AGREEMENT AND PLAN OF MERGER
AMONG
DISCOUNT AUTO PARTS, INC.
HLA ACQUISITION, INC.
AND
HI-LO AUTOMOTIVE, INC.
Dated as of October 17, 1997
TABLE OF CONTENTS
AGREEMENT AND PLAN OF MERGER
ARTICLE I
THE MERGER....................................................................1
Section 1.1 THE MERGER........................................................1
Section 1.2 CLOSING...........................................................1
Section 1.3 EFFECTIVE TIME....................................................2
Section 1.4 EFFECTS OF THE MERGER.............................................2
Section 1.5 CHARTER AND BY-LAWS...............................................2
Section 1.6 DIRECTORS.........................................................2
ARTICLE II
EFFECT OF THE MERGER ON THE STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES............................2
Section 2.1 EFFECT ON STOCK...................................................2
Section 2.2 EXCHANGE OF CERTIFICATES..........................................3
Section 2.3 TREATMENT OF STOCK OPTIONS ......................................6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HI/LO.......................................6
Section 3.1 ORGANIZATION, QUALIFICATION, ETC..................................6
Section 3.2 CAPITAL STOCK.....................................................7
Section 3.4 REPORTS AND FINANCIAL STATEMENTS; CORPORATE RECORDS...............9
Section 3.5 NO UNDISCLOSED LIABILITIES.......................................10
Section 3.6 NO VIOLATION OF LAW..............................................10
Section 3.7 ENVIRONMENTAL LAWS AND REGULATIONS...............................10
Section 3.8 EMPLOYEE MATTERS; ERISA..........................................11
Section 3.9 ABSENCE OF CERTAIN CHANGES OR EVENTS.............................13
Section 3.1 0INVESTIGATIONS; LITIGATION......................................13
Section 3.1 PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT; OTHER
INFORMATION......................................................13
Section 3.12 HI/LO RIGHTS PLAN...............................................14
Section 3.13 TAKEOVER LAWS...................................................14
Section 3.14 TAX MATTERS.....................................................14
Section 3.15 OPINION OF FINANCIAL ADVISOR....................................15
Section 3.16 REQUIRED VOTE OF HI/LO STOCKHOLDERS.............................15
Section 3.17 LABOR MATTERS...................................................15
Section 3.18 CERTAIN AGREEMENTS..............................................15
Section 3.19 TITLE TO ASSETS; LIENS..........................................16
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Section 3.20 INSURANCE.......................................................16
Section 3.21 INTELLECTUAL PROPERTY...........................................17
Section 3.22 SIGNIFICANT VENDOR ARRANGEMENTS.................................17
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF DISCOUNT AND SUB...........................17
Section 4.1 ORGANIZATION, QUALIFICATION, ETC.................................17
Section 4.2 CAPITAL STOCK....................................................18
Section 4.3 CORPORATE AUTHORITY RELATIVE TO THIS AGREEMENT; NO VIOLATION;
NO CONFLICT......................................................19
Section 4.4 REPORTS AND FINANCIAL STATEMENTS.................................20
Section 4.5 NO UNDISCLOSED LIABILITIES.......................................20
Section 4.6 NO VIOLATION OF LAW..............................................21
Section 4.7 ENVIRONMENTAL LAWS AND REGULATIONS...............................21
Section 4.8 EMPLOYEE MATTERS; ERISA..........................................21
Section 4.9 ABSENCE OF CERTAIN CHANGES OR EVENTS.............................23
Section 4.10 INVESTIGATIONS; LITIGATION......................................23
Section 4.11 PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT; OTHER
INFORMATION.....................................................23
Section 4.12 LACK OF OWNERSHIP OF HI/LO COMMON STOCK.........................24
Section 4.13 TAX MATTERS.....................................................24
Section 4.14 OPINION OF FINANCIAL ADVISOR....................................24
Section 4.15 SUB'S OPERATIONS................................................24
Section 4.16 LABOR MATTERS...................................................25
Section 4.17 CERTAIN AGREEMENTS..............................................25
Section 4.18 TITLE TO ASSETS; LIENS..........................................26
Section 4.19 INSURANCE.......................................................26
Section 4.20 INTELLECTUAL PROPERTY...........................................26
ARTICLE V
COVENANTS AND AGREEMENTS....................................................27
Section 5.1 CONDUCT OF BUSINESS BY HI/LO OR DISCOUNT........................27
Section 5.2 INVESTIGATION...................................................32
Section 5.3 COOPERATION.....................................................32
Section 5.4 AFFILIATE AGREEMENTS............................................33
Section 5.5 EMPLOYEE BENEFIT PLANS..........................................33
Section 5.6 FILINGS; OTHER ACTION...........................................34
Section 5.7 FURTHER ASSURANCES..............................................34
Section 5.8 NO SOLICITATION.................................................34
Section 5.9 PUBLIC ANNOUNCEMENTS............................................35
Section 5.10 INDEMNIFICATION AND INSURANCE..................................35
Section 5.11 ADDITIONAL REPORTS.............................................36
Section 5.12 STOCKHOLDER APPROVAL...........................................36
Section 5.13 PURCHASE ACCOUNTING............................................36
Section 5.14 AMENDMENTS TO CHANGE OF CONTROL AGREEMENTS.....................36
Section 5.15 NOTIFICATIONS..................................................37
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Section 5.16 INDEMNIFICATIONS...............................................37
ARTICLE VI
CONDITIONS TO THE MERGER....................................................37
Section 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER......37
Section 6.2 CONDITIONS TO OBLIGATIONS OF HI/LO TO EFFECT THE MERGER.........38
Section 6.3 CONDITIONS TO OBLIGATIONS OF DISCOUNT TO EFFECT THE MERGER......38
ARTICLE VII
TERMINATION, WAIVER, AMENDMENT AND CLOSING..................................39
Section 7.1 TERMINATION OR ABANDONMENT......................................39
Section 7.2 EFFECT OF TERMINATION...........................................40
Section 7.3 AMENDMENT OR SUPPLEMENT.........................................41
Section 7.4 EXTENSION OF TIME, WAIVER, ETC..................................41
ARTICLE VIII
MISCELLANEOUS...............................................................42
Section 8.1 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES...................42
Section 8.2 EXPENSES........................................................42
Section 8.3 COUNTERPARTS; EFFECTIVENESS.....................................42
Section 8.4 GOVERNING LAW...................................................42
Section 8.5 NOTICES.........................................................42
Section 8.6 ASSIGNMENT; BINDING EFFECT......................................43
Section 8.7 SEVERABILITY....................................................43
Section 8.8 ENFORCEMENT OF AGREEMENT........................................43
Section 8.9 MISCELLANEOUS...................................................44
Section 8.10 HEADINGS.......................................................44
Section 8.11 SUBSIDIARIES; AFFILIATES.......................................44
Section 8.12 FINDERS OR BROKERS.............................................44
Exhibits:
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of October 17, 1997 (this
"Agreement"), is among DISCOUNT AUTO PARTS, INC. ("Discount"), HLA ACQUISITION,
INC. ("Sub") and HI-LO AUTOMOTIVE, INC. ("Hi/Lo").
WHEREAS, Hi/Lo is a corporation duly organized and existing under the laws
of the State of Delaware, Discount is a corporation duly organized and existing
under the laws of the State of Florida and Sub is a corporation duly organized
and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of Discount, Sub and Hi/Lo
have approved and have declared advisable the merger of Sub with and into Hi/Lo
(the "Merger"), upon the terms and subject to the conditions set forth herein,
whereby each issued and outstanding share of Hi/Lo Common Stock (as defined in
Section 3.2) not owned directly by Hi/Lo or Discount will be converted into the
right to receive a fraction of a share of Discount Common Stock (as defined in
Section 4.2) as more particularly set forth herein, and have determined that the
Merger and the other transactions contemplated hereby are consistent with, and
in furtherance of, their respective business strategies and goals and in the
best interests of their respective stockholders;
WHEREAS, the parties desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also to prescribe
various conditions to the Merger; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
will qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I
THE MERGER
Section 1.1 THE MERGER. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Delaware General Corporation
Law (the "DGCL"), Sub shall be merged with and into Hi/Lo at the Effective Time
(as defined in Section 1.3). Following the Effective Time, the separate
corporate existence of Sub shall cease and Hi/Lo shall be the surviving
corporation (the "Surviving Corporation") and shall succeed to and assume all
the rights and obligations of Sub in accordance with the DGCL.
Section 1.2 CLOSING. The closing of the Merger (the "Closing") will take
place at a location mutually acceptable to the parties hereto at 10:00 a.m. on a
date to be specified by the parties (the "Closing Date"), which shall be no
later than the first business day after satisfaction or
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waiver of the conditions set forth in Article VII, unless another time or date
is agreed to by the parties hereto.
Section 1.3 EFFECTIVE TIME. Subject to the provisions of this Agreement,
as soon as practicable on or after the Closing Date, the parties shall file a
certificate of merger or other appropriate documents (in any such case, the
"Certificate of Merger") executed in accordance with the relevant provisions of
the DGCL and shall make all other filings or recordings required under the DGCL.
The Merger shall become effective at such time as the Delaware Secretary of
State accepts the Certificate of Merger for record, or at such subsequent date
or time as Discount and Hi/Lo shall agree and specify in the Certificate of
Merger (the time the Merger becomes effective being hereinafter referred to as
the "Effective Time").
Section 1.4 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in the applicable provisions of the DGCL.
Section 1.5 CHARTER AND BY-LAWS. (a) The charter of Hi/Lo, as in effect
immediately prior to the execution of this Agreement, shall be the charter of
the Surviving Corporation until thereafter changed or amended as provided
therein or by applicable law.
(b) The by-laws of Hi/Lo, as in effect immediately prior to the
execution of this Agreement, shall be the by-laws of the Surviving Corporation
until thereafter changed or amended as provided therein or by applicable law.
Section 1.6 DIRECTORS AND OFFICERS. The directors of Sub at the Effective
Time shall be the directors of the Surviving Corporation and the officers of
Hi/Lo at the Effective Time shall be the officers of the Surviving Corporation,
in each case until their respective successors are duly elected and qualified.
ARTICLE II
EFFECT OF THE MERGER ON THE STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
Section 2.1 EFFECT ON STOCK. As of the Effective Time, by virtue of the
Merger and without any action on the part of Sub, Hi/Lo or the holders of any
securities of Hi/Lo, Discount or Sub:
(a) CANCELLATION OF HI/LO-OWNED STOCK AND DISCOUNT-OWNED STOCK. Each
share of Hi/Lo Common Stock that is owned directly by Hi/Lo or by Discount shall
automatically be canceled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor.
(b) CONVERSION OF HI/LO COMMON STOCK. Subject to Section 2.2(e),
each issued and outstanding share of Hi/Lo Common Stock (other than shares to be
canceled in accordance with Section 2.1(a)) shall be converted into and
represent a fully paid and nonassessable fraction of a share of Discount Common
Stock equal to the Exchange Ratio (as defined and determined below) (the "Merger
Consideration"). As of the Effective Time, all such shares of Hi/Lo Common Stock
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shall no longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each holder of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of Hi/Lo
Common Stock (the "Certificates") shall cease to have any rights with respect
thereto, except the right to receive (x) certificates representing the number of
whole shares of Discount Common Stock into which such shares have been converted
("Discount Certificates"), (y) certain dividends and other distributions in
accordance with Section 2.2(c) and (z) cash in lieu of fractional shares of
Discount Common Stock in accordance with Section 2.2(e), without interest. The
"Exchange Ratio" shall be equal to 0.1485; PROVIDED, HOWEVER, that (i) if the
Discount Average Share Price is greater than $26.148, then the Exchange Ratio
shall be equal to (rounded to the near ten-thousandth) the product of (x) 0.1485
times (y) the quotient of $26.148 divided by the Discount Average Share Price,
or (ii) if the Discount Average Share Price is less than $22.727, then the
Exchange Ratio shall be equal to the lesser of (1) 0.1624 and (2) the product of
(x) 0.1485 times (y) the quotient of $22.727 divided by the Discount Average
Share Price. The term "Discount Average Share Price" shall mean the average of
the closing sales prices of Discount Common Stock (or, if Discount Common Stock
should not trade on any trading day, the average of the bid and the asked prices
therefor on such day), rounded to the nearest thousandth (.0005 being rounded to
.001), as reported on the New York Stock Exchange ("NYSE") Composite Tape on
each of the last ten consecutive trading days ending on the third trading day
prior to the meeting of Hi/Lo Stockholders held for the purpose of approving the
Merger (the "Hi/Lo Meeting").
(c) CONVERSION OF COMMON STOCK OF SUB. Each issued and outstanding
share of common stock, par value $1.00 per share, of Sub shall be converted into
one validly issued, fully paid and nonassessable share of common stock of the
Surviving Corporation.
Section 2.2 EXCHANGE OF CERTIFICATES. (a) EXCHANGE AGENT. At or prior to
the Effective Time, Discount shall enter into an agreement with such bank or
trust company as may be designated by Discount and as shall be reasonably
satisfactory to Hi/Lo (the "Exchange Agent"), which shall provide that Discount
shall deposit with the Exchange Agent as of the Effective Time, for the benefit
of the holders of shares of Hi/Lo Common Stock, for exchange in accordance with
this Article II, through the Exchange Agent, Discount Certificates representing
the number of whole shares of Discount Common Stock (such shares of Discount
Common Stock, together with any dividends or distributions with respect thereto
with a record date after the Effective Time, any cash payable in lieu of any
fractional shares of Discount Common Stock being hereinafter referred to as the
"Exchange Fund") issuable pursuant to Section 2.1 in exchange for outstanding
shares of Hi/Lo Common Stock.
(b) EXCHANGE PROCEDURES. Promptly after the Effective Time, but in
any event no later than five business days thereafter, the Exchange Agent shall
mail to each holder of record of a Certificate whose shares were converted into
the Merger Consideration, pursuant to Section 2.1, (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other customary
provisions as Discount and Hi/Lo may reasonably specify) and (ii) instructions
for use in effecting the surrender of the Certificates in exchange for the
Merger Consideration. Upon surrender of a Certificate for cancellation to the
Exchange Agent, together with such letter of transmittal, duly executed, and
such other documents as may reasonably be required by the Exchange Agent, the
holder of such Certificate shall be entitled to receive in exchange therefor a
Discount Certificate representing that number of whole shares of Discount
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Common Stock which such holder has the right to receive pursuant to the
provisions of this Article II, certain dividends or other distributions in
accordance with Section 2.2(c) and cash in lieu of any fractional share in
accordance with Section 2.2(e), and the Certificate so surrendered shall
forthwith be canceled. In the event of a transfer of ownership of Hi/Lo Common
Stock which is not registered in the transfer records of Hi/Lo, a Discount
Certificate representing the proper number of shares of Discount Common Stock
may be issued to a person other than the person in whose name the Certificate so
surrendered is registered if such Certificate shall be properly endorsed or
otherwise be in proper form for transfer and the person requesting such issuance
shall pay any transfer or other nonincome taxes required by reason of the
issuance of shares of Discount Common Stock to a person other than the
registered holder of such Certificate or establish to the satisfaction of
Discount that such tax has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.2, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender Discount Certificates representing the number of whole shares of
Discount Common Stock into which the shares of Hi/Lo Common Stock formerly
represented by such Certificate have been converted, certain dividends or other
distributions in accordance with Section 2.2(c) and cash in lieu of any
fractional share in accordance with Section 2.2(e). No interest will be paid or
will accrue on any cash payable to holders of Certificates pursuant to the
provisions of this Article II.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends
or other distributions with respect to Discount Common 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 Discount Common Stock represented
thereby, and no cash payment in lieu of fractional shares shall be paid to any
such holder pursuant to Section 2.2(e), and all such dividends, other
distributions and cash in lieu of fractional shares of Discount Common Stock
shall be paid by Discount to the Exchange Agent and shall be included in the
Exchange Fund, in each case until the surrender of such Certificate in
accordance with this Article II. Subject to the effect of applicable escheat or
similar laws, following surrender of any such Certificate there shall be paid to
the holder of the Discount Certificate representing whole shares of Discount
Common Stock issued in exchange therefor, without interest, (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 Discount Common Stock and the amount of any cash payable in lieu of a
fractional share of Discount Common Stock to which such holder is entitled
pursuant to Section 2.2(e) 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 such surrender and with a payment date subsequent to such surrender
payable with respect to such whole shares of Discount Common Stock. Discount
shall make available to the Exchange Agent cash for these purposes.
