Exhibit 10.9
AGREEMENT AND PLAN OF MERGER
Among
ZANY BRAINY, INC.
(a Pennsylvania corporation),
NOODLE KIDOODLE, INC.
(a Delaware corporation)
and
NIGHT OWL ACQUISITION, INC.
(a Delaware corporation)
Dated as of April 21, 2000
TABLE OF CONTENTS Page No.
ARTICLE I THE MERGER 2
Section 1.1. The Merger 2
Section 1.2. Closing, Effective Time of the Merger 2
Section 1.3. Conversion and Cancellation of Securities. 2
Section 1.4. Exchange of Certificates. 3
Section 1.5. Options 5
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY 5
Section 2.1. Organization, Powers and Qualifications 5
Section 2.2. Subsidiaries. 6
Section 2.3. Capital Stock 6
Section 2.4. Certificate of Incorporation, By-Laws,
Minute Books and Records 7
Section 2.5. Authority; Binding Effect 7
Section 2.6. No Conflict; Approvals 8
Section 2.7. Governmental Consents and Approvals 8
Section 2.8. SEC Reports 8
Section 2.9. Financial Statements 9
Section 2.10. Absence of Certain Changes 9
Section 2.11. Indebtedness; Absence of Undisclosed Liabilities 10
Section 2.12. Assets 10
Section 2.13. Contracts. 10
Section 2.14. Insurance 11
Section 2.15. Authorizations; Compliance With Law. 11
Section 2.16. Taxes. 12
Section 2.17. Absence of Litigation; Claims 13
Section 2.18. Employee Benefit Plans; Employment Agreements 13
Section 2.19. Labor Matters 16
Section 2.20. Environmental Matters 16
Section 2.21. Intellectual Property; Year 2000. 18
Section 2.22. Adequacy of Disclosure 19
Section 2.23. Real Property. 19
Section 2.24. Tax Matters 21
Section 2.25. Affiliates 21
Section 2.26. Board Action; Amendment of Rights Agreement;
Applicability of Takeover Statutes. 21
Section 2.27. Opinion of Financial Advisor 22
Section 2.28. Brokers and Finders 22
Section 2.29. Accounting Matters 22
Section 2.30. Voting Requirements 22
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB 22
Section 3.1. Organization and Powers 22
Section 3.2. Capital Stock 23
Section 3.3. Authority; Binding Effect 23
Section 3.4. No Conflict; Approvals 24
Section 3.5. Governmental Consents and Approvals 24
Section 3.6. SEC Reports 24
Section 3.7. Financial Statements. 24
Section 3.8. Absence of Certain Changes 25
Section 3.9. Absence of Undisclosed Liabilities 25
Section 3.10. Absence of Litigation; Claims 25
Section 3.11. Authorizations; Compliance With Law. 25
Section 3.12. Adequacy of Disclosure 26
Section 3.13. Assets 26
Section 3.14. Taxes. 26
Section 3.15. Employee Benefit Plans; Employment Agreements 27
Section 3.16. Labor Matters 27
Section 3.17. Environmental Matters 27
Section 3.18. Intellectual Property. 28
Section 3.19. Tax Matters 28
Section 3.20. Affiliates 28
Section 3.21. Opinion of Financial Advisor. 28
Section 3.22. Brokers and Finders 29
Section 3.23. Board Action. 29
Section 3.24. Accounting Matters 29
Section 3.25. Voting Requirements 29
Section 3.26. ZB Holdings LLC. 29
ARTICLE IV OTHER AGREEMENTS 30
Section 4.1. Conduct of the Company's Business 30
Section 4.2. Conduct of Business by Parent Pending the Merger 31
Section 4.3. Parent's Undertakings 32
Section 4.4. Access to Information 32
Section 4.5. Stockholder Vote; Proxy Statement. 33
Section 4.6. Reasonable Best Efforts 35
Section 4.7. Public Announcements 35
Section 4.8. Notification 35
Section 4.9. Subsequent Financial Statements 35
Section 4.10. Regulatory and Other Authorizations. 36
Section 4.11. Takeover Statute 36
Section 4.12. Indemnification of Directors and Officers. 36
Section 4.13. Affiliates. 37
Section 4.14. Tax-Free Reorganization 37
Section 4.15. No Solicitation. 37
Section 4.16. Accountant's Letters. 39
Section 4.17. Employee Matters. 39
Section 4.18. The Company's Chief Executive Officer and President. 40
Section 4.19. Board of Directors. 40
Section 4.20. Undertakings Relating to the Real Property. 40
Section 4.21. Company 401(k) Plans. 41
ARTICLE V CONDITIONS TO CLOSING 41
Section 5.1. Conditions to the Obligations of the Company and
Parent and Merger Sub 41
Section 5.2. Conditions to the Obligations of the Company 42
Section 5.3. Conditions to the Obligations of Parent and Merger Sub 43
ARTICLE VI TERMINATION, AMENDMENT AND WAIVER 44
Section 6.1. Termination 44
Section 6.2. Effect of Termination. 46
Section 6.3. Amendment 47
Section 6.4. Waiver 47
ARTICLE VII MISCELLANEOUS 47
Section 7.1. Survival of Representations and Warranties 47
Section 7.2. Entire Agreement 47
Section 7.3. Notices 47
Section 7.4. Governing Law 48
Section 7.5. Jurisdiction. 48
Section 7.6. Descriptive Headings 48
Section 7.7. Parties in Interest 48
Section 7.8. Counterparts 49
Section 7.9. Expenses 49
Section 7.10. Personal Liability 49
Section 7.11. Binding Effect; Assignment 49
Section 7.12. Severability 49
Section 7.13. Legal Fees and Costs 49
Schedule A: Exceptions to the Definition of "Company Material Adverse Effect"
Schedule B: Company Affiliate Agreement
Schedule C: Exceptions to the Definition of "Parent Material Adverse Effect"
Schedule D: Parent Affiliate Agreement
Schedule E: Principal Terms of Employment Arrangements for Xxxxxxx Xxxxxxxx and Xxxxxxx Xxxx
Schedule F: Principal Terms of Severance Pay Plan for Certain Company Employees
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement"), dated as of April 21, 2000, is made
by and among ZANY BRAINY, INC., a Pennsylvania corporation ("Parent"), NOODLE
KIDOODLE, INC., a Delaware corporation ("the Company"), and NIGHT OWL ACQUISITION,
INC., a Delaware corporation and wholly-owned subsidiary of Parent ("Merger Sub").
W I T N E S S E T H
WHEREAS, the respective Boards of Directors of Parent and the Company have each
approved the business combination described herein in which the Company will become a subsidiary
of Parent as a result of a merger of Merger Sub with and into the Company upon the terms and subject
to the conditions hereinafter set forth (the "Merger"), pursuant to which each outstanding share of
Common Stock, par value $0.001 per share ("Company Common Stock"), of the Company will be
converted into the right to receive shares of Common Stock, par value $0.01 per share ("Parent
Common Stock"), of Parent in the manner set forth herein;
WHEREAS, the Boards of Directors of Parent and the Company have each determined that
the Merger and the other transactions contemplated hereby are consistent with, and in furtherance of,
their respective business strategies and goals and have each approved the Merger upon the terms and
conditions set forth herein;
WHEREAS, for federal income tax purposes, it is intended that the Merger qualify as a
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, for accounting purposes, it is intended that the Merger shall be accounted for as
a pooling of interests transaction under United States generally accepted accounting principles.
NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants,
agreements and conditions set forth below, the parties hereto, intending to be legally bound, hereby
agree as follows:
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ARTICLE I
THE MERGER
.1. The Merger. Subject to the terms and conditions hereof and in accordance with the
Delaware General Corporation Law (the "DGCL"), as amended as of the Effective Time (hereinafter
defined): (a) Merger Sub shall be merged with and into the Company and the separate existence of
Merger Sub shall cease; (b) the Company shall continue as the surviving entity in the Merger (the
"Surviving Entity") and shall succeed to all rights, assets, liabilities and obligations of Merger Sub
and the Company in accordance with the DGCL; (c) the Certificate of Incorporation and by-laws of
Merger Sub, both as in effect immediately prior to the Effective Time, shall become the Certificate of
Incorporation and by-laws of the Surviving Entity until thereafter altered, amended or repealed as
provided therein and in accordance with applicable law, except that the first article of the Certificate
of Incorporation shall be amended to read "The name of the Corporation is Noodle Kidoodle, Inc.";
(d) the directors of Merger Sub immediately prior to the Effective Time shall be the directors of the
Surviving Entity; and (e) the officers of Merger Sub immediately prior to the Effective Time shall be
the officers of the Surviving Entity. From and after the Effective Time, the Merger will have all the
effects set forth in Section 259 of the DGCL, the Certificate of Merger (hereinafter defined) and the
Agreement.
.2. Closing, Effective Time of the Merger. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Xxxxxx, Xxxxx & Xxxxxxx LLP, 0000
Xxxxxx Xxxxxx, Xxxxxxxxxxxx, Xxxxxxxxxxxx as soon as practicable but no later than the fifth business
day after the satisfaction or waiver of the conditions set forth in Article V hereof or at such other time
and place as the parties shall agree. The date on which the Closing occurs is herein referred to as the
"Closing Date." At 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 in such form as required by, and executed in accordance with the relevant provisions of, the
DGCL (the date and time of such filing, or such later date or time agreed upon by Parent and the
Company and set forth therein, the "Effective Time").
.3. Conversion and Cancellation of Securities.
(a) At the Effective Time, each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares of Company Common Stock
described in Section 1.3(b) hereof) shall, by virtue of the Merger and without any action on the part of
the holder thereof, be converted into, and become exchangeable for, the right to receive 1.233 (the
"Common Exchange Ratio") shares of Parent Common Stock; provided that no fractional shares of
Parent Common Stock shall be issued and, in lieu thereof, a cash payment shall be made pursuant to
Section 1.4(i) hereof. The consideration to be received by the holders of Company Common Stock
pursuant to this Section 1.3(a) is hereinafter referred to as the "Merger Consideration."
(b) At the Effective Time, each share of Company Common Stock held in the
treasury of the Company immediately prior to the Effective Time, shall by virtue of the Merger and
without any action on the part of the holder thereof, be automatically canceled and retired and cease
to exist, and no cash, securities or other property shall be payable in respect thereof.
(c) At the Effective Time, each share of Merger Sub common stock, par value
$.01 per share, issued and outstanding immediately prior to the Effective Time shall, by virtue of the
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Merger and without any action by the holder thereof, be converted into one validly issued, fully paid
and nonassessable share of common stock, par value $.01 per share, of the Surviving Entity.
(d) Pursuant to the DGCL, the holders of shares of Company Common Stock
shall not have any dissenters or appraisal rights with respect to this Agreement or the Merger.
(e) The Common Exchange Ratio shall be appropriately adjusted to reflect fully
the effect of any stock split, reverse split or stock dividend (including any dividend or distribution of
securities convertible into Parent Common Stock), with respect to Parent Common Stock having a
record date after the date hereof and prior to the Effective Time. The Common Exchange Ratio shall
be appropriately adjusted to reflect fully the effect of any stock split, reverse split or stock dividend
(including any dividend or distribution of securities convertible into the Company Common Stock),
with respect to the Company Common Stock having a record date after the date hereof and prior to
the Effective Time.
.4. Exchange of Certificates.
(a) Prior to the Closing Date, Parent shall select a bank or trust company to act as
exchange agent (the "Exchange Agent") in connection with the surrender of certificates (each, a
"Certificate" and together, the "Certificates") evidencing shares of Company Common Stock
converted into shares of Parent Common Stock pursuant to the Merger. At the Effective Time, Parent
shall deposit with the Exchange Agent one or more certificates representing the shares of Parent
Common Stock to be issued in the Merger (the "Merger Stock"), which shares of Merger Stock shall
be deemed to be issued at the Effective Time. At and following the Effective Time, Parent shall
deliver to the Exchange Agent such cash as may be required from time to time to make payment of
cash in lieu of fractional shares in accordance with Section 1.4(i) hereof.
(b) As soon as practicable after the Effective Time, Parent shall cause the
Exchange Agent to mail to each person who was, at the Effective Time, a holder of record of a
certificate or certificates that immediately prior to the Effective Time evidenced outstanding shares of
Company Common Stock (i) a letter of transmittal specifying that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent, which shall be in a form and contain any other provisions as Parent and the Surviving Entity
may reasonably agree, and (ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing the Merger Stock. Upon the proper surrender of Certificates to
the Exchange Agent, together with a properly completed and duly executed letter of transmittal and
such other documents as may be required by the Exchange Agent, the holder of such Certificate shall
be entitled to receive in exchange therefor certificates representing the shares of Merger Stock that
such holder has the right to receive pursuant to the terms hereof (together with any dividend or
distribution with respect thereto made after the Effective Time and any cash paid in lieu of fractional
shares pursuant to Section 1.4(i)), and the Certificate so surrendered shall be canceled. In the event of
a transfer of ownership of Company Common Stock that is not registered in the transfer records of the
Company, a certificate representing the proper number of shares of Merger Stock may be issued to a
transferee if the Certificate representing such Company Common Stock is presented to the Exchange
Agent, accompanied by all documents required to properly evidence and effect such transfer and by
evidence reasonably satisfactory to the Surviving Entity and Parent that any applicable stock transfer
tax has been paid.
(c) After the Effective Time, each outstanding Certificate which theretofore
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represented shares of Company Common Stock shall, until surrendered for exchange in accordance
with this Section 1.4, be deemed for all purposes to evidence the right to receive upon such surrender
the number of full shares of Parent Common Stock into which the shares of Company Common Stock
(which, prior to the Effective Time, were represented thereby) shall have been so converted.
(d) Except as otherwise expressly provided herein, the Surviving Entity shall pay
all charges and expenses, including those of the Exchange Agent, in connection with the exchange of
Certificates for shares of Merger Stock. Any Merger Stock deposited with the Exchange Agent
pursuant to Section 1.4(a) hereof, and not exchanged pursuant to Section 1.4(b) hereof for Company
Common Stock within twelve months after the Effective Time, and any cash deposited with the
Exchange Agent pursuant to Section 1.4(a) hereof, and not exchanged for fractional interests pursuant
to Section 1.4(i) hereof for Company Common Stock within twelve months after the Effective Time,
shall be returned by the Exchange Agent to the Surviving Entity which shall thereafter act as
exchange agent subject to the rights of holders of Company Common Stock hereunder.
(e) At the Effective Time, the stock transfer books of the Company shall be
closed and no transfer of shares of Company Common Stock shall thereafter be made.
(f) None of Parent, Merger Sub, the Company, the Surviving Entity or the
Exchange Agent will be liable to any holder of shares of Company Common Stock for any shares of
Merger Stock, dividends or distributions with respect thereto or cash payable in lieu of fractional
shares pursuant to Section 1.4(i) hereof delivered to a state abandoned property administrator or other
public official pursuant to any applicable abandoned property, escheat or similar law.
(g) If any Certificates shall have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the holder thereof, the Exchange Agent will deliver in exchange for such
lost, stolen or destroyed Certificates the Merger Stock for the shares represented thereby, deliverable
in respect thereof, as determined in accordance with the terms hereof. When authorizing such
payment in exchange for any lost, stolen or destroyed Certificates, the owner of such Certificate, as a
condition precedent to such delivery, shall give Parent a bond satisfactory to Parent against any claim
that may be made against Parent with respect to the Certificates alleged to have been lost, stolen or
destroyed.
(h) No dividend or other distribution declared or made after the Effective Time
with respect to the Merger Stock with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the shares of Merger Stock issuable upon
surrender thereof until the holder of such Certificate shall surrender such Certificate in accordance
with Section 1.4(b). Subject to the effect of applicable law, following surrender of any such
Certificate there shall be paid, without interest, to the record holder of certificates representing whole
shares of Merger Stock issued in exchange therefor: (i) at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of Merger Stock and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time but prior to surrender of
such Certificate and a payment date subsequent to such surrender payable with respect to such whole
shares of Merger Stock. No holder of Company Common Stock shall be entitled to any interest on
any cash amount payable for fractional interests pursuant to Section 1.4(i) hereof.
(i) No certificates or scrip evidencing fractional shares of Merger Stock shall be
issued upon the surrender for exchange of Certificates, and such fractional share interests shall not
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entitle the owner thereof to any rights of a shareholder of Parent. In lieu of any such fractional shares,
each holder of a Certificate previously evidencing Company Common Stock, upon surrender of such
Certificate for exchange pursuant to this Article I, shall be paid an amount in cash (without interest),
rounded to the nearest cent, determined by multiplying (i) the closing price for a share of Parent
Common Stock on the Nasdaq National Market on the date of the Effective Time by (ii) the fractional
interest to which such holder would otherwise be entitled (after taking into account all shares of
Company Common Stock held of record by such holder at the Effective Time).
.5. Options. At the Effective Time, each option granted by the Company pursuant to the
Company Stock Plans (hereinafter defined) to purchase shares of Company Common Stock, which is
outstanding and unexercised immediately prior to the Effective Time shall be assumed by Parent and
be converted into an option to purchase shares of Parent Common Stock in such amount and at such
exercise price as provided below and otherwise having the same terms and conditions as are in effect
immediately prior to the Effective Time (except to the extent that such terms, conditions and
restrictions may be altered in accordance with their terms as a result of the transactions contemplated
hereby):
(a) the number of shares of Parent Common Stock to be subject to the new option
shall be equal to the product of (i) the number of shares of Company Common Stock subject to the
original option, and (ii) the Common Exchange Ratio, the product being rounded down, if necessary,
to the nearest whole share; and
(b) the exercise price per share of Parent Common Stock under the new option shall
be equal to (i) the exercise price per share of Company Common Stock under the original option
divided by (ii) the Common Exchange Ratio, rounded up, if necessary, to the nearest cent.
The adjustment provided herein with respect to any options which are "incentive stock options" (as
defined in Section 422 of the Code) shall be effected in a manner consistent with Section 424(a) of
the Code.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub as follows, except as set
forth on a Disclosure Schedule delivered by the Company concurrently with the execution and
delivery of this Agreement (the "Company Schedule"), each of which exceptions shall specifically
identify the relevant subsection hereof to which it relates and shall be deemed to be representations
and warranties as if made hereunder:
.1. Organization, Powers and Qualifications. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of Delaware. The
Company has all requisite corporate power and authority to carry on its business as it has been and is
now being conducted and to own, lease and operate the properties and assets used in connection
therewith. The Company is duly qualified as a foreign corporation authorized to do business and is in
good standing in every jurisdiction in which such qualification is required, all of which jurisdictions
are disclosed in the Company Schedule, except where the failure to be so qualified or in good
standing would not reasonably be expected to have a Company Material Adverse Effect. As used in
this Agreement, "Company Material Adverse Effect" means any fact, condition, event, development
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or occurrence which, individually or when taken together with all other facts, conditions, events,
developments or occurrences, has an adverse effect of $2,500,000 or more on the financial condition,
operating results or business of the Company and the Subsidiaries (hereinafter defined), taken as a
whole; provided, however, that in no event shall the items set forth in Schedule A hereto be taken
into account in determining whether a Company Material Adverse Effect has occurred.
