then only to the extent of such excess, other than with respect to
the representations and warranties contained in Sections 3.1(a) (Organization),
3.1(b) (Capital Structure), 3.1(c) (Authority) and 3.1(t) (Brokers and Finders).
(ii) Notwithstanding the foregoing, in no event will Parent or
the Surviving Corporation be entitled to indemnification under Section 10.2(a)
with respect to a particular matter unless and until the aggregate amount of
Losses incurred with respect to such matter for which indemnification is sought
(or the reasonable estimate of such Losses likely to be incurred with respect to
such matter) exceeds $10,000.
(iii) Any amounts owing to Parent or the Surviving Corporation
pursuant to this Article 10 shall (a) first be paid solely out of the available
Escrow Funds in accordance with the Escrow Agreement, (b) to the extent the
amounts owed under this Article 10 exceed the amount contained at such time in
the Escrow Funds, then such remaining indemnification obligation shall be
satisfied solely pursuant to the Indemnification Agreement and, with respect to
breaches of representations and warranties (other than with respect to breaches
of Sections 3.1(b) and 3.1(c), which are not capped), up to an aggregate maximum
amount in excess of the available Escrow Funds of $6,250,000 (the "Cap"), and
(c) to the extent the Losses for a claim under Section 10.2(a)(ii) (when
combined with all other Losses for claims under Section 10.2 brought prior to or
at the same time as such claim under Section 10.2(a)(ii)) exceed the available
Escrow Funds and the Cap, then such remaining indemnification obligation under
Section 10.2(a)(ii) shall be satisfied solely pursuant to the Indemnification
Agreement, up to an aggregate maximum amount in excess of the available Escrow
Funds and the Cap of $6,250,000.
(iv) The sole and exclusive remedy of Parent and the Surviving
Corporation against any Securityholder for any Losses described in Section 10.2
is the right to proceed for indemnification in the manner, and only to the
extent, provided by this Article 10 and in the Indemnification Agreement.
Notwithstanding the foregoing, in no event does this Article 10 limit any
remedies Parent, the Surviving Corporation or Sub may otherwise have against any
Securityholder with respect to breaches of or inaccuracies contained in any such
Securityholder's letter of transmittal or such Securityholder's own fraud.
(d) The representations and warranties of the Company contained in
this Agreement or in any certificate or instrument delivered under this
Agreement will survive until the Expiration Date, other than with respect to
Sections 3.1(b) (Capital Structure) and 3.1(c) (Authority) which shall survive
indefinitely. Any claim pending on the Expiration Date for which a notice has
been given in accordance with Section 10.3 on or before such Expiration Date may
continue to be asserted and indemnified against until finally resolved. The
rights of Parent and the Surviving Corporation under Section 10.2(a)(ii) shall
terminate at the end of six months following the Closing Date and any claim
thereunder pending on such date for which a notice has been given in accordance
with Section 10.3 on or before such date may continue to be asserted and
indemnified against until finally resolved. All other covenants and agreements
contained in this Agreement will survive Closing in accordance with their terms.
10.3 PROCEDURES.
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(a) Promptly after receipt by an indemnified party of notice by a
third party (including any Governmental Authority) of any complaint or the
commencement of any audit, investigation, action or proceeding with respect to
which such indemnified party may be entitled to receive payment under this
Article 10 from the other party for any Losses, such indemnified party will
notify the indemnifying party promptly following the indemnified party's receipt
of such complaint or of notice of the commencement of such audit, investigation,
action or proceeding; provided, however, that the failure to so notify the
indemnifying party will relieve the indemnifying party from liability under this
Agreement with respect to such claim only if, and only to the extent that, such
failure to notify the indemnifying party prejudices such indemnifying party or
results in the forfeiture by the indemnifying party of rights and defenses
otherwise available to the indemnifying party with respect to such claim. The
indemnifying party will have the right, upon written notice delivered to the
indemnified party within thirty (30) days after delivery to the indemnifying
party of notice of receipt of such complaint to assume the defense of such
audit, investigation, action or proceeding, including the employment of counsel
reasonably satisfactory to the indemnified party and the payment of the fees and
disbursements of such counsel. The assumption of any third party claim under
this Section 10.3(a) by the indemnifying party shall constitute an
acknowledgment by the indemnifying party of its obligation to indemnify the
indemnified party with respect to the full amount of such claim, subject to the
limitations described in Sections 10.1 and 10.2. If the indemnifying party
declines or fails to assume the defense of the audit, investigation, action or
proceeding on the terms provided above or to employ counsel reasonably
satisfactory to the indemnified party, in either case within such thirty (30)
day period, then such indemnified party may employ counsel to represent or
defend it in any such audit, investigation, action or proceeding and the
indemnifying party will pay the reasonable fees and disbursements of such
counsel as incurred; provided, however, that the indemnifying party will not be
required to pay the fees and disbursements of more than one (1) counsel for all
indemnified parties in any jurisdiction in any single audit, investigation,
action or proceeding. In any audit, investigation, action or proceeding with
respect to which indemnification is being sought hereunder, the indemnified
party or the indemnifying party, whichever is not assuming the defense of such
action, will have the right to participate in such matter and to retain its own
counsel at such party's own expense. The indemnifying party or the indemnified
party, as the case may be, will at all times use reasonable good faith efforts
to keep the indemnifying party or the indemnified party, as the case may be,
reasonably apprised of the status of the defense of any matter the defense of
which they are maintaining and to cooperate in good faith with each other with
respect to the defense of any such matter. If the indemnified party is seeking
recovery of any third party claim from the Escrow Funds, the provisions of the
Escrow Agreement shall control the payment of any such claim from such funds.