(d) NO FURTHER OWNERSHIP RIGHTS IN HI/LO COMMON STOCK. All shares of
Discount Common Stock issued upon the surrender for exchange of Certificates in
accordance with the terms of this Article II (including any cash paid pursuant
to this Article II) shall be deemed to have been issued (and paid) in full
satisfaction of all rights pertaining to the shares of Hi/Lo Common Stock
theretofore represented by such Certificates, subject, however, to the Surviving
Corporation's obligation to pay any dividends or make any other distributions
with a record date prior to the Effective Time which may have been authorized or
made by Hi/Lo on such shares of Hi/Lo Common Stock which remain unpaid at the
Effective Time, and there shall be no further
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registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Hi/Lo Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or the Exchange Agent
for any reason, they shall be canceled and exchanged as provided in this Article
II, except as otherwise provided by law.
(e) NO FRACTIONAL SHARES. No Discount Certificates or scrip
representing fractional shares of Discount Common Stock shall be issued upon the
surrender for exchange of Certificates but in lieu of any such fractional
shares, each holder of Hi/Lo Common Stock shall be entitled to receive an amount
in cash equal to the product obtained by multiplying (A) the fractional share
interest to which such holder (after taking into account all shares of Hi/Lo
Common Stock held at the Effective Time by such holder) would otherwise be
entitled by (B) the closing price for a share of Discount Common Stock as
reported on the NYSE Composite Tape (as reported in The Wall Street Journal, or,
if not reported thereby, any other authoritative source) on the last full
trading day before the Closing Date.
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund
which remains undistributed to the holders of the Certificates as of the date
which is one year after the date of the mailing required by Section 2.2(b) shall
be delivered to Discount, upon demand, and any holders of the Certificates who
have not theretofore complied with this Article II shall thereafter look only to
Discount for payment of their claim for Merger Consideration or shares, any cash
in lieu of fractional shares of Discount Common Stock and any dividends or
distributions with respect to Discount Common Stock.
(g) NO LIABILITY. None of Discount, Hi/Lo, Sub or the Exchange Agent
shall be liable to any person in respect of any shares of Discount Common Stock
(or dividends or distributions with respect thereto) or cash from the Exchange
Fund in each case delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. If any Certificate shall not have
been surrendered prior to seven years after the Effective Time (or immediately
prior to such earlier date on which any Merger Consideration, any cash payable
to the holder of such Certificate pursuant to this Article II or any dividends
or distributions payable to the holder of such Certificate would otherwise
escheat to or become the property of any governmental body or authority) any
such Merger Consideration or cash, dividends or distributions in respect of such
Certificate shall, to the extent permitted by applicable law, become the
property of the Surviving Corporation, free and clear of all claims or interest
of any person previously entitled thereto.
(h) INVESTMENT OF EXCHANGE FUND. The Exchange Agent shall invest any
cash included in the Exchange Fund, as directed by Discount, on a daily basis.
Any interest and other income resulting from such investments shall be paid to
Discount.
(i) LOST CERTIFICATES. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration and, if applicable, any cash
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in lieu of fractional shares, and unpaid dividends and distributions on shares
of Discount Common Stock deliverable in respect thereof, pursuant to this
Agreement.
(j) CERTIFICATES FROM AFFILIATES. Notwithstanding anything herein to
the contrary, to the fullest extent permitted by law, certificates surrendered
for exchange by any person or entity included on the list provided to Discount
pursuant to Section 5.4 hereof shall not be exchanged until Discount shall have
received a signed agreement in substantially the form of Exhibit 5.4 hereto from
such person or entity.
Section 2.3 TREATMENT OF STOCK OPTIONS Prior to the Effective Time,
Discount and Hi/Lo shall take all such actions as may be necessary to cause each
unexpired and unexercised option under stock option plans of Hi/Lo in effect on
the date hereof which has been granted (other than pursuant to the Hi/Lo 1991
Associate Stock Purchase Plan) to current or former directors, officers or
employees of Hi/Lo and which remain outstanding on the Closing Date (each, a
"Hi/Lo Option") to be mandatorily surrendered to the Company within 10 days
after the Effective Time in exchange for the payment to the optionee of an
amount of cash per share equal to the greater of (A) $.01 or (B) the excess, if
any, of (x) the Exchange Ratio multiplied by the Discount Average Share Price
over (y) the exercise price per share under such Hi/Lo Option. At the Effective
Time, automatically and without any action by any Person, each Hi/Lo Option
shall become immediately and fully exercisable.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HI/LO
Hi/Lo represents and warrants to Discount and Sub that:
Section 3.1 ORGANIZATION, QUALIFICATION, ETC. (a) Hi/Lo is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the corporate power and authority to own its
properties and assets and to carry on its business as it is now being conducted
and is duly qualified to do business and is in good standing in each
jurisdiction in which the ownership of its properties or the conduct of its
business requires such qualification, except for jurisdictions in which such
failure to be so qualified or to be in good standing would not, individually or
in the aggregate, have a Material Adverse Effect (as hereinafter defined) on
Hi/Lo. As used in this Agreement, any reference to any state of facts, event,
change or effect having a "Material Adverse Effect" on or with respect to Hi/Lo
or Discount, as the case may be, means a material adverse effect on the
business, results of operations or financial condition of Hi/Lo and its
Subsidiaries (as defined in Section 8.11), taken as a whole, or Discount and its
Subsidiaries, taken as a whole, as the case may be. Hi/Lo has heretofore
furnished, or otherwise made available, to Discount a complete and correct copy,
as applicable, of the Certificate or Articles of Incorporation, the Bylaws, the
Certificate of Limited Partnership, and/or the Limited Partnership Agreement,
each as amended to, and in full force and effect as of, the date hereof, of
Hi/Lo and each of its Subsidiaries. Neither Hi/Lo nor any of its Subsidiaries is
in violation of any of the provisions of its respective Certificate or Articles
of Incorporation, Bylaws, Certificate of Limited Partnership, or Limited
Partnership Agreement.
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(b) Hi/Lo does not own, directly or indirectly, any equity or other
ownership interest in any corporation, partnership, joint venture or other
entity or enterprise, except for the Subsidiaries. Hi/Lo is not subject to any
corporate or contractual obligation or requirement to make any investment, loan
or capital contribution to any corporation, partnership, joint venture or other
entity or enterprise, other than its Subsidiaries. Each of Hi/Lo's Subsidiaries
is duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, has the corporate and/or
partnership power and authority to own its properties and to carry on its
business as it is now being conducted, and is duly qualified to do business and
is in good standing in each jurisdiction in which the ownership of its property
or the conduct of its business requires such qualification, except for
jurisdictions in which such failure to be so qualified or to be in good standing
would not, individually or in the aggregate, have a Material Adverse Effect on
Hi/Lo. All the outstanding shares of capital stock of, or other ownership
interests in, Hi/Lo's Subsidiaries are validly issued, fully paid and
non-assessable and are owned by Hi/Lo, directly or indirectly, free and clear of
all liens, claims, charges or encumbrances, except such as are contained in
credit agreements and similar instruments to which Hi/Lo is a party under which
no event of default exists and no event has occurred which with the giving of
notice or passage of time would constitute an event of default thereunder. There
are no existing subscriptions, options, warrants, rights of first refusal,
preemptive rights, calls, commitments, agreements or conversion rights of any
character relating to the issued or unissued capital stock or other securities
of, or other ownership interests in, any Subsidiary of Hi/Lo.
Section 3.2 CAPITAL STOCK. (a) The authorized stock of Hi/Lo consists of
30,000,000 shares of common stock, par value $.01 per share ("Hi/Lo Common
Stock"), and 5,000,000 shares of preferred stock, par value $.01 per share
("Hi/Lo Preferred Stock"), of which 50,000 shares have been designated as Series
A Junior Participating Preferred Stock ("Hi/Lo Series A Preferred Stock"). As of
October 17, 1997, 10,775,109 shares of Hi/Lo Common Stock and no shares of Hi/Lo
Preferred Stock were issued and outstanding. All the outstanding shares of Hi/Lo
Common Stock have been validly issued and are fully paid and non-assessable and
have not been issued in violation of any preemptive or similar rights. As of
October 17, 1997, there were no outstanding subscriptions, options, warrants,
rights or other arrangements or commitments obligating Hi/Lo to issue any shares
of its capital stock nor are there outstanding any securities which are
convertible into or exchangeable for any shares of capital stock of Hi/Lo, and
Hi/Lo has no obligations of any kind to issue any additional securities other
than:
(i) rights to acquire shares of Hi/Lo Series A Preferred Stock
pursuant to the Rights Agreement, dated as of August 28, 1996, between
Hi/Lo and ChaseMellon Shareholder Services, L.L.C. (the "Hi/Lo Rights
Plan");
(ii) options and other rights to receive or acquire not in excess of
1,118,054 shares of Hi/Lo Common Stock granted on or prior to October 17,
1997, pursuant to employee incentive or benefit plans, programs and
arrangements and non-employee director plans; and
(iii) shares issuable upon conversion of that certain Convertible
Promissory Note dated November 1, 1994 to the order of Reddi Brake Supply
Company, Inc. ("Reddi Brake Promissory Note").
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(b) Except for the issuance of shares of Hi/Lo Common Stock pursuant
to the options and other rights referred to in clause 3.2(a)(iii) and except as
permitted in clause 5.1(a)(viii) and (ix), since September 30, 1997, no shares
of Hi/Lo Common Stock or Hi/Lo Preferred Stock have been issued.
(c) Except as disclosed in the letter so designated and executed by
Hi/Lo dated the date hereof and delivered to Discount on the date hereof
("Hi/Lo's Disclosure Letter") the issuance and sale of all of the outstanding
shares of capital stock described in Section 3.2 have been in compliance with
federal and state securities laws. Except pursuant to the terms of that certain
Shareholder's Agreement dated October 7, 1987, as amended, Hi/Lo has not agreed
to register any securities under the Securities Act of 1933, as amended (the
"Securities Act") or under any state securities law or granted registration
rights to any persons or entity. Except as disclosed in Hi/Lo's Disclosure
Letter, there are no outstanding obligations of Hi/Lo or any of Hi/Lo's
Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital
stock of Hi/Lo and no person has any right to cause Hi/Lo or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital
stock of Hi/Lo.
Section 3.3 CORPORATE AUTHORITY RELATIVE TO THIS AGREEMENT; NO VIOLATION;
NO CONFLICT. Hi/Lo has the corporate power and authority necessary to enter into
this Agreement and to carry out its obligations hereunder. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized by the Board of Directors of Hi/Lo
and, except for the approval of its stockholders, no other corporate proceedings
on the part of Hi/Lo are necessary to authorize this Agreement and the
transactions contemplated hereby. The Board of Directors of Hi/Lo has (i)
determined that the transactions contemplated by this Agreement are advisable
and in the best interest of Hi/Lo and its stockholders, (ii) approved the Merger
in accordance with Section 251 of the DGCL (iii) and determined to recommend to
such stockholders that they vote in favor thereof. This Agreement has been duly
and validly executed and delivered by Hi/Lo and, assuming this Agreement
constitutes a valid and binding Agreement of the other parties hereto, this
Agreement constitutes a valid and binding agreement of Hi/Lo, enforceable
against Hi/Lo in accordance with its terms (except insofar as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally, or by principles governing the
availability of equitable remedies). Other than in connection with or in
compliance with the provisions of the DGCL (including the approval of the
stockholders of Hi/Lo), the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), (collectively, the "Hi/Lo Required Approvals"), no
authorization, consent or approval of, or filing by Hi/Lo with, any governmental
body or authority or other person is necessary for the execution and delivery of
this Agreement or for the consummation by Hi/Lo of the transactions contemplated
by this Agreement except where the failure to obtain such authorizations,
consents or approvals or make such filings is not reasonably likely to have a
Material Adverse Effect on Hi/Lo. Except as disclosed in Hi/Lo's Disclosure
Letter, neither the execution and delivery of this Agreement by Hi/Lo nor the
consummation by Hi/Lo of the transactions contemplated by this Agreement will
(a) result in a breach or violation of the organizational documents of Hi/Lo or
of any of Hi/Lo's Subsidiaries, (b) result in a breach or violation of any
provision of, or constitute a default (or an event which, with the giving of
notice, the passage of time or otherwise, would constitute a default), under, or
entitle any party (with the giving of notice, the passage of time or otherwise)
to terminate, accelerate or modify,
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or result in the creation of any lien, security interest, charge or encumbrance
upon any of the properties or assets of Hi/Lo or any of Hi/Lo's Subsidiaries
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, contract, agreement, lease or other instrument or
obligation to which Hi/Lo or any of its Subsidiaries is a party, (c) subject to
the matters set forth in the preceding sentence violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Hi/Lo or any of
its Subsidiaries or any of their respective properties or assets, (d) give any
governmental body the right to challenge the transaction contemplated by this
Agreement or exercise any remedy or seek any relief under any law to which Hi/Lo
or any of its Subsidiaries, or any of their respective assets, are subject, or
(e) give any governmental body the right to revoke, withdraw, suspend, cancel,
terminate or modify any governmental authorization held by Hi/Lo or any of its
Subsidiaries, except as otherwise disclosed to Discount in Hi/Lo's Disclosure
Letter or that are not, individually or in the aggregate, reasonably likely to
have a Material Adverse Effect on Hi/Lo.
Section 3.4 REPORTS AND FINANCIAL STATEMENTS; CORPORATE RECORDS. (a) Hi/Lo
has previously made available to Discount true and complete copies of: (i)
Hi/Lo's Annual Reports on Form 10-K filed with the Securities and Exchange
Commission (the "SEC") for each of the years ended December 31, 1994 through
1996 (the "Annual Reports"); (ii) Hi/Lo's Quarterly Reports on Form 10-Q filed
with the SEC for the quarters ended March 31 and June 30, 1997 (the "Quarterly
Reports"); (iii) each definitive proxy statement filed by Hi/Lo with the SEC
from December 31, 1994 until the date of this Agreement; (iv) each final
prospectus filed by Hi/Lo with the SEC from December 31, 1994 until the date of
this Agreement; and (v) all Current Reports on Form 8-K filed by Hi/Lo with the
SEC since the end of its last fiscal year until the date of this Agreement.
(b) All of the Annual Reports, Quarterly Reports, proxy statements
and prospectuses filed with the SEC since December 31, 1994 (collectively, the
"Hi/Lo SEC Reports") at the time filed (and in the case of registration
statements and proxy statements, on the dates of their effectiveness and the
dates of mailing, respectively) (i) complied in all material respects with the
applicable requirements of the Securities Act, the Exchange Act and the rules
and regulations promulgated thereunder and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited consolidated interim financial
statements included in the Hi/Lo SEC Reports (including any related notes and
schedules) fairly present the financial position of Hi/Lo and its consolidated
Subsidiaries as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, where appropriate, to normal year-end
adjustments), in each case in accordance with past practice and generally
accepted accounting principles in the United States ("GAAP") consistently
applied during the periods involved (except as otherwise disclosed in the notes
thereto or in the case of unaudited statements, as permitted by the rules of the
SEC or Form 10-Q). The condensed consolidated balance sheet of Hi/Lo at
September 30, 1997 and the consolidated statement of income of Hi/Lo for the
period ended September 30, 1997, included in Hi/Lo's Disclosure Letter (the
"September Statements") fairly present the financial position of Hi/Lo and its
consolidated subsidiaries as of the date thereof and the results of operations
for the period (subject to normal year-end adjustments), in each case in
accordance with past practice and GAAP consistently applied during the periods
involved except as permitted by the rules of the SEC or Form 10-Q and except
that such statements are condensed, do not include required statements of
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stockholders' equity and cash flow and do not include the required footnotes.
Since December 31, 1994, Hi/Lo has timely filed all material reports,
registration statements and other filings required to be filed by it with the
SEC under the Exchange Act, the Securities Act and the rules and regulations of
the SEC.
(c) The minute books of Hi/Lo and each of Hi/Lo's corporate
Subsidiaries contain accurate records of all meetings held of, and corporate
action taken by, the stockholders and the Board of Directors of such companies,
and no meeting of any such stockholders or Board of Directors has been held for
which minutes have not been prepared and are not contained in such minute books
except as disclosed in Hi/Lo's Disclosure Letter.