.2. Subsidiaries.
(a) "Subsidiary" means, with respect to any party, any corporation, limited
liability company, partnership, Joint Venture or other business association or entity, at least a
majority of the voting securities or economic interests of which is directly or indirectly owned or
controlled by such party or by any one or more of its Subsidiaries. As used in this Agreement, "Joint
Venture" means, with respect to any party, any corporation, limited liability company, partnership,
joint venture or other business association or entity in which (i) such party or any one or more of its
Subsidiaries, directly or indirectly, owns or controls more than five percent (5%) and less than a
majority of any class of the outstanding voting securities or economic interests, or (ii) such party or a
Subsidiary of such party is a general partner.
(b) The Company Schedule lists each Subsidiary and each Joint Venture of the
Company, the jurisdiction of its organization and the amount of its securities outstanding and the
owners thereof. Each Subsidiary is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization. Each Subsidiary has all requisite power and authority to
carry on its business as it has been and is now being conducted and to own, lease and operate the
assets and properties used in connection therewith. Each Subsidiary is duly qualified as a foreign
corporation authorized to do business and is in good standing in every jurisdiction in which such
qualification is required, all of which jurisdictions are disclosed in the Company Schedule, except
where the failure to be so qualified or in good standing would not reasonably be expected to have a
Company Material Adverse Effect. All issued and outstanding shares of capital stock of each
Subsidiary have been duly authorized, are validly issued and outstanding, and are fully paid and
nonassessable, and, except as set forth in the Company Schedule, are lawfully owned of record and
beneficially by the Company or another Subsidiary free and clear of all pledges, liens, claims,
security interests and other charges or defects in title of any nature whatsoever ("Liens"). There are
no existing subscriptions, options, warrants, convertible securities, calls, commitments, agreements,
conversion rights or other rights of any character (contingent or otherwise) calling for or requiring the
issuance, transfer, sale or other disposition of any shares of the capital stock of any Subsidiary, or
calling for or requiring the issuance of any securities or rights convertible into or exchangeable for
shares of capital stock of any Subsidiary, nor is the Company or any Subsidiary subject to any
obligation (contingent or otherwise) to repurchase, redeem or otherwise acquire shares of capital
stock of any Subsidiary, in any case except as set forth in the Company Schedule. Except for the
Subsidiaries and the Joint Ventures or as set forth in the Company Schedule, neither the Company
nor any Subsidiary directly or indirectly (i) owns or controls any shares of any corporation nor has
any voting securities of, or economic interest in, either of record, beneficially or equitably, in any
association, partnership, limited liability company, joint venture or other legal entity, or (ii) is a
general partner of any partnership.
.3. Capital Stock. The Company has authorized capital stock consisting of 15,000,000
shares of Company Common Stock and 1,000,000 shares of Preferred Stock, par value $0.001 per
share ("Company Preferred Stock"), of which only 440,000 shares have been designated Series A
Junior Participating Preferred Shares. As of April 17, 2000: (a) 7,605,640 shares of Company
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Common Stock were issued and outstanding, (b) no shares of Company Preferred Stock were issued
and outstanding, (c) 901,261 shares of Company Common Stock were held as treasury shares, and (d)
1,181,219 shares of Company Common Stock were reserved for issuance under the Company's Stock
Incentive Plan (the "Plan") and the Outside Directors' Stock Option Plan (the "Directors' Plan" and,
together with the Plan, the "Company Stock Plans") (including (i) 1,107,219 shares reserved for
issuance under the Plan, 861,675 of which were subject to outstanding options and 236,721 of which
were reserved for future option grants, and (ii) 74,000 shares reserved for issuance under the
Directors' Plan, all of which were subject to outstanding options. Since April 17, 2000, no additional
shares of capital stock have been reserved for issuance by the Company and the only issuances of
shares of capital stock of the Company have been issuances of Company Common Stock upon the
exercise of outstanding Company stock options. All of the issued and outstanding shares of Company
Common Stock have been duly authorized and are validly issued and outstanding, fully paid and
nonassessable, and were issued in compliance with all applicable federal and state securities laws, and
all of such treasury shares were acquired by the Company in compliance with all applicable laws,
including, without limitation, all applicable federal and state securities laws. No shares of capital
stock issued by the Company are or were at the time of their issuance subject to preemptive rights.
There are no existing subscriptions, options, warrants, convertible securities, calls, commitments,
agreements, conversion rights or other rights of any character (contingent or otherwise) calling for or
requiring the issuance, transfer, sale or other disposition of any shares of the capital stock of the
Company, or calling for or requiring the issuance of any securities or rights convertible into or
exchangeable for shares of capital stock of the Company, in any case except as set forth in the
Company Schedule. There are no securities, rights, warrants, options or other instruments
outstanding which, after consummation of the Merger, would be convertible into or exercisable for
securities of the Surviving Entity, and all outstanding options and warrants of the Company will
become options or warrants solely with respect to Parent Common Stock on the terms described in
Section 1.5 hereof. There are no voting trusts or other agreements or understandings to which the
Company is a party, nor, to the knowledge of the Company, to which any stockholder of the Company
is a party, with respect to the voting of capital stock of the Company.
.4. Certificate of Incorporation, By-Laws, Minute Books and Records. The copies of (a)
the Certificate of Incorporation and all amendments thereto and of the By-laws, as amended, of the
Company and (b) the Certificate of Formation and all amendments thereto and of the Operating
Agreement of the Subsidiary, which have been made available to Parent are true, correct and
complete copies thereof as in effect on the date hereof. The minute books of the Company which
have been made available for inspection contain minutes, which are accurate and complete in all
material respects, of all meetings, except for the Board of Directors meetings held on April 14, 2000
and April 19, 2000, and accurate consents in lieu of meetings of the Board of Directors (and any
committee thereof) and of the Stockholders of the Company since its date of incorporation.
.5. Authority; Binding Effect. The Company has all requisite corporate power and authority
to execute and deliver this Agreement to consummate the transactions contemplated hereby and to
perform its obligations hereunder. All necessary action, corporate or otherwise, required to have been
taken by or on behalf of it by applicable law, its charter document or otherwise to authorize (a) the
approval, execution and delivery on its behalf of this Agreement, and (b) its performance of its
obligations under this Agreement and the consummation of the transactions contemplated hereby
have been taken, except that the adoption of this Agreement must be approved by the affirmative vote
of a majority of the votes cast by the holders of the then outstanding shares of Company Common
Stock of record on the record date for the Company Stockholders Meeting (the "Required Company
Stockholder Approval"). This Agreement constitutes the Company's valid and binding agreement,
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enforceable against it in accordance with its terms, except (y) as the same may be limited by
applicable bankruptcy, insolvency, moratorium or similar laws of general application relating to or
affecting creditors' rights, including, without limitation, the effect of statutory or other laws regarding
fraudulent conveyances and preferential transfers, and (z) for the limitations imposed by general
principles of equity.
.6. No Conflict; Approvals. The execution and delivery of this Agreement does not and the
consummation of the transactions contemplated hereby and the performance of the obligations herein
will not, (a) violate or conflict with the Company's charter or by-laws or the comparable
organizational documents of any of its Subsidiaries, (b) constitute a breach or default (or an event that
with notice or lapse of time or both would become a breach or default) or give rise to any Lien, third
party right of termination, cancellation, material modification or acceleration, or loss of any benefit,
under any Contract (hereinafter defined) to which the Company or any Subsidiary is a party or by
which it is bound, or (c) subject to the consents, approvals, orders, authorizations, filings, declarations
and registrations specified in Section 2.7 or in the Company Schedule in response thereto, conflict
with or result in a violation of any permit, concession, franchise or license or any law, rule or
regulation applicable to the Company or any of its Subsidiaries or any of their properties or assets,
except, in the case of clauses (b) and (c), for any such breaches, defaults, Liens, third party rights,
cancellations, modifications, accelerations or losses of benefits, conflicts or violations which would
not have a Company Material Adverse Effect and would not prevent the Company from performing
its obligations under this Agreement or prevent or delay the consummation of any of the transactions
contemplated hereby.
.7. Governmental Consents and Approvals. Except as set forth in the Company Schedule,
neither the execution and delivery of this Agreement nor the consummation of the transactions
contemplated hereby will require any consent, approval, order, authorization, or permit of, or filing
with or notification to, any local, state, federal or foreign court, administrative agency, commission or
other governmental or regulatory authority, agency or instrumentality ("Governmental Entity"),
except (a) the filing of the Registration Statement (hereinafter defined) with the Securities and
Exchange Commission (the "SEC") in accordance with the Securities Act of 1933, as amended, and
the rules and regulations thereunder (the "Securities Act") and the entry of an order by the SEC
permitting such Registration Statement to become effective, and compliance with applicable state
securities laws, (b) the filing of the Proxy Statement (hereinafter defined) and related proxy materials
with the SEC in accordance with the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder (the "Exchange Act"), (c) notification pursuant to, and expiration or
termination of the waiting period under, the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976,
as amended, and the rules and regulations thereunder (the "HSR Act"), (d) the filing and recording of
the Certificate of Merger in accordance with the DGCL and (e) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or notifications, would not
prevent it from performing its obligations under this Agreement or have a Company Material Adverse
Effect.
.8. SEC Reports. The Company has filed all required forms, reports and documents with the
SEC since February 1, 1997 (collectively, the "Company's SEC Reports"). The Company's SEC
Reports have complied in all material respects with all applicable requirements of the Securities Act
and the Exchange Act. As of their respective dates, none of the Company's SEC Reports, including,
without limitation, any financial statements or schedules included or incorporated by reference
therein, contained any untrue statement of a material fact or omitted to state a material fact required
to be stated or incorporated by reference therein or necessary in order to make the
8
statements therein, in light of the circumstances under which they were made, not misleading. The
Company has heretofore delivered to Parent, in the form filed with the SEC, all of the Company's
SEC Reports.
.9. Financial Statements. The Company has delivered to Parent true and complete copies of
the (a) consolidated balance sheet of the Company and Subsidiaries at January 30, 1999 and the
related consolidated income statement and statement of cash flow for the year then ended, together
with the notes thereto, audited by Xxxxxxx Rubinroit, LLC, and (b) unaudited consolidated balance
sheet of the Company and Subsidiaries at January 29, 2000 and February 26, 2000 and the related
consolidated income statement and statement of cash flow for the periods ended January 29, 2000 and
February 26, 2000, all of which have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved ("GAAP") (except as may be
indicated in the notes thereto and except that the unaudited interim financial statements may not
include all notes thereto required by GAAP). Such balance sheets, including the related notes, fairly
present the consolidated financial position of the Company and Subsidiaries at the dates indicated and
such consolidated income statements and statements of cash flow fairly present the consolidated
results of operations, and cash flow of the Company and Subsidiaries for the periods indicated
(subject, in the case of the unaudited interim financial statements, to normal year-end adjustments,
which will not be material). The unaudited consolidated balance sheet of the Company and its
Subsidiaries at January 29, 2000 described above is referred to herein as the "Company 1999 Balance
Sheet." The unaudited consolidated financial statements of the Company and its Subsidiaries as at
and for the year ended January 29, 2000 are referred to herein as the "Company Unaudited Financial
Statements."
.10. Absence of Certain Changes. Except as described in the Company Schedule, since
January 29, 2000 (the "Balance Sheet Date"), the Company and the Subsidiaries have conducted their
business solely in the ordinary course consistent with past practice. Except as otherwise disclosed in
the Company Schedule, since the Balance Sheet Date, the Company and the Subsidiaries have not:
(a) suffered any Company Material Adverse Effect;
(b) been subject to any other events or conditions of any character that would
prevent the Company from performing its obligations under this Agreement or the Stockholder
Agreements or prevent or delay the consummation of any of the transactions contemplated hereby or
thereby;
(c) incurred any material liabilities, other than liabilities incurred in the ordinary
course of business consistent with past practice, or discharged or satisfied any material Lien, or paid
any material liabilities, other than in the ordinary course of business consistent with past practice, or
failed to pay or discharge when due any liabilities of which the failure to pay or discharge has caused
or will cause any material damage or risk of material loss to it or any of its material assets or
properties; or
(d) taken or been subject to any other action or event that would have required
the consent of Parent pursuant to Section 4.1(a), (b), (c) or (d) hereof had such section then been in
effect.
9
.11. Indebtedness; Absence of Undisclosed Liabilities. The Company Schedule discloses
as of the Balance Sheet Date all indebtedness for money borrowed of the Company or any Subsidiary,
accurately disclosing for each such indebtedness the payee, the original principal amount of the loan,
the unpaid balance of the loan, the interest rate and the maturity date. Neither the Company nor the
Subsidiaries have any material indebtedness, liability or obligation of any kind (whether known or
unknown, accrued, absolute, asserted or unasserted, contingent or otherwise) except (a) as and to the
extent reflected, reserved against or otherwise disclosed in the Company 1999 Balance Sheet, (b) for
liabilities and obligations incurred subsequent to the Balance Sheet Date in the ordinary course of
business and which do not have a Company Material Adverse Effect or prevent the Company from
performing its obligations under this Agreement or prevent or delay the consummation of any of the
transactions contemplated hereby or (c) as disclosed in the Company Schedule.
.12. Assets. Except as described in the Company Schedule, each of the Company and the
Subsidiaries have valid leasehold title to all personal property leased by it and good and marketable
title to its owned personal property, including, without limitation, those assets and properties reflected
in the Company 1999 Balance Sheet in the amounts and categories reflected therein, free and clear of
all Liens, except (a) the lien of current taxes not yet due and payable, (b) properties, interests, and
assets disposed of by the Company or any Subsidiary since the Balance Sheet Date solely in the
ordinary course of business consistent with past practice, (c) liens in respect of pledges or deposits
under workmen's compensation, unemployment insurance, social security and public liability laws
and other similar legislation, (d) liens imposed by law, such as carriers', warehousemen's or
mechanics' liens, incurred in good faith in the ordinary course of business, (e) such secured
indebtedness as is disclosed in the Company 1999 Balance Sheet covering the properties referred to
therein, and (f) such imperfections of title, easements and encumbrances, if any, as do not materially
detract from the value, or interfere with the present or proposed use, of the properties subject thereto
("Permitted Liens"). Except as set forth in the Company Schedule, all buildings, structures, facilities,
equipment and other items of tangible personal property reflected on the Company 1999 Balance
Sheet or acquired since the Balance Sheet Date are in good operating condition and repair, subject to
normal wear and maintenance and are useable in the ordinary course of business of the Company and
the Subsidiaries.
.13. Contracts.
(a) The Company Schedule lists each written or oral contract, agreement,
arrangement, lease, instrument, mortgage or commitment, and provides an accurate summary of all
material terms, to which the Company or a Subsidiary is a party or may be bound or to which their
respective properties or assets may be subject ("Contract") (i) which is material to the Company or a
Subsidiary other than Contracts that are cancelable by the Company upon 90 days or less prior written
notice, have no penalty for cancellation by the Company or involve the expenditure of less than
$50,000; (ii) which is with any present or former employee or for the employment of any person or
consultant or which is a non-compete arrangement with any employee of the Company or a
Subsidiary; (iii) which is a severance agreement, program or policy of the Company or a Subsidiary
with or relating to its employees; (iv) under the terms of which any of the rights or obligations of a
party thereto will be modified or altered as a result of the transactions contemplated hereby or which
contain change in control provisions; (v) which involves a material commission, representative,
franchise, distributorship or sales agency arrangement; (vi) which is a material conditional sale or
lease arrangement; (vii) which involves a material license or other arrangement which relates in
whole or in part to any software, patent, trademark, trade name, service xxxx or copyright or to any
ideas, technical assistance or other know-how of or used by the Company or a Subsidiary in the
10
conduct of its business; (viii) which represents any confidentiality or non-disclosure arrangement
pursuant to which the Company or a Subsidiary has agreed to keep confidential information obtained
from any other person; (ix) which imposes an obligation of exclusivity on the Company or any
Subsidiary or any successor thereto or which is an arrangement limiting or restraining the Company
or any Subsidiary or any successor thereto from engaging or competing in any manner or in any
business; or (x) under which the Company or any Subsidiary guarantees the payment or performance
by others or in any way is or will be liable with respect to obligations of any other person.
(b) All Contracts other than Real Estate Leases, which are addressed in Section
2.23 hereof, are valid and binding and in full force and effect as to the Company on the date of this
Agreement except to the extent they have previously expired in accordance with their terms or except
to the extent that their invalidity would not have a Company Material Adverse Effect. None of the
Company, the Subsidiaries nor, to the Company's knowledge, any other parties, have violated any
provision of, or committed or failed to perform any act which with notice, lapse of time or both would
constitute a default under the provisions of, any Contract other than Real Estate Leases, which are
addressed in Section 2.23 hereof, the termination or violation of which, or the default under which,
might have a Company Material Adverse Effect. True and complete copies of all Contracts listed in
the Company Schedule, together with all amendments thereto through the date hereof, have been
delivered to Parent.
.14. Insurance. The Company Schedule accurately sets forth as of the day preceding the
date hereof all policies of insurance, other than title insurance policies, held by or on behalf of the
Company. All such policies of insurance are in full force and effect, and no notice of cancellation has
been received. In the reasonable judgment of the Company, such policies are in amounts which are
adequate in relation to the business and properties of the Company, and all premiums due on the
Balance Sheet Date have been paid in full or are fully reserved for on the Company 1999 Balance
Sheet.
.15. Authorizations; Compliance With Law.
(a) The Company and the Subsidiaries hold all licenses, certificates, consents,
permits, approvals, and authorizations ("Authorizations") from all Governmental Entities and other
persons which are necessary for the lawful conduct of their respective businesses and their use and
occupancy of their assets and properties in the manner heretofore conducted, used and occupied,
except where the failure to hold any of the foregoing would not impose a material penalty or liability
on the Company or prevent the Company from performing its obligations under this Agreement or
prevent or delay the consummation of any of the transactions contemplated hereby. A complete and
correct list of the material Authorizations held by the Company and its Subsidiaries are set forth in
the Company Schedule. All of such Authorizations are valid, in good standing and in full force and
effect and the Company and the Subsidiaries are in compliance in all material respects with the
requirements, standards, criteria and conditions set forth in such Authorizations. No event has
occurred with respect to the material Authorizations which permits, or after notice or lapse of time or
both would permit, revocation or termination thereof or would result in any other material impairment
of the rights of the holder of any of the Authorizations, and no terminations thereof have been, to the
knowledge of the Company, threatened.
