AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MOHAWK INDUSTRIES, INC.,
WC ACQUISITION CORP.,
WORLD CARPETS, INC.
AND
THE SHAREHOLDERS OF WORLD CARPETS, INC.
DATED AS OF OCTOBER 22, 1998
TABLE OF CONTENTS
PARTIES.................................................................... 1
PREAMBLE................................................................... 1
ARTICLE 1 TRANSACTIONS AND TERMS OF MERGER................................ 1
1.1 Merger............................................................ 1
1.2 Time and Place of Closing......................................... 2
1.3 Effective Time.................................................... 2
ARTICLE 2 TERMS OF MERGER................................................. 2
2.1 Charter........................................................... 2
2.2 Bylaws............................................................ 2
2.3 Directors and Officers............................................ 2
2.4 Certain Closing Deliveries........................................ 2
ARTICLE 3 MANNER OF CONVERTING SHARES..................................... 3
3.1 Conversion of Shares.............................................. 3
3.2 Anti-Dilution Provisions.......................................... 4
3.3 Shares Held by Company or Acquiror................................ 4
3.4 Dissenting Shareholders........................................... 4
3.5 Fractional Shares................................................. 5
ARTICLE 4 EXCHANGE OF SHARES.............................................. 5
4.1 Exchange Procedures............................................... 5
4.2 Rights of Former Company Shareholders............................. 5
4.3 Escrow Agreement.................................................. 6
4.4 Legending of Securities; Pooling Restrictions..................... 6
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF COMPANY AND THE
SHAREHOLDERS................................................... 7
5.1 Organization, Standing, and Power................................. 7
5.2 Authority of Company; No Breach By Agreement...................... 7
5.3 Capital Stock..................................................... 8
5.4 Company Subsidiaries.............................................. 9
5.5 Financial Statements.............................................. 10
5.6 Absence of Undisclosed Liabilities................................ 10
5.7 Absence of Certain Changes or Events.............................. 10
5.8 Tax Matters....................................................... 12
5.9 Assets and Accounts Payable....................................... 14
5.10 Intellectual Property............................................. 15
5.11 Environmental Matters............................................. 15
5.12 Compliance with Laws.............................................. 17
5.13 Labor Relations................................................... 18
5.14 Employee Benefit Plans............................................ 19
5.15 Material Contracts................................................ 21
5.16 Legal Proceedings................................................. 22
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5.17 Reports........................................................... 22
5.18 Statements True and Correct....................................... 23
5.19 Accounting, Tax and Regulatory Matters............................ 23
5.20 State Takeover Laws............................................... 23
5.21 Charter Provisions................................................ 23
5.22 Board Recommendation.............................................. 23
5.23 Compliance with the Immigration Reform and Control Act............ 23
5.24 Legal Compliance.................................................. 24
5.25 Year 2000......................................................... 24
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS.................. 24
6.1 Ownership of Shares............................................... 24
6.2 Authority of Shareholders; No Breach By Agreement................. 25
6.3 Purchase for Investment; Accredited Investor Status............... 26
6.4 Statements True and Correct....................................... 26
ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF ACQUIROR...................... 26
7.1 Organization, Standing, and Power................................. 26
7.2 Authority; No Breach By Agreement................................. 27
7.3 Capital Stock..................................................... 28
7.4 SEC Filings; Financial Statements................................. 28
7.5 Absence of Certain Changes or Events.............................. 29
7.6 Legal Proceedings................................................. 29
7.7 Statements True and Correct....................................... 29
7.8 Authority of Sub.................................................. 29
7.9 Accounting, Tax and Regulatory Matters............................ 30
ARTICLE 8 CONDUCT OF BUSINESS PENDING CONSUMMATION........................ 30
8.1 Affirmative Covenants of Company.................................. 30
8.2 Negative Covenants of Company..................................... 30
8.3 Covenants of Acquiror............................................. 32
8.4 Adverse Changes in Condition...................................... 33