Section 3.5 NO UNDISCLOSED LIABILITIES. As of the date hereof neither
Hi/Lo nor any of its Subsidiaries has any liabilities or obligations of any
nature, whether or not accrued, contingent or otherwise, that would be required
by GAAP to be reflected on a consolidated balance sheet of Hi/Lo, except
liabilities or obligations (a) reflected in any of the Hi/Lo SEC Reports filed
prior to the date of this Agreement (b) incurred in the ordinary course of
business since December 31, 1996, or (c) liabilities or obligations which are
not reasonably likely, individually or in the aggregate, to have a Material
Adverse Effect on Hi/Lo.
Section 3.6 NO VIOLATION OF LAW. The businesses of Hi/Lo and its
Subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any governmental body or authority or any judgment, decision or
order entered by any governmental authority (provided that no representation or
warranty is made in this Section 3.6 with respect to Environmental Laws (as
hereinafter defined)) except (a) as described in any of the Hi/Lo SEC Reports
filed prior to the date of this Agreement and (b) for violations or possible
violations which are not reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect on Hi/Lo.
Section 3.7 ENVIRONMENTAL LAWS AND REGULATIONS. Except as described in any
of the Hi/Lo SEC Reports filed prior to the date of this Agreement, as of the
date hereof (a) Hi/Lo and each of its Subsidiaries is in compliance with all
applicable federal, state, local and foreign laws and regulations relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata) (collectively, "Environmental Laws"), except for non-compliance which
are not reasonably likely, individually or in the aggregate, to have a Material
Adverse Effect on Hi/Lo, which compliance includes, but is not limited to, the
possession by Hi/Lo and its Subsidiaries of material permits and other
governmental authorizations required under applicable Environmental Laws, and
compliance with the terms and conditions thereof; (b) neither Hi/Lo nor any of
its Subsidiaries has received written notice of, or, to the knowledge of Hi/Lo,
is the subject of, any actions, causes of action, claims, investigations,
demands or notices by any Person alleging liability under or non-compliance with
any Environmental Law ("Environmental Claims") which are reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on Hi/Lo;
and (c) to the knowledge of Hi/Lo, there are no circumstances that are
reasonably likely to prevent or interfere with such compliance in the future.
Section 3.8 EMPLOYEE MATTERS; ERISA. (a) Set forth in Hi/Lo's Disclosure
Letter is a true and complete list of all material employee benefit plans
maintained or contributed to as of the date hereof by Hi/Lo or any of its
Subsidiaries covering their present and former employees or directors
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or their beneficiaries, or providing benefits to such persons in respect of
services provided to any such entity, including, but not limited to, any
employee benefit plans within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), any deferred
compensation, bonuses, stock options, restricted stock plans, incentive
compensation, severance or change in control agreements and any other material
benefit arrangements or payroll practices (collectively, the "Hi/Lo Benefit
Plans").
(b) Except for contributions and other payments that are not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on Hi/Lo, all contributions and other payments required to be made by
Hi/Lo or any of its Subsidiaries to or under any Hi/Lo Benefit Plan (or to any
person pursuant to the terms thereof) have been made or the amount of such
payment or contribution obligation has been reflected in the Hi/Lo SEC Reports.
(c) Each of the Hi/Lo Benefit Plans intended to be "qualified"
within the meaning of Section 401(a) of the Code has received a favorable
determination letter from the Internal Revenue Service (the "IRS") as to such
qualified status.
(d) Except as described in any of the Hi/Lo SEC Reports filed prior
to the date of this Agreement, all Hi/Lo Benefit Plans are in compliance with
all applicable provisions of ERISA and the Code, and Hi/Lo and its Subsidiaries
do not have any liabilities or obligations with respect to any Hi/Lo Benefit
Plan, whether or not accrued, contingent or otherwise, except (i) as described
in any of the Hi/Lo SEC Reports or disclosed in writing to Discount in Hi/Lo's
Disclosure Letter and (ii) for instances of non-compliance or liabilities or
obligations that are not reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect on Hi/Lo.
(e) With respect to the Hi/Lo Benefit Plans, individually and in the
aggregate, no event has occurred and, to Hi/Lo's knowledge, there does not now
exist any condition or set of circumstances, that could subject Hi/Lo or any of
its Subsidiaries to any material liability arising under ERISA or the Code
(including, without limitation, any liability to any such plan or the Pension
Benefit Guaranty Corporation (the "PBGC")), or under any indemnity agreement to
which Hi/Lo or any of its Subsidiaries is a party, excluding (1) liability for
benefit claims and funding obligations payable in the ordinary course and (2)
liabilities that are not reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect on Hi/Lo.
(f) Except as disclosed in writing to Discount in Hi/Lo's Disclosure
Letter, none of the Hi/Lo Benefit Plans that are "welfare plans" within the
meaning of Section 3(1) of ERISA provides for any retiree benefits other than
continuation coverage required to be provided under Section 4980B of the Code or
Part 6 of Title I of ERISA.
(g) Except (i) as contemplated in this Agreement, (ii) as provided
in the termination benefit agreements listed and identified as such in Hi/Lo's
Disclosure Letter which are in effect on the date hereof (the "Change of Control
Employment Agreements"), (iii) as described in any of the Hi/Lo SEC Reports or
(iv) as disclosed in writing to Discount in Hi/Lo's Disclosure Letter, the
consummation or announcement of any transaction contemplated by this Agreement
will not (whether alone or upon the occurrence of any additional or further acts
or events) result in any (A) payment (whether of severance pay or otherwise)
becoming due from Hi/Lo or any of its
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Subsidiaries to any officer, employee, former employee or director thereof or to
the trustee under any "rabbi trust" or similar arrangement, or (B) benefit under
any Hi/Lo Benefit Plan being established or becoming accelerated, vested or
payable. Except as disclosed in Hi/Lo's Disclosure Letter or as described in any
of the Hi/Lo SEC Reports, neither Hi/Lo nor any of its Subsidiaries is a party
to (A) any management, employment, deferred compensation, severance (including
any payment, right or benefit resulting from a change in control), bonus or
other contract for personal services with any current or former officer,
director or employee (whether or not characterized as a plan for purposes of
ERISA), (B) any material consulting contract with any person who prior to
entering into such contract was a director or officer of Hi/Lo or any of its
Subsidiaries, or (C) any plan, agreement, arrangement or understanding similar
to any of the items described in clause (A) or (B) of this sentence.
(h) The consummation or announcement of any transaction contemplated
by this Agreement will not (either alone or upon the occurrence of any
additional or further acts or events) result in the disqualification of any of
the Hi/Lo Benefit Plans intended to be qualified under, result in a prohibited
transaction or breach of fiduciary duty under, or otherwise violate, ERISA or
the Code.
(i) Neither Hi/Lo nor any of its Subsidiaries nor any of their
directors, officers, employees or agents, nor any "party in interest" or
"disqualified person," as such terms are defined in Section 3 of ERISA and
Section 4975 of the Code has, with respect to any Hi/Lo Benefit Plan, engaged in
or been a party to any "prohibited transaction," as such term is defined in
Section 4975 of the Code or Section 406 of ERISA which is not otherwise exempt,
which could result in the imposition of either a penalty assessed pursuant to
Section 502(i) of ERISA or a tax imposed by Section 4975 of the Code or which
could constitute a breach of fiduciary duty, in each case applicable to Hi/Lo
and which is reasonably likely to have a Material Adverse Effect on Hi/Lo.
(j) No Hi/Lo Benefit Plan subject to Section 412 of the Code has
incurred any now existing "accumulated funding deficiency" (as defined in
ERISA), whether or not waived. Neither Hi/Lo nor any of its Subsidiaries has
incurred, and none of such entities reasonably expects to incur, any material
liability to the PBGC with respect to any Hi/Lo Benefit Plan. Neither Hi/Lo nor
any of its Subsidiaries is a party to, and neither has incurred or reasonably
expects to incur, any withdrawal liability with respect to any "multiemployer
plan" (as defined in Section 3(37) of ERISA) for which there is any outstanding
liability.
(k) None of the assets of any of Hi/Lo Benefit Plans which hold
assets are invested in securities of the Hi/Lo.
(l) Hi/Lo is in material compliance with the notice provisions and
all other provisions of COBRA and the Health Insurance Portability and
Accountability Act of 1996, except for instances of non-compliance that are not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on Hi/Lo.
(m) Except as disclosed in writing to Discount in Hi/Lo's Disclosure
Letter or as described in any of the Hi/Lo SEC Reports, since December 31, 1996,
no change has occurred in the base salary of any person who is a party to a
Change of Control Employment Agreement.
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Section 3.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Hi/Lo SEC Reports filed prior to the date of this Agreement, in Hi/Lo's
Disclosure Letter or the September Statements, from December 31, 1996 to the
date of this Agreement, the businesses of Hi/Lo and its Subsidiaries have been
conducted in all material respects in the ordinary course and there has not been
any event, occurrence, development or state of circumstances or facts that has
had or is reasonably likely to have a Material Adverse Effect on Hi/Lo. Since
December 31, 1996, neither Hi/Lo nor any of its Subsidiaries has engaged in any
transaction which, if done after the execution of this Agreement, would violate
Section 5.1(a)(v) through (xi), 5.1(a)(xiv) through (xvii), or 5.1(a)(xix)
through (xxi) hereof, except as disclosed in Hi/Lo's SEC Reports filed prior to
the date of this Agreement or disclosed in Hi/Lo's Disclosure Letter.
Section 3.10 INVESTIGATIONS; LITIGATION. As of the date of this Agreement,
except as described in any of the Hi/Lo SEC Reports filed prior to the date of
this Agreement or disclosed in Hi/Lo's Disclosure Letter:
(a) no investigation or review by any governmental body or authority
with respect to Hi/Lo or any of its Subsidiaries is pending nor has any
governmental body or authority notified Hi/Lo in writing of an intention to
conduct the same and, to the knowledge of Hi/Lo no such investigation or review
has been threatened in each case which is reasonably likely, individually or in
the aggregate, to have a Material Adverse Effect on Hi/Lo; and
(b) there are no actions, suits or proceedings pending (or, to
Hi/Lo's knowledge, threatened) against or affecting Hi/Lo or its Subsidiaries,
or any of their respective properties at law or in equity, or before any
federal, state, local or foreign governmental body or authority, which,
individually or in the aggregate, are reasonably likely to have a Material
Adverse Effect on Hi/Lo.
Section 3.11 PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT; OTHER
INFORMATION. None of the information with respect to Hi/Lo or its Subsidiaries
provided by Hi/Lo in writing for inclusion in the Proxy Statement/Prospectus or
the Registration Statement (as defined in Section 6.3(a)) will, in the case of
the Proxy Statement/Prospectus or any amendments thereof or supplements thereto,
at the time of the mailing of the Proxy Statement/Prospectus or any amendments
or supplements thereto, and at the time of the Hi/Lo Meeting, or, in the case of
the Registration Statement, at the time it becomes effective, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The Proxy
Statement/Prospectus, except for such portions thereof that relate only to
Discount and its Subsidiaries, will comply as to form in all material respects
with the provisions of the Exchange Act and the rules and regulations
promulgated thereunder. The letters to stockholders, notices of meeting, Proxy
Statement/Prospectus and forms of proxies to be distributed to stockholders in
connection with the Merger and any schedules required to be filed with the SEC
in connection therewith are collectively referred to herein as the "Proxy
Statement/Prospectus."
Section 3.12 HI/LO RIGHTS PLAN. The Hi/Lo Rights Plan has not been amended
except to provide that the Hi/Lo Rights Plan is not applicable to the execution
and delivery of this Agreement and the transactions contemplated hereby. No
"Distribution Date" has occurred within the meaning of the Hi/Lo Rights Plan,
and the consummation of the transactions contemplated hereby will not
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result in the occurrence of a Distribution Date. Hi/Lo has taken all action
required to render the Hi/Lo Rights Plan (and the "Rights" thereunder)
inapplicable to this Agreement and the transactions contemplated hereby and any
other agreement executed and delivered in connection herewith.
Section 3.13 TAKEOVER LAWS. Prior to the date hereof, the Board of
Directors of Hi/Lo has taken all necessary action to exempt under or make not
subject to Section 203 of the DGCL or any other state law that purports to limit
or restrict business combinations or the ability to acquire shares of capital
stock (i) the execution of this Agreement and (ii) the Merger and the
transaction contemplated hereby.
Section 3.14 TAX MATTERS. (a) Except for matters that are not reasonably
likely to have a Material Adverse Effect on the Hi/Lo or are disclosed in
Hi/Lo's Disclosure Letter: (i) all returns and reports of or with respect to any
federal, state or other Tax which are required to be filed on or before the
Closing Date by or with respect to the Hi/Lo or any of its Subsidiaries ("Hi/Lo
Tax Returns") have been or will be duly and timely filed and reflect all tax
liabilities of Hi/Lo and its Subsidiaries required to be shown thereon; (ii) all
Taxes which are shown to be due on such Hi/Lo Tax Returns have been or will be
timely paid in full; (iii) all withholding tax requirements imposed on or with
respect to the Hi/Lo or any of its Subsidiaries have been satisfied in full in
all respects; (iv) no assessment, deficiency or adjustment has been asserted or
assessed with respect to any Hi/Lo Tax Return; (v) neither Hi/Lo nor any of its
Subsidiaries has any liability for any Taxes in excess of amounts paid or
reserves established therefor; and (vi) there is not in force any extension of
time with respect to the due date for the filing of any Hi/Lo Tax Return or any
waiver or agreement for any extension of time for the assessment or payment of
any tax due with respect to the period covered by any Hi/Lo Tax Return and no
requests for such waivers or agreements are pending. Except as disclosed in
writing in Hi/Lo's Disclosure Letter, neither Hi/Lo nor any of its Subsidiaries
is the subject of any currently ongoing tax audit which is reasonably likely to
have a Material Adverse Effect on Hi/Lo. With respect to any taxable period
ended prior to December 31, 1993, all federal income Hi/Lo Tax Returns have been
audited by the Internal Revenue Service or are closed by the applicable statute
of limitations.
There are no material liens with respect to Taxes upon any of the
properties or assets, real or personal, tangible or intangible of Hi/Lo or any
of its Subsidiaries (other than liens with respect to Taxes not yet due). No
material claim made in writing by an authority in a jurisdiction where none of
Hi/Lo or its Subsidiaries files tax returns that Hi/Lo or any of its
Subsidiaries is or may be subject to taxation by that jurisdiction is currently
pending. Hi/Lo has not filed an election under Section 341(f) of the Internal
Revenue Code to be treated as a consenting corporation. Neither Hi/Lo nor any of
its Subsidiaries is obligated by any contract, agreement or other arrangement to
indemnify any other person with respect to any material Taxes.
(b) Neither Hi/Lo nor any of its Subsidiaries knows of any fact or
has taken any action that could reasonably be expected to prevent the Merger
from qualifying as a reorganization within the meaning of Section 368(a) of the
Code.
For purposes of this Agreement: (i) "Taxes" means any and all federal,
state, local, foreign or other taxes of any kind (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any taxing authority, including,
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without limitation, taxes or other charges on or with respect to income,
franchises, windfall or other profits, gross receipts, property, sales, use,
capital stock, payroll, employment, social security, workers' compensation,
unemployment compensation, or net worth, and taxes or other charges in the
nature of excise, withholding, ad valorem or value added, and (ii) "Tax Return"
means any return, report or similar statement (including the attached schedules)
required to be filed with respect to any Tax, including, without limitation, any
information return, claim for refund, amended return or declaration of estimated
Tax.
Section 3.15 OPINION OF FINANCIAL ADVISOR. The Board of Directors of Hi/Lo
has received the opinion of SBC Warburg Dillon Read Inc., dated the date of this
Agreement, to the effect that, as of such date, the Exchange Ratio is fair to
Hi/Lo's stockholders from a financial point of view. A copy of the written
opinion of SBC Warburg Dillon Read Inc. will be delivered to Discount as soon as
practicable after the date of this Agreement.
Section 3.16 REQUIRED VOTE OF HI/LO STOCKHOLDERS. The affirmative vote of
the holders of a majority of the outstanding shares of Hi/Lo Common Stock is
required to approve the Merger. No other vote of the stockholders of Hi/Lo is
required by law, the charter or by-laws of Hi/Lo or otherwise in order for Hi/Lo
to consummate the Merger and the transactions contemplated hereby.