(b) The Company and each of the Subsidiaries is in compliance in all material
respects with all applicable laws, statutes, ordinances, codes, rules and regulations of any
11
Governmental Entities other than Environmental Laws, which are addressed in Section 2.20 of this
Agreement.
.16. Taxes.
(a) All federal, state, local and foreign tax returns, reports, statements and other
similar filings required to be filed by the Company or the Subsidiaries (the "Tax Returns") on or prior
to the date hereof or with respect to taxable periods ending on or prior to the date hereof with respect
to any federal, state, local or foreign taxes, assessments, deficiencies, fees and other governmental
charges or impositions (including, without limitation, all income tax, unemployment compensation,
social security, payroll, sales and use, excise, privilege, property, ad valorem, transfer, franchise,
license, school and any other tax or similar governmental charge or imposition (including interest,
penalties or additions with respect thereto) under laws of the United States or any state or municipal
or political subdivision thereof or any foreign country or political subdivision thereof) ("Taxes") have
been or will be timely filed with the appropriate Governmental Entities in all jurisdictions in which
such Tax Returns are required to be filed, and all such Tax Returns correctly reflect in all material
respects the liabilities of the Company and the Subsidiaries for Taxes for the periods, property or
events covered thereby.
(b) All Taxes, including, without limitation, those which are called for by the
Tax Returns, required to be paid, withheld or accrued by the Company or any Subsidiary as of the
date hereof have been timely paid, withheld or accrued. The accruals for Taxes contained in the
Company 1999 Balance Sheet are adequate to cover the tax liabilities of the Company and the
Subsidiaries as of the Balance Sheet Date and include adequate provision for all deferred taxes, and
nothing has occurred subsequent to that date to make any of such accruals inadequate.
(c) Neither the Company nor the Subsidiaries have received any notice of
assessment or proposed assessment in connection with any Taxes or Tax Returns other than in
connection with routine state examinations for sales or property taxes, and the like, none of which
individually or in the aggregate are material, and there are no material pending tax examinations of or
material tax claims asserted against the Company or the Subsidiaries or any of their respective assets
or properties. Neither the Company nor any Subsidiary has extended, or waived the application of,
any statute of limitations of any jurisdiction regarding the assessment or collection of Taxes other
than in connection with routine state examinations for sales or property taxes, and the like, none of
which individually or in the aggregate are material.
(d) There are no material tax liens (other than any lien for current taxes not yet
due and payable) on any of the assets or properties of the Company or the Subsidiaries. The
Company has no knowledge of any basis for any additional assessment of any Taxes. The Company
and the Subsidiaries have made all deposits required by law to be made with respect to employees'
withholding and other employment taxes, including, without limitation, the portion of such deposits
relating to taxes imposed upon the Company or the Subsidiaries.
(e) There are no contracts, agreements, plans or arrangements, including but not
limited to the provisions of this Agreement, covering any current or former officer, director,
employee, consultant or independent contractor of the Company or any Subsidiary that, individually
or collectively, could give rise to or entail any payment (or portion thereof) that would not be
deductible pursuant to Sections 280G, 404 or 162 of the Code. There is no contract, agreement, plan
12
or arrangement to which the Company or any Subsidiary is a party or by which it is bound to
compensate any individual for excise Taxes pursuant to Section 4999 of the Code.
(f) Neither the Company nor any Subsidiary (i) has filed a consent under Section
341(f) of the Code or (ii) is or has been a United states real property holding corporation within the
meaning of Section 897(c) of the Code during the period specified in Section 897(c)(1)(A)(ii) of the
Code.
(g) Neither the Company nor any Subsidiary is or has been at any time a party to
a Tax sharing, Tax indemnity or Tax allocation agreement, and neither the Company nor any
Subsidiary has (i) been a member of an affiliated group filing a consolidated federal Tax Return
(other than a group the common parent of which was the Company), or (ii) has any liability for Taxes
of any Person (other than the Company and its Subsidiaries) under Treasury Regulation 1.1502-6 (or
any similar provision of state, local or foreign Law), as a transferee or successor or assumed the Tax
liability of any other Person under contract.
(h) None of the Company's assets are tax exempt use property within the
meaning of Section 168(h) of the Code.
(i) Neither the Company nor any Subsidiary has constituted either a "distributing
corporation" or a "controlled corporation" in a distribution of stock qualifying for tax-free treatment
under Section 355 of the Code (A) in the two years prior to the date of this Agreement or (B) in a
distribution which might otherwise constitute a part of a "plan" or "series of related transactions"
(within the meaning of Section 355(e) of the Code) in conjunction with the Merger.
.17. Absence of Litigation; Claims. Except as disclosed on the Company Schedule, there
are no material claims, actions, suits, proceedings or investigations pending or, to the knowledge of
the Company, threatened against the Company or any of its Subsidiaries, or any properties or rights of
the Company or any of its Subsidiaries, or with respect to which any director, officer, employee or
agent is or may be entitled to claim indemnification from the Company or any Subsidiary, before any
Governmental Entity or arbitrator, which, if decided adversely to the Company or such Subsidiary,
could prevent the Company from performing its obligations under this Agreement or prevent or delay
the consummation of any of the transactions contemplated hereby, nor is there any judgement, decree,
injunction, rule or order of any Governmental Entity or arbitrator outstanding against the Company or
any of its Subsidiaries which could reasonably be expected to have such effect.
.18. Employee Benefit Plans; Employment Agreements
(a) The Company Schedule lists (i) all employee benefit plans (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) that
is maintained or sponsored by the Company, any trade or business (whether or not incorporated)
which is a member of a controlled group including the Company or which is under common control
with the Company (an "ERISA Affiliate") within the meaning of Section 414 of the Code, or any
Subsidiary of the Company, and (ii) any other benefit arrangement, obligation or other practice,
whether or not legally enforceable, to provide benefits, other than salary, as compensation for services
rendered, to one or more present or former employees, directors, agents, or independent contractors
that is maintained by the Company or to which the Company contributes or for which the Company
has or may have any liability, contingent or otherwise, either directly or as a result of an ERISA
Affiliate including, without limitation, all bonus, stock option, stock purchase, incentive, deferred
13
compensation, supplemental retirement, severance, incentive arrangement, sick leave, vacation pay,
salary continuation, consulting or other compensation arrangements, worker's compensation, stock
option, stock grant or stock purchase plans, medical insurance, life insurance, tuition reimbursement
programs or scholarship programs, any plans subject to Section 125 of the Code, and any plans
providing benefits or payments in the event of a change of ownership or control and other similar
fringe or employee benefit plans, programs or arrangements, and any employment or executive
compensation or severance policies or agreements, written or otherwise, for the benefit of, or relating
to, any employee or former employee of the Company, as well as each plan with respect to which the
Company or an ERISA Affiliate could incur liability under Section 4069 (if such plan has been or
were terminated) or Section 4212(c) of ERISA (together, the "Employee Plans"), excluding former
agreements under which the Company has no remaining obligations and any of the foregoing that are
required to be maintained by the Company under the laws of any foreign jurisdiction. The Company
Schedule lists all plan documents, trust agreements, brochures, summaries, policies and Form 5500s
related to the Employee Plans that have been provided or have been made available to Parent. The
plans marked on the Company Schedule as "Qualified Plans" are the only Employee Plans that are
intended to meet the requirements of 401(a) of the Code (a "Qualified Plan"). The Company does not
sponsor, maintain or have any liability with respect to, and to the knowledge of the Company, the
Company has never maintained or contributed, to any other Qualified Plan.
(b) (i) Except as set forth in the Company Schedule, or as required by Section
4980B of the Code, none of the Employee Plans promises or provides retiree medical or other retiree
welfare benefits to any person, none of the Employee Plans is a `multiemployer plan' as such term is
defined in Section 3(37) of ERISA and the Company does not sponsor, maintain, contribute or have
any liability with respect to, and to the knowledge of the Company has never sponsored, maintained,
or contributed to any employee benefit plan subject to Section 302 of ERISA, Section 412 of the
Code or Title IV of ERISA; (ii) there has been no breach of any fiduciary duty, as described in
Section 404 of ERISA, or no `prohibited transaction', as such term is defined in Section 406 of
ERISA or Section 4975 of the Code, with respect to any Employee Plan, which could result in any
material liability of the Company or any of its Subsidiaries; (iii) all Employee Plans are in compliance
in all material respects with the requirements prescribed by any and all statutes (including ERISA and
the Code), orders or governmental rules and regulations currently in effect with respect thereto
(including all applicable requirements for notification to participants or the Department of Labor,
Internal Revenue Service (the "IRS") or Secretary of the Treasury), all employee plans have been
operated at all times in accordance with their terms, and the Company and each of its Subsidiaries
have performed all material obligations required to be performed by them under, are not in any
material respect in default under or violation of, and have no knowledge of any default or violation by
any other party to, any of the Employee Plans; (iv) each Employee Plan intended to qualify under
Section 401(a) of the Code and each trust intended to qualify as exempt from tax under Section
501(a) of the Code is the subject of a favorable determination letter from the IRS or is a standardized
prototype plan with an IRS identification number, and nothing has occurred with respect to the design
or operation of any Qualified Plan that could cause the loss of such qualification or exemption or the
imposition of any liability, lien, penalty, or tax under ERISA or the Code, and the Qualified Plans
have been timely amended to comply with current law; (v) all contributions required to be made to
any Employee Plan pursuant to Section 412 of the Code, or the terms of the Employee Plan or any
collective bargaining agreement, have been made on or before their due dates and a reasonable
amount has been accrued for contributions to each Employee Plan for the current plan years and the
Company has paid all amounts that the Company is required to pay as contributions to the Employee
Plans as of the last day of the most recent fiscal year of each of the Employee Plans, all benefits
accrued under any funded or unfunded Employee Plan will have been paid, accrued, or otherwise
14
adequately reserved in accordance with GAAP as of the Balance Sheet Date, and all monies withheld
from employee paychecks with respect to Employee Plans have been transferred to the appropriate
Employee Plan in a timely manner as required by applicable law; (vi) with respect to each Employee
Plan, no `reportable event' within the meaning of Section 4043 of ERISA (excluding any such event
for which the 30 day notice requirement has been waived under the regulations to Section 4043 of
ERISA) nor any event described in Section 4062, 4063, 4604 or 4041 of ERISA has occurred; (vii)
neither the Company nor any ERISA Affiliate has incurred, nor reasonably expects to incur, any
liability under Title IV of ERISA (other than liability for premium payments to the Pension Benefit
Guaranty Corporation arising in the ordinary course); (viii) neither the Company nor any ERISA
Affiliate has incurred any liability for any excise, income or other taxes or penalties with respect to
any Employee Plan, and no event has occurred and no circumstance exists that could give rise to any
such liability; (ix) there are no pending or threatened claims against any Employee Plan (other than
routine claims for benefits) or against any fiduciary of an Employee Plan with respect to such plan,
nor is there any basis for such a claim; (x) no Employee Plan is presently under audit or examination
(nor has notice been received of a potential audit or examination) by any governmental entity; and
(xi) no matters are pending with respect to any Employee Plan under any governmental corrective or
remedial program. The Company has made no plan or commitment to create any additional
Employee Plan or to modify or change any existing Employee Plan, no written statement or, to the
knowledge of the Company, oral statement, has been made by the Company to any person with regard
to any Employee Plan that was not in accordance with the Employee Plans and that could have
adverse economic consequences to the Company. Except as set forth in the Company Schedule, all
Employee Plans may be amended or terminated without penalty by the Company at any time on or
after the Closing Date.
(c) The Company Schedule sets forth a true and complete list of each current or
former employee, officer or director of the Company or any of its Subsidiaries who holds any option
to purchase Company Common Stock as of the date hereof, together with the number of shares of
Company Common Stock which are subject to such option, the date of grant of such option, the extent
to which such option is vested (or will become vested within six months from the date hereof, or as a
result of, the Merger), the option price of such option (to the extent determined as of the date hereof),
whether such option is intended to qualify as an incentive stock option within the meaning of Section
422(b) of the Code (an "ISO"), and the expiration date of such option. The Company Schedule also
sets forth the total number of such ISOs and such nonqualified options.
(d) Except as disclosed on the Company Schedule, no amount that could be
received (whether in cash or property or the vesting of property) as a result of any of the transactions
contemplated by this Agreement by any employee, officer or director of the Company or any of its
affiliates who is a "disqualified individual" (as such term is defined in Proposed Treasury Regulation
Section 1.280G-1) under any employment, severance or termination agreement, other compensation
arrangement or Employee Plan currently in effect could be characterized as an "excess parachute
payment" (as such term is defined in Section 280G of the Code).
(e) All persons classified by the Company as independent contractors satisfy and
have at all times satisfied the requirements of applicable federal or state law to be so classified; the
Company has fully and accurately reported their compensation on IRS Forms 1099 when required to
do so; and the Company has no obligations to provide benefits with respect to such persons under
Employee Plans or otherwise. The Company does not employ and has not employed any "leased
employees" as defined in Section 414(a) of the Code.
15
.19. Labor Matters. Except as disclosed on the Company Schedule, there are no material
controversies pending or, to the knowledge of the Company, threatened, between the Company or any
of its Subsidiaries and any of their respective employees. Neither the Company nor any of its
Subsidiaries is party to any collective bargaining agreement or other labor agreement with any union
or labor organization and no union or labor organization has been recognized by the Company or any
of its Subsidiaries as an exclusive bargaining representative for employees of the Company or any of
its Subsidiaries. Except as disclosed on the Company Schedule, to the Company's knowledge, there
is no significant activity or proceeding of any labor organization (or representative thereof) or
employee group to organize any such employees. Except as disclosed in the Company Schedule, (a)
there is no active arbitration under any collective bargaining agreement involving the Company or
any of its Subsidiaries, (b) there is no unfair labor practice, grievance, employment discrimination or
other labor or employment related charge, complaint or claim against the Company or any of its
Subsidiaries pending before any court, arbitrator, mediator or governmental agency or tribunal, or, to
the Company's knowledge, threatened, and (c) there is no strike, picketing or work stoppage by, or
any lockout of, employees of the Company or any of its Subsidiaries pending, or to the Company's
knowledge, threatened, against or involving the Company or any of its Subsidiaries. There is no
proceeding, claim, suit, action or governmental investigation pending or, to the knowledge of the
Company, threatened, relating to labor matters in respect of which any director, officer, employee or
agent of the Company or any of its Subsidiaries is or may be entitled to claim indemnification from
the Company or a Subsidiary pursuant to their respective charters or by-laws or under any
indemnification agreements.
.20. Environmental Matters
(a) Except as set forth in the Company Schedule:
(i) no written notice, notification, demand, request for information, citation,
summons or order has been received by the Company or any Subsidiary, no complaint has been filed,
no penalty has been assessed and no investigation, action, claim or proceeding is pending or, to the
knowledge of the Company, threatened by any Governmental Entity or other Person against the
Company or any Subsidiary under any Environmental Law, except for those which would not
reasonably be expected to result in a Company Material Adverse Effect;
(ii) neither the Company nor any Subsidiary has incurred any Environmental
Liabilities, which would result in a Company Material Adverse Effect, and, to the knowledge of the
Company, there are no facts, conditions or circumstances which could reasonably be expected to
result in or be the basis for any such liability, which, if adversely determined, would result in a
Company Material Adverse Effect;
(iii) no polychlorinated biphenyls, radioactive material, lead, asbestos-
containing material, incinerator, sump, surface impoundment, lagoon, landfill, septic, wastewater
treatment or underground storage tank (active or abandoned) are or have been present at, on, under or
in any property currently owned, or to the Company's knowledge, operated or leased by the Company
or any Subsidiary, or, to the Company's knowledge, at, on, under or in any property previously
owned, operated or leased by the Company or any Subsidiary, which would result in a Company
Material Adverse Effect.
(iv) no Releases of Hazardous Substance have occurred at, on, under or from
any real property or any other property currently owned, or to the Company's knowledge, operated or
16
leased by the Company or any Subsidiary or, to the Company's knowledge, previously owned,
operated or leased by the Company or any Subsidiary in a concentration, amount or location that
would require any remedial investigation or action obligations, including any remedial obligations,
under any Environmental Law, which would give rise to a Company Material Adverse Effect;
(v) neither the Company nor any Subsidiary has transported or arranged
for the treatment, storage, handling or disposal of any Hazardous Substances to any off-site location
that has or, to the Company's knowledge, would result in liability to the Company or any Subsidiary,
except for such liability that would not reasonably be expected to result in a Company Material
Adverse Effect;
(vi) the Company and each Subsidiary and their respective operations are
in compliance with all Environmental Laws, and have and are in compliance with all Environmental
Permits, except where such non-compliance would not reasonably be expected to have a Company
Material Adverse Effect.
(b) Except as set forth in the Company Schedule, there has been no
environmental investigation, study, audit, test, review or other analysis conducted (except as set forth
in schedule) in relation to any property or facility now owned or, to the Company's knowledge,
previously owned or leased by the Company or any Subsidiary, which has not been delivered by the
Company to Parent prior to the date of this Agreement.
(c) Except as set forth in the Company Schedule, the Merger will not require
any governmental approvals under Environmental Laws, including those that are triggered by sales or
transfers of businesses or real property, except for such governmental approvals, the absence of which
would not result in a Company Material Adverse Effect.
(d) For purposes of this Section, the terms "Company" and "Subsidiary" and
"Subsidiaries" shall include any and all predecessor entities.
(e) As used in this Section 2.20:
(i) "Environmental Laws" means any federal, state or local law (including,
without limitation, common law), judicial decision, regulation, rule, judgment, order, decree,
injunction, permit or agreements with any Governmental Entity relating to the environment, human
health and safety, worker health and safety and/or governing the handling, use, generation, treatment,
storage, transportation, disposal, manufacture, distribution, formulation, packaging, labeling or
Release of Hazardous Substances.
(ii) "Environmental Liabilities means any and all liabilities resulting
from the operations of the Company or any of its Subsidiaries at any property now or previously
owned, leased or operated by the Company or any of its Subsidiaries or any activities or operations
occurring or conducted at the real property owned, leased or used by the Company or any Subsidiary
(including, without limitation, offsite disposal), whether accrued, contingent, absolute, determined,
determinable or otherwise, which arise under or relate to any Environmental Law.