(b) No indemnified party may settle or compromise any claim or
consent to the entry of any judgment with respect to which indemnification is
being sought hereunder without the prior written consent of the indemnifying
party, unless such settlement, compromise or consent includes an unconditional
release of the indemnifying party from all liability arising out of such claim.
An indemnifying party may not, without the prior written consent of the
indemnified party, settle or compromise any claim or consent to the entry of any
judgment with respect to which indemnification is being sought hereunder unless
(i) such settlement, compromise or consent includes an unconditional release of
the indemnified party from all liability arising out of such claim, (ii) does
not contain any admission or statement suggesting
57
any wrongdoing or liability on behalf of the indemnified party and (iii) does
not contain any equitable order, judgment or term which in any manner adversely
affects, restrains or interferes with the business of the indemnified party or
any of the indemnified party's Subsidiaries or Affiliates.
(c) In the event any indemnified party should have a claim for
indemnity against any indemnifying party that does not involve a third party
claim, the indemnified party shall deliver written notice of such claim with
reasonable promptness to the indemnifying party. Such notice shall specify the
nature, circumstances and amount of such claim in reasonable detail. Subject to
the limitations set forth in Sections 10.1 and 10.2, the failure of an
indemnified party to exercise promptness in such notification shall not amount
to a waiver of such claim unless the resulting delay prejudices the position of
the indemnifying party with respect to such claim. If the indemnifying party
does not notify the indemnified party within thirty (30) calendar days following
its receipt of such notice that the indemnifying party disputes its liability to
the indemnified party under this Article, or the amount thereof, the claim
specified by the indemnified party in such notice shall be conclusively deemed a
liability of the indemnifying party under this Article 10, and the indemnifying
party shall, subject to and in accordance with the terms of this Agreement, the
Indemnification Agreement and the Escrow Agreement, pay the amount of such
liability to the indemnified party on demand or, in the case of any notice in
which the amount of the claim (or any portion of the claim) is estimated, on
such later date when the amount of such claim (or such portion of such claim)
becomes finally determined. If the indemnifying party has timely disputed its
liability with respect to such claim as provided above, as promptly as possible,
such indemnifying party and the indemnified party will establish the merits and
amount of such claim (by mutual agreement, litigation, arbitration or otherwise)
and, within five (5) Business Days of the final, unappealable determination of
the merits and amount of such claim, the indemnifying party will, subject to and
in accordance with the terms of this Agreement, the Indemnification Agreement
and the Escrow Agreement, pay or cause to be paid the amount of such liability
to the indemnified party.
(d) The respective representations and warranties of the parties to
this Agreement contained in this Agreement or in any certificate or other
document delivered by any party to this Agreement prior to the Closing and the
rights to indemnification set forth in this Article 10 will not be deemed waived
or otherwise affected by any investigation made by a party to this Agreement.
(e) The Stockholder Representatives shall act on behalf of all the
Securityholders with respect to all indemnification matters under this Article
10 pursuant to the Indemnification Agreement.
ARTICLE 11
GENERAL PROVISIONS
11.1 AMENDMENT AND MODIFICATION. This Agreement may be amended by the
parties hereto, by action taken or authorized by their respective Boards of
Directors, at any time before or after approval of the matters presented in
connection with the Merger by the stockholders of the Company, but, after such
approval, no amendment shall be made which by Law requires
58
further approval by such stockholders without such further approval and, after
the Closing, no amendment shall be made without the approval of the Stockholder
Representatives.