ARTICLE 9 ADDITIONAL AGREEMENTS........................................... 34
9.1 Consent Solicitation Statement; Shareholder Approval.............. 34
9.2 Exchange Listing.................................................. 34
9.3 Applications; Antitrust Notification.............................. 34
9.4 Filings with State Offices........................................ 34
9.5 Agreement as to Efforts to Consummate............................. 34
9.6 Investigation and Confidentiality................................. 35
9.7 Press Releases.................................................... 35
9.8 Certain Actions................................................... 36
9.9 Accounting and Tax Treatment...................................... 37
9.10 State Takeover Laws............................................... 37
9.11 Charter Provisions................................................ 37
9.12 Agreements of Affiliates.......................................... 37
9.13 Agreement to Consent.............................................. 38
9.14 Supplemental Disclosures.......................................... 38
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9.15 Employee Matters.................................................. 38
ARTICLE 10 CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE.............. 39
10.1 Conditions to Obligations of Each Party........................... 39
10.2 Conditions to Obligations of Acquiror............................. 40
10.3 Conditions to Obligations of Company and the Shareholders......... 41
ARTICLE 11 INDEMNIFICATION................................................ 43
11.1 Agreement of Shareholder Indemnitors to Indemnify................. 43
11.1A Agreement of Acquiror Indemnitor to Indemnify..................... 43
11.2 Procedures for Indemnification.................................... 43
11.3 Third Party Claims................................................ 44
11.4 Exclusive Remedy.................................................. 45
11.5 Survival.......................................................... 46
11.6 Time Limitations.................................................. 46
11.7 Limitations as to Amount.......................................... 46
11.8 Tax Effect and Insurance.......................................... 47
11.9 Escrow............................................................ 47
11.10 Subrogation....................................................... 47
11.11 Appointment of Indemnitor Representative.......................... 48
11.12 Arbitration....................................................... 48
11.13 Contribution Agreement............................................ 49
ARTICLE 12 TERMINATION.................................................... 49
12.1 Termination....................................................... 49
12.2 Effect of Termination............................................. 50
12.3 Non-Survival of Acquiror Representations and Warranties........... 50
ARTICLE 13 MISCELLANEOUS.................................................. 51
13.1 Definitions....................................................... 51
13.2 Expenses.......................................................... 61
13.3 Transfer Taxes and Recording Fees................................. 61
13.4 Brokers and Finders............................................... 61
13.5 Entire Agreement.................................................. 61
13.6 Amendments........................................................ 61
13.7 Waivers........................................................... 62
13.8 Assignment........................................................ 62
13.9 Notices........................................................... 62
13.10 Governing Law..................................................... 63
13.11 Counterparts...................................................... 63
13.12 Captions; Articles and Sections................................... 63
13.13 Interpretations................................................... 63
13.14 Enforcement of Agreement.......................................... 64
13.15 Severability...................................................... 64
13.16 Time of the Essence............................................... 64
13.17 Facsimile Signatures.............................................. 64
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SIGNATURES................................................................. 65
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LIST OF EXHIBITS
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Exhibit Number DESCRIPTION
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1. Form of Escrow Agreement.
2. Form of Noncompetition and Confidentiality Agreement for ▇▇▇▇
and ▇▇▇▇▇ ▇▇▇▇▇▇▇.
3. Form of Release.
4. Form of agreement of affiliates of Company.
5. Tax Certificates.
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AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of October 22, 1998, by and among MOHAWK INDUSTRIES, INC. ("Acquiror"),
a Delaware corporation; WC ACQUISITION CORP. ("Sub"), a Georgia corporation;
WORLD CARPETS, INC. ("Company"), a Georgia corporation; and the shareholders of
Company identified in Schedule I hereto, being all of the shareholders of the
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Company (each a "Shareholder" and collectively, the "Shareholders").