(iii) "Environmental Permits" means all permits, licenses, franchises,
certificates, approvals and other similar authorizations of any Governmental Entity relating to or
required by Environmental Laws and affecting, or relating in any way to, the business operations,
17
assets, liabilities, rights or obligations of the Company or any Subsidiary.
(iv) "Hazardous Substance" means petroleum, petroleum hydrocarbons or
petroleum products, petroleum by-products, radioactive materials, asbestos or asbestos-containing
materials, gasoline, diesel fuel, pesticides, radon, urea formaldehyde, lead or lead-containing
materials, polychlorinated biphenyls; and any other chemicals, materials, substances or wastes which
are defined as or included in the definition of "hazardous substances," "hazardous materials,"
"hazardous wastes," "extremely hazardous wastes," "restricted hazardous wastes," "toxic
substances," "toxic pollutants," "pollutants," "regulated substances," "solid wastes," or
"contaminants" or words of similar import, under any Environmental Law.
(v) "Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, or disposing of a Hazardous Substance
into the environment.
.21. Intellectual Property; Year 2000.
(a) The Company Schedule lists each patent or registered copyright, trademark,
service xxxx and any pending application filed for any of the foregoing of the Company and its
Subsidiaries. Except as set forth in the Company Schedule, the Company and each of its
Subsidiaries owns, or is licensed pursuant to fully-paid (other than upgrade costs and purchaser
maintenance costs), perpetual licenses to use, or otherwise possesses or has legally enforceable rights
to use, all software (including object and source codes and all related manuals and other
documentation), firmware, copyrights, patents, trademarks, service marks, trade names, trade secrets
and proprietary technologies, know-how, and all other inventions, discoveries, improvements,
processes and formulas (secret or otherwise) and any related documentation thereto used or possessed
by or related to the Company and to any Subsidiary or necessary for the current conduct of the
business of the Company or of any Subsidiary (the "Intellectual Properties").
(b) The Company and its Subsidiaries are not, nor will any of them be as a result
of the execution and delivery of this Agreement or the performance of the transactions contemplated
hereby, in violation of any licenses, sublicenses and other Contracts to which the Company or any of
its Subsidiaries is a party and pursuant to which the Company or any Subsidiary is authorized to use
any patent, copyright, trademark, trade name, service xxxx or any other form of intellectual property
or trade secret owned by a third party.
(c) To the knowledge of the Company, all copyrights, patents, trademarks,
service marks and trade names held by the Company and its Subsidiaries are valid and subsisting,
except for any failures so to be valid and subsisting that, individually or in the aggregate, would not
have a Company Material Adverse Effect.
(d) Except as set forth in the Company Schedule, no present or former
employee of, or consultant to, the Company or, to the knowledge of the Company, any other person
(including, without limitation, any former employer of a present or former employee or consultant of
the Company) has any proprietary, commercial or other interest, direct or indirect, in the Intellectual
Properties.
(e) To the knowledge of the Company, all of the Intellectual Properties owned by
the Company or by any Subsidiary have been adequately protected by patents, trade secret processes,
18
non-disclosure agreements, and, where appropriate, by affixing a copyright notice to any such
Intellectual Properties, and the Company has not received notice from a third party of any claim of
infringement or any other claims relating to any such Intellectual Properties.
(f) In conducting their respective business as presently conducted, to the
knowledge of the Company, except as disclosed in the Company Schedule, neither the Company nor
any Subsidiary is infringing upon or unlawfully or wrongfully using any patent, copyright, trademark,
trade name, service xxxx or any other form of intellectual property or trade secret owned or claimed
by another. Neither the Company nor any Subsidiary is in default under, nor has it received any
notice of any claim of infringement or any other claim or proceeding relating to, any such patent,
copyright, trademark, trade name, service xxxx, trade secret or any other form of intellectual property
or any agreement relating thereto.
(g) To the Company's knowledge, there is no unauthorized use, infringement or
misappropriation of any of the Intellectual Properties by any third party, including any of the
Company's or any of its Subsidiaries' employees or former employees.
(h) To the knowledge of the Company, all information technology (including,
without limitation, software and firmware) used by the Company or by any Subsidiary, including,
without limitation, in all services and products provided by the Company or any such Subsidiary,
whether to third parties or for internal use, or, to the knowledge of the Company after reasonable
investigation, used in combination with any information technology of its customers or suppliers,
accurately processes date and time data (including, without limitation, calculating, comparing and
sequencing) from, into and between the years 1999 and 2000 and the twentieth century and the
twenty-first century, including leap year calculations and neither performance nor functionality of
such technology will be affected by dates prior to, during and after the year 2000. Neither the
Company nor any Subsidiary has any obligations under warranty agreements, service agreements or
otherwise to remedy any information technology defect relating to the year 2000.
.22. Adequacy of Disclosure. The Company has made available to Parent copies of all
documents listed or referred to in the Company Schedule hereto or referred to herein. All documents
and materials delivered or made available in connection with Parent's investigation of the Company
in connection with the transactions contemplated hereby, are true and complete and include all
amendments, supplements and modifications thereto or waivers currently in effect thereunder. No
representation or warranty by the Company in this Agreement nor any certificate, schedule,
statement, document or instrument furnished or to be furnished to Parent pursuant hereto, or in
connection with the negotiation, execution or performance of this Agreement, contains or will contain
any untrue statement of a material fact or omits or will omit to state a material fact required to be
stated herein or therein or necessary to make any statement herein or therein not misleading.
.23. Real Property.
(a) The Company Schedule lists all real estate used in the operation of the Company and
its Subsidiaries as well as any other real estate that is owned by, leased or otherwise in the possession
of the Company and its Subsidiaries and the improvements (including buildings and other structures)
located on such real estate (collectively, the "Real Property"). The Real Property consists of the
following: (i) the distribution center in Phillipsburg, New Jersey (the "Phillipsburg Distribution
Center)", (ii) the office facility in Sysosset, New York (the "Sysosset Facility"), which the Company
19
leases pursuant to the lease described on the Company Schedule (the "Sysosset Lease"), (iii) the
distribution center in Allentown, Pennsylvania (the "Allentown Distribution Center"), which the
Company leases pursuant to the lease described on the Company Schedule (the "Allentown Lease"),
(iv) all retail store locations (the "Existing Stores") leased by the Company and/or its Subsidiaries,
and (v) all retail store locations as to which the Company and/or its Subsidiaries are negotiating leases
(the "Future Stores"). The leases for the Existing Stores are referred to as the "Existing Store
Leases", and the leases being negotiated for the Future Stores (so long as they are not fully executed
by the parties thereto) are referred to as the "Future Store Leases". The Sysosset Lease, the
Allentown Lease, and the Existing Store Leases are referred to as the "Real Estate Leases".
(b) The Company has good and marketable fee simple title (subject only to the
exceptions set forth in Item 2.23 to the Company Schedule (the "Permitted Encumbrances")) to the
land, buildings and improvements comprising the Phillipsburg Distribution Center. Neither the
Company nor any Subsidiary has any fee ownership interest in any Real Property except the
Phillipsburg Distribution Center.
(c) The Company has made available to Parent correct and complete copies of the Real
Estate Leases, as amended and currently in effect, all subordination, non-disturbance and attornment
agreements and other agreements with landlord's lenders and/or ground lessors to which the tenant is
a party, and all written violation notices or notices of default concerning the lease or the leased
premises. Each Real Estate Lease (i) is valid and in full force and effect with respect to the Company
and, (ii) to the knowledge of the Company and its Subsidiaries, (A) constitutes the legal, valid and
binding obligation of the landlord thereunder, enforceable in accordance with its terms, other than
with respect to bankruptcy, fraudulent conveyance, moratorium, insolvency and other exceptions
affecting creditors generally, (B) has not been modified, extended or supplemented in any material
way and (C) constitutes the entire agreement among the parties thereto such that there are no material
understandings, representations, warranties, allowances, concessions or promises not fully set forth
therein. Neither the Company nor any Subsidiary has assigned any of the Real Estate Leases, or
subleased or granted any license or other rights to use all or any portion of any leased premises, to
any other party, except as set forth in Item 2.23 on the Company Schedule.
(d) To the knowledge of the Company, neither the Company nor any Subsidiary is in
default under any Real Estate Lease, all rent and other sums payable by or to the Company or any
Subsidiary thereunder are current within applicable notice and grace periods and no landlord under
any Real Estate Lease has asserted a written notice of default on the part of the Company or any
Subsidiary thereunder and, to the knowledge of the Company, there is no default under any Real
Estate Lease by any other party.
(e) All of the Real Property is usable in the ordinary course of business and, to the
knowledge of the Company, conforms in all material respects with any applicable laws, statutes,
ordinances, codes, rules and regulations of any Governmental Entities relating to its construction, use
and operation. Except as set forth on the Company Schedule, the Company has not received any
written notice of actual or asserted material violation of any certificate of occupancy or any material
zoning, subdivision, building or other laws or governmental requirements, or any written notice from
an insurance carrier or board of fire underwriters claiming defects or deficiencies in any Real
Property which has not been corrected. To the knowledge of the Company, all improvements
constructed or to be constructed pursuant to any Real Estate Lease have been completed substantially
in compliance with such lease and the use of the Real Property in the conduct of the business of the
Company and or a Subsidiary is a permitted use under the terms of such lease.
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(f) Except as set forth on the Company Schedule, (i) neither the Company nor any
Subsidiary has been notified in writing by any landlord under any Real Estate Lease that the landlord
contests or seeks or intends to audit the Company's records with respect to the Company's sales
and/or percentage rent, (ii) all of the Existing Stores are open for business and operating, and none of
the Existing Stores is subject to any rent abatement or to any limitation on use due to casualty,
condemnation, repair or other matter which is not reasonably expected to be restored or remedied,
(iii) the Company and its Subsidiaries have no knowledge of any violation of any co-tenancy
requirement or tenant exclusive benefiting the Company or any Subsidiary under any of the Existing
Store Leases, or of the existence of any condition which with the passage of time or the giving of
notice or both would constitute a violation of any such co-tenancy or exclusivity requirement, (iv)
neither the Company nor any Subsidiary has received any written notice from any landlord exercising
any right of relocation under any Real Estate Lease or stating that the landlord intends to relocate any
Existing Store to alternate space, or to cancel, terminate or refuse to renew any Real Estate Lease, or
to recapture all or any portion of the leased premises, or to exercise or decline to exercise any option
or other right thereunder, and (v) neither the Company nor any Subsidiary is obligated to pay any
brokerage fees, commissions or finders fees in connection with any of the Real Estate Leases.
(g) The Company has no written notice of any pending or threatened condemnation
proceeding which would or could result in the termination or reduction of the use of or current access
to any of the Real Property from existing public streets, or of any reduction in or access to the sewer,
water or other utility services presently serving any of the Real Property.
.24. Tax Matters. Neither the Company or its Subsidiaries, nor, to the knowledge of the
Company, any of its affiliates has taken or agreed to take any action that would prevent the Merger
from constituting a reorganization qualifying under the provisions of Section 368(a) of the Code.
.25. Affiliates. Except for the persons listed in the Company Schedule, there are no persons
who, to the knowledge of the Company, may be deemed to be affiliates of the Company under Rule
145 under the Securities Act.
.26. Board Action; Amendment of Rights Agreement; Applicability of Takeover Statutes.
(a) The Board of Directors of the Company has, by unanimous vote of those
present, duly and validly approved, and taken all corporate actions required to be taken by the Board
of Directors of the Company for the consummation of the transactions contemplated hereby,
including, without limitation, the Merger, and resolved to recommend that the stockholders of the
Company approve and adopt this Agreement.
(b) The Board of Directors of the Company has amended the Rights Agreement
of the Company (the "Rights Agreement") in accordance with its terms to render it inapplicable to the
transactions contemplated by this Agreement. No holder of rights issued under the Rights Agreement
shall be entitled to exercise such rights under, or be entitled to any rights or benefits pursuant to, such
Rights Agreement solely by reason of the approval, execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
(c) The provisions of Section 203 of the DGCL will not apply to this Agreement
or any of the transactions contemplated hereby. No other "fair price," "moratorium," "control share
acquisition" or other form of anti-takeover statute or regulation (each a "Takeover Statute") as in
effect on the date hereof or any anti-takeover provision in the Company's Certificate of Incorporation
21
or By-laws is applicable to the Company, the shares of Company Common Stock, the Merger or the
other transactions contemplated by this Agreement.
(d) The Company represents and warrants that as of the date hereof it has been
advised by each of its directors and executive officers that each such person intends to vote his shares
of Company Common Stock in favor of the approval and adoption of this Agreement and the Merger.
.27. Opinion of Financial Advisor. The Company has received the opinion of PaineWebber
Incorporated (the "Company Financial Advisor"), dated April 19, 2000, to the effect that, as of such
date, the Common Exchange Ratio is fair to the stockholders of the Company from a financial point
of view and a copy of such opinion has been made available to Parent.
.28. Brokers and Finders. Neither the Company nor any Subsidiary nor any of their
respective officers, directors or employees has employed any broker or finder or incurred any liability
for any brokerage fees, commissions or finder's fees in connection with the transactions contemplated
herein, except that the Company has employed the Company Financial Advisor as its financial
advisor pursuant to the terms of an engagement letter, a true and complete copy of which has
previously been furnished to Parent.
.29. Accounting Matters. Except as set forth on the Company Schedule, to the knowledge
of the Company, neither the Company nor any of its Subsidiaries or their respective affiliates has
taken or agreed to take any action, and no fact or circumstance is known to the Company or any of its
subsidiaries that would prevent the Company from accounting for the Merger as a "pooling of
interests."
.30. Voting Requirements. The affirmative vote of the holders of a majority of the
outstanding shares of Company Common Stock is the only vote of the holders of any class or series of
the capital stock of the Company necessary to approve this Agreement and the Merger.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub each represents and warrants to the Company as follows, except as set
forth on a Disclosure Schedule delivered by Parent concurrently with the execution and delivery of
this Agreement (the "Parent Schedule"), each of which exceptions shall specifically identify the
relevant subsection hereof to which it relates and shall be deemed to be representations and warranties
as if made hereunder:
.1. Organization and Powers. Parent is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania. Merger Sub is a corporation
duly organized, validly existing and in good standing under the laws of the State of Delaware. Each
of Parent and Merger Sub has all requisite corporate power and authority to carry on its business as it
has been and is now being conducted and to own, lease and operate the properties and assets used in
connection therewith. Each of Parent and Merger Sub is duly qualified as a foreign corporation
authorized to do business and is in good standing in every jurisdiction in which such qualification is
required, except where the failure to be so qualified would not have a Parent Material Adverse Effect.
As used in this Agreement, "Parent Material Adverse Effect" means any fact, condition, event,
development or occurrence which, individually or when taken together with all other facts,
22
conditions, events, developments or occurrences has an adverse effect of $2,500,000 or more on the
financial condition operating results or business of Parent and its subsidiaries, taken as a whole;
provided, however, that in no event shall the items set forth in Schedule C hereto be taken into
account in determining whether a Parent Material Adverse Effect has occurred.
.2. Capital Stock. Parent has authorized capital stock consisting of 100,000,000 shares of
Parent Common Stock and 5,000,000 shares of Preferred Stock, par value $0.01 per share ("Parent
Preferred Stock"). As of April 17, 2000: (a) 21,681,606 shares of Parent Common Stock were issued
and outstanding, (b) no shares of Parent Preferred Stock were issued and outstanding, (c) no shares of
Parent Common Stock were held as treasury shares, (d) 5,108,354 shares of Parent Common Stock
were reserved for issuance under Parent's 1998 Equity Compensation Plan (the "1998 Plan") and
Parent's 1993 Stock Incentive Plan (the "1993 Plan" and, together with the 1998 Plan, the "Parent
Stock Plans" (including (i) 2,991,550 shares reserved for issuance under the 1998 Plan, 952,200 of
which were subject to outstanding options and 2,039,350 of which were reserved for future option
grants, and (ii) 2,116,804 shares reserved for issuance under the 1993 Plan, all of which were subject
to outstanding options, and (e) 90,000 shares of Parent Common Stock were reserved for issuance
pursuant to stock options that were not issued under the Parent Stock Plans. Since April 17, 2000, no
additional shares of capital stock have been reserved for issuance by Parent and the only issuances of
shares of capital stock of Parent have been issuances of Parent Common Stock upon the exercise of
outstanding Parent stock options. All of the issued and outstanding shares of Parent Common Stock
have been duly authorized and are validly issued and outstanding, fully paid and nonassessable, and
were issued in compliance with all applicable federal and state securities laws, and all of such
treasury shares were acquired by Parent in compliance with all applicable laws, including, without
limitation, all applicable federal and state securities laws. No shares of capital stock issued by Parent
are or were at the time of their issuance subject to preemptive rights. There are no existing
subscriptions, options, warrants, convertible securities, calls, commitments, agreements, conversion
rights or other rights of any character (contingent or otherwise) calling for or requiring the issuance,
transfer, sale or other disposition of any shares of the capital stock of Parent, or calling for or
requiring the issuance of any securities or rights convertible into or exchangeable for shares of capital
stock of Parent, in any case except as described in this Section 3.2. There are no voting trusts or other
agreements or understandings to which Parent is a party, nor, to the knowledge of Parent, to which
any shareholder of Parent is a party, with respect to the voting of capital stock of Parent.
.3. Authority; Binding Effect. Each of Parent and Merger Sub has all requisite corporate
power and authority to execute and deliver this Agreement, to consummate the transactions
contemplated hereby and to perform its obligations hereunder. All necessary action, corporate or
otherwise, required to have been taken by or on behalf of each of Parent and Merger Sub by
applicable law, their respective charter documents or otherwise to authorize (a) the approval,
execution and delivery on its behalf of this Agreement, and (b) its performance of its obligations
under this Agreement and the consummation of the transactions contemplated hereby has been taken,
except that the Merger must be approved by the affirmative vote of a majority of the votes cast by the
holders of the then outstanding shares of Parent Common Stock of record on the record date for the
Parent Shareholders Meeting (the "Required Parent Shareholder Approval"). This Agreement
constitutes the valid and binding agreement of Parent and Merger Sub, enforceable against each of
them in accordance with its terms, except (y) as the same may be limited by applicable bankruptcy,
insolvency, moratorium or similar laws of general application relating to or affecting creditors' rights,
including, without limitation, the effect of statutory or other laws regarding fraudulent conveyances
and preferential transfers, and (z) for the limitations imposed by general principles of equity.