Section 3.17 LABOR MATTERS. No labor organization or group of employees of
the Hi/Lo or any of its Subsidiaries has made a pending demand for recognition
or certification, and there are no representation or certification proceedings
or petitions seeking a representation proceeding presently pending or to the
knowledge of Hi/Lo threatened to be brought or filed, with the National Labor
Relations Board or any other labor relations tribunal or authority except for
demands, proceedings or petitions which are not reasonably likely to have a
Material Adverse Effect on Hi/Lo. There are no strikes, work stoppages,
lockouts, material arbitrations or material grievances, or other material labor
disputes pending or to the knowledge of Hi/Lo threatened against or involving
Hi/Lo or any of its Subsidiaries except such as are not reasonably likely to
have a Material Adverse Effect on Hi/Lo. None of Hi/Lo or any of its
Subsidiaries is a party to or bound by any collective bargaining or similar
agreement with any labor organization.
Section 3.18 CERTAIN AGREEMENTS. Except as disclosed in Hi/Lo's Disclosure
Letter or in Hi/Lo's SEC Reports filed prior to the date of this Agreement,
neither Hi/Lo nor any of its Subsidiaries is a party or subject to any oral or
written agreement, contract, policy, license, document, instrument, arrangement
or commitment relating to or constituting (i) Indebtedness (as defined below) in
an amount exceeding $500,000 other than pursuant to Hi/Lo's revolving credit
facility with the CIT Group which would in no event cause the aggregate amount
outstanding under such facility to exceed $60,000,000, (ii) leases for real or
personal property in which the amounts of payments which the Hi/Lo or any
Subsidiary is required to make on an annual basis exceeds $250,000, (iii)
agreement, contract, policy, license document, instrument, arrangement or
commitment that limits in any material respect the freedom of Hi/Lo or any
Subsidiary of Hi/Lo to compete in any line of business or with any person or in
any geographical area or which would so limit the freedom of Hi/Lo or any
Subsidiary of Hi/Lo after the Effective Time, (iv) agreement or contract outside
of the ordinary course of business of Hi/Lo or any of Hi/Lo's Subsidiaries that
involves performance of services or delivery of goods or materials by or to
Hi/Lo or any of Hi/Lo's Subsidiaries of an amount or value in excess of $250,000
(v) joint venture or partnership agreements
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involving a sharing of profits, losses, costs, or liabilities by Hi/Lo or any of
Hi/Lo's Subsidiaries with any person other than Hi/Lo and its Subsidiaries, (vi)
power of attorney granted by Hi/Lo or any of Hi/Lo's Subsidiaries that is
currently effective and outstanding, (vii) agreement or contract entered into
other than in the ordinary course of business that contains or provides for an
express undertaking by Hi/Lo or any of Hi/Lo's Subsidiaries to be responsible
for consequential damages, (viii) agreement or contract for capital expenditures
in excess of $500,000, (ix) a written warranty, guaranty, and/or other similar
undertaking with respect to contractual performance extended by Hi/Lo or any of
Hi/Lo's Subsidiaries other than in the ordinary course of business; or (x)
which, after giving effect to the transactions contemplated by this Agreement,
purports to restrict or bind Discount or any of its Subsidiaries other than the
Surviving Corporation and its Subsidiaries in any respect. "INDEBTEDNESS" means
any liability in respect of (A) borrowed money, (B) capitalized lease
obligations, (C) the deferred purchase price of property or services (other than
trade payables in the ordinary course of business) and (D) guarantees of any of
the foregoing. Except as disclosed in Hi/Lo's Disclosure Letter, neither Hi/Lo
nor any of its Subsidiaries is in default (or would be in default with notice or
lapse of time, or both) under any indenture, note, credit agreement, loan
document, lease, contract, policy, license, document, instrument, arrangement or
commitment, whether or not such default has been waived, which default, alone or
in the aggregate with other such defaults, is reasonably likely to have a
Material Adverse Effect on Hi/Lo.
Section 3.19 TITLE TO ASSETS; LIENS. Hi/Lo owns or holds through valid
leases, directly or through its Subsidiaries, all of its inventory, accounts
receivable, property, equipment and other assets except where the failure to own
or hold such property is not reasonably likely to have a Material Adverse Effect
on Hi/Lo, and except as disclosed in Hi/Lo's SEC Reports filed prior to the date
of this Agreement, such assets are free and clear of any mortgages, liens,
charges, encumbrances, or title defects of any nature whatsoever, except for
such mortgages, liens, charges, encumbrances or title defects which are not
reasonably likely to adversely affect the value of such property as carried on
Hi/Lo's financial statements contained in Hi/Lo's SEC Reports filed prior to the
date of this Agreement and would not have a Material Adverse Effect on Hi/Lo.
Hi/Lo and its Subsidiaries have valid and enforceable leases for the premises
and the equipment, furniture and fixtures purported to be leased by them, except
for leases, the failure of which to have or be enforceable, are not reasonably
likely to have a Material Adverse Effect on Hi/Lo.
Section 3.20 INSURANCE. Except as disclosed in Hi/Lo's Disclosure Letter,
Hi/Lo and each of its Subsidiaries are insured, and during each of the past five
calendar years have been insured with insurers whose current rating by A M Best
is at least B+6 against such risks and in such amounts as companies engaged in a
similar business would, in accordance with good business practice, customarily
be insured. Except as disclosed in Hi/Lo's Disclosure Letter, the policies of
fire, theft, liability and other insurance maintained with respect to the assets
or businesses of the Hi/Lo and its Subsidiaries (copies of which have been made
available to Discount) (i) provide coverage which Hi/Lo deems to be adequate
coverage against loss, (ii) are sufficient for Hi/Lo and its Subsidiaries to be
in compliance with all legal requirements applicable to Hi/Lo or any of its
Subsidiaries and all agreements and contracts to which Hi/Lo or any of its
Subsidiaries is a party or by which any of them are bound, except where such
insufficiency is not reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect on Hi/Lo, (iii) will continue (absent affirmative
action by Discount to cancel such policies) in full force and effect following
consummation of the Merger and (iv) do not provide for any retrospective premium
adjustment or other experienced-based liability on the part
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of Hi/Lo or any of Hi/Lo's Subsidiaries. Except as disclosed in Hi/Lo's
Disclosure Letter, neither Hi/Lo nor any of its Subsidiaries has received
written notice of cancellation or termination with respect to any material
insurance policy of Hi/Lo or its Subsidiaries or will not be renewed or that the
issuer of any material insurance policy is not willing or able to perform its
obligations thereunder. The insurance policies of Hi/Lo and its Subsidiaries are
valid and enforceable policies. Hi/Lo and Hi/Lo's Subsidiaries have paid all
premiums due, and have otherwise performed all of their respective material
obligations, under each material insurance policy and Hi/Lo and Hi/Lo's
Subsidiaries have given notice to the respective insurer of all material claims
that may be insured by any material insurance policy.
Section 3.21 INTELLECTUAL PROPERTY. To Hi/Lo's knowledge, neither Hi/Lo
nor any of its Subsidiaries utilizes or has utilized any patent, trademark,
tradename, service xxxx, copyright, software, trade secret or know-how, except
for those which are owned, possessed or lawfully used by Hi/Lo or its
Subsidiaries in their operations, and, to the knowledge of Hi/Lo, neither Hi/Lo
nor any of its Subsidiaries infringes upon or unlawfully or wrongfully uses any
patent, trademark, tradename, service xxxx, copyright or trade secret owned or
validly claimed by another, where such infringement or unlawful or wrongful use
is reasonably likely to have a Material Adverse Effect on Hi/Lo.
Section 3.22 SIGNIFICANT VENDOR ARRANGEMENTS. Except as set forth in a
list which is included as part of Hi/Lo's Disclosure Letter, neither Hi/Lo nor
any of its Subsidiaries is a party to any contract or arrangement with any
supplier or vendor which represents a commitment in excess of $300,000. The list
of such contracts and arrangements which is included as part of Hi/Lo's
Disclosure Letter accurately identifies each such supplier or vendor and the
significant terms concerning termination, term of the agreement, and the amount
of up-front vendors' allowances that would need to be repaid upon early
termination as of October 1, 1997.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF DISCOUNT AND SUB
Discount and Sub represent and warrant to Hi/Lo that:
Section 4.1 ORGANIZATION, QUALIFICATION, ETC. (a) Each of Discount and Sub
is a corporation duly organized, validly existing and of active status or in
good standing under the laws of its jurisdiction of organization and has the
corporate power and authority to own its properties and assets and to carry on
its business as it is now being conducted and is duly qualified to do business
and is of active status or in good standing in each jurisdiction in which the
ownership of its properties or the conduct of its business requires such
qualification, except for jurisdictions in which such failure to be so qualified
or to be in good standing would not, individually or in the aggregate, have a
Material Adverse Effect on Discount. The copies of Discount's Restated Articles
of Incorporation and by-laws and Sub's certificate of incorporation and by-laws
which have been made available to Hi/Lo are complete and correct and in full
force and effect on the date hereof. Neither Discount nor Sub is in violation of
any of the provisions of its respective Articles or Certificate of Incorporation
or Bylaws.
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(b) Discount does not own directly or indirectly, any equity or
other ownership interest in any corporation, partnership, joint venture or other
entity or enterprise, except for the Discount Subsidiaries. Discount is not
subject to any corporate or contractual obligation or requirement to make any
investment, loan or capital contribution to any corporation, partnership, joint
venture or other entity or enterprise, except pursuant to this Agreement and to
its Subsidiaries. Each of Discount's Corporate Subsidiaries is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization, has the corporate power and authority to own its properties and to
carry on its business as it is now being conducted, and is duly qualified to do
business and is in good standing in each jurisdiction in which the ownership of
its property or the conduct of its business requires such qualification, except
for jurisdictions in which such failure to be so qualified or to be in good
standing would not, individually or in the aggregate, have a Material Adverse
Effect on Discount. All the outstanding shares of capital stock of, or other
ownership interests in, Discount's Corporate Subsidiaries and Sub are validly
issued, fully paid and non-assessable and are owned by Discount, directly or
indirectly, free and clear of all liens, claims, charges or encumbrances, except
for restrictions contained in credit agreements and similar instruments to which
Discount is a party under which no event of default exists and no event has
occurred which with the giving of notice or passage of time would constitute an
event of default thereunder. There are no existing subscriptions, options,
warrants, rights of first refusal, preemptive rights, calls, commitments,
agreements or conversion rights of any character relating to the issued or
unissued capital stock or other securities of, or other ownership interests in,
any Corporate Subsidiary of Discount or Sub.
Section 4.2 CAPITAL STOCK. (a) The authorized capital stock of Discount
consists of 50,000,000 shares of common stock, par value $.01 per share
("Discount Common Stock"), and 5,000,000 shares of preferred stock, par value
$.01 per share ("Discount Preferred Stock"). The shares of Discount Common Stock
to be issued in the Merger or upon the exercise of Hi/Lo stock options,
warrants, conversion rights or other rights or vesting or payment of other Hi/Lo
equity-based awards thereafter will, when issued, be validly issued fully paid
and non-assessable and have not been issued in violation of any preemptive or
similar rights. As of September 30, 1997, 16,595,671 shares of Discount Common
Stock and no shares of Discount Preferred Stock were issued and outstanding. All
the outstanding shares of Discount Common Stock have been validly issued and are
fully paid and non-assessable. As of September 30, 1997, there were no
outstanding subscriptions, options, warrants, rights or other arrangements or
commitments obligating Discount to issue any shares of its capital stock nor are
there outstanding any securities which are convertible into or exchangeable for
any shares of capital stock of Discount, and Discount has no obligations of any
kind to issue any additional securities other than: options and other rights to
receive or acquire 1,196,739 shares of Discount Common Stock granted on or prior
to September 30, 1997, pursuant to benefit plans, programs and arrangements and
non-employee director plans.
(b) Except for the issuance of shares of Discount Common Stock
pursuant to the options and other rights referred to in this Section 4.2 and
except as provided for in clause 5.1(b)(viii), since September 30, 1997, no
shares of Discount Common Stock or Discount Preferred Stock have been issued.
(c) Except as disclosed in the letter so designated and signed by
Discount dated the date hereof and delivered to Hi/Lo ("Discount's Disclosure
Letter"), (i) the issuance and sale of
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all the outstanding shares of capital stock described in Section 4.2 have been
in compliance with federal and state securities laws, (ii) there are no
outstanding obligations of Discount or any of Discount's Subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock of Discount
and (iii) Discount has not agreed to register any Securities under the
Securities Act or under any State Securities laws or granted registration rights
to any person or entity.
Section 4.3 CORPORATE AUTHORITY RELATIVE TO THIS AGREEMENT; NO VIOLATION;
NO CONFLICT. Each of Discount and Sub has the corporate power and authority
necessary to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
the Boards of Directors of Discount and Sub and, no other corporate proceedings
on the part of Discount or Sub are necessary to authorize this Agreement and the
transactions contemplated hereby. The Boards of Directors of Discount and Sub
have (i) determined that the transactions contemplated by this Agreement are
advisable and in the best interest of Discount and its stockholders and (ii)
approved the Merger in accordance with Section 251 of the DGCL and the issuance
of the shares of Discount Common Stock in the Merger. This Agreement has been
duly and validly executed and delivered by Discount and Sub and, assuming this
Agreement constitutes a valid and binding Agreement of the other parties hereto,
this Agreement constitutes a valid and binding agreement of Discount and Sub,
enforceable against each of them in accordance with its terms (except insofar as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights generally,
or by principles governing the availability of equitable remedies). Other than
in connection with or in compliance with the provisions of the DGCL, the Florida
Business Corporation Act, the Securities Act, the Exchange Act, the HSR Act, the
securities or blue sky laws of the various states (collectively, the "Discount
Required Approvals"), no authorization, consent or approval of, or filing by
Discount or Sub with, any governmental body or authority or other person is
necessary for the execution and delivery of this Agreement or for the
consummation by Discount or Sub of the transactions contemplated by this
Agreement except for consents from the parties listed in Section 4.3 of
Discount's Disclosure Letter that Discount reasonably expects to obtain and
except where the failure to obtain such authorizations, consents or approvals or
make such filing is not reasonably likely to have a Material Adverse Effect on
Discount. Except as disclosed in Discount's Disclosure Letter, neither the
execution and delivery of this Agreement by Discount and Sub nor the
consummation by Discount and Sub of the transactions contemplated by this
Agreement will (a) result in a breach or violation of the organizational
documents of Discount or Sub or of any of Discount's Subsidiaries, (b) result in
a breach or violation of any provision of, or constitute a default (or an event
which, with the giving of notice, the passage of time or otherwise, would
constitute a default), under, or entitle any party (with the giving of notice,
the passage of time or otherwise) to terminate, accelerate or modify, or result
in the creation of any lien, security interest, charge or encumbrance upon any
of the properties or assets of Discount or Sub or any of Discount's Subsidiaries
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, contract, agreement, lease or other instrument or
obligation to which Discount or Sub or any of its Discount's Subsidiaries is a
party, (c) subject to the matters set forth in the preceding sentence violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
Discount or Sub or any of Discount's Subsidiaries or any of their respective
properties or assets, (d) give any governmental body the right to challenge the
transaction contemplated by this Agreement or exercise any remedy or seek any
relief under any laws to which Discount or any of its Subsidiaries, or their
respective assets, are
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subject, or (e) give any governmental body the right to revoke, withdraw,
suspend, cancel, terminate or modify any governmental authorization held by
Discount or any of its Subsidiaries, except in the case of matters covered by
(a), (b), (c), (d) or (e) that are not, individually or in the aggregate,
reasonably likely to have a Material Adverse Effect on Discount.
Section 4.4 REPORTS AND FINANCIAL STATEMENTS. (a) Discount has previously
made available to Hi/Lo true and complete copies of: (i) Discount's Annual
Reports on Form 10-K filed with the SEC for each of the fiscal years ended 1995
through 1997; (ii) Discount's Quarterly Reports on Form 10-Q filed with the SEC
for the quarter ended September 2, 1997; (iii) each definitive proxy statement
filed by Discount with the SEC since May 30, 1995; (iv) each final prospectus
filed by Discount with the SEC since May 30, 1995; and (v) all Current Reports
on Form 8-K filed by Discount with the SEC since the end of its last fiscal
year.