PREAMBLE
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The Shareholders and the respective Boards of Directors of Company, Sub and
Acquiror are of the opinion that the transactions described herein are in the
best interests of the parties to this Agreement and their respective
shareholders. This Agreement provides for the acquisition of Company by
Acquiror pursuant to the merger of Sub with and into Company. At the effective
time of such merger, the outstanding shares of the capital stock of Company
shall be converted into the right to receive shares of the common stock of
Acquiror (except as provided herein). As a result, the Shareholders shall
become shareholders of Acquiror and Company shall become a wholly owned first-
tier subsidiary of Acquiror. The transactions described in this Agreement are
subject to the approvals of the Shareholders, expiration of the required
waiting period under the HSR Act, and the satisfaction of certain other
conditions described in this Agreement. It is the intention of the parties to
this Agreement that the Merger, for federal income tax purposes shall qualify as
a "reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code, and for accounting purposes shall qualify for treatment as a pooling of
interests.
Certain terms used in this Agreement are defined in Section 13.1 of this
Agreement.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants, and agreements set forth herein, the parties agree
as follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
--------------------------------
1.1 MERGER. Subject to the terms and conditions of this Agreement, at
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the Effective Time, Sub shall be merged with and into Company in accordance with
the provisions of Section 14-2-1101 et. seq. of the GBCC and with the effect
provided in Section 14-2-1106 of the GBCC (the "Merger"). Company shall be the
Surviving Corporation and shall become a wholly owned first-tier Subsidiary of
Acquiror and shall continue to be governed by the Laws of the State of Georgia.
The Merger shall be consummated pursuant to the terms of this Agreement, which
has been approved and adopted by the respective Boards of Directors of Company,
Sub and Acquiror.
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1.2 TIME AND PLACE OF CLOSING. The closing of the transactions
-------------------------
contemplated hereby (the "Closing") will take place at 9:00 A.M. on the date
that the Effective Time occurs, or at such other time as the Parties, acting
through their authorized officers, may mutually agree. The Closing shall be
held at such location as may be mutually agreed upon by the Parties.
1.3 EFFECTIVE TIME. The Merger and the other transactions
--------------
contemplated by this Agreement shall become effective on the date and at the
time the Certificate of Merger reflecting the Merger shall become effective with
the Secretary of State of the State of Georgia (the "Effective Time"). The
Certificate of Merger shall contain the undertaking required by Section 14-2-
1105.1 of the GBCC. Subject to the terms and conditions hereof, unless
otherwise mutually agreed upon in writing by the authorized officers of each
Party, the Parties shall use their reasonable efforts to cause the Effective
Time to occur on the first business day following the last to occur of (i) the
effective date (including expiration of any applicable waiting period) of the
last required Consent of any Regulatory Authority having authority over and
approving or exempting the Merger, (ii) the date on which the Shareholders
approve this Agreement to the extent such approval is required by applicable Law
and (iii) the date on which all conditions precedent to the obligations of the
Parties and the Shareholders stated in Article 10 shall have been satisfied or
waived pursuant to Section 13.7; or such later date within 30 days thereof as
may be mutually agreed to by the Parties.
ARTICLE 2
TERMS OF MERGER
---------------
2.1 CHARTER. The Articles of Incorporation of Company in effect
-------
immediately prior to the Effective Time shall be the Articles of Incorporation
of the Surviving Corporation until duly amended or repealed.
2.2 BYLAWS. The Bylaws of Company in effect immediately prior to the
------
Effective Time shall be the Bylaws of the Surviving Corporation until duly
amended or repealed.
2.3 DIRECTORS AND OFFICERS. The directors of Sub in office
----------------------
immediately prior to the Effective Time, together with such additional persons
as may thereafter be elected, shall serve as the directors of the Surviving
Corporation from and after the Effective Time in accordance with the Bylaws of
the Surviving Corporation. The officers of Sub in office immediately prior to
the Effective Time, together with such additional persons as may thereafter be
elected, shall serve as the officers of the Surviving Corporation from and after
the Effective Time in accordance with the Bylaws of the Surviving Corporation.