23
.4. No Conflict; Approvals. The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby and the performance of the obligations herein
will not, (a) violate or conflict with Parent's or Merger Sub's charter or bylaws, (b) constitute a
breach or default (or an event that with notice or lapse of time or both would become a breach or
default) or give rise to any Lien, third party right of termination, cancellation, material modification
or acceleration, or loss of any benefit, under any contract to which Parent or any subsidiary is a party
or by which it is bound, or (c) subject to the consents, approvals, orders, authorizations, filings,
declarations and registrations specified in Section 3.5 or in the Parent Schedule in response thereto,
conflict with or result in a violation of any permit, concession, franchise or license or any law, rule or
regulation applicable to Parent or any of its subsidiaries or any of their properties or assets, except, in
the case of clauses (b) and (c), for any such breaches, defaults, Liens, third party rights, cancellations,
modifications, accelerations or losses of benefits, conflicts or violations which would not have a
Parent Material Adverse Effect and do not impair the ability of Parent to perform its obligations under
this Agreement or prevent or delay the consummation of any of the transactions contemplated hereby.
.5. Governmental Consents and Approvals. Except as set forth in the Parent Schedule,
neither the execution and delivery of this Agreement nor the consummation of the transactions
contemplated hereby will require any consent, approval, order, authorization, or permit of, or filing
with or notification to, any Governmental Entity, except (a) the filing of the Registration Statement
with the SEC in accordance with the Securities Act and the entry of an order by the SEC permitting
such Registration Statement to become effective, and compliance with applicable state securities
laws, (b) the filing of the Proxy Statement and related proxy materials with the SEC in accordance
with the Exchange Act, (c) notification pursuant to, and expiration or termination of the waiting
period under the HSR Act, (d) the filing and recording of the Certificate of Merger in accordance with
the DGCL, and (e) where the failure to obtain such consents, approvals, authorizations or permits, or
to make such filings or notifications, would not prevent it from performing its obligations under this
Agreement without having a Parent Material Adverse Effect.
.6. SEC Reports. Parent has filed all required forms, reports and documents with the SEC
since June 2, 1999 (collectively, the "Parent's SEC Reports"), including, without limitation, Parent's
Quarterly Report on Form 10-Q for the quarter ended October 30, 1999. Parent's SEC Reports have
complied in all material respects with all applicable requirements of the Securities Act and the
Exchange Act. As of their respective dates, none of Parent's SEC Reports, including, without
limitation, any financial statements or schedules included or incorporated by reference therein,
contained any untrue statement of a material fact or omitted to state a material fact required to be
stated or incorporated by reference therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. Parent has heretofore
delivered to the Company, in the form filed with the SEC, all of Parent's SEC Reports.
.7. Financial Statements. Parent has delivered to the Company true and complete
copies of the (a) consolidated balance sheet of Parent and its subsidiaries at January 30, 1999 and the
related consolidated income statement and statement of cash flow for the year then ended, together
with the notes thereto, audited by Xxxxxx Xxxxxxxx LLP, and (b) unaudited consolidated balance sheet
of Parent and its subsidiaries at January 29, 2000 and the related consolidated income statement and
statement of cash flow for the year then ended, both of which have been prepared in accordance with
GAAP (except as may be indicated in the notes thereto). Such balance sheets, including the related
notes, fairly present in all material respects the consolidated financial position of Parent and its
subsidiaries at the dates indicated and such consolidated income statements and statements of cash
flow fairly present in all material respects the consolidated results of operations, and cash flow of
24
Parent and its subsidiaries for the periods indicated. The unaudited consolidated balance sheet of
Parent and its subsidiaries at January 29, 2000 described above is referred to herein as the "Parent
1999 Balance Sheet." The unaudited consolidated financial statements of Parent and its subsidiaries
as at and for the year ended January 29, 2000 are referred to herein as the "Parent Unaudited
Financial Statements."
.8. Absence of Certain Changes. Except as otherwise disclosed in the Parent Schedule,
since January 29, 2000, Parent and its subsidiaries have not (a) been subject to any events or
conditions of any character that would have a Parent Material Adverse Effect or prevent Parent from
performing its obligations under this Agreement or prevent or delay the consummation of any of the
transactions contemplated hereby, (b) amended or otherwise modified its Articles of Incorporation or
bylaws (or similar organization document), (c) made any material change to accounting methods,
principles or practices, except as required by a change in GAAP occurring after January 29, 2000, (d)
sold, transferred, leased to others or otherwise disposed of any material properties or assets, except in
the ordinary course of business, (e) terminated or received any notice of termination of any material
contract, lease, license or other agreement or any Authorization other than in the ordinary course of
business, (f) entered into any material transaction, contract or commitment other than in the ordinary
course of business; or (g) entered into any agreement or made any commitment to take any of the
types of action described in subparagraphs (b) through (f) of this Section 3.8.
.9. Absence of Undisclosed Liabilities. Neither Parent nor any of its subsidiaries have any
material indebtedness, liability or obligation of any kind (whether known or unknown, accrued,
absolute, asserted or unasserted, contingent or otherwise) except (a) as and to the extent reflected,
reserved against or otherwise disclosed in the Parent 1999 Balance Sheet, (b) for liabilities and
obligations incurred subsequent to January 29, 2000 in the ordinary course of business and which do
not have a Parent Material Adverse Effect or prevent Parent from performing its obligations under
this Agreement or prevent or delay the consummation of any of the transactions contemplated hereby,
or (c) as disclosed in the Parent Schedule.
.10. Absence of Litigation; Claims. There are no claims, actions, suits, proceedings or
investigations pending or, to the knowledge of Parent, threatened against Parent or any of its
subsidiaries, or any properties or rights of Parent or any of its subsidiaries, before any Governmental
Entity or arbitrator, which, if decided adversely to Parent or such subsidiary, would have a Parent
Material Adverse Effect or prevent Parent from performing its obligations under this Agreement or
prevent or delay the consummation of any of the transactions contemplated hereby, nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding
against Parent or any of its subsidiaries which could reasonably be expected to have such effect.
.11. Authorizations; Compliance With Law.
(a) Parent and its subsidiaries hold all Authorizations from all Governmental
Entities and other persons which are necessary for the lawful conduct of their respective businesses
and their use and occupancy of their assets and properties in the manner heretofore conducted, used
and occupied, except where the failure to hold any of the foregoing would not have a Parent Material
Adverse Effect or prevent Parent from performing its obligations under this Agreement or prevent or
delay the consummation of any of the transactions contemplated hereby.
(b) Parent and each of its subsidiaries is in compliance in all material respects
with all applicable laws, statutes, ordinances, codes, rules and regulations of any Governmental
25
Entities.
.12. Adequacy of Disclosure. Parent has made available to the Company copies of all
documents listed or referred to in the Parent Schedule hereto or referred to herein. Such copies, and
all documents and materials delivered or made available in connection with the Company's
investigation of Parent in connection with the transactions contemplated hereby, are true and
complete and include all amendments, supplements and modifications thereto or waivers currently in
effect thereunder. No representation or warranty by Parent in this Agreement nor any certificate,
schedule, statement, document or instrument furnished or to be furnished to the Company pursuant
hereto, or in connection with the negotiation, execution or performance of this Agreement, contains or
will contain any untrue statement of a material fact or omits or will omit to state a material fact
required to be stated herein or therein or necessary to make any statement herein or therein not
misleading.
.13. Assets. Except as described in the Parent Schedule, Parent has valid leasehold title to
all personal property leased by it and good and marketable title to its owned personal property,
including, without limitation, those assets and properties reflected in the Parent 1999 Balance Sheet in
the amounts and categories reflected therein, free and clear of all Liens, except (a) the lien of current
taxes not yet due and payable, (b) properties, interests, and assets disposed of by Parent since January
29, 2000 solely in the ordinary course of business consistent with past practice, (c) liens in respect of
pledges or deposits under workmen's compensation, unemployment insurance, social security and
public liability laws and other similar legislation, (d) liens imposed by law, such as carriers',
warehousemen's or mechanics' liens, incurred in good faith in the ordinary course of business, (e)
such secured indebtedness as is disclosed in the Parent 1999 Balance Sheet covering the properties
referred to therein, and (f) such imperfections of title, easements and encumbrances, if any, as do not
materially detract from the value, or interfere with the present or proposed use, of the properties
subject thereto. Except as set forth in the Parent Schedule, all buildings, structures, facilities,
equipment and other items of tangible personal property reflected on the Parent 1999 Balance Sheet
or acquired since January 29, 2000 are in good operating condition and repair, subject to normal wear
and maintenance and are useable in the ordinary course of business of Parent.
.14. Taxes.
(a) All federal, state, local and foreign tax returns, reports, statements and other
similar filings required to be filed by Parent (the "Parent Tax Returns") on or prior to the date hereof
or with respect to taxable periods ending on or prior to the date hereof with respect to any Taxes have
been or will be timely filed with the appropriate Governmental Entities in all jurisdictions in which
such Parent Tax Returns are required to be filed, and all such Parent Tax Returns correctly reflect in
all material respects the liabilities of Parent for Taxes for the periods, property or events covered
thereby.
(b) All Taxes, including, without limitation, those which are called for by the
Parent Tax Returns, or heretofore or hereafter claimed to be due by any taxing authority from Parent,
have been fully paid or properly accrued. The accruals for Taxes contained in Parent 1999 Balance
Sheet are adequate to cover the tax liabilities of Parent as of January 29, 2000 and include adequate
provision for all deferred taxes, and nothing has occurred subsequent to that date to make any of such
accruals inadequate.
(c) Parent has not received any notice of assessment or proposed assessment in
26
connection with any Taxes or Parent Tax Returns and there are no pending tax examinations of or tax
claims asserted against Parent or any of its assets or properties. Parent has not extended, or waived
the application of any statute of limitations of any jurisdiction regarding the assessment or collection
of any Taxes.
.15. Employee Benefit Plans; Employment Agreements. Except as set forth on the Parent
Schedule, all employee benefit plans (as defined in Section 3(3) of ERISA) that are maintained or
sponsored by Parent and any other benefit arrangement, obligation or other practice, whether or not
legally enforceable, to provide benefits, other than salary, as compensation for services rendered, to
one or more present or former employees, directors, agents, or independent contracts that is
maintained by Parent (together, "Parent Employee Plans") are in compliance in all material respects
with the requirements prescribed by any and all statutes (including ERISA and the Code), orders or
governmental rules and regulations currently in effect with respect thereto (including all applicable
requirements for notification to participants or the Department of Labor, IRS or Secretary of the
Treasury), all Parent Employee Plans have been operated at all times in accordance with their terms,
and Parent has performed all material obligations required to be performed by it under, is not in any
material respect in default under or violation of, and has no knowledge of any default or violation by
any other party to, any of the Parent Employee Plans.
.16. Labor Matters. Except as disclosed on the Parent Schedule, there are no material
controversies pending or, to the knowledge of Parent, threatened, between Parent and any of its
employees. Parent is not a party to any collective bargaining agreement or other labor agreement
with any union or labor organization and no union or labor organization has been recognized by
Parent as an exclusive bargaining representative for employees of Parent. Except as disclosed on the
Parent Schedule, to Parent's knowledge, there is no significant activity or proceeding of any labor
organization (or representative thereof) or employee group to organize any such employees. Except as
disclosed in the Parent Schedule, (a) there is no active arbitration under any collective bargaining
agreement involving Parent, (b) there is no unfair labor practice, grievance, employment
discrimination or other labor or employment related charge, complaint or claim against Parent
pending before any court, arbitrator, mediator or governmental agency or tribunal, or, to Parent's
knowledge, threatened, and (c) there is no strike, picketing or work stoppage by, or any lockout of,
employees of Parent pending, or to Parent's knowledge, threatened, against or involving Parent.
.17. Environmental Matters. Except as set forth in the Parent Schedule:
(a) no written notice, notification, demand, request for information, citation,
summons or order has been received by Parent, no complaint has been filed, no penalty has been
assessed and no investigation, action, claim or proceeding is pending or, to the knowledge of Parent,
threatened by any Governmental Entity or other Person against Parent under any Environmental Law,
except for those which would not reasonably be expected to result in a Parent Material Adverse
Effect;
(b) Parent has not incurred any Environmental Liabilities, which would result in a Parent
Material Adverse Effect, and, to the knowledge of Parent, there are no facts, conditions or
circumstances which could reasonably be expected to result in or be the basis for any such liability,
which, if adversely determined, would result in a Parent Material Adverse Effect; and
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(c) Parent and its respective operations are in compliance with all
Environmental Laws, and have and are in compliance with all Environmental Permits, except where
such non-compliance would not reasonably be expected to have a Parent Material Adverse Effect.
.18. Intellectual Property.
(a) Except as set forth in the Parent Schedule, Parent owns, or is licensed
pursuant to fully-paid (other than upgrade costs and purchaser maintenance costs), perpetual licenses
to use, or otherwise possesses or has legally enforceable rights to use, all software, firmware,
copyrights, patents, trademarks, service marks, trade names, trade secrets and proprietary
technologies, know-how, and all other inventions, discoveries, improvements, processes and formulas
(secret or otherwise) and any related documentation thereto used or possessed by or related to Parent
or necessary for the current conduct of the business of Parent.
(b) Parent is not, nor will it be as a result of the execution and delivery of this
Agreement or the performance of the transactions contemplated hereby, in violation of any licenses,
sublicenses and other contracts to which Parent is a party and pursuant to Parent is authorized to use
any patent, copyright, trademark, trade name, service xxxx or any other form of intellectual property
or trade secret owned by a third party.
(c) To the knowledge of Parent, all copyrights, patents, trademarks, service
marks and trade names held by Parent are valid and subsisting, except for any failures so to be valid
and subsisting that, individually or in the aggregate, would not have a Parent Material Adverse Effect.
(d) In conducting its business as presently conducted, to the knowledge of
Parent, except as disclosed in the Parent Schedule, Parent is not infringing upon or unlawfully or
wrongfully using any patent, copyright, trademark, trade name, service xxxx or any other form of
intellectual property or trade secret owned or claimed by another. Except as disclosed in the Parent
Schedule, Parent is not in default under, nor has it received any notice of any claim of infringement
or any other claim or proceeding relating to, any such patent, copyright, trademark, trade name,
service xxxx, trade secret or any other form of intellectual property or any agreement relating thereto.
.19. Tax Matters. Neither Parent or Merger Sub nor, to the knowledge of Parent, any of its
affiliates has taken or agreed to take any action that would prevent the Merger from constituting a
reorganization qualifying under the provisions of Section 368(a) of the Code.
.20. Affiliates. Except for the persons listed in the Parent Schedule, there are no persons
who, to the knowledge of Parent, may be deemed to be affiliates of Parent under Rule 145 under the
Securities Act.
.21. Opinion of Financial Advisor. Parent has received the opinion of Xxxxxxxxx, Xxxxxx
and Xxxxxxxx Securities Corporation (the "Parent Financial Advisor"), dated April 21, 2000, to the
effect that, as of such date, the Common Exchange Ratio is fair to Parent from a financial point of
view and a copy of such opinion has been made available to the Company.
.22. Brokers and Finders. Neither Parent nor any of its respective officers, directors or
employees has employed any broker or finder or incurred any liability for any brokerage fees,
commissions or finder's fees in connection with the transactions contemplated herein, except that
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Parent has employed the Parent Financial Advisor as its financial advisor pursuant to the terms of an
engagement letter, a true and complete copy of which has previously been furnished to the Company.
.23. Board Action.
(a) The Board of Directors of Parent has unanimously determined that the
transactions contemplated by this Agreement are in the best interests of Parent and its shareholders
and has resolved to recommend to such shareholders that they vote in favor of the transactions
contemplated by this Agreement.
(b) Parent represents and warrants that as of the date hereof it has been advised
by each of its directors and executive officers that each such person intends to vote his shares of
Parent Common Stock in favor of the issuance of the Merger Stock.
.24. Accounting Matters. To the knowledge of Parent, neither Parent nor any of its affiliates
has taken or agreed to take any action, and, except as set forth on the Parent Schedule, no fact or
circumstance is known to Parent, that would prevent the Company from accounting for the Merger as
a "pooling of interests."
.25. Voting Requirements. The affirmative vote of the holders of a majority of the
outstanding shares of Parent Common Stock is the only vote of the holders of any class or series of
the capital stock of Parent necessary to approve this Agreement and the Merger.
.26. ZB Holdings LLC. Except as set forth in the Parent Schedule:
(a) Parent has no obligation to provide additional financing to ZB Holdings LLC,
a Delaware limited liability company and affiliate of Parent ("Holdings");
(b) Parent has no obligation to purchase the membership interests of any other
member of Holdings;
(c) Parent owns (or has adequate rights to use or transfer pursuant to license,
sublicence, agreement or permission) the uniform resource locator xxx.xxxxxxxxxx.xxx; and
(d) Upon the dissolution and cessation of the business of Holdings and its
wholly-owned subsidiary, XxxxXxxxxx.xxx LLC, a Delaware limited liability company, Parent will
not be restricted from operating another online retail website.