(b) Except as disclosed in Discount's Disclosure Letter, all of
Discount's Annual Reports, Quarterly Reports, proxy statements and prospectuses
filed with the SEC since May 30, 1995 (collectively, "Discount SEC Reports") at
the time filed (and in the case of registration statements and proxy statements,
on the dates of their effectiveness and the dates of mailing, respectively) (i)
complied as to form in all material respects with the applicable requirements of
the Securities Act, the Exchange Act, and the rules and regulations promulgated
thereunder and (ii) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The audited consolidated financial statements and
unaudited consolidated interim financial statements included in the Discount SEC
Reports (including any related notes and schedules) fairly present the financial
position of Discount and its consolidated Subsidiaries as of the dates thereof
and the results of their operations and their cash flows for the periods or as
of the dates then ended (subject, where appropriate, to normal year-end
adjustments), in each case in accordance with past practice and GAAP
consistently applied during the periods involved (except as otherwise disclosed
in the notes thereto or in the case of unaudited statements, as permitted by
Form 10-Q). Since May 30, 1995, Discount has timely filed all material reports,
registration statements and other filings required to be filed by it with the
SEC under the Exchange Act, the Securities Act and the rules and regulations of
the SEC.
Section 4.5 NO UNDISCLOSED LIABILITIES. As of the date hereof, neither
Discount nor any of its Subsidiaries has any liabilities or obligations of any
nature, whether or not accrued, contingent or otherwise, that would be required
by GAAP to be reflected on a consolidated balance sheet of Discount except
liabilities or obligations (a) reflected in any of the Discount SEC Reports
filed prior to the date of this Agreement, (b) incurred in the ordinary course
of business since the end of the Discount's last fiscal year, or (c) liabilities
or obligations which are not, individually or in the aggregate, likely to have a
Material Adverse Effect on Discount.
Section 4.6 NO VIOLATION OF LAW. The businesses of Discount and its
Subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any governmental body or authority or any judgment, decision or
order entered by any governmental authority (provided that no representation or
warranty is made in this Section 4.6 with respect to Environmental Laws) except
(a) as described in any of the Discount SEC Reports filed prior to the date of
this Agreement and
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(b) for violations or possible violations which are not reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on Discount.
Section 4.7 ENVIRONMENTAL LAWS AND REGULATIONS. Except as described in any
of the Discount SEC Reports filed prior to the date of this Agreement, as of the
date hereof, (a) Discount and each of its Subsidiaries is in compliance with all
applicable Environmental Laws, except for non-compliance which are not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on Discount, which compliance includes, but is not limited to, the
possession by Discount and its Subsidiaries of material permits and other
governmental authorizations required under applicable Environmental Laws, and
compliance with the terms and conditions thereof; (b) neither Discount nor any
of its Subsidiaries has received written notice of, or, to the knowledge of
Discount, is the subject of, any Environmental Claims which are reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect on
Discount; and (c) to the knowledge of Discount, there are no circumstances that
are reasonably likely to prevent or interfere with such compliance in the
future.
Section 4.8 EMPLOYEE MATTERS; ERISA. (a) Set forth on Discount's
Disclosure Letter is a true and complete list of all material employee benefit
plans maintained or contributed to as of the date hereof by Discount or any of
its Subsidiaries covering their employees or directors or their beneficiaries,
or providing benefits to such persons in respect of services provided to any
such entity, including, but not limited to, any employee benefit plans within
the meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), any deferred compensation bonuses, stock options,
restricted stock plans, incentive compensation, severance or change in control
agreements (collectively, the "Discount Benefit Plans").
(b) Except for contributions and other payments that would not,
individually or in the aggregate, have a Material Adverse Effect on Discount,
all contributions and other payments required to be made by Discount or any of
its Subsidiaries to or under any Discount Benefit Plan (or to any person
pursuant to the terms thereof) have been made or the amount of such payment or
contribution obligation has been reflected in the Discount SEC Reports.
(c) Each of the Discount Benefit Plans intended to be "qualified"
within the meaning of Section 401(a) of the Code has received a favorable
determination letter from the Internal Revenue Service (the "IRS") as to such
qualified status.
(d) Except as described in any of the Discount SEC Reports filed
prior to the date of this Agreement, all Discount Benefit Plans are in
compliance with all applicable provisions of ERISA and the Code, and Discount
and its Subsidiaries do not have any liabilities or obligations with respect to
any Discount Benefit Plan, whether or not accrued, contingent or otherwise,
except (i) as described in any of the Discount SEC Reports or disclosed in
writing to Hi/Lo in Discount's Disclosure Letter and (ii) for instances of
non-compliance or liabilities or obligations that would not individually or in
the aggregate, have a Material Adverse Effect on Discount.
(e) With respect to the Discount Benefit Plans, individually and in
the aggregate, no event has occurred and, to Discount's knowledge, there does
not now exist any condition or set of circumstances, that could subject Discount
or any of its Subsidiaries to any material liability
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arising under ERISA or the Code (including, without limitation, any liability to
any such plan or the PBGC), or under any indemnity agreement to which Discount
or any of its Subsidiaries is a party, excluding (1) liability for benefit
claims and funding obligations payable in the ordinary course and (2)
liabilities that would not, individually or in the aggregate, have a Material
Adverse Effect on Hi/Lo.
(f) Except as disclosed in Discount's Disclosure Letter, none of the
Discount Benefit Plans that are "welfare plans" within the meaning of Section
3(1) of ERISA provides for any retiree benefits other than continuation coverage
required to be provided under Section 4980B of the Code or Part 6 of Title I of
ERISA.
(g) Except as disclosed in Discount's Disclosure Letter, the
consummation or announcement of any transaction contemplated by this Agreement
will not (either alone or upon the occurrence of any additional or further acts
or events) result in any (A) payment (whether of severance pay or otherwise)
becoming due from Discount or any of its Subsidiaries to any officer, employee,
former employee or director thereof or to the trustee under any "rabbi trust" or
similar arrangement, or (B) benefit under any Discount Benefit Plan being
established or becoming accelerated, vested or payable. Except as disclosed in
Discount's Disclosure Letter or as described in any of the Discount SEC Reports,
neither Discount nor any of its Subsidiaries is a party to (A) any management,
employment, deferred compensation, severance (including any payment, right or
benefit resulting from a change in control), bonus or other contract for
personal services with any current or former officer, director or employee
(whether or not characterized as a plan for purposes of ERISA), (B) any material
consulting contract with any person who prior to entering into such contract was
a director or officer of Discount or any of its Subsidiaries, or (C) any plan,
agreement, arrangement or understanding similar to any of the items described in
clause (A) or (B) of this sentence.
(h) The consummation or announcement of any transaction contemplated
by this Agreement will not (either alone or upon the occurrence of any
additional or further acts or events) result in the disqualification of any of
the Discount Benefit Plans intended to be qualified under, result in a
prohibited transaction or breach of fiduciary duty under, or otherwise violate,
ERISA or the Code.
(i) Neither Discount nor any of its Subsidiaries nor any of their
directors, officers, employees or agents, nor any "party in interest" or
"disqualified person," as such terms are defined in Section 3 of ERISA and
Section 4975 of the Code has, with respect to any Discount Benefit Plan, engaged
in or been a party to any "prohibited transaction," as such term is defined in
Section 4975 of the Code or Section 406 of ERISA which is not otherwise exempt,
which could result in the imposition of either a penalty assessed pursuant to
Section 502(i) of ERISA or a tax imposed by Section 4975 of the Code or which
could constitute a breach of fiduciary duty, in each case applicable to Discount
and which could result in a Material Adverse Effect on Discount.
(j) No Discount Benefit Plan subject to Section 412 of the Code has
incurred any now existing "accumulated funding deficiency" (as defined in
ERISA), whether or not waived. Neither Discount nor any of its Subsidiaries has
incurred, and none of such entities reasonably expects to incur, any material
liability to the PBGC with respect to any Discount Benefit Plan.
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Neither Discount nor any of its Subsidiaries is a party to, and neither has
incurred or reasonably expects to incur, any withdrawal liability with respect
to any "multiemployer plan" (as defined in Section 3(37) of ERISA) for which
there is any outstanding liability.
(k) Discount is in material compliance with the notice provisions
and all other provisions of COBRA and the Health Insurance Portability and
Accountability Act of 1996, except for instances of non-compliance that would
not, individually or in the aggregate, have a Material Adverse Effect on
Discount.
Section 4.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Discount SEC Reports filed prior to the date of this Agreement or disclosed
in Discount's Disclosure Letter, from June 3, 1997 to the date of this
Agreement, the businesses of Discount and its Subsidiaries have been conducted
in all material respects in the ordinary course and there has not been any
event, occurrence, development or state of circumstances or facts that is
reasonably likely to have a Material Adverse Effect on Discount.
Section 4.10 INVESTIGATIONS; LITIGATION. As of the date of this Agreement,
except as described in any of the Discount SEC Reports filed prior to the date
of this Agreement or disclosed in Discount's Disclosure Letter:
(a) no investigation or review by any governmental body or authority
with respect to Discount or any of its Subsidiaries which is reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on Discount
is pending nor has any governmental body or authority notified Discount in
writing of an intention to conduct the same; and
(b) there are no actions, suits or proceedings pending (or, to
Discount's knowledge, threatened) against or affecting Discount or its
Subsidiaries, or any of their respective properties at law or in equity, or
before any federal, state, local or foreign governmental body or authority
which, individually or in the aggregate, are reasonably likely to have a
Material Adverse Effect on Discount.
Section 4.11 PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT; OTHER
INFORMATION. None of the information included in the Proxy Statement/Prospectus
or the Registration Statement will, in the case of the Proxy
Statement/Prospectus or any amendments thereof or supplements thereto, at the
time of the mailing of the Proxy Statement/Prospectus or any amendments or
supplements thereto, and at the time of the Hi/Lo Meeting or, in the case of the
Registration Statement, at the time it becomes effective, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, except that no
representation is made by Discount with respect to information supplied in
writing by Hi/Lo or any affiliate of Hi/Lo specifically for inclusion in the
Proxy Statement/Prospectus. The Proxy Statement/Prospectus will comply as to
form in all material respects with the provisions of the Securities Act,
Exchange Act and the rules and regulations promulgated thereunder.
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Section 4.12 LACK OF OWNERSHIP OF HI/LO COMMON STOCK. Neither Discount nor
any of its Subsidiaries owns any shares of Hi/Lo Common Stock or other
securities convertible into shares of Hi/Lo Common Stock.
Section 4.13 TAX MATTERS. (a) Except for matters that are not reasonably
likely to have a Material Adverse Effect on the Discount or as previously
disclosed in writing to Hi/Lo in Discount's Disclosure Letter: (i) all returns
and reports of or with respect to any federal, state or other Tax which are
required to be filed on or before the Closing Date by or with respect to the
Discount or any of its Subsidiaries ("Discount Tax Returns") have been or will
be duly and timely filed and reflect all tax liabilities of Discount and its
Subsidiaries required to be shown thereon; (ii) all Taxes which are shown to be
due on such Discount Tax Returns have been or will be timely paid in full; (iii)
all withholding tax requirements imposed on or with respect to the Discount or
any of its Subsidiaries have been satisfied in full in all respects; (iv) no
assessment, deficiency or adjustment has been asserted or assessed with respect
to any Discount Tax Return; (v) neither Discount nor any of its Subsidiaries has
any liabilities for any Taxes in excess of amounts paid or reserves established
therefor; and (vi) there is not in force any extension of time with respect to
the due date for the filing of any Tax Return or any waiver or agreement for any
extension of time for the assessment or payment of any tax due with respect to
the period covered by any Discount Tax Return and no requests for such waivers
or agreements are pending. Except as disclosed in writing to Hi/Lo in Discount's
Disclosure Letter, neither Discount nor any of its Subsidiaries is the subject
of any currently ongoing federal income tax audit. With respect to any taxable
period ended prior to June, 1986, all federal income Discount Tax Returns have
been audited by the Internal Revenue Service or are closed by the applicable
statute of limitations.
Neither Discount nor any of its Subsidiaries is obligated by any
contract, agreement or other arrangement to indemnify any other person with
respect to any material Taxes.
(b) Neither Discount nor any of its Subsidiaries knows of any fact
or has taken any action that could reasonably be expected to prevent the Merger
from qualifying as a reorganization within the meaning of Section 368(a) of the
Code.
Section 4.14 OPINION OF FINANCIAL ADVISOR. The Board of Directors of
Discount has received the opinion of Xxxxx Xxxxxx Inc., dated the date of this
Agreement to the effect that, as of such date, the Exchange Ratio is fair to
Discount from a financial point of view. A copy of the written opinion of Xxxxx
Xxxxxx Inc. will be delivered to Hi/Lo as soon as practicable after the date of
this Agreement.
Section 4.15 SUB'S OPERATIONS. Sub was formed solely for the purpose of
engaging in the transactions contemplated hereby and has not engaged in any
business activities or conducted any operations other than in connection with
the transactions contemplated hereby.
Section 4.16 LABOR MATTERS. As of the date of this Agreement, no labor
organization or group of employees of Discount or any of its Subsidiaries has
made a pending demand for recognition or certification, and there are no
representation or certification proceedings or petitions seeking a
representation proceeding presently pending or to the knowledge of Discount
threatened to be brought or filed, with the National Labor Relations Board or
any other labor relations tribunal
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or authority except for demands, proceedings or petitions which are not
reasonably likely to have a Material Adverse Effect on Discount. As of the date
of this Agreement, there are no strikes, work stoppages, lockouts, material
arbitrations or material grievances, or other material labor disputes pending or
to the knowledge of Discount threatened against or involving Discount or any of
its Subsidiaries except such as are not reasonably likely to have a Material
Adverse Effect on Discount. None of Discount or any of its Subsidiaries is a
party to or bound by any collective bargaining or similar agreement with any
labor organization.
Section 4.17 CERTAIN AGREEMENTS. Except as disclosed in Discount's
Disclosure Letter or in Discount's SEC Reports filed prior to the date of this
Agreement, neither Discount nor any of its Subsidiaries is a party or subject to
any oral or written agreement, contract, policy, license, document, instrument,
arrangement or commitment relating to or constituting (i) Indebtedness (as
defined below) in an amount exceeding $5,000,000 other than pursuant to
additional draws up to the limits existing as of the date of this Agreement
(including the increases in such limit expressly contemplated in such agreement)
under Discount's revolving credit facility with a syndicate lead by SunTrust
Bank, Central Florida, National Association, (ii) leases for real or personal
property in which the amounts of payments which the Discount or any Subsidiary
is required to make on an annual basis exceeds $1,000,000, (iii) agreement,
contract, policy, license document, instrument, arrangement or commitment that
limits in any material respect the freedom of Discount or any Subsidiary of
Discount to compete in any line of business or with any person or in any
geographical area or which would so limit the freedom of Discount or any
Subsidiary of Discount after the Effective Time, or (iv) agreement or contract
outside of the ordinary course of business of Discount or any of Discount's
Subsidiaries that involves performance of services or delivery of goods or
materials by or to Discount or any of Discount's Subsidiaries of an amount or
value in excess of $1,000,000 (v) joint venture or partnership agreements
involving a sharing of profits, losses, costs, or liabilities by Discount or any
of Discount's Subsidiaries with any person other than Discount and its
Subsidiaries, (vi) a written warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended by Discount or any
of Discount's Subsidiaries other than in the ordinary course of business except
for such warranties, guaranties and other similar undertakings as are not
reasonably likely to have a Material Adverse Effect on Discount; or (vii) which,
after giving effect to the transactions contemplated by this Agreement, purports
to restrict or bind Hi/Lo or any of its Subsidiaries other than the Surviving
Corporation and its Subsidiaries in any respect. "INDEBTEDNESS" means any
liability in respect of (A) borrowed money, (B) capitalized lease obligations,
(C) the deferred purchase price of property or services (other than trade
payables in the ordinary course of business) and (D) guarantees of any of the
foregoing. Neither Discount nor any of its Subsidiaries is in default (or would
be in default with notice or lapse of time, or both) under any indenture, note,
credit agreement, loan document, lease, contract, policy, license, document,
instrument, arrangement or commitment, whether or not such default has been
waived, which default, alone or in the aggregate with other such defaults, is
reasonably likely to have a Material Adverse Effect on Discount.