11.2 WAIVER OF COMPLIANCE. Any failure of Parent or Sub on the one hand,
or the Company, on the other hand, to comply with any obligation, covenant,
agreement or condition contained herein may be waived only if set forth in an
instrument in writing signed by the party or parties to be bound by such waiver
(including the third-party beneficiaries set forth in Section 11.5), but such
waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any other failure.
11.3 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any Applicable Law or public
policy, all other terms and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated herein is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the Governmental Authority
making such determination is authorized and instructed to modify this Agreement
so as to effect the original intent of the parties as closely as possible in
order that the transactions contemplated herein are consummated as originally
contemplated to the fullest extent possible.
11.4 EXPENSES AND OBLIGATIONS. Except as otherwise expressly provided in
this Agreement, all costs and expenses incurred by the parties hereto in
connection with the consummation of the transactions contemplated herein and in
the other Transaction Documents shall be borne solely and entirely by the party
that has incurred such expenses. Notwithstanding the foregoing, (a) the broker,
finder or financial advisory fees payable to any person retained by Parent or
any Affiliate thereof shall be borne by Parent, and the Company shall pay the
broker, finder or financial advisory fees of any person retained by the Company,
including, without limitation, First Union Securities, and (b) all fees, costs
and other expenses of any kind incurred by or on behalf of the Company or any of
its Subsidiaries in connection with, or relating to, any financing activity of
Parent or any Affiliate thereof (including, without limitation, all accounting
and legal fees and expenses) shall be the responsibility of and paid by Parent
or the Surviving Corporation.
11.5 PARTIES IN INTEREST. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto and its successors and permitted
assigns. Nothing in this Agreement is intended to confer upon any other person
any rights or remedies of any nature whatsoever under or by reason of this
Agreement except as expressly set forth herein. Notwithstanding the foregoing,
each of Sections 2.7, 2.9, 4.8, 5.2, 5.3, 5.5, 6.3, 10 and 11.1 are made for the
benefit of (a) the Securityholders and (b) any of the Company's and/or its
Subsidiaries' (i) officers and directors, (ii) former officers and directors and
(iii) employees. In addition, notwithstanding the foregoing, Sections 2.12 and
11.13 are made for the benefit of the Stockholder Representatives. All of the
persons identified in the immediately preceding sentences shall be entitled to
enforce such provisions and to avail themselves of the benefits of any remedy
for any breach of such provisions, all to the same extent as if such persons
were parties to this Agreement.
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11.6 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, mailed by registered
or certified mail (return receipt requested), sent by telecopier or sent by
Federal Express or other recognized overnight courier to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) If to Parent or Sub, to:
c/o First Atlantic Capital, Ltd.
000 X. 00xx Xxxxxx; 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxxxx
Facsimile: (000) 000-0000
with copies to:
King & Spalding
1185 Avenue of the Americas
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. X'Xxxxx, Esq.
Xxxx X. Xxxxxxxx, Esq.
Facsimile No.: (000) 000-0000
(b) If to the Company, to:
Golfsmith International, Inc.
00000 Xxxxx XX-00
Xxxxxx, Xxxxx 00000
Attention: Xxxx Xxxx and Xxxxx Xxxx
Facsimile: (000) 000-0000
with a copy to:
Xxxxxx & Xxxxxx L.L.P.
0000 Xxxxxxxx Xxxx Xxxxxx
0000 Xxxx Xxxxxx
Xxxxxx, Xxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
Facsimile: (000) 000-0000
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered, on the date of receipt, if telecopied, three Business Days
after the date of mailing, if mailed by registered or certified mail, return
receipt requested and one Business Day after the date of sending, if sent by
Federal Express or other recognized overnight courier.
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11.7 COUNTERPARTS. This Agreement may be executed and delivered (including
by facsimile transmission) in one or more counterparts, all of which shall be
considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to the
other parties, it being understood that all parties need not sign the same
counterpart.
11.8 ENTIRE AGREEMENT. This Agreement (which term shall be deemed to
include the exhibits and schedules hereto and the other certificates, documents
and instruments delivered hereunder) and the Confidentiality Agreement
constitute the entire agreement of the parties hereto and supersede all prior
agreements, letters of intent and understandings, both written and oral, among
the parties with respect to the subject matter hereof. There are no
representations or warranties, agreements or covenants other than those
expressly set forth in this Agreement and the Confidentiality Agreement.
11.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO ANY
CONFLICTS OF LAW PROVISIONS.