ARTICLE IV
OTHER AGREEMENTS
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.1. Conduct of the Company's Business. The Company covenants and agrees that, between
the date of this Agreement and the Effective Time, unless Parent shall otherwise consent in writing,
the business of the Company and the Subsidiaries shall be conducted only in, and such entities shall
not take any action except in, the ordinary course of business and in a manner consistent with past
practice; and the Company and its Subsidiaries will use their commercially reasonable efforts to
preserve substantially intact the business organization of the Company and its Subsidiaries, to keep
available the services of those of its present officers, employees and consultants that are integral to
the operation of its business as presently conducted and to preserve the present relationships of the
Company and its Subsidiaries with customers, suppliers and other persons with which the Company
and the Subsidiaries have significant business relations. By way of amplification and not limitation,
except as otherwise expressly contemplated by this Agreement, the Company agrees on behalf of
itself and its Subsidiaries that, without the prior written consent of Parent, which consent in the case
of clauses (b)(iii)-(vii), (c), (d) and (e) below shall not be unreasonably withheld or delayed, each of
the Company and its Subsidiaries will, between the date of this Agreement and the Effective Time:
(a) not, directly or indirectly, do any of the following: (i) amend or propose to
amend its charter documents or by-laws; (ii) split, combine or reclassify any outstanding shares of its
capital stock, or declare, set aside or pay any dividend payable in cash, stock, property or otherwise
with respect to such shares; (iii) redeem, purchase, acquire or offer to acquire any shares of its capital
stock; (iv) issue, sell, pledge or dispose of, or agree to issue, sell, pledge or dispose of, any additional
shares of, or securities convertible or exchangeable for, or any options, warrants or rights of any kind
to acquire any shares of, its capital stock of any class or other property or assets whether pursuant to
any rights agreement, stock option plans described in the Company Schedule or otherwise, provided
that the Company may issue shares of Company Common Stock pursuant to currently outstanding
options or employee stock purchases referred to in the Company Schedule in response to Section 2.3
above and the Company may issue options pursuant to the Company Option Plan in amounts and on
terms consistent with past practice, provided that such option grants do not exceed 50,000 shares in
the aggregate; (v) accelerate, amend or change the period of exerciseability of options or restricted
stock granted under any of the Company Stock Plans or authorize cash payments in exchange for any
options granted under any of such plans except as required by the terms of such plans or any related
agreements in effect as of the date of this Agreement; (vi) except as set forth in Section 2.26(b) in
connection with the transactions contemplated by this Agreement, amend the Rights Agreement or
redeem the rights issued pursuant thereto; or (vii) enter into any contract, agreement, commitment or
arrangement with respect to any of the matters set forth in this paragraph (a);
(b) not, directly or indirectly, (i) acquire (by merger, consolidation or acquisition
of stock or assets) any corporation, partnership, limited liability company or other business
organization or division thereof or make any equity investments therein; (ii) issue, sell, pledge,
dispose of or encumber any assets (including, without limitation, licenses, Authorizations or rights) of
the Company or the Subsidiaries (except for (A) purchases or sales of inventory in the ordinary course
of business and in a manner consistent with past practice, (B) dispositions of obsolete or worthless
inventory, (C) purchases or sales of immaterial assets not in excess of $50,000 in the aggregate and
(D) as set forth in the Company Schedule) or enter into any securitization transactions; (iii) incur any
indebtedness for borrowed money or issue any debt securities exceeding $50,000 in the aggregate
except for borrowings and reborrowings under the Company's existing credit facility in the ordinary
course of business and consistent with past practice and except as set forth in the Company Schedule,
(iv) make any commitments or agreements for capital expenditures or capital additions or betterments
exceeding in the aggregate $50,000 except such as may be involved in ordinary repair, maintenance
or replacement of its assets or except as set forth in the Company Schedule; (v) enter into or modify
any material contract, lease or agreement except in the ordinary course of business and consistent
with past practice or except as set forth in the Company Schedule; (vi) terminate, modify, assign,
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waive, release or relinquish any material contract rights or amend any material rights or claims not in
the ordinary course of business or except as expressly provided herein; or (vii) enter into any contract,
agreement, commitment or arrangement with respect to any of the matters set forth in this paragraph
(b);
(c) not, directly or indirectly, (i) initiate any litigation or arbitration proceeding;
(ii) revalue any of its assets, including writing down the value of inventory or writing off notes or
accounts receivable, other than in the ordinary course of business pursuant to arm's length
transactions on commercially reasonable terms; (iii) make any material change to its accounting
methods, principles or practices except as required by a change in GAAP occurring after the date
hereof; or (iv) settle or compromise any Tax liability for an amount in excess of $25,000 or, on any
Tax Return, take any position, make any election or adopt any method that is inconsistent with
positions taken, elections made or methods used in similar Tax Returns in prior periods;
(d) not, directly or indirectly, (i) grant any increase in the salary or other
compensation of its employees except in the ordinary course of business and consistent with past
practice or grant any bonus to any employee or enter into any employment agreement or make any
loan to or enter into any material transaction of any other nature with any officer or employee of the
Company; (ii) take any action to institute any new severance or termination pay practices with respect
to any directors, officers or employees of the Company or to increase the benefits payable under its
severance or termination pay practices; or (iii) adopt or amend, in any respect, except as may be
required by applicable law or regulation, any bonus, profit sharing, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment or other employee benefit
plan, agreement, trust, fund, plan or arrangement for the benefit or welfare of any directors, officers
or employees except as set forth in the Company Schedule; and
(e) not, directly or indirectly, take (and will use reasonable efforts to prevent any
affiliate of the Company from taking) or agree in writing or otherwise to take, (i) any of the actions
described in this Section 4.l; (ii) any action which would make any of the Company's representations
or warranties in this Agreement, if made on and as of the date of such action or agreement, untrue or
incorrect in any material respect; (iii) any action which could prevent it from performing, or cause it
not to perform, its obligations under this Agreement; (iv) any action that would cause the Merger not
to be treated as a reorganization within the meaning of Section 368(a) of the Code; or (v) any action
that would prevent or impede the Merger from qualifying as a "pooling of interests" for accounting
purposes.
.2. Conduct of Business by Parent Pending the Merger. During the period from the date of
this Agreement and continuing until the earlier of the termination of this Agreement or the Effective
Time, Parent covenants and agrees that, unless the Company shall otherwise agree in writing, Parent
shall conduct its business in the ordinary course of business and consistent with past practice and
shall not directly or indirectly do, or propose to do, any of the following without the prior written
consent of the Company:
(a) amend or otherwise change Parent's Articles of Incorporation or By-Laws;
(b) (i) declare, set aside, make or pay any dividend or other distribution (whether
in cash, stock or property or any combination thereof) in respect of any of its capital stock; or (ii)
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issue, sell, pledge or dispose of, or agree to issue, sell, pledge or dispose of, any additional shares of,
or securities convertible or exchangeable for, or any options, warrants or rights of any kind to acquire
any shares of, its capital stock of any class or other property or assets whether pursuant to any rights
agreement, stock option plans or otherwise, provided that Parent may issue shares of Parent Common
Stock pursuant to currently outstanding options or employee stock purchases referred to on the
Parent Schedule in response to Section 3.2 above and Parent may issue options pursuant to its 1998
Equity Compensation Plan in amounts and on terms consistent with past practice, provided that such
option grants do not exceed 50,000 shares in the aggregate;
(c) acquire or agree to acquire, by merging or consolidating with, by purchasing
an equity interest in or a portion of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets of any other person, or dispose of any assets, which, in any such
case, would materially delay or prevent the consummation of the Merger and the other transactions
contemplated by this Agreement; or
(d) take any action to change its accounting policies or procedures except as
required by a change in GAAP occurring after the date hereof; or
(e) take or agree in writing or otherwise to take, (i) any of the actions described
in this Section 4.2; (ii) any action which would make any of Parent's representations or warranties in
this Agreement, if made on and as of the date of such action or agreement, untrue or incorrect in any
material respect; (iii) any action which could prevent it from performing, or cause it not to perform,
its obligations under this Agreement; (iv) any action that would cause the Merger not to be treated as
a reorganization within the meaning of Section 368(a) of the Code; or (v) any action that would
prevent or impede the Merger from qualifying as a "pooling of interests" for accounting purposes.
.3. Parent's Undertakings. Parent will not, directly or indirectly, take (and will use
reasonable efforts to prevent any affiliate of Parent from taking) any action that would cause the
Merger not to be treated as a reorganization within the meaning of Section 368(a) of the Code or
would prevent or impede the Merger from qualifying as a "pooling of interests" for accounting
purposes. Parent shall as promptly as practicable following the date hereof apply for approval for
listing of Parent Common Stock to be issued pursuant to the Merger on the Nasdaq National Market
upon official notice of issuance.
.4. Access to Information. Between the date of this Agreement and the Closing Date, the
Company and Parent will each (a) give the other party and its authorized representatives reasonable
access, during regular business hours upon reasonable notice, to all offices, warehouses and other
facilities and to all of its books and records, (b) permit the other party and its authorized
representatives to make such reasonable inspections as it may require and (c) cause its officers and
those of its subsidiaries to furnish the other party and its authorized representatives with such
financial and operating data and other information with respect to its business and properties, as the
other party and its authorized representatives may from time to time reasonably request. All such
access and information obtained by Parent, the Company and their authorized representatives shall be
subject to the terms and conditions of the confidentiality agreement between the Company and Parent
dated February 28, 2000 (the "Confidentiality Agreement").
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.5. Stockholder Vote; Proxy Statement.
(a) As promptly as practicable after the date hereof, the Company shall take all
action necessary in accordance with Rules 14a-1 et seq. of the Exchange Act, the DGCL, the rules of
the National Association of Securities Dealers, Inc. and the Company's Certificate of Incorporation
and By-laws to call, give notice of, convene and hold a meeting of the Company's stockholders to
consider and vote upon the approval and adoption of this Agreement and the transactions
contemplated hereby and for such other purposes as may be necessary or desirable (the "Company
Stockholders Meeting"). Subject to the fiduciary duties of the Board of Directors under applicable
law, as determined by such directors in good faith after consultation with and based upon the written
advice of independent legal counsel, the Board of Directors of the Company shall use its reasonable
best efforts to solicit and secure from its stockholders such approval and adoption of this Agreement
and the transactions contemplated hereby, which efforts may include, without limitation, soliciting
stockholder proxies therefor, and to advise the other party upon its request, from time to time, as to
the status of the stockholder vote then tabulated.
(b) As promptly as practicable after the date hereof, Parent shall take all action
necessary in accordance with Rules 14a-1 et seq. of the Exchange Act, the laws of the
Commonwealth of Pennsylvania, the rules of the National Association of Securities Dealers, Inc. and
Parent's Articles of Incorporation and Bylaws to call, give notice of, convene and hold a meeting of
Parent's shareholders to consider and vote upon the approval of the Merger and for such other
purposes as may be necessary or desirable (the "Parent Shareholders Meeting"). Subject to the
fiduciary duties of the Board of Directors of Parent under applicable law, as determined by such
directors in good faith after consultation with and based upon the written advice of independent legal
counsel, the Board of Directors of Parent shall use its reasonable best efforts to solicit and secure
from its shareholders such approval, which efforts may include, without limitation, soliciting
shareholder proxies therefor, and to advise the other party upon its request, from time to time, as to
the status of the shareholder vote then tabulated.
(c) As promptly as practicable after the date hereof, the Company and Parent
shall jointly prepare and file with the SEC preliminary proxy materials that shall constitute the joint
proxy statement of the Company and Parent under the Exchange Act with respect to the Merger (the
"Proxy Statement"), and a registration statement on Form S-4 with respect to the Parent Common
Stock to be issued in connection with the Merger (the "Registration Statement") and will thereafter
use their respective best efforts to respond to any comments of the SEC with respect thereto and to
cause the Registration Statement to become effective, and the Proxy Statement and proxy to be
mailed to the Company's and the Parent's stockholders, as promptly as practicable. The Proxy
Statement shall include the unqualified recommendation of (i) the Company's Board of Directors that
the Company's stockholders vote in favor of the approval and adoption of this Agreement and the
transactions contemplated hereby, unless otherwise necessary due to the applicable fiduciary duties of
the directors of the Company, as determined by such directors in good faith after consultation with
and based upon the written advice of independent legal counsel and (ii) Parent's Board of Directors
that Parent's shareholders vote in favor of the approval and adoption of this Agreement and the
transactions contemplated hereby, unless otherwise necessary due to the applicable fiduciary duties of
the directors of Parent, as determined by such directors in good faith after consultation with and based
upon the written advice of independent legal counsel.
(d) As soon as practicable after the date hereof, the Company and Parent shall
33
prepare and file any other filings required to be filed by each under the Exchange Act or any other
federal or state securities laws relating to the Merger and the transactions contemplated hereby
(collectively, "Other Filings") and will use their best efforts to respond to any comments of the SEC
or any other appropriate government official with respect thereto.
(e) The Company and Parent shall cooperate with each other and provide to each
other all information necessary in order to prepare the Registration Statement, the Proxy Statement
and the Other Filings (collectively, the "SEC Transaction Filings") and shall provide promptly to the
other party any information that such party may obtain that could necessitate amending any such
document.
(f) The Company and Parent will notify the other party promptly of the receipt
of any comments from the SEC or its staff or any other appropriate government official and of any
requests by the SEC or its staff or any other appropriate government official for amendments or
supplements to any of the SEC Transaction Filings or for additional information and will supply the
other party with copies of all correspondence between the Company or any of its representatives or
Parent and any of its representatives, as the case may be, on the one hand, and the SEC or its staff or
any other appropriate government official, on the other hand, with respect thereto. If at any time prior
to the Effective Time, any event shall occur that should be set forth in an amendment of, or a
supplement to, any of the SEC Transaction Filings, the Company and Parent agree promptly to
prepare and file such amendment or supplement and to distribute such amendment or supplement as
required by applicable law, including, in the case of an amendment or supplement to the Proxy
Statement, mailing such supplement or amendment to the Company's stockholders. Parent shall not
be required to maintain the effectiveness of the Registration Statement for the purpose of resale by
stockholders of the Company who may be affiliates of the Company or Parent pursuant to Rule 145
under the Securities Act.
(g) The information supplied by the Company for inclusion in the Registration
Statement shall not, at the time the Registration Statement is declared effective by the SEC, contain
any untrue statement of a material fact or omit to state any material fact required to be stated in the
Registration Statement or necessary in order to make the statements in the Registration Statement not
misleading. The information supplied by the Company for inclusion in the Proxy Statement shall not,
at the time the Proxy Statement is first mailed to stockholders, at the time of the Company
Stockholders Meeting, or at the Effective Time, contain any statement which, at such time and in light
of the circumstances under which it was made, is false or misleading with respect to any material fact,
or omit to state any material fact necessary in order to make the statements made in the Proxy
Statement not false or misleading or omit to state any material fact necessary to correct any statement
in any earlier communication with respect to the solicitation of proxies for the Company Stockholders
Meeting which has become false or misleading. If at any time prior to the Effective Time any event
relating to the Company, any of its Subsidiaries or any affiliates of the foregoing should be
discovered by the Company which should be set forth in an amendment to the Registration Statement
or a supplement to the Proxy Statement, the Company shall promptly inform Parent.
(h) The information supplied by Parent for inclusion in the Registration
Statement shall not, at the time the Registration Statement is declared effective by the SEC, contain
any untrue statement of a material fact or omit to state any material fact required to be stated in the
Registration Statement or necessary in order to make the statements in the Registration Statement not
misleading. The information supplied by Parent for inclusion in the Proxy Statement shall not, at the
time the Proxy Statement is first mailed to stockholders of the Company, at the time of the Company
34
Stockholders Meeting, or at the Effective Time, contain any statement which, at such time and in light
of the circumstances under which it was made, is false or misleading with respect to any material fact,
or omit to state any material fact necessary in order to make the statements made in the Proxy
Statement not false or misleading or omit to state any material fact necessary to correct any statement
in any earlier communication with respect to the solicitation of proxies for the Company Stockholders
Meeting which has become false or misleading. If at any time prior to the Effective Time any event
relating to Parent or any of its affiliates should be discovered by Parent which should be set forth in
an amendment to the Registration Statement or a supplement to the Proxy Statement, Parent shall
promptly inform the Company.
.6. Reasonable Best Efforts. Subject to the fiduciary duties of its Board of Directors, as
determined by such directors in good faith after consultation with and based upon the written advice
of independent legal counsel, and except as otherwise provided herein, each of the parties hereto
agrees to use its reasonable best efforts to take, or cause to be taken, all appropriate action, and to do,
or cause to be done, all things necessary, proper or advisable under applicable laws, statutes,
ordinances, codes, rules and regulations to consummate and make effective the transactions
contemplated by this Agreement in the most expeditious manner practicable, including, without
limitation, the satisfaction of all conditions to the Merger, and to consummate the Merger as promptly
as practicable.
.7. Public Announcements. No party hereto shall make any public announcements or
otherwise communicate with any news media with respect to this Agreement or any of the
transactions contemplated hereby without prior consultation with the other parties as to the timing and
contents of any such announcement as may be reasonable under the circumstances; provided, that
nothing contained herein shall prevent any party from promptly making all filings with Governmental
Entities and all disclosure as may, in its good faith judgment, be required or advisable in connection
with the execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby (in which case the disclosing party shall advise the other parties and provide
them with a copy of the proposed disclosure or filing prior to making the disclosure or filing).
.8. Notification. Each party hereto shall, in the event of, or promptly after obtaining
knowledge of the occurrence or threatened occurrence of (i) any fact or circumstance that would
cause or constitute a breach of any of its representations and warranties set forth herein or (ii) any
failure to materially comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it, give notice thereof to the other parties and shall use its best efforts to prevent or
promptly to remedy such breach or failure; provided, however, that none of such notices shall be
deemed to modify, amend or supplement the representations and warranties of the such party or the
disclosure schedules of such party for the purposes of Article V hereof, unless the other party shall
have consented thereto in writing.
.9. Subsequent Financial Statements. Prior to the Effective Time, each party will consult
with the other prior to (a) making publicly available its financial results for any period, and (b) the
filing of (which shall be a timely filing with the SEC) each Annual Report on Form 10-K, Quarterly
Report on Form 10-Q and Current Report on Form 8-K required to be filed by it under the Exchange
Act and will promptly deliver to the other copies of each such report filed with the SEC.
.10. Regulatory and Other Authorizations.
(a) Each party hereto agrees to use commercially reasonable efforts to comply
35
with all legal requirements which may be imposed on such party with respect to the Merger and to
obtain all Authorizations, consents, orders and approvals of Governmental Entities and
non-governmental third parties that may be or become necessary for (i) the performance of its
respective obligations pursuant to this Agreement, and (ii) the ownership of the Surviving Entity by
Parent, and each party will cooperate fully with the other party in promptly seeking to obtain all such
Authorizations, consents, orders and approvals. The foregoing covenant shall not include any
obligation by Parent or the Company to agree to divest, abandon, license or take similar action with
respect to any assets (tangible or intangible) of Parent or the Company, except as to any stores of the
Company and its Subsidiaries which account for no more than 5% of the total revenues of the
Company and its Subsidiaries taken as a whole or any stores of Parent and its subsidiaries which
account for no more than 3% of the total revenues of Parent and its subsidiaries taken as a whole.
(b) The Company and Parent shall each promptly make an appropriate filing of a
Notification and Report Form pursuant to the HSR Act and shall promptly respond to any request for
additional information with respect thereto. Each such filing shall request early termination of the
waiting period imposed by the HSR Act.
(c) The Company and Parent will consult with each other with respect to any
suit, action or proceeding by any third party, including any Governmental Entity, to restrain, prohibit
or otherwise oppose the Merger or any other transaction contemplated by this Agreement and will use
their commercially reasonable best efforts to resist any such effort to restrain, prohibit or otherwise
oppose the Merger or any other transaction contemplated by this Agreement; provided, however, that
neither the Company nor Parent shall have any obligation to make material expenditures in
connection with such efforts.
.11. Takeover Statute. If any Takeover Statute shall become applicable to the transactions
contemplated hereby, each of the Company and Parent and the members of their respective Boards of
Directors shall grant such approvals and take such actions as are reasonably necessary so that the
transactions contemplated hereby may be consummated as promptly as practicable on the terms
contemplated hereby and otherwise act to eliminate or minimize the effects of such statute.
.12. Indemnification of Directors and Officers.