2.4 CERTAIN CLOSING DELIVERIES. Contemporaneously with the Closing:
--------------------------
(a) Acquiror, each Shareholder Indemnitor and Escrow Agent shall execute
and deliver the Escrow Agreement, which shall be in the form of Exhibit 1 (the
---------
"Escrow Agreement").
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(b) Acquiror, Company and each of ▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇ shall
execute and deliver a Noncompetition and Confidentiality Agreement, which shall
be in the form of Exhibit 2.
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(c) Each of the Shareholders and Company shall execute and deliver a mutual
Release, which shall be in the form of Exhibit 3.
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ARTICLE 3
MANNER OF CONVERTING SHARES
---------------------------
3.1 CONVERSION OF SHARES. Subject to the provisions of this Article
--------------------
3, at the Effective Time, by virtue of the Merger and without any action on the
part of Acquiror, Company, Sub or the shareholders of any of the foregoing, the
shares of the constituent corporations shall be converted as follows:
(a) Each share of Acquiror Capital Stock issued and outstanding immediately
prior to the Effective Time shall remain issued and outstanding from and after
the Effective Time.
(b) Each share of Sub Common Stock issued and outstanding immediately prior
to the Effective Time shall cease to be outstanding and shall be converted into
one share of Company Class C Common Stock and one share of Company Class A
(Voting) Preferred Stock.
(c) Each share of Company Capital Stock (excluding in each case set forth
in clauses (i) through (iii) below shares held by any Company Entity or any
Acquiror Entity, and excluding shares held by Shareholders who perfect their
statutory dissenters' rights as provided in Section 3.4) issued and outstanding
immediately prior to the Effective Time shall cease to be outstanding and shall
be converted into and exchanged for:
(i) with respect to each share of the Company Class A (Voting) Preferred
Stock, the right to receive that number of shares of Acquiror Common Stock
equal to a fraction, the numerator of which shall be $300,000 divided by
the Closing Price (the "Class A Exchange Shares"), and the denominator of
which shall be the number of shares of Company Class A (Voting) Preferred
Stock issued and outstanding immediately prior to the Effective Time (the
"Eligible Company Class A Preferred Shares") (the "Class A Preferred Stock
Exchange Ratio"),
(ii) with respect to each share of the Company Class B Preferred Stock,
the right to receive that number of shares of Acquiror Common Stock equal
to a fraction, the numerator of which shall be $15,128,000 divided by the
Closing Price (the "Class B Exchange Shares"), and the denominator of which
shall be the number of shares of Company Class B Preferred Stock issued and
outstanding
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immediately prior to the Effective Time (the "Eligible Company Class B
Preferred Shares") (the "Class B Preferred Stock Exchange Ratio"), and
(iii) with respect to each share of the Company Common Stock, the right
to receive that number of shares of Acquiror Common Stock equal to a
fraction, the numerator of which shall be 4,900,000 less the sum of the
Class A Exchange Shares and the Class B Exchange Shares (the "Common Stock
Share Number"), and the denominator of which shall be the number of shares
of Company Common Stock issued and outstanding immediately prior to the
Effective Time (the "Eligible Company Common Shares") (the "Common Stock
Exchange Ratio," the Common Stock Exchange Ratio, the Class A Preferred
Stock Exchange Ratio and the Class B Preferred Stock Exchange Ratio
sometimes referred to hereinafter as the "Exchange Ratio"); provided,
however, that a number of shares of Acquiror Common Stock equal to the
excess of (A) the sum of all payments by Company in connection with the
consummation of the transactions described in this Agreement paid or
payable after the date hereof to Prudential Securities Incorporated,
Chorey, Taylor & ▇▇▇▇, A Professional Corporation, PricewaterhouseCoopers
LLP, Hunton & ▇▇▇▇▇▇▇▇, LAW Engineering and Environmental Services, Inc.,
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C., and ▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, P.A. over
(B) $4,200,000, divided by the Average Price, shall be deducted from the
Common Stock Share Number and provided, further that a number of shares of
Acquiror Common Stock to be received by the Shareholder Indemnitors equal
to $5,000,000 divided by the Closing Price (the "Escrow Shares") shall be
deposited in escrow with, and held pursuant to the terms of the Escrow
Agreement by, Escrow Agent. The Escrow Shares shall be divided equally
between the shares of Acquiror Common Stock to be received by each of the
Shareholder Indemnitors.