Section 4.18 TITLE TO ASSETS; LIENS. Discount owns or holds through valid
leases all of its inventory, accounts receivable, property, equipment and other
assets except where the failure to own or hold such property is not reasonably
likely to have a Material Adverse Effect on Discount, and except as disclosed in
Discount's SEC Reports filed prior to the date of this Agreement, such assets
are free and clear of any mortgages, liens, charges, encumbrances, or title
defects of any nature
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whatsoever, except for such mortgages, liens, charges, encumbrances or title
defects which are not reasonably likely to adversely affect the value of such
property as carried on Discount's financial statements contained in Discount's
SEC Reports filed prior to the date of this Agreement and would not have a
Material Adverse Effect on Discount. Discount and its Subsidiaries have valid
and enforceable leases for the premises and the equipment, furniture and
fixtures purported to be leased by them, except for leases, the failure of which
to have or be enforceable, are not reasonably likely to have a Material Adverse
Effect on Discount.
Section 4.19 INSURANCE. Discount and each of its Subsidiaries are insured,
and during each of the past five calendar years have been insured with insurers
whose current A M Best rating on the date such policies were issued is at least
B+6 against such risks and in such amounts as companies engaged in a similar
business would, in accordance with good business practice, customarily be
insured. The policies of fire, theft, liability and other insurance maintained
with respect to the assets or businesses of the Discount and its Subsidiaries
(copies of which have been made available to Hi/Lo) provide coverage which
Discount deems to be adequate coverage against loss. Except as disclosed in
Discount's Disclosure Letter, neither Discount nor any of its Subsidiaries has
received written notice of cancellation or termination with respect to any
material insurance policy of Discount or its Subsidiaries or will not be renewed
or that the issuer of any material insurance policy is not willing or able to
perform its obligations thereunder. The insurance policies of Discount and its
Subsidiaries are valid and enforceable policies. Discount and Discount's
Subsidiaries have paid all premiums due, and have otherwise performed all of
their respective material obligations, under each material insurance policy and
Discount and Discount's Subsidiaries have given notice to the respective insurer
of all material claims that may be insured by any material insurance policy.
Section 4.20 INTELLECTUAL PROPERTY. To Discount's knowledge, neither
Discount nor any of its Subsidiaries utilizes or has utilized any patent,
trademark, tradename, service xxxx, copyright, software, trade secret or
know-how, except for those which are owned, possessed or lawfully used by
Discount or its Subsidiaries in their operations, and, to the knowledge of
Discount, neither Discount nor any of its Subsidiaries infringes upon or
unlawfully or wrongfully uses any patent, trademark, tradename, service xxxx,
copyright or trade secret owned or validly claimed by another, where such
infringement or unlawful or wrongful use is reasonably likely to have in a
Material Adverse Effect on Discount.
ARTICLE V
COVENANTS AND AGREEMENTS
It is further agreed as follows:
Section 5.1 CONDUCT OF BUSINESS BY HI/LO OR DISCOUNT. Prior to the
Effective Time or the date, if any, on which this Agreement is earlier
terminated pursuant to Section 7.1 (the "Termination Date"), and except as may
be agreed to by the other parties hereto or as may be permitted pursuant to this
Agreement:
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(a) Hi/Lo:
(i) shall, and shall cause each of its Subsidiaries to,
conduct its operations in all material respects according to their
ordinary and usual course of business in substantially the same
manner as heretofore conducted;
(ii) shall use its reasonable best efforts, and cause each of
its Subsidiaries to use its reasonable best efforts, to preserve
intact its business organization in all material respects, keep
available the services of its executive officers and key employees
as a group, subject to changes in the ordinary course, and maintain
satisfactory relationships with suppliers, distributors, customers
and others having business relationships with them;
(iii) shall confer at such times as Discount may reasonably
request with one or more representatives of Discount to report
material operational matters and the general status of ongoing
operations (in each case to the extent Discount reasonably requires
such information) and to consult with Discount regarding material
operational decisions;
(iv) shall promptly notify Discount of any emergency or other
change in the normal course of its or its Subsidiaries' respective
businesses or in the operation of its or its Subsidiaries'
respective properties and of any complaints, investigations or
hearings (or communications indicating that the same may be
contemplated) of any governmental body or authority if such
emergency, change, complaint, investigation or hearing is reasonably
likely to have a Material Adverse Effect on Hi/Lo;
(v) shall not authorize or pay any dividends on or make any
distribution with respect to its outstanding shares of stock;
(vi) shall not, and shall not permit any of its Subsidiaries
to, except as contemplated by Section 5.5 or 5.14 hereof or as may
be required by applicable law, enter into or amend any employment,
severance or similar agreements or arrangements with any of their
respective directors or executive officers;
(vii) shall not (subject to the provisions of Section 5.8),
and shall not permit any of its Subsidiaries to, authorize, or
announce an intention to authorize, or enter into an agreement with
respect to, any merger, consolidation or business combination (other
than the Merger), any acquisition of a material amount of assets or
securities, any disposition of a material amount of assets or
securities or any release or relinquishment of any material contract
rights, in each case, not in the ordinary course of business;
(viii) except pursuant to the Merger as provided for in
Section 1.5, shall not propose or adopt any amendments to its
corporate charter or by-laws;
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(ix) shall not, and shall not permit any of its Subsidiaries
to, issue any shares of their capital stock, except upon exercise of
rights or options issued pursuant to existing employee plans,
programs or arrangements and non-employee director plans;
(x) shall not, and shall not permit any of its Subsidiaries
to, grant, confer or award any options, warrants, conversion rights
or other rights, not existing on the date hereof, to acquire any
shares of its capital stock;
(xi) shall not, and shall not permit any of its Subsidiaries
to, purchase or redeem or offer to purchase or redeem any shares of
its stock or any securities convertible into or exchangeable for
shares of stock, except for the purchase of Reddi Brake Promissory
Note, deemed repurchase of options in accordance with Section 2.3 of
this Agreement, or purchases, redemptions and offers to purchase in
the ordinary course of business in connection with employee
incentive and benefit plans, programs or arrangements in existence
on the date hereof;
(xii) shall not, and shall not permit any of its Subsidiaries
to, except as contemplated by this Agreement or as may be required
by applicable law, (w) amend in any material respect the terms of
their respective employee benefit plans, programs or arrangements or
any severance or similar agreements or arrangements in existence on
the date hereof, (x) enter into or amend any employment or
consulting agreement, (y) adopt or enter into any new employee
benefit plans, programs or arrangements or any severance or similar
agreements or arrangements or increase the base salary of any person
who is a party to a Change of Control Employment Agreement or (z)
make any payments under any Hi/Lo Benefit Plan to any director,
employee, independent contractor or consultant (except in the
ordinary course of business) and in amounts and in a manner
consistent with past practice or as otherwise required by law or the
provisions of such Hi/Lo Benefit Plan;
(xiii) shall not, and shall not permit any of its Subsidiaries
to, enter into any material loan agreement or incur any indebtedness
in excess of an aggregate of $500,000 other than pursuant to
additional draws resulting in not in excess of an aggregate amount
outstanding of $60,000,000 under the Hi/Lo's credit facility with
the CIT Group or amend Hi/Lo's credit facility with the CIT Group to
increase the amount that may be borrowed thereunder;
(xiv) shall not, and shall not permit any of its Subsidiaries
to make any material Tax election or settle or compromise any
material Tax liability;
(xv) shall not adjust, split, combine or reclassify its
capital stock;
(xvi) shall not enter into any agreement, understanding or
arrangement with respect to the sale or voting of its capital stock;
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(xvii) shall not, and shall not permit any of its Subsidiaries
to, create any new subsidiaries;
(xviii) except as required by this Agreement, shall not take
any action which could reasonably be expected to adversely affect or
delay the ability of any of the parties hereto to obtain any
approval of any governmental or regulatory body required to
consummate the transactions contemplated hereby;
(xix) shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly sell, transfer, lease, pledge, mortgage,
encumber or otherwise dispose of any material property or assets
other than in the ordinary course of business;
(xx) shall not enter into any financial derivative contracts;
(xxi) shall not change in any material respect its accounting
policies, methods or procedures except as required by GAAP;
(xxii) except as may be required by this Agreement or
applicable law, shall not do any act or omit to do any act which
would cause a breach of any contract, commitment or obligation if
the result is reasonably likely, individually or in the aggregate,
to have a Material Adverse Effect on Hi/Lo;
(xxiii) shall not take any action that would prevent or impede
the Merger from qualifying as a tax-free reorganization under
Section 368 of the Code;
(xxiv) shall not, other than pursuant to this Agreement, take
any action to cause the shares of the Hi/Lo Common Stock to cease to
be quoted on any of the stock exchanges on which such shares are now
quoted;
(xxv) shall continue to provide training for employees of
Hi/Lo and its Subsidiaries commensurate with the training provided
by Hi/Lo and its Subsidiaries over the past twelve months;
(xxvi) subject to the limitations contained in this Agreement,
shall continue the level of recruiting activity and process employed
by Hi/Lo and its Subsidiaries over the past twelve months; and
(xxvii) shall not, and shall not permit any of its
Subsidiaries to, agree in writing or otherwise, to take any of the
foregoing actions or take any action which would make any
representation or warranty contained in Article III hereof (except
for representations and warranties made as of a specified date)
untrue and incorrect in any material respect as of the Effective
Time.
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(b) Discount:
(i) shall, and shall cause each of its Subsidiaries to,
conduct its operations in all material respects according to their
ordinary and usual course of business in substantially the same
manner as heretofore conducted;
(ii) shall use its reasonable best efforts, and cause each of
its Subsidiaries to use its reasonable best efforts, to preserve
intact its business organization in all material respects, keep
available the services of its executive officers and key employees
as a group, subject to changes in the ordinary course, and maintain
satisfactory relationships with suppliers, distributors, customers
and others having business relationships with them;
(iii) shall confer at such times as Hi/Lo may reasonably
request with one or more representatives of Hi/Lo to report material
operational matters and the general status of ongoing operations (to
the extent Hi/Lo reasonably requires such information);
(iv) shall promptly notify Hi/Lo of any emergency or other
change in the normal course of its or its Subsidiaries' respective
businesses or in the operation of its or its Subsidiaries'
respective properties and of any complaints, investigations or
hearings (or communications indicating that the same may be
contemplated) of any governmental body or authority if such
emergency, change, complaint, investigation or hearing is reasonably
expected to have a Material Adverse Effect on Discount;
(v) shall not, and shall not (except for dividends to Discount
in the ordinary course of business consistent with past practice)
permit any of its Corporate Subsidiaries that is not wholly owned,
to declare or pay any dividends on or make any distribution with
respect to their outstanding shares of capital stock or effect a
stock split, reclassification, combination or change in the Discount
Common Stock or purchase, redeem or offer to purchase or redeem any
of its capital stock or any security convertible into or
exchangeable for its capital stock;
(vi) shall not, and shall not permit any of its Subsidiaries
to, authorize, propose or announce an intention to authorize or
propose, or enter into an agreement with respect to, any merger,
consolidation or business combination (other than the Merger), any
acquisition of a material amount of assets or securities, or any
release or relinquishment of any material contract rights, in each
case, not in the ordinary course of business and which is reasonably
likely to have a Material Adverse Effect on Discount or materially
and adversely affect the transactions contemplated by this
Agreement;
(vii) shall not propose or adopt any amendments to its
corporate charter or by-laws;
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(viii) shall not, and shall not permit any of its Subsidiaries
to, issue any shares of their capital stock or securities
convertible into or exchangeable for their capital stock, except
upon exercise of rights or options issued pursuant to existing
employee plans, programs or arrangements and non-employee director
plans outstanding on September 30, 1997 (except as contemplated
herein);
(ix) shall not, and shall not permit any of its Subsidiaries
to, grant, confer or award any options, warrants, conversion rights
or other rights, not existing on the date hereof, to acquire any
shares of its capital stock, except pursuant to employee incentive
or benefit plans, programs or arrangements and non-employee director
plans in existence on the date hereof in the ordinary course of
business and consistent with past practice covering not in excess of
500,000 shares of Discount Common Stock;
(x) shall not do any act or omit to do any act which would
cause a breach of any contract, commitment or obligation if the
result is reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect on Discount;
(xi) shall not and shall not permit any Subsidiary to take any
action that would prevent or impede the Merger from qualifying as a
tax-free reorganization under Section 368 of the Code;
(xii) shall not take any action which could reasonably be
expected to adversely affect or delay the ability of any of the
parties hereto to obtain any approval of any governmental or
regulatory body required to consummate the transactions contemplated
hereby;
(xiii) shall not take any action to cause the shares of the
Discount Common Stock to cease to be quoted on any of the stock
exchanges on which such shares not now quoted; and
(xiv) shall not, and shall not permit any of its Subsidiaries
to, agree, in writing or otherwise, to take any of the foregoing
actions or take any action which would make any representation or
warranty contained in Article IV hereof (except for representations
and warranties made as of a specified date) untrue and incorrect in
any material respect as of the Effective Time.
Section 5.2 INVESTIGATION. Each of Hi/Lo and Discount shall afford to one
another and to one another's officers, employees, accountants, counsel and other
authorized representatives full and complete access during normal business
hours, throughout the period prior to the earlier of the Effective Time or the
date of termination of this Agreement, to its and its Subsidiaries' facilities,
properties, contracts, commitments, books, and records (including but not
limited to tax returns) and any report, schedule or other document filed or
received by it pursuant to the requirements of federal or state securities laws
and shall use their reasonable best efforts to cause their respective
representatives to furnish promptly to one another such additional financial and
operating data and other information as to its and its Subsidiaries' respective
businesses and properties as the other or
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its duly authorized representatives may from time to time reasonably request;
provided, that nothing herein shall require either Hi/Lo or Discount or any of
their respective Subsidiaries to disclose any information to the other that
would cause a violation of any contractual confidentiality obligation. The
parties hereby agree that each of them will treat any such information in
accordance with the Confidentiality Agreement, dated as of July 22, 1997,
between Hi/Lo and Discount (the "Hi/Lo Confidentiality Agreement") and the
Confidentiality Agreement, dated as of September 30, 1997 between Discount and
Hi/Lo (the "Discount Confidentiality Agreement"), as the case may be.
Notwithstanding any provision of this Agreement to the contrary, no party shall
be obligated to make any disclosure in violation of applicable laws or
regulations.
Section 5.3 COOPERATION. (a) Hi/Lo and Discount shall together, or
pursuant to an allocation of responsibility to be agreed upon between them:
(i) prepare and file with the SEC as soon as is reasonably
practicable the Proxy Statement/Prospectus and a registration
statement on Form S-4 under the Securities Act with respect to the
Discount Common Stock issuable in the Merger (the "Registration
Statement"), and shall use their reasonable best efforts to have the
Proxy Statement/Prospectus cleared by the SEC under the Exchange Act
and the Registration Statement declared effective by the SEC under
the Securities Act;
(ii) as soon as is reasonably practicable take all such action
as may be required under state blue sky or securities laws in
connection with the transactions contemplated by this Agreement;
(iii) promptly prepare and file with the NYSE listing
applications covering the shares of Discount Common Stock issuable
in the Merger or upon exercise of Hi/Lo stock options, and use its
reasonable best efforts to obtain, prior to the Effective Time,
approval for the listing of such Common Stock, subject only to
official notice of issuance;
(iv) cooperate with one another in order to lift any
injunctions or remove any other impediment to the consummation of
the transactions contemplated herein; and
(v) cooperate with one another in obtaining opinions of
Trenam, Kemker, Scharf, Barkin, Frye, X'Xxxxx & Xxxxxx, P.A.
("TKS"), counsel to Discount, and Xxxxxx & Xxxxxx L.L.P., counsel to
Hi/Lo, dated as of the Effective Time, to the effect that the Merger
qualifies as a reorganization under the provisions of Section 368(a)
of the Code. In connection therewith, each of Hi/Lo and Discount
shall deliver to TKS and Xxxxxx & Xxxxxx L.L.P. customary
representation letters, and Hi/Lo shall use its reasonable best
efforts to obtain customary representation letters from appropriate
stockholders and shall deliver any such letters obtained to TKS and
Xxxxxx & Xxxxxx L.L.P.