(a) The By-Laws and Certificate of Incorporation of the Surviving Entity shall
contain the provisions with respect to indemnification set forth in the By-Laws and Certificate of
Incorporation of the Company, which provisions shall not be amended, repealed or otherwise
modified for a period of six years from the Effective Time in any manner that would adversely affect
the rights thereunder as of the Effective Time of individuals who at the Effective Time were directors
or officers of the Company or its Subsidiaries, unless such modification is required after the Effective
Time by law.
(b) For a period of six years after the Effective Time, Parent shall cause the
Surviving Entity to maintain in effect, if available, directors' and officers' liability insurance covering
those individuals who served as directors or officers of the Company at any time during the 12
months immediately preceding the Effective Time on terms comparable to those now applicable to
directors and officers of the Company; provided, however, that in no event shall the Surviving Entity
be required to expend in excess of 300% of the annual premium currently paid by the Company for
such coverage.
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(c) From and after the Effective Time, Parent shall unconditionally guarantee the
timely payment of all funds owning by, and the timely performance of all other obligations of, the
Surviving Entity under this Section 4.12.
(d) The provisions of this Section 4.12 shall survive the consummation of the
Merger at the Effective Time, are intended to benefit the Company, the Surviving Entity and the
Indemnified Parties, shall be binding on all successors and assigns of the Surviving Entity and shall
be enforceable by the Indemnified Parties.
.13. Affiliates.
(a) The Company shall use all reasonable efforts to cause each person who is so
identified as an "affiliate" of it for purposes of Rule 145 under the Securities Act or the rules and
regulations of the SEC relating to pooling of interests accounting treatment for merger transactions to
deliver to Parent as promptly as practicable but in no event later than five business days prior to the
Closing Date, a signed agreement substantially in the form of Schedule B. The Company shall notify
Parent from time to time of any other persons who then are, or may be, such an "affiliate" and use all
reasonable efforts to cause each additional person who is identified as an "affiliate" to execute a
signed agreement as set forth in this Section 4.13(a).
(b) Parent shall use all reasonable efforts to cause each person who is so
identified as an "affiliate" of it for purposes of Rule 145 under the Securities Act or the rules and
regulations of the SEC relating to pooling of interests accounting treatment for merger transactions to
deliver to the Company as promptly as practicable but in no event later than five business days prior
to the Closing Date, a signed agreement substantially in the form of Schedule D. Parent shall notify
the Company from time to time of any other persons who then are, or may be, such an "affiliate" and
use all reasonable efforts to cause each additional person who is identified as an "affiliate" to execute
a signed agreement as set forth in this Section 4.13(b).
.14. Tax-Free Reorganization. Each of Parent and the Company will use its best efforts to
cause the Merger to qualify as a "reorganization" within the meaning of Section 368(a) of the Code,
and to enable its respective counsel to render the opinions contemplated by Sections 5.2(f) and 5.3(g).
Each party shall make, and shall use its best efforts to cause those of its respective officers and
stockholders that counsel to the parties shall reasonably request to make, such representations and
certifications as counsel to the parties shall reasonably request to enable them to render such opinion,
including, without limitation, the representations of Parent contained in a certificate of Parent and the
representations of the Company contained in a certificate of the Company.
.15. No Solicitation.
(a) Without the prior written consent of Parent, from and after the date hereof,
the Company shall not, and shall not authorize or permit any of its Subsidiaries or any officers,
directors, employees, financial advisors, agents and other representatives of any of the foregoing
("Representatives") to, directly or indirectly, (i) solicit, initiate or encourage (including by way of
furnishing information) or take any other action to facilitate knowingly any inquiries or the making of
any proposal which constitutes or may reasonably be expected to lead to an Acquisition Proposal (as
hereinafter defined) from any person; (ii) engage in any discussion or negotiations relating to any
Acquisition Proposal; or (iii) enter into any agreement with respect to, agree to, approve or
recommend any Acquisition Proposal. Notwithstanding any other provision hereof, the Company
37
may, at any time prior to the time the Company's stockholders shall have voted to approve this
Agreement engage in discussions or negotiations with a third party (and may furnish such third party
information concerning the Company and its business, properties and assets to such party), provided
that all of the following has occurred: (1) such party has (without any solicitation, initiation,
encouragement, discussion or negotiation, directly or indirectly, by or with the Company or the
Representatives after the date hereof) made an unsolicited bona fide written Acquisition Proposal,
which proposal the Company's Board of Directors in good faith concludes (after consultation with its
financial advisors and outside counsel) would result in a transaction that is more favorable to its
stockholders from a financial point of view than the transactions contemplated by this Agreement and
the Company's Board of Directors shall determine in good faith (after consultation with its financial
advisors and outside counsel) that such third party is financially able to consummate the Acquisition
Proposal (such an Acquisition Proposal, a "Superior Proposal"), (2) the Company's Board of
Directors shall determine in good faith (after consultation with outside counsel) that such action is
necessary for it to act in a manner consistent with its fiduciary duties under applicable law, (3) prior
to furnishing such information to or entering into discussions or negotiations with such person or
entity, the Company receives from such person or entity an executed confidentiality agreement in the
same form as the Confidentiality Agreement, (4) the Company shall have fully complied with this
Section 4.15; (5) Parent shall have been promptly notified in writing of such Acquisition Proposal,
including all of its terms and conditions, shall have promptly been given copies of such proposal and
shall have promptly been apprised of all material discussions, and the content thereof, with respect to
the Acquisition Proposal. In addition, the Company may (A) comply with Rule 14d-9 and 14e-2
promulgated under the Exchange Act with regard to a tender or exchange offer; and/or (B) change its
recommendation concerning the Merger or accept a Superior Proposal from a third party, provided
that in either case the Company terminates this Agreement pursuant to Section 6.1(i) hereof. As used
herein, "Acquisition Proposal" means a proposal or offer for a tender or exchange offer, merger,
consolidation or other business combination involving the Company or any Subsidiary of the
Company or any proposal to acquire in any manner a substantial equity interest in, or a substantial
portion of the assets of, the Company or any Subsidiary thereof.
(b) The Company shall immediately cease and terminate any existing
solicitation, initiation, encouragement, activity, discussion or negotiation with any parties conducted
heretofore by the Company or its Representatives with respect to the foregoing and shall promptly
request the return of all confidential or proprietary information of the Company furnished to any of
such parties. The Company shall give Parent at least two business days prior written notice of (i) any
meeting of the Board of Directors of the Company to take any action with respect to an Acquisition
Proposal or to withdrawing or modifying, in a manner adverse to Parent, its recommendation to the
Company's stockholders in favor of approval of the Merger and (ii) any agreement to be entered into
with any person making such inquiry, offer or proposal.
(c) Prior to accepting a Superior Proposal, the Company shall, and shall cause its
financial and legal advisors to, negotiate in good faith with Parent, for a period of not less than three
business days, to make such changes to the terms and conditions of this Agreement as would enable
the Company to proceed with the transactions contemplated hereby.
(d) During the period from the date of this Agreement through the Effective
Time, the Company shall not terminate, amend, modify or waive any provision of any confidentiality
or standstill agreement to which it or any of its Subsidiaries is a party. During such period, the
Company shall enforce, to the fullest extent permitted under applicable law, the provisions of any
such agreement, including, without limitation, by obtaining injunctions to prevent any breaches of
38
such agreements and to enforce specifically the terms and provisions thereof in any court of the
United States of America or of any state having jurisdiction.
(e) The Company shall ensure that the officers, directors and Affiliates of the
Company and its Subsidiaries and any investment banker or other financial advisor or representative
retained by the Company or any Subsidiary of the Company are aware of the restrictions described in
this Section 4.15.
.16. Accountant's Letters.
(a) Following receipt by the Company's independent public accountants of an
appropriate request from Parent pursuant to Statement of Auditing Standards ("SAS") No. 72, the
Company shall use reasonable best efforts to cause to be delivered to Parent two letters from the
Company's independent public accountants, one dated approximately the date on which the
Registration Statement shall become effective and one dated the Closing Date, each addressed to the
Company and Parent, in form reasonably satisfactory to Parent and customary in scope for comfort
letters delivered by independent public accountants in connection with registration statements similar
to the Registration Statement. The Company shall use reasonable best efforts to cause to be delivered
to Parent a copy of a letter from the Company's independent accountants dated as of the Closing
Date, regarding the qualification of the Merger as a pooling-of-interests under Opinion 16 of the
Accounting Principles Board.
(b) Following receipt by the Parent's independent public accountants of an
appropriate request from the Company pursuant to SAS No. 72, Parent shall use reasonable best
efforts to cause to be delivered to the Company two letters from Parent's independent public
accountants, one dated approximately the date on which the Registration Statement shall become
effective and one dated the Closing Date, each addressed to Parent and the Company, in form
reasonably satisfactory to the Company and customary in scope for comfort letters delivered by
independent public accountants in connection with registration statements similar to the Registration
Statement. Parent shall use reasonable best efforts to cause to be delivered to the Company a copy of
a letter from Parent's independent public accountants, addressed to Parent, dated the Closing Date,
regarding the qualification of the Merger as a pooling-of-interests under Opinion 16 of the
Accounting Principles Board.
(c) Each of the Company and Parent shall use reasonable best efforts to cause the
transactions contemplated by this Agreement, including the Merger, to be accounted for as a pooling
of interests under Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations, and such accounting treatment to be accepted by the SEC.
.17. Employee Matters. Company employees shall be eligible to participate in all benefit
plans in which similarly situated employees of Parent are eligible to participate. For all purposes,
including, without limitation, eligibility, vesting, vacation accrual and entitlement, benefits and
benefit accruals under all benefit plans of Parent, Parent shall give the Company employees credit for
all service with the Company prior to the Closing Date as if such service had been service with
Parent, provided that no credit will be given for any service that would result in a duplication of
benefits under any such benefit plan. Prior to the Effective Time, Parent shall have established a
definitive severance pay plan reflecting the principal terms set forth in Schedule F.
.18. The Company's Chief Executive Officer and President.. Parent shall, as of the
39
Effective Time, have entered into a definitive arrangements with each of Xxxxxxx Xxxxxxxx and
Xxxxxxx Xxxx reflecting the principal terms set forth in Schedule E.
.19. Board of Directors. The Board of Directors of Parent will take action prior to the
Effective Time to cause the number of directors comprising the full Board of Directors of Parent at
the Effective Time to be increased to eight persons, and Xxxxxxx Xxxxxxxx shall be elected to the
Board of Directors of Parent by Parent's Board of Directors effective at the Effective Time, such
increase in number and such election to be subject to the Closing.
.20. Undertakings Relating to the Real Property.
(a) The Company shall promptly deliver to Parent all surveys, site plans,
subdivision plans, schematic drawings, maps, construction drawings, plans and specifications,
certificates of occupancy, permits, licenses and approvals in its possession concerning the Real
Property, as well as copies of the deeds by which the Company acquired title to the Phillipsburg
Distribution Center and all policies of title insurance, Permitted Encumbrances and other title
information in its possession concerning the Real Property.
(b) At Parent's request, the Company shall promptly deliver to Parent a schedule
listing each of the Real Estate Leases, and as to each identify the following information: (i) date of
initial lease and each amendment, (ii) name of landlord (if different from that shown in lease), (iii)
remaining options to extend the term, accept expansion space, surrender a portion of the leased
space, and/or terminate the lease, and the dates by which notice must be given to exercise each such
option, and (iv) tenant's share (expressed as a dollar amount) of operating expenses, common area
maintenance charges, taxes and other costs and expenses.
(c) The Company shall file and cause to be recorded in the Office of the
Recorder of Deeds in and for the County of Xxxxxx, State of New Jersey, a copy of all documents,
certified by the appropriate Secretary of State, evidencing that Noodle Kidoodle, Inc., a Delaware
corporation now holds title to the property conveyed to Xxxxxx Xxxxxx, Co., Inc. by deed dated
September 20, 1982 and recorded January 21, 1983 in Book 816, Page 347 in the Office of the
Recorder of Deeds in and for the County of Xxxxxx, State of New Jersey.
(d) At Parent's request, the Company shall provide Parent and any environmental
consultant acting on its behalf (such consultant to be reasonably acceptable to the Company) access
to the two parcels of land owned by the Company adjacent to the Phillipsburg Distribution Center
for the purpose of performing a Phase I environmental investigation. At the Company's request, it
shall have the right to discuss the investigation with the consultant and Parent shall promptly
deliver to the Company drafts of the consultant's report as well as the results of any such
investigation.
.21. Company 401(k) Plans. The Company shall take all such actions as may be necessary
to cause the Noodle Kidoodle, Inc. 401(k) Plan and Noodle Kidoodle, Inc. Supplemental 401(k) Plan
to be terminated effective as of the Effective Time.
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ARTICLE V
CONDITIONS TO CLOSING
.1. Conditions to the Obligations of the Company and Parent and Merger Sub. The
respective obligations of the Company, on the one hand, and Parent and Merger Sub, on the other
hand, to consummate the transactions contemplated hereby are subject to the requirements that:
(a) Stockholder Approval. This Agreement and the Merger shall have been
approved and adopted by the requisite vote of (i) the stockholders of the Company in accordance with
the DGCL and the Certificate of Incorporation and By-laws of the Company, and (ii) the shareholders
of Parent as may be required by law and by any applicable provisions of its Articles of Incorporation
and Bylaws.
(b) No Injunctions or Restraints; Illegality. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of competent jurisdiction or
other legal or regulatory restraint or prohibition shall have been issued and be in effect (i) restraining
or prohibiting the consummation of the Merger or any of the transactions contemplated hereby, or (ii)
prohibiting or limiting the ownership, operation or control by the Company, Parent or any of their
respective subsidiaries of any portion of the business or assets of the Company, Parent or any of their
respective subsidiaries, or compelling the Company, parent or any of their respective subsidiaries to
dispose of, grant rights in respect of, or hold separate any portion of the business or assets of the
Company, parent or any of their respective subsidiaries (except as contemplated by Section 4.10(a)
hereof); nor shall any action have been taken by a Governmental Entity or any federal, state or foreign
statute, rule, regulation, executive order, decree or injunction shall have been enacted, entered,
promulgated or enforced by any Governmental Entity or arbitrator, which is in effect and has the
effect of making the Merger illegal or otherwise prohibiting the consummation of the Merger.
(c) HSR Act. Any waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated.
(d) Registration Statement. The Registration Statement shall have been declared
effective under the Securities Act and no stop orders with respect thereto shall have been issued, and
Parent shall have received all requisite authorizations under all applicable state securities or blue sky
laws necessary to consummate the transaction.
(e) Nasdaq Listing. Approval for listing by the Nasdaq National Market upon
official notice of issuance of Parent Common Stock to be issued in the Merger shall have been
received by Parent.
(f) Pooling. Parent shall have received and delivered to the Company and the
Company's independent public accountants, a letter from its independent public accountants, dated
approximately the date the Registration Statement is declared effective and as of the Closing Date,
stating that the Merger will qualify as a pooling-of-interests under Opinion 16 of the Accounting
Principles Board. The Company shall have received and delivered to Parent, a letter from its
independent public accountants, dated approximately the date the Registration Statement is declared
effective and as of the Closing Date, regarding the qualification of the Merger as a pooling of
interests for accounting purposes.
.2. Conditions to the Obligations of the Company. The obligations of the Company to
41
consummate the transactions contemplated hereby are subject to the further requirements that:
(a) Representations and Warranties. The representations and warranties of
Parent and Merger Sub contained in this Agreement shall be true and correct on the date hereof and
(except to the extent such representations and warranties speak as of a date earlier than the date
hereof) shall also be true and correct on and as of the Closing Date, with the same force and effect as
if made on and as of the Closing Date; provided, however, that for purposes of this Section 5.2(a)
only, such representations and warranties shall be deemed to be true and correct as of the Closing
Date unless the failure or failures of such representations and warranties to be so true and correct
(without regard to materiality qualifiers contained therein), individually or in the aggregate, results or
would reasonably be expected to result in a Parent Material Adverse Effect.
(b) Performance of Obligations. Each of the obligations of Parent and Merger
Sub to be performed on or before the Closing Date pursuant to the terms of this Agreement shall have
been duly performed in all material respects on or before the Closing Date and at the Closing Parent
shall have delivered to the Company a certificate to that effect.
(c) Absence of Material Adverse Effect. No Parent Material Adverse Effect
shall have occurred, and no fact or circumstance shall exist which could reasonably be expected to
result in a Parent Material Adverse Effect.
(d) Consents. The consents set forth on Item 5.2(d) of the Parent Schedule
shall have been obtained.
(e) Tax Opinion. Xxxxxx Xxxxx Xxxxxxxx & Xxxxxxx LLP shall have delivered to
the Company its written opinion, dated as of the Closing Date, in form and substance reasonably
satisfactory to the Company, substantially to the effect that the Merger constitutes a reorganization
under Section 368(a) of the Code and that Parent, Merger Sub and the Company will each be a party
to that reorganization within the meaning of Section 368(b) of the Code.
(f) Ancillary Agreements. Each of Xxxxxxx Xxxxxxxx and Xxxxxxx Xxxx shall
have entered into definitive arrangements reflecting the principal terms set forth in Schedule E and
Parent and the Company shall have entered into employment agreements with each of them,
substantially in the form attached to Schedule E as Exhibits A and B, respectively. Each affiliate of
Parent listed in the Parent Schedule shall have executed and delivered the Affiliate Agreement
substantially in the form of Schedule D.
(g) Fairness Opinion. The Board of Directors of the Company shall have
received from the Company Financial Advisor a written opinion, dated as of the date hereof, in form
and substance reasonably satisfactory to the Board of Directors of the Company, to the effect that the
Merger Consideration is fair to the holders of Company Common Stock from a financial point of
view, which opinion shall have been confirmed in writing to such Board as of the date the Proxy
Statement is first mailed to the stockholders of the Company and not subsequently withdrawn.
.3. Conditions to the Obligations of Parent and Merger Sub. The obligations of Parent and
Merger Sub to consummate the transactions contemplated herebys are subject to the further
requirements that:
(a) Representations and Warranties. The representations and warranties of the
42
Company contained in this Agreement shall be true and correct on the date hereof and (except to the
extent such representations and warranties speak as of a date earlier than the date hereof) shall also be
true and correct on and as of the Closing Date, with the same force and effect as if made on and as of
the Closing Date; provided, however, that for purposes of this Section 5.3(a) only, such
representations and warranties shall be deemed to be true and correct as of the Closing Date unless
the failure or failures of such representations and warranties to be so true and correct (without regard
to materially qualifiers contained therein), individually or in the aggregate, results or would
reasonably be expected to result in a Company Material Adverse Effect.