3.2 ANTI-DILUTION PROVISIONS. In the event Acquiror changes the
------------------------
number of shares of Acquiror Common Stock issued and outstanding prior to the
Effective Time as a result of a stock split, stock dividend, or similar
recapitalization, reclassification or combination with respect to such stock,
and the record date therefor (in the case of a stock dividend) or the effective
date thereof (in the case of a stock split or similar recapitalization,
reclassification or combination for which a record date is not established)
shall be prior to the Effective Time, the Exchange Ratio shall be
proportionately adjusted.
3.3 SHARES HELD BY COMPANY OR ACQUIROR. Each of the shares of Company
----------------------------------
Capital Stock held by any Company Entity or by any Acquiror Entity shall be
canceled and retired at the Effective Time and no consideration shall be issued
in exchange therefor.
3.4 DISSENTING SHAREHOLDERS. Any Shareholder who perfects his
-----------------------
dissenters' rights in accordance with and as contemplated by Section 14-2-1301
et. seq. of the GBCC shall be entitled to receive the value of such shares of
Company Capital Stock held by such Shareholder in cash as determined pursuant to
such provision of Law; provided, that no such payment shall be made to any
dissenting Shareholder unless and until such dissenting Shareholder has complied
with the applicable provisions of the GBCC and surrendered to Company the
certificate or certificates representing the shares for which payment is being
made.
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In the event that after the Effective Time a dissenting Shareholder fails to
perfect, or effectively withdraws or loses, his right to appraisal and of
payment for his shares of Company Capital Stock, Acquiror shall issue and
deliver the consideration to which such Shareholder is otherwise entitled (as if
he had never dissented) under this Article 3 (without interest) upon surrender
by such Shareholder of the certificate or certificates representing shares of
Company Capital Stock held by him. If and to the extent required by applicable
Law, Company will establish (or cause to be established) an escrow account with
an amount sufficient to satisfy the maximum aggregate payment that may be
required to be paid to dissenting Shareholders. Upon satisfaction of all claims
of dissenting Shareholders, the remaining escrowed amount, reduced by payment of
the fees and expenses of the escrow agent, will be returned to the Surviving
Corporation. Each of the Shareholders agrees that it will not seek to assert
dissenters' rights to which such Shareholder otherwise would be entitled.
3.5 FRACTIONAL SHARES. Notwithstanding any other provision of this
-----------------
Agreement, each Shareholder who would otherwise have been entitled to receive a
fraction of a share of Acquiror Common Stock (after taking into account all
certificates delivered by such Shareholder) shall receive, in lieu thereof, cash
(without interest) in an amount equal to such fractional part of a share of
Acquiror Common Stock multiplied by the Closing Price of one share of Acquiror
Common Stock. The Closing Price shall be deemed to be the closing price for the
shares of Acquiror Common Stock on the trading day next preceding the Closing
Date. No such Shareholder will be entitled to dividends, voting rights, or any
other rights as a shareholder in respect of any fractional shares.