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(b) Subject to the limitations contained in Section 6.2, Hi/Lo and
Discount shall each furnish to one another and to one another's counsel all such
information as may be reasonably required in order to effect the foregoing
actions.
Section 5.4 AFFILIATE AGREEMENTS. Hi/Lo shall, prior to the Effective
Time, deliver to Discount a list (reasonably satisfactory to counsel for
Discount), setting forth the names and addresses of each officer and director
who is, at the time of the Hi/Lo Meeting, in Hi/Lo's reasonable judgment, an
"affiliate" of Hi/Lo for purposes of Rule 145 under the Securities Act. Hi/Lo
shall furnish such information and documents as Discount may reasonably request
for the purpose of reviewing such list. Hi/Lo shall use its reasonable best
efforts to cause each person who is identified as an "affiliate" in the list
furnished pursuant to this Section 5.4 to execute a written agreement on or
prior to the Effective Time, in substantially the form of Exhibit 5.4 hereto.
Section 5.5 EMPLOYEE BENEFIT PLANS. (a) Simultaneously with the Merger,
Discount shall assume each Change of Control Employment Agreement then in effect
and all of Hi/Lo's rights and obligations under each such agreement.
(b) Discount shall take all actions necessary or appropriate to
permit each individual who is employed by Hi/Lo or any of its Subsidiaries as of
the Closing Date (a "Hi/Lo Employee") to either, at the sole election of
Discount, (i) continue to participate from and after the Closing Date in the
employee benefit plans and programs maintained by Hi/Lo immediately prior to the
Closing Date other than the 1990 Stock Option Plan and the 1991 Associate Stock
Purchase Plan or (ii) permit the Hi/Lo Employees to immediately thereafter
participate in the employee benefit plans or programs maintained by Discount or
any of its Subsidiaries for their employees generally (the "Discount Plans")
other than Discount's stock option plans or any employee stock purchase plan
meeting the requirements of Section 423 of the Code; provided, however, that, if
Hi/Lo's group health plan is terminated or discontinued, Discount shall permit
each Hi/Lo Employee and his or her eligible dependents (including, without
limitation, all such Hi/Lo Employee's dependents covered by Hi/Lo's group health
plan as of the time such coverage ceases) to be covered under a Discount Plan
that (i) provides medical and dental benefits to the Hi/Lo Employee and such
eligible dependents effective immediately upon the cessation of coverage of such
individuals under Hi/Lo's group health plan, (ii) credits such Hi/Lo Employee,
for the year during which such coverage under such Discount Plan begins, with
any deductibles and co-payments already incurred during such year under Hi/Lo's
group health plan, and (iii) waives any preexisting condition restrictions to
the extent necessary to provide immediate coverage. Discount, the Surviving
Corporation, their respective Subsidiaries, and the Discount Plans shall
recognize each Hi/Lo Employee's years of service and level of seniority with
Hi/Lo and its Subsidiaries for purposes of terms of employment and eligibility,
vesting and benefit determination under the Discount Plans. The provisions of
this Section 5.5(b) shall be applicable only during an employee's employment
with Hi/Lo, Discount or one of their Subsidiaries and shall not constitute an
agreement to employ or continue the employment of any person.
Section 5.6 FILINGS; OTHER ACTION. Subject to the terms and conditions
herein provided, Hi/Lo and Discount shall (a) promptly, and in any event with 20
business days after the date hereof, make their respective filings and
thereafter make any other required submissions under the HSR Act, (b) use
reasonable efforts to cooperate with one another in (i) determining whether any
filings are
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required to be made with, or consents, permits, authorizations or approvals are
required to be obtained from any third party, governmental or regulatory bodies
or authorities of federal, state and local jurisdictions in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and thereby and (ii) timely making all such
filings and timely seeking all such consents, permits, authorizations or
approvals, and (c) use reasonable efforts to take, or cause to be taken, all
other actions and do, or cause to be done, all other things necessary, proper or
advisable to consummate and make effective the transactions contemplated hereby,
including, without limitation, taking all such further action as reasonably may
be necessary to resolve such objections, if any, as the Federal Trade
Commission, the Antitrust Division of the Department of Justice, state antitrust
enforcement authorities or any other person may assert under relevant antitrust
or competition laws with respect to the transactions contemplated hereby.
Section 5.7 FURTHER ASSURANCES. Each of the Parties shall use its
reasonable best efforts to take all action and to do all things necessary,
proper or advisable to consummate the Merger and the transactions contemplated
by this Agreement (including, without limitation, using its reasonable efforts
to cause the conditions set forth in Article VI for which they are responsible
to be satisfied as soon as reasonably practicable and to prepare, execute and
deliver such further instruments and take or cause to be taken such other and
further action as any other party hereto shall reasonably request).
Section 5.8 NO SOLICITATION. From the date hereof until the termination of
this Agreement, Hi/Lo will not, and shall not authorize or permit, any of its
officers, directors, employees, attorneys, financial advisors, agents or other
representatives or those of any of its Subsidiaries ("Hi/Lo's Representatives")
to, directly or indirectly, (a) solicit, initiate or knowingly encourage any
Takeover Proposal (as hereinafter defined), including without limitation by
disclosure of non-public information, or (b) engage in discussions or
negotiations relating to or accept any Takeover Proposal; PROVIDED, HOWEVER,
that nothing contained in this Section 5.8 shall prohibit Hi/Lo and its Board of
Directors from (i) taking and disclosing a position with respect to a tender
offer by a third party pursuant to Rules 14d-9 and 14e-2(a) promulgated by the
SEC under the Exchange Act, or (ii) at any time prior to the time Hi/Lo's
stockholders shall have voted to approve the Merger, engaging in discussions or
negotiations with, and furnishing information (including non-public information)
concerning Hi/Lo and its Subsidiaries, businesses, properties or assets to, any
third party which makes a Takeover Proposal (without any solicitation or
initiation or knowing encouragement, directly or indirectly, by Hi/Lo or any of
Hi/Lo's Representatives after the date of this Agreement) if the Board of
Directors of Hi/Lo concludes in good faith based upon advice of its outside
counsel (who may be its regularly engaged outside counsel) that the failure to
take such action is reasonablely likely to violate their obligations of such
Board to Hi/Lo or to Hi/Lo's stockholders under applicable law, or (iii)
provided this Agreement is terminated pursuant to Section 7.1(e), accepting a
Superior Proposal. Prior to furnishing information to or entering into
discussions or negotiations with any person, Hi/Lo shall receive from such
person or entity an executed confidentiality agreement in reasonably customary
form on terms not in the aggregate materially more favorable to such person or
entity than the terms contained in the Hi/Lo Confidentiality Agreement (as
defined in Section 5.2 hereof). Hi/Lo shall immediately cease and cause to be
terminated any existing solicitation, initiation, encouragement, activity,
discussion or negotiation with any person conducted heretofore by Hi/Lo or any
Hi/Lo Representative with respect to any Takeover Proposal existing on the date
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hereof. Hi/Lo agrees not to release any third party from, or waive any provision
of, any standstill agreement to which it is a party or any confidentiality
agreement between it and another person who has made, or who may reasonably be
considered likely to make, or who was given access in order to consider making,
a Takeover Proposal, unless its Board of Directors shall conclude in good faith
based upon advice of outside counsel that failure to take such action is
reasonably likely to violate their obligations to Hi/Lo or Hi/Lo's Stockholders
under applicable law. Hi/Lo shall notify Discount orally and in writing of any
such Takeover Proposal received (including, without limitation, the terms and
conditions of any such proposal and the identity of the person making it),
within 24 hours of the receipt thereof, and shall keep Discount informed of the
general status and any material changes in the terms and conditions of such
Proposal. Hi/Lo agrees to promptly provide to Discount any information
concerning Hi/Lo, its Subsidiaries, business, properties or assets furnished to
any third party which makes a Takeover Proposal and which has not previously
been provided to Discount. As used in this Agreement, (i) "Takeover Proposal"
shall mean any written proposal or offer, in each case made prior to the
stockholder vote at the Hi/Lo Meeting, other than a proposal or offer by
Discount or any of its Subsidiaries, for a recapitalization, merger,
consolidation or other business combination involving, or any purchase of, all
or substantially all of the assets or more than 50% of the voting securities of,
Hi/Lo, and (ii) "Superior Proposal" shall mean a bona fide Takeover Proposal
made by a third party on terms that a majority of the members of the Board of
Directors of Hi/Lo determines in their good faith reasonable judgment is more
favorable to Hi/Lo and to its stockholders than the transactions contemplated
hereby.
Section 5.9 PUBLIC ANNOUNCEMENTS. Hi/Lo and Discount will consult with
each other before issuing any press release relating to this Agreement or the
transactions contemplated herein and shall not issue any such press release
prior to such consultation except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange.
Section 5.10 INDEMNIFICATION AND INSURANCE. (a) Discount and Sub agree
that all rights to exculpation and indemnification for acts or omissions
occurring prior to the Effective Time now existing in favor of the current or
former directors or officers (the "Indemnified Parties") of Hi/Lo as provided in
its charter or by-laws or in any agreement shall survive the Merger and shall
continue in full force and effect in accordance with their terms. For six years
from the Effective Time, Discount shall indemnify the Indemnified Parties to the
same extent as such Indemnified Parties are entitled to indemnification pursuant
to the preceding sentence.
(b) For six years from the Effective Time, Discount shall, maintain
in effect Hi/Lo's current directors' and officers' liability insurance covering
those persons who are currently covered by Hi/Lo's directors' and officers'
liability insurance policies and shall purchase such policy on or prior to the
Closing Date; provided, however, that in no event shall Discount be required to
expend in the aggregate an amount in excess of 200% of the annual premiums
currently paid by Hi/Lo for such insurance, and, provided, further, that if the
aggregate premiums of such insurance coverage exceed such amount, Discount shall
be obligated to obtain a policy with the greatest coverage available for a cost
not exceeding such amount.
Section 5.11 ADDITIONAL REPORTS. Hi/Lo and Discount shall each furnish to
the other copies of any reports of the type referred to in Sections 3.4 and 4.4
which it files with the SEC on or after the date hereof, and Hi/Lo and Discount,
as the case may be, represents and warrants that as of the
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respective dates thereof, such reports will not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statement therein, in light of the circumstances under
which they were made, not misleading. Any unaudited consolidated interim
financial statements included in such reports (including any related notes and
schedules) will fairly present the financial position of Hi/Lo and its
consolidated Subsidiaries or Discount and its consolidated Subsidiaries, as the
case may be, as of the dates thereof and the results of operations and changes
in financial position or other information included therein for the periods or
as of the date then ended (subject, where appropriate, to normal year-end
adjustments), in each case in accordance with past practice and GAAP
consistently applied during the periods involved (except as otherwise disclosed
in the notes thereto).
Section 5.12 STOCKHOLDER APPROVAL. Subject to the terms and conditions
contained herein and the prior termination of this Agreement pursuant to Section
7.1, this Agreement shall be submitted for approval to the holders of shares of
Hi/Lo Common Stock at the Hi/Lo Meeting. Hi/Lo and Discount shall coordinate and
cooperate with respect to the timing of such meeting and shall endeavor to hold
such meeting as soon as practicable after the date hereof.
Section 5.13 PURCHASE ACCOUNTING. Hi/Lo, Discount and Sub will each use
its reasonable best efforts to cause the transactions contemplated by this
Agreement to be accounted for as a purchase in accordance with GAAP, and such
accounting treatment to be accepted by Discount's independent certified public
accountants, by the NYSE and by the SEC, respectively, and each of Hi/Lo,
Discount and Sub agrees that it will take no action that would cause such
accounting treatment not to be obtained.
Section 5.14 AMENDMENTS TO CHANGE OF CONTROL AGREEMENTS. Hi/Lo has secured
a commitment to amend from each employee who is a party to a Change of Control
Employment Agreement and shall cause to be amended each Change of Control
Employment Agreement to provide that it shall be a condition to the receipt of
any lump sum payment payable thereunder that the employee execute and deliver to
Hi/Lo a general release by the employee of all claims against Hi/Lo, its
predecessors, parents, subsidiaries, divisions, related or affiliated companies,
officers, directors, stockholders, members, employees, heirs, successors,
assigns, representatives, agents and counsel, including without limitation a
release of (i) any and all claims arising out of or relating to the employee's
employment by or service with Hi/Lo and its Subsidiaries and the employee's
termination of employment, (ii) any and all claims of discrimination, including
but not limited to claims of discrimination on the basis of sex, race, age,
national origin, marital status, religion or handicap, including, specifically,
but without limiting the generality of the foregoing, any claims under the Age
Discrimination in Employment Act, as amended, Title VII of the Civil Rights Act
of 1964, as amended, and the Americans with Disabilities Act, and (iii) any and
all claims of wrongful or unjust discharge or breach of any contract or promise,
express or implied, provided that such release shall not release claims of such
person under the Change of Control Agreements or pursuant to any indemnification
rights or under any directors and officers insurance policies.
Section 5.15 NOTIFICATIONS. (a) Between the date of this Agreement and the
Closing Date, Hi/Lo will promptly notify Discount in writing if Hi/Lo becomes
aware that any of Hi/Lo's representations and warranties were materially untrue
as of the date of this Agreement or if Hi/Lo shall become aware of any fact or
condition that causes any of Hi/Lo's representations or warranties
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to be materially untrue as of such date as if made on and as of such date
(except for representations and warranties made as of a specified date, which
need be true only as of such specified date). During the same period, Hi/Lo will
promptly notify Discount of the occurrence of any material breach of any
covenant of Hi/Lo in this Article V or of the occurrence of any event that may
make the satisfaction of the conditions in Article VI impossible or unlikely.
(b) Between the date of this Agreement and the Closing Date,
Discount will promptly notify Hi/Lo in writing if Discount becomes aware that
any of Discount's representations and warranties were materially untrue as of
the date of this Agreement or if Discount shall become aware of any fact or
condition that causes any of Discount's representations or warranties to be
materially untrue as of such date as if made on and as of such date (except for
representations and warranties made as of a specified date, which need be true
only as of such specified date). During the same period, Discount will promptly
notify Hi/Lo of the occurrence of any material breach of any covenant of
Discount in this Article V or of the occurrence of any event that may make the
satisfaction of the conditions in Article VI impossible or unlikely.
Section 5.16 INDEMNIFICATIONS. Neither Discount nor any of its
Subsidiaries or any of their respective officers, directors or employees shall
be liable to Hi/Lo or any of its Subsidiaries for any losses, claims, damages or
liabilities suffered as a result of any actions taken or any omission to take
action by Hi/Lo at the request of Discount or its affiliates provided such
request is not made with willful intent to cause harm to Hi/Lo or its
Subsidiaries. Hi/Lo agrees to indemnify and hold harmless Discount, its
subsidiaries and their respective officers, directors and employees against any
losses, claims, damages or liabilities to which they may become subject to third
parties insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of any action or failure to act in connection with
the operation of Hi/Lo or its Subsidiaries after the date of this Agreement and
prior to the earlier of the Termination of this Agreement or the Closing Date
hereunder taken or not taken as the case may be, at the request of Discount;
PROVIDED, HOWEVER, that Hi/Lo shall not be liable in any such case to the extent
such loss, claim, damage or liability arises out of requests by Discount made
with willful intent to cause harm to Hi/Lo or its Subsidiaries.
ARTICLE VI
CONDITIONS TO THE MERGER
Section 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligations of each party to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) The holders of issued and outstanding shares of Hi/Lo Common
Stock shall have duly approved the Merger in the manner required by applicable
law.
(b) No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
court or other tribunal or governmental body or authority which prohibits the
consummation of the Merger substantially on the terms contemplated hereby. In
the event any order, decree or injunction shall have been issued, each party
shall use its reasonable efforts to remove any such order, decree or injunction.
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(c) The Registration Statement shall have become effective in
accordance with the provisions of the Securities Act and no stop order
suspending such effectiveness shall have been issued and remain in effect.
(d) Any applicable waiting period under the HSR Act shall have
expired or been terminated and any other Hi/Lo Required Approvals and Discount
Required Approvals shall have been obtained, except where the failure to obtain
such other Hi/Lo Required Approvals and Discount Required Approvals would not
have a Material Adverse Effect on Hi/Lo or Discount, as the case may be.