(b) Performance of Obligations. Each of the obligations of the Company to be
performed on or before the Closing Date pursuant to the terms of this Agreement shall have been duly
performed in all material respects on or before the Closing Date and at the Closing the Company shall
have delivered to Parent a certificate to that effect.
(c) Absence of Material Adverse Effect. No Company Material Adverse Effect
shall have occurred, and no fact or circumstance shall exist which could reasonably be expected to
result in a Company Material Adverse Effect.
(d) No Litigation. There shall not be any litigation or other proceeding pending
or threatened, which is reasonably likely to be decided adversely to the Company and reasonably
likely to have a Company Material Adverse Effect.
(e) Consents. The consents set forth on Item 5.3(e) of the Company Schedule
shall have been obtained.
(f) Tax Opinion. Xxxxxx, Xxxxx & Bockius LLP shall have delivered to Parent
its written opinion, dated as of the Closing Date, in form and substance reasonably satisfactory to
Parent, substantially to the effect that the Merger constitutes a reorganization under Section 368 of the
Code and that Parent, Merger Sub and the Company will each be a party to that reorganization within
the meaning of Section 368(b) of the Code.
(g) Fairness Opinion. The Board of Directors of Parent shall have received from
the Parent Financial Advisor a written opinion, dated as of the date hereof, in form and substance
reasonably satisfactory to the Board of Directors of Parent, to the effect that the Common Exchange
Ratio is fair to Parent from a financial point of view, which opinion shall have been confirmed in
writing to such Board as of the date the Proxy Statement is first mailed to the shareholders of Parent
and not subsequently withdrawn.
(h) Ancillary Agreements. Each affiliate of the Company listed in the Company
Schedule shall have executed and delivered the Affiliate Agreement substantially in the form of
Schedule B.
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
.1. Termination. This Agreement may be terminated (by written notice by the terminating
party to the other party) and the transactions contemplated hereby may be abandoned at any time
prior to the Closing Date:
43
(a) By mutual written consent of each of Parent and the Company;
(b) By either Parent or the Company if the Merger shall not have been
consummated on or before October 31, 2000 (the "Termination Date"); provided, however, that the
right to terminate this Agreement under this Section 6.1(b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure
of the Effective Time to occur on or before the Termination Date;
(c) By either Parent or the Company if a Governmental Entity or arbitrator shall
have issued an order, decree or ruling or taken any other action (which order, decree or ruling the
parties shall use their commercially reasonable efforts to lift), in each case permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by this Agreement, and such order,
decree, ruling or other action shall have become final and nonappealable;
(d) (i) By Parent if the Company shall have breached, or failed to comply with,
in any material respect any of its obligations under this Agreement or any representation or warranty
made by the Company shall have been breached in any material respect (except to the extent qualified
by materiality, in which case such representations and warranties shall not have been breached in any
respect) when made or shall have since ceased to be true and correct in any material respect (except to
the extent qualified by materiality, in which case such representations and warranties shall be true and
correct in all respects) and, with respect to the representations and warranties, such breaches or
misrepresentations, individually or in the aggregate, result or would reasonably be expected to result
in a Company Material Adverse Effect, or (ii) by the Company if Parent shall have breached, or failed
to comply with, in any material respect any of its obligations under this Agreement or any
representation or warranty made by Parent shall have been breached in any material respect (except to
the extent qualified by materiality, in which case such representations and warranties shall not have
been breached in any respect) when made or shall have since ceased to be true and correct in any
material respect (except to the extent qualified by materiality, in which case such representations and
warranties shall be true and correct in all respects) and, with respect to the representations and
warranties, such breaches or misrepresentations, individually or in the aggregate, result or would
reasonably be expected to result in a Parent Material Adverse Effect;
(e) By Parent upon the existence of a condition or after the occurrence of an
event which results in, or could reasonably be expected to result in, a Company Material Adverse
Effect;
(f) By the Company upon the existence of a condition or after the occurrence of
an event which results in, or could reasonably be expected to result in, a Parent Material Adverse
Effect;
(g) By Parent, by written notice to the Company, if (i) the Board of Directors of
the Company shall not have recommended the Merger to the Company's stockholders, or shall have
modified in a manner adverse to Parent or rescinded its recommendation of the Merger to the
Company's stockholders as being advisable and fair to and in the best interests of the Company and
its stockholders, or shall have modified in a manner adverse to Parent or rescinded its approval of the
Agreement, or shall have resolved to do any of the foregoing, (ii) the Board of Directors of the
Company shall have recommended to the stockholders of the Company any Acquisition Proposal
(other than by Parent or an affiliate of Parent) or shall have resolved to do so, (iii) any Person (other
44
than parent of an affiliate of Parent) acquires beneficial ownership (as defined in Rule 13d-3 under
the Exchange Act) of 15% or more of the outstanding shares of capital stock of the Company, (iv) a
tender offer or exchange offer (other than by Parent or an affiliate of Parent) for more than 15% or
more of the outstanding shares of capital stock of the Company is commenced, and the Board of
Directors of the Company fails to recommend against acceptance of such tender offer or exchange
offer by its stockholders within the ten business day period (or such shorter period) required by
Section 14e-2 of the Exchange Act (the taking of no position by the expiration of such ten business
day period (or such shorter period) with respect to the acceptance of such tender offer or exchange
offer by its stockholders constituting such a failure) or (v) the Company or any of its Subsidiaries,
without having received prior written consent from Parent, shall have entered into, authorized,
recommended or proposed to its stockholders an agreement, arrangement, understanding or letter of
intent with any Person (other than Parent or any of its Affiliates) to (A) effect a merger or
consolidation or similar transaction involving the Company or any of its Subsidiaries, (B) purchase,
lease, or otherwise acquire all or a substantial portion of the assets of the Company or any of its
Subsidiaries or (C) purchase or otherwise acquire (including by way of merger, consolidation, share
exchange or similar transaction) beneficial ownership of securities representing 15% or more of the
voting power of the Company (in each case other than any such merger, consolidation, purchase,
lease or other transaction involving only the Company and one or more of its Subsidiaries or
involving only any two or more of its Subsidiaries);
(h) (i) By Parent or the Company if the Required Company Stockholder
Approval shall fail to have been obtained at the Company Stockholders Meeting, including any
adjournments thereof or (ii) by the Company or Parent if the Required Parent Shareholder Approval
shall fail to have been obtained at the Parent Shareholders Meeting, including any adjournments
thereof; or
(i) By the Company, by written notice to Parent, if (i) (A) the Company
proposes to accept a Superior Proposal and simultaneously therewith the Company shall enter into a
definitive acquisition merger or similar agreement to effect such Superior Proposal, or (B) the
Company has changed its recommendation concerning the Merger, and (ii) in either of the foregoing
cases, the Company has fully complied with its obligations under Section 4.15 hereof;
(j) (i) By Parent if the Merger shall not have been consummated on or before the
date that is 30 days following the fulfillment of the conditions to the Closing set forth in Sections 5.1
and 5.2, or (ii) by the Company if the Merger shall not have been consummated on or before the date
that is 30 days following the fulfillment of the conditions to the Closing set forth in Sections 5.1 and
5.3; or
(k) By the Company, by written notice to Parent, if the Board of Directors of
Parent shall have modified in a manner adverse to the Company or rescinded its recommendations of
the Merger to Parent's shareholders as being advisable and fair to and in the best interests of Parent
and its shareholders, or shall have modified in a manner adverse to the Company or rescinded its
approval of the Agreement, or shall have resolved to do any of the foregoing.
(l) (i) By Parent if the final audited consolidated financial statements of the
Company and its Subsidiaries as at and for the year ended January 29, 2000 contain any material
adverse change from the Company Unaudited Financial Statements, or (ii) by the Company if the
final audited consolidated financial statements of Parent and its subsidiaries as at and for the year
45
ended January 29, 2000 contain any material adverse change from the Parent Unaudited Financial
Statements.
(m) (i) By Parent if the Parent Financial Advisor shall have withdrawn its written
opinion to the effect that the Common Exchange Ratio is fair to Parent from a financial point of view,
or (ii) by the Company if the Company Financial Advisor shall have withdrawn its written opinion to
the effect that the Merger Consideration is fair to the holders of the Company Common Stock from a
financial point of view.
.2. Effect of Termination.
(a) In the event of termination of this Agreement as provided in Section 6.1
hereof, this Agreement shall forthwith become void and there shall be no liability on the part of any
of the parties, except (i) as set forth in the last sentence of Section 4.4 and in Sections 4.7, 6.2(b), 7.9
and 7.13 hereof, and (ii) nothing herein shall relieve any party from liability for any willful breach
hereof.
(b) If (i) this Agreement (A) is terminated by Parent pursuant to Section 6.1(g),
(h)(i), (j)(i) or (m)(i) hereof or by the Company pursuant to Section 6.1(h)(i), (i), (j)(ii), (k) or (m)(ii)
hereof, or (B) is terminated as a result of the Company's breach of Section 4.15 hereof, and (ii) other
than in the case of a termination under Section 6.1(j) hereof, either (A) at the time of such termination
or prior to the Company Stockholders Meeting there shall have been an Acquisition Proposal
(whether or not such offer shall have been rejected or shall have been withdrawn prior to the time of
such termination or of the Company Stockholders Meeting), or (B) within 12 months after
termination of the Agreement the Company shall have entered into an agreement with respect to, or
consummated, an Acquisition Proposal, then either the Company shall pay to Parent (in the case of a
termination under Section 6.1(g), (h)(i), (i), (j)(i) or (m)(ii)), or Parent shall pay the Company (in the
case of a termination under Section 6.1(j)(ii), (k) or (m)(i)) an amount equal to (i) a cash termination
fee of $2,250,000 (the "Termination Fee"), and (ii) all expenses incurred by such party in connection
with the negotiation, execution and performance of the transactions contemplated hereby (including,
without limitation, all fees and expenses payable to such party's financial advisors and counsel) not to
exceed $1,000,000 ("Termination Expenses") within one business day after such termination or, in
the case of (ii)(B), entering into an agreement with respect to, or consummating an Acquisition
Proposal. If this Agreement is terminated by Parent pursuant to Section 6.1(d)(i) or by the Company
pursuant to Section 6.1(d)(ii), then either the Company shall pay to Parent (in the case of a
termination under Section 6.1(d)(i)) or Parent shall pay to the Company (in the case of a termination
under Section 6.1(d)(ii)) an amount equal to the Termination Expenses within one business day after
such termination.
(c) If either party fails to promptly pay any Termination Fee or Termination
Expenses due under Section 6.2(b), such party shall pay the costs and expenses (including legal fees
and expenses) in connection with any action, including, without limitation, the filing of any lawsuit or
other legal action, taken to collect payment, together with interest on the amount of any unpaid fee at
the publicly announced prime rate of interest as announced from time to time in the Wall Street
Journal from the date such fee was required to be paid.
.3. Amendment. This Agreement may be amended by Parent and the Company pursuant to a
writing adopted by action taken by Parent and the Company at any time before the Effective Time;
provided, however, that, after approval of this Agreement by the stockholders of the Company, no
46
amendment may be made which would alter or change the amount or kinds of consideration to be
received by the holders of Company Common Stock upon consummation of the Merger or which
would materially and adversely affect the holders of Company Common Stock. This Agreement may
not be amended except by an instrument in writing signed by the parties hereto.
.4. Waiver. At any time before the Effective Time, any party hereto may (a) extend the time
for the performance of any of the obligations or other acts of the other parties, (b) waive any
inaccuracies in the representations and warranties contained herein or in any document delivered
pursuant hereto, and (c) waive compliance with any of the agreements or conditions contained herein.
Any agreement on the part of a party to any such extension or waiver shall be valid only as against
such party and only if set forth in an instrument in writing signed by such party.
ARTICLE VII
MISCELLANEOUS
.1. Survival of Representations and Warranties. The representations and warranties
contained herein shall not survive beyond the Closing Date. This Section 7.1 shall not limit any
covenant or agreement of the parties hereto which by its terms requires performance after the Closing
Date.
.2. Entire Agreement. This Agreement and the Confidentiality Agreement constitute the
entire agreement among the parties with respect to the subject matter hereof and supersede all prior
written and oral and all contemporaneous oral agreements and understandings with respect to the
subject matter hereof.
.3. Notices. All notices and other communications hereunder shall be in writing and shall be
deemed to have been duly given when delivered in person, by telecopy, or by registered or certified
mail (postage prepaid, return receipt requested) or by overnight courier service to the respective
parties as follows:
if to Parent or Merger Sub:
Zany Brainy, Inc.
0000 Xxxxxxxxxxx Xxxxxxxxx
Xxxx xx Xxxxxxx, XX 00000
Telecopy: (000) 000-0000
Attention: Chief Executive Officer
With a copy to:
Xxxxxx, Xxxxx & Xxxxxxx LLP
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
Telecopy: (000) 000-0000
Attention: Xxxxxxx Xxxxxxx
47
if to the Company:
Noodle Kidoodle, Inc.
000 Xxxxxxx Xxxxxxxx
Xxxxxxx, XX
Telecopy: (000) 000-0000
Attention: Chief Executive Officer
with a copy to:
Xxxxxx Xxxxx Xxxxxxxx & Xxxxxxx LLP
000 0xx Xxxxxx
Xxx Xxxx, XX 00000
Telecopy: (000) 000-0000
Attention: Xxxxxxx Xxxxxx
or to such other address as the party to whom notice is given may have previously furnished to the
others in writing in the manner set forth above. Any notice or communication delivered in person
shall be deemed effective on delivery. Any notice or communication sent by telecopy or overnight
courier service shall be deemed effective on the first business day at the place of which such notice or
communication is received following the day on which such notice or communication was sent. Any
notice or communication sent by registered or certified mail shall be deemed effective on the fifth
business day at the place from which such notice or communication was mailed following the day in
which such notice or communication was mailed.
.4. Governing Law. This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware regardless of the laws that might otherwise govern under principles
of conflicts of laws applicable thereto.
.5. Jurisdiction. Each of the parties submits to the non-exclusive jurisdiction of the state and
federal courts of the United States located in the State of Delaware with respect to any claim or cause
of action arising out of this Agreement or the transactions contemplated hereby. Each of the parties
agrees not to contest such venue as an inappropriate venue or forum or assert of a claim of forum non
conveniens as a basis to move such claim or cause of action to another venue or forum.
.6. Descriptive Headings. The descriptive headings herein are inserted for convenience of
reference only and are not intended to be part of or to affect the meaning or interpretation of this
Agreement.
.7. Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit
of each party hereto, and nothing in this Agreement, express or implied, is intended to confer upon
any other person (including, without limitation, any employee of the Company or any Subsidiary) any
rights or remedies of any nature whatsoever under or by reason of this Agreement except for
Sections 4.12 and 4.18 (which are intended to be for the benefit of the persons provided for therein,
and may be enforced by such persons.)
.8. Counterparts. This Agreement may be executed in counterparts, each of which shall be
deemed to be an original, but all of which shall constitute one and the same agreement.
48
.9. Expenses. Except as otherwise provided herein, all costs and expenses incurred in
connection with the transactions contemplated by this Agreement shall be paid by the party incurring
such expenses except that Parent and the Company shall share equally (a) the registration fees
payable with respect to filing the Registration Statement and (b) all printing expenses incurred with
respect to the Proxy Statement and the Registration Statement.
.10. Personal Liability. This Agreement shall not create or be deemed to create or permit
any personal liability or obligation on the part of any direct or indirect shareholder of any party hereto
or any officer, director, employee, agent, representative or investor of any party hereto.
.11. Binding Effect; Assignment. This Agreement shall inure to the benefit of be binding
upon the parties hereto and their respective legal representatives and successors. This Agreement
may not be assigned by any party hereto.
.12. Severability. If any provision of this Agreement or the application thereof to any person
or circumstance is held invalid or unenforceable in any jurisdiction, the remainder hereof, and the
application of such provision to such person or circumstance in any other jurisdiction or to other
persons or circumstances in any jurisdiction, shall not be affected thereby, and to this end the
provisions of this Agreement shall be severable.
.13. Legal Fees and Costs. If any party hereto institutes any action or proceeding, whether
before a court or arbitrator, to enforce any provision of this Agreement, the prevailing party therein
shall be entitled to received from the losing party reasonable attorneys' fees and costs incurred in
such action or proceeding, whether or not such action or proceeding is prosecuted to judgment.
49
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed on
its behalf by its officers thereunto duly authorized on the day and year first above written.
ZANY BRAINY, INC.
By: /s/ Xxxxx X. Xxxxxxxx
Name: Xxxxx X. Xxxxxxxx
Title: Chairman and Chief Executive Officer
NIGHT OWL ACQUISITION, INC.
By: /s/ Xxxxx X. Xxxxxxxx
Name: Xxxxx X. Xxxxxxxx
Title: President
NOODLE KIDOODLE, INC.
By: /s/ Xxxxxxx Xxxxxxxx
Name: Xxxxxxx Xxxxxxxx
Title: Chairman and Chief Executive Officer
Schedule A
Exceptions to the Definition of Company Material Adverse Effect
Any adverse effect resulting from or relating to (a) changes in the economy or financial markets in
general, (b) conditions generally affecting the industries in which the Company operates and not
specifically relating to (or having the effect of specifically relating to or having a materially
disproportionate effect (relative to most other industry participants) on) the Company, (c) the
Company's operating results for the two-month period ended March 31, 2000, or (d) commencing
April 1, 2000, a decline in sales due to a decrease in consumer demand for the products sold by the
Company, as well as losses from operations reflecting the seasonal nature of the Company's business.
Schedule B
Company Affiliate Agreement
Schedule C
Exceptions to Definition of Parent Material Adverse Effect
Any adverse effect resulting from or relating to (a) changes in the economy or financial markets in
general, (b) conditions generally affecting the industries in which Parent or XxxxXxxxxx.xxx LLC, a
Delaware limited liability company and affiliate of Parent ("XX.xxx"), operates and not specifically
relating to (or having the effect of specifically relating to or having a materially disproportionate
effect (relative to most other industry participants) on) Parent or XX.xxx, (c) Parent's operating
results for the two-month period ended Xxxxx 00, 0000, (x) commencing April 1, 2000, a decline in
sales due to a decrease in consumer demand for the products sold by Parent, as well as losses from
operations reflecting the seasonal nature of Parent's business or (e) XX.xxx.
Schedule D
Parent Affiliate Agreement
Schedule E
Principal Terms of Employment Arrangements for Xxxxxxx Xxxxxxxx and Xxxxxxx Xxxx
Schedule F
Principal Terms of Severance Pay Plan for Certain Company Employees