11.10 PUBLIC ANNOUNCEMENTS. On or prior to the Closing no party hereto
shall issue any press release or make any public statement with respect to this
Agreement or the transactions contemplated hereby without the prior written
consent of Parent and the Company, except that any party may make any disclosure
required by Applicable Law (including federal securities laws) if it determines
in good faith that it is required to do so and, with respect to the each such
disclosure, provides Parent and the Company with prior notice and a reasonable
opportunity to review the disclosure. From and after the Closing, no party shall
issue any press release or make any public statement with respect to the terms
of this Agreement or the transactions contemplated hereby without the prior
written consent of (i) Parent, (ii) the Company and (iii) Xxxx Xxxx or Xxxxx
Xxxx, except that any party may make any disclosure required by Applicable Law
(including federal securities Laws) if it determines in good faith that it is
required to do so and, with respect to each such disclosure, provides Parent,
the Company, Xxxx Xxxx and Xxxxx Xxxx with prior notice and a reasonable
opportunity to review the disclosure.
11.11 ASSIGNMENT. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto, whether
by operation of Law or otherwise; provided, Parent may transfer its rights under
this Agreement to a third party following the Closing if such third party
purchases substantially all of the business of the Company; provided, further,
that Parent may be permitted to transfer its rights under this Agreement to an
Affiliate of Parent if such Affiliate assumes, jointly and severally with
Parent, all of the obligations of Parent and will be at least as likely as
Parent to be able to consummate the transactions contemplated hereby and proceed
to Closing; and, provided, further, Parent may transfer or collaterally assign
its rights under this Agreement to its lenders. Any assignment in violation of
the foregoing shall be null and void.
11.12 DIRECTOR AND OFFICER LIABILITY. The directors, officers, employees
and stockholders (including, without limitation, the Securityholders) of the
Company and its Subsidiaries and their Affiliates shall not have any personal
liability or obligation arising under
61
this Agreement or the Confidentiality Agreement except as specifically
contemplated hereby or by the letters of transmittal.
11.13 STOCKHOLDER REPRESENTATIVES.
(a) From and after the Closing, the Stockholder Representatives are
hereby appointed, acting individually or jointly, as the representatives of the
Stockholders, with full authority and power of substitution to act in the name,
place and stead of each Stockholder, with respect to Section 2.12 and Article 10
hereof and each other power or duty granted to the Stockholder Representatives
in the Transaction Documents.
(b) Parent, Sub and the Surviving Corporation, and any other person,
may conclusively and absolutely rely, without inquiry, upon any action of the
Stockholder Representatives as the action of each Stockholder in all matters for
which the Stockholder Representatives are given rights or powers under the
Transaction Documents and, upon executing a written consent approving the Merger
pursuant to the terms of this Agreement, each Stockholder confirms all that the
Stockholder Representatives shall do or cause to be done by virtue of his or her
or its appointment as a Stockholder Representative.
(c) Any Stockholder Representative may resign as a Stockholder
Representative for any reason and at any time by written notice to Parent and
the other Stockholder Representative. If at any time a Stockholder
Representative resigns from its position as a Stockholder Representative, the
other Stockholder Representative shall designate a successor as soon as
practicable and shall notify Parent in writing of such designation. If both
Stockholder Representatives resign from their positions as Stockholder
Representatives, the Stockholders holding a majority of the Outstanding Shares
as of Closing shall designate a successor or successors as soon as practicable
and shall notify Parent in writing of such designation. No Stockholder
Representative may be removed by any person, other than for fraud or willful
misconduct.
(d) By consenting to the Merger, each of the Stockholders hereby
consents and agrees to all actions or inactions taken or omitted to be taken in
good faith by the Stockholder Representatives under this Agreement, the
Indemnification Agreement or any other Transaction Document and agrees to hold
harmless the Stockholder Representatives from and against all damages, losses,
liabilities, charges, penalties, costs and expenses (including court costs and
legal fees and expenses) incurred in any claim, action, dispute or proceeding
between any such person or persons and the Stockholders (or any of them) or
between any such person or persons and any third party or otherwise incurred or
suffered as a result of or arising out of such actions or inactions.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the Company, Parent and Sub have caused this Agreement
to be signed, all as of the date first written above.
THE COMPANY:
GOLFSMITH INTERNATIONAL, INC.
By: /s/ XXXX X. XXXX
--------------------------------------
Name: Xxxx X. Xxxx
-----------------------------------
Title: Chief Executive Officer
-----------------------------------
PARENT:
GOLFSMITH INTERNATIONAL HOLDINGS, INC.
By: /s/ XXXX X. XXXXXX
--------------------------------------
Name: Xxxx X. Xxxxxx
-----------------------------------
Title: President
-----------------------------------
SUB:
BGA ACQUISITION CORPORATION
By: /s/ XXXX X. XXXXXX
--------------------------------------
Name: Xxxx X. Xxxxxx
-----------------------------------
Title: President
-----------------------------------