(e) Each of Hi/Lo and Discount shall have received an opinion of its
tax counsel, Xxxxxx & Xxxxxx L.L.P., and TKS respectively, in form and substance
reasonably satisfactory to it, and dated within five days of the date of the
Proxy Statement/Prospectus, to the effect that the Merger will qualify for
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Code and that none of Hi/Lo, its stockholders, Discount and Sub
shall recognize gain or loss for federal income tax purposes as a result of the
Merger (other than, with respect to any cash paid in lieu of fractional shares
of Discount Common Stock). In rendering such opinions, Xxxxxx & Xxxxxx L.L.P.
and TKS may rely upon representations of officers of Hi/Lo and Discount and
stockholders of Hi/Lo.
Section 6.2 CONDITIONS TO OBLIGATIONS OF HI/LO TO EFFECT THE MERGER. The
obligation of Hi/Lo to effect the Merger is further subject to the conditions
that (a) the representations and warranties of Discount contained herein shall
be true and correct in all respects as of the Effective Time with the same
effect as though made as of the Effective Time except (i) for changes
contemplated by the terms of this Agreement, (ii) that the accuracy of
representations and warranties that by their terms speak as of the date of this
Agreement or some other date will be determined as of such date, (iii) where any
such failure of the representation or warranty to be true and correct in all
respects would not have a Material Adverse Effect on Discount, and (b) the
shares of Discount Common Stock issuable in the Merger shall have been approved
for listing on the NYSE, subject only to official notice of issuance; (c)
Discount shall have performed in all material respects all obligations and
covenants required by this Agreement to be performed or complied with by it
prior to the Effective Time; (d) Discount shall have delivered to Hi/Lo a
certificate, dated the Effective Time and signed by its Chief Executive Officer
or a Vice President, certifying to the effects in clause (c) and (d).
Section 6.3 CONDITIONS TO OBLIGATIONS OF DISCOUNT TO EFFECT THE MERGER.
The obligation of Discount to effect the Merger is further subject to the
conditions that (a) the representations and warranties of Hi/Lo contained herein
shall be true and correct in all respects as of the Effective Time with the same
effect as though made as of the Effective Time except (i) for changes
contemplated by the terms of this Agreement, (ii) that the accuracy of
representations and warranties that by their terms speak as of the date of this
Agreement or some other date will be determined as of such date, and (iii) where
any such failure of the representation or warranty to be true and correct in all
respects would not have a Material Adverse Effect on Hi/Lo; (b) Hi/Lo shall have
performed in all material respects all obligations and covenants required by
this Agreement to be performed or complied with by it prior to the Effective
Time; and (c) Hi/Lo shall have delivered to Discount a certificate, dated the
Effective Time and signed by its Chief Executive Officer or a Vice President,
certifying to both
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such effects. In the event that Discount shall so request to Hi/Lo in writing at
any time prior to the mailing of the Proxy Statement/Prospectus, it shall be a
further condition to the obligation of Discount to effect the Merger that Hi/Lo
shall provide Discount with the resignation of each of its officers from their
position as officers or proof satisfactory to Discount of the valid removal of
each of such officers at the Effective Time, provided that such resignation or
removal shall be deemed a termination of such officer's position by Hi/Lo after
the "Effective Date" (as defined in the Change of Control Employment Agreement
for purposes of such officer's Change of Control Employment Agreement).
ARTICLE VII
TERMINATION, WAIVER, AMENDMENT AND CLOSING
Section 7.1 TERMINATION OR ABANDONMENT. Notwithstanding anything contained
in this Agreement to the contrary, this Agreement may be terminated and
abandoned at any time prior to the Effective Time, whether before or after any
approval of the matters presented in connection with the Merger by the
stockholders of Hi/Lo and Discount:
(a) by the mutual written consent of Hi/Lo and Discount;
(b) by either Hi/Lo or Discount if the Effective Time shall not have
occurred on or before April 30, 1998; provided, that the party seeking to
terminate this Agreement pursuant to this clause 7.1(b) shall not have breached
in any material respect its obligations under this Agreement in any manner that
shall have proximately contributed to the failure to consummate the Merger on or
before such date;
(c) by either Hi/Lo or Discount if (i) a statute, rule, regulation
or executive order shall have been enacted, entered or promulgated prohibiting
the consummation of the Merger substantially on the terms contemplated hereby or
(ii) an order, decree, ruling or injunction shall have been entered permanently
restraining, enjoining or otherwise prohibiting the consummation of the Merger
substantially on the terms contemplated hereby and such order, decree, ruling or
injunction shall have become final and non-appealable; provided, that the party
seeking to terminate this Agreement pursuant to this clause 7.1(c)(ii) shall
have used its reasonable best efforts to remove such injunction, order or
decree;
(d) by either Hi/Lo or Discount if the approval of the stockholders
of Hi/Lo contemplated by this Agreement shall not have been obtained by reason
of the failure to obtain the required vote at a duly held meeting of
stockholders or of any adjournment thereof;
(e) by Hi/Lo prior to the approval of this Agreement by the
Stockholders if the Board of Directors of Hi/Lo reasonably determines that a
Takeover Proposal constitutes a Superior Proposal provided, that this Agreement
shall not terminate pursuant to this clause 7.1(e) unless simultaneously with
such termination Hi/Lo enters into a definitive acquisition, merger or similar
agreement to effect the Superior Proposal and pays the Termination Fee (as
defined in Section 7.2(b)) required pursuant to Section 7.2(b);
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(f) by either Hi/Lo or Discount if the other 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 such other party shall have
been untrue when made or as of the time of such termination as if made on and as
of such time (except for representations and warranties made as of a specified
date, which need be true only as of the specified date), provided such breach,
failure or misrepresentation is not cured within 30 days after notice thereof
from the other party and such breaches, failures or misrepresentations,
individually or in the aggregate, results or is reasonably likely to result in a
Material Adverse Effect on Hi/Lo or Discount, as the case may be;
(g) by Discount if the Board of Directors of Hi/Lo or any committee
of the Board of Directors of Hi/Lo, (i) shall withdraw or modify in any adverse
manner its approval or recommendation of this Agreement or the Merger, (ii)
shall approve or recommend any acquisition of Hi/Lo or a material portion of
Hi/Lo's assets or any tender offer for shares of Hi/Lo's capital stock, in each
case, other than by Discount or an affiliate of Discount, or (iii) shall resolve
to take any of the actions specified in clause (i) above; or
(h) by Hi/Lo, in the event that the Discount Average Share Price is
less than $19.55, but only if Hi/Lo's Board of Directors determines to so
terminate by a vote of a majority of the members of its entire Board of
Directors;
provided, however, that no termination shall be effective pursuant to Section
7.1(e) under circumstances in which a Termination Fee is payable by Hi/Lo under
Section 7.2 unless concurrently with such termination, such Termination Fee is
paid in full by Hi/Lo in accordance with the provisions of Section 7.2.
Section 7.2 EFFECT OF TERMINATION. (a) In the event of termination of this
Agreement as provided in section 7.1 hereof, and subject to the provisions of
Section 8.1 hereof, this Agreement (except for the Confidentiality Agreements
referred to in Section 5.2) shall forthwith become void and there shall be no
liability on the part of any of the Parties, except (i) as set forth in this
Section 7.2 and in Sections 3.11, 4.11, 5.16, 8.2 and 8.12 hereof, and (ii)
nothing herein shall relieve any Party from liability for any willful breach
hereof.
(b) If this Agreement is terminated (i) by Hi/Lo or Discount
pursuant to Section 7.1(d) and prior to the date of such meeting a Takeover
Proposal shall have been made and prior to the first anniversary of the date of
such meeting Hi/Lo shall have consummated a recapitalization, merger,
consolidation or other business combination involving, or any purchase of, all
or substantially all of the assets or more than 50% of the voting securities of
Hi/Lo, directly or indirectly by the entity that made such Takeover Proposal,
(ii) by Hi/Lo pursuant to Section 7.1(e) hereof, or (iii) by Discount pursuant
to Section 7.1(g) hereof, Hi/Lo shall pay to Discount a termination fee of $4.0
million (the "Termination Fee").
(c) The Termination Fee payable to Discount under Section 7.2(b)
above (i) in the case of a termination by Discount pursuant to 7.1(g) shall be
paid within three business days after notice of termination, (ii) in the case of
a termination by Hi/Lo pursuant to Section 7.1(e) shall be paid concurrently
with such termination, and (iii) in the case of a termination pursuant to
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Section 7.1(d) shall be paid prior to the consummation of the Takeover Proposal,
and in each case shall be paid by wire transfer in immediately available funds
to an account designated by Discount.
(d) Hi/Lo and Discount agree that the agreements contained in
Section 7.2(b) above are an integral part of the transactions contemplated by
this Agreement. If Hi/Lo fails to promptly pay to Discount or Hi/Lo,
respectively any fee due under such Section 7.2(b), the non-paying party shall
pay the costs and expenses (including legal fees and expenses) in connection
with any action, including 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 SunTrust Bank, Central Florida, National
Association from the date such fee was required to be paid. In the event
Discount receives any fee pursuant to Section 7.2(b), Discount shall not assert
or pursue in any manner, directly or indirectly, any claim or cause of action
against Hi/Lo or any of its affiliates, officers or directors based in whole or
in part upon a breach of this Agreement by them (except for breaches of the
Discount Confidentiality Agreement or Section 5.16) or their receipt,
consideration, negotiation, recommendation, or approval of a Takeover Proposal
or the exercise by Hi/Lo of its right of termination under Section 7.1(e).
Section 7.3 AMENDMENT OR SUPPLEMENT. At any time before or after approval
of the matters presented in connection with the Merger by the respective
stockholders of Hi/Lo and Discount and prior to the Effective Time, this
Agreement may be amended or supplemented in writing by Hi/Lo and Discount with
respect to any of the terms contained in this Agreement, except that following
approval by the stockholders of Hi/Lo and Discount there shall be no amendment
or change to the provisions hereof with respect to the conversion ratio of
shares of Hi/Lo Common Stock into shares of Discount Common Stock as provided
herein nor any amendment or change not permitted under applicable law, without
further approval by the stockholders of Hi/Lo and Discount.
Section 7.4 EXTENSION OF TIME, WAIVER, ETC. At any time prior to the
Effective Time, Hi/Lo and Discount may to the extent legally allowed: (a) extend
the time for the performance of any of the obligations or acts of the other
party; (b) waive any inaccuracies in the representations and warranties of the
other party contained herein or in any document delivered pursuant hereto; or
(c) waive compliance with any of the agreements or conditions of the other party
contained herein.
Notwithstanding the foregoing, no failure or delay by Hi/Lo or Discount in
exercising any right hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right hereunder. Any agreement on the part
of a party hereto to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed each of the parties.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Merger, except
for the agreements set forth in Article I and Article II,
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the agreements of "affiliates" of Hi/Lo to be delivered pursuant to Section 5.4,
the provisions of Sections 5.5, 5.7 and 5.10 and this Article VIII.
Section 8.2 EXPENSES. Whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby and thereby shall be paid by the party incurring such
expenses, except that the expenses incurred in connection with the printing and
mailing of the Proxy Statement/Prospectus (including the registration statement)
and the filing fee required in connection with the premerger notification under
the HSR Act and pursuant to the Securities Act, shall be shared equally by Hi/Lo
and Discount, PROVIDED, however, that in the event Hi/Lo is required to pay a
Termination Fee pursuant to Section 7.2(b) then such expenses shall be borne by
Discount.
Section 8.3 COUNTERPARTS; EFFECTIVENESS. This Agreement may be executed in
two or more counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument,
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered (by telecopy or otherwise) to the other
parties.
Section 8.4 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the principles of conflicts of laws thereof.
Section 8.5 NOTICES. All notices and other communications which are
required or may be given under this Agreement shall be in writing and shall be
deemed to have been duly given when received if personally delivered; when
transmitted and the appropriate telecopy confirmation is received if transmitted
by telecopy or similar electronic transmission method; one working day after it
is sent, if sent by recognized expedited delivery service; and five days after
it is sent, if mailed, first class mail, certified mail, return receipt
requested, with postage prepaid. In each case notice shall be sent to:
To Hi/Lo:
Hi/Lo Automotive, Inc.
0000 Xxxx Xxxxxxxx
Xxxxxxx, XX 00000
Attention: K. Xxxxx Xxxxxxxx
Telecopy: (000) 000-0000
copy to:
Xxxxxx & Xxxxxx L.L.P.
2300 First City Tower
0000 Xxxxxx
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxxx X. Xxxxx
Telecopy: (000) 000-0000
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To Discount:
Discount Auto Parts, Inc.
0000 Xxxxxxxx Xxxx Xxxxx
Xxxxxxxx, Xxxxxxx 00000
Attention: Xxxxx X. Xxxxxxxx
Telecopy: (000) 000-0000
copy to:
Trenam, Kemker, Scharf, Barkin, Frye, X'Xxxxx & Xxxxxx, P.A.
0000 Xxxxxxx Xxxxx
000 Xxxx Xxxxxxx Xxxxxxxxx
Xxxxx, Xxxxxxx 00000-0000
Attention: Xxxx X. Xxxxxx
Telecopy: (000) 000-0000
or to such other address as either party may have specified in writing to the
other using the procedures specified above in this Section 8.5.
Section 8.6 ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
Section 8.7 SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement in any other jurisdiction. If any provision of this Agreement is so
broad as to be unenforceable, such provision shall be interpreted to be only so
broad as is enforceable.
Section 8.8 ENFORCEMENT OF AGREEMENT. The parties hereto agree that money
damages or other remedy at law would not be sufficient or adequate remedy for
any breach or violation of, or a default under, this Agreement by them and that
in addition to all other remedies available to them, each of them shall be
entitled to the fullest extent permitted by law to an injunction restraining
such breach, violation or default or threatened breach, violation or default and
to any other equitable relief, including, without limitation, specific
performance, without bond or other security being required.
Section 8.9 MISCELLANEOUS. This Agreement:
(a) along with the Hi/Lo Confidentiality Agreement and the Discount
Confidentiality Agreement constitutes the entire agreement, and supersedes all
other prior
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agreements and understandings, both written and oral, between the parties, or
any of them, with respect to the subject matter hereof and thereof; and
(b) except for the provisions of Sections 5.5 and 5.10 hereof, is
not intended to confer upon any Person other than the parties hereto any rights
or remedies hereunder.
Section 8.10 HEADINGS. Headings of the Articles and Sections of this
Agreement are for convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
Section 8.11 SUBSIDIARIES; AFFILIATES. References in this Agreement to
"Subsidiaries" of Hi/Lo or Discount shall mean any corporation or other form of
legal entity of which more than 50% of the outstanding voting securities or
ownership are on the date hereof directly or indirectly owned by Hi/Lo or
Discount, as the case may be. Hi/Lo's Disclosure Letter contains a full and
complete list of Hi/Lo's Subsidiaries as of the date hereof and Discount's
Disclosure Letter contains a complete list of Discount's Subsidiaries as of the
date hereof. References in this Agreement (except as specifically otherwise
defined) to "affiliates" shall mean, as to any person, any other person which,
directly or indirectly, controls, or is controlled by, or is under common
control with, such person. As used in this definition, "control" (including,
with its correlative meanings, "controlled by" and "under common control with")
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of management or policies of a person, whether through the
ownership of securities or partnership of other ownership interests, by contract
or otherwise. References in the Agreement to "person" shall mean an individual,
a corporation, a partnership, an association, a trust or any other entity or
organization, including, without limitation, a governmental body or authority.
Section 8.12 FINDERS OR BROKERS. Except for SBC Warburg Dillon Read Inc.
with respect to Hi/Lo and Xxxxx Xxxxxx, Inc. with respect to Discount, neither
Hi/Lo nor Discount nor any of their respective Subsidiaries has employed any
investment banker, broker, finder or intermediary in connection with the
transactions contemplated hereby who might be entitled to any fee or any
commission in connection with or upon consummation of the Merger.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
HI-LO AUTOMOTIVE, INC.
By: /S/ T. XXXXXXX XXXXX
Name: T. Xxxxxxx Xxxxx
Title:Chairman, President and Chief
Executive Officer
DISCOUNT AUTO PARTS, INC.
By:/S/ XXXXX X. XXXXXXXX
Name: Xxxxx X. Xxxxxxxx
Title:Chief Executive Officer
HLA ACQUISITION, INC.
By: /S/ XXXXXXX X. XXXXXXX
Name: Xxxxxxx X. Xxxxxxx
Title:President
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