ARTICLE 4
EXCHANGE OF SHARES
------------------
4.1 EXCHANGE PROCEDURES. At the Closing, each Shareholder holding
-------------------
shares of Company Capital Stock (other than shares to be canceled pursuant to
Section 3.3 or as to which statutory dissenters' rights have been perfected as
provided in Section 3.4) issued and outstanding at the Effective Time shall
surrender the certificate or certificates representing such shares to the
Acquiror and shall promptly upon surrender thereof receive in exchange therefor
the consideration provided in Section 3.1. To the extent required by Section
3.5, each Shareholder also shall receive, upon surrender of the certificate or
certificates representing such shares of Company Capital Stock, cash in lieu of
any fractional share of Acquiror Common Stock to which such Shareholder may be
otherwise entitled (without interest). Acquiror shall not be obligated to
deliver the consideration to which any former holder of Company Capital Stock is
entitled as a result of the Merger until such holder surrenders such holder's
certificate or certificates representing such shares of Company Capital Stock
for exchange as provided in this Section 4.1. The certificate or certificates
representing Company Capital Stock so surrendered shall be duly endorsed as
Acquiror may reasonably require and be accompanied by such other evidence of
ownership as Acquiror may reasonably require.
4.2 RIGHTS OF FORMER COMPANY SHAREHOLDERS. At the Effective Time, the
-------------------------------------
stock transfer books of Company shall be closed as to holders of Company Capital
Stock
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immediately prior to the Effective Time and no transfer of Company Capital
Stock by any such holder shall thereafter be made or recognized. Until
surrendered for exchange in accordance with the provisions of Section 4.1, each
certificate theretofore representing shares of Company Capital Stock (other than
shares to be canceled pursuant to Sections 3.3 and 3.4) shall from and after the
Effective Time represent for all purposes only the right to receive the
consideration provided in Sections 3.1(c) and 3.5 in exchange therefor.
However, upon surrender of each such Company Capital Stock certificate, both the
Acquiror Common Stock certificate and any cash payments payable hereunder
(without interest) shall be delivered and paid with respect to each share
represented by such certificate.
4.3 ESCROW AGREEMENT. Contemporaneously with the Closing, Acquiror,
----------------
Escrow Agent and each Shareholder Indemnitor shall execute and deliver to the
other the Escrow Agreement, which shall be in the form of Exhibit 1. The Escrow
---------
Shares shall be held by Escrow Agent, as escrow agent pursuant to the terms of
the Escrow Agreement.
4.4 LEGENDING OF SECURITIES; POOLING RESTRICTIONS. Each certificate
---------------------------------------------
for Acquiror Common Stock to be issued to the Shareholders as part of the
consideration provided in Section 3.1(c) shall bear the following legend:
"The shares represented by this certificate were issued pursuant to a
business combination which is accounted for as a "pooling of
interests" and may not be sold, nor may the owner thereof reduce his
risks relative thereto in any way, until such time as Mohawk
Industries, Inc. ("Mohawk") has published the financial results
covering at least 30 days of combined operations after the effective
date of the merger through which the business combination was
effected. In addition, the shares represented by this certificate may
not be sold, transferred or otherwise disposed of except or unless (1)
covered by an effective registration statement under the Securities
Act of 1933, as amended, (2) in accordance with (i) Rule 145(d) (in
the case of shares issued to an individual who is not an affiliate of
---
Mohawk) or (ii) Rule 144 (in the case of shares issued to an
individual who is an affiliate of Mohawk) of the Rules and Regulations
of such Act, or (3) in accordance with a legal opinion satisfactory to
counsel for Mohawk that such sale or transfer is otherwise exempt from
the registration requirements of such Act."
The Merger will be accounted for using the pooling-of-interests method of
accounting, and accordingly each Shareholder agrees that such Shareholder will
not transfer or otherwise reduce such Shareholder's risks relative to the shares
of Acquiror Common Stock to be received by each Shareholder upon consummation of
the Merger until the date which is one business day after publication by
Acquiror of its results of post-Closing operations for the period which includes
at least thirty (30) days of post-Closing combined operations of Acquiror and
Company. Acquiror agrees that it will use its best efforts to publish such
results within 60 days after the end of the first fiscal month containing the
required thirty (30) day period of post-Closing combined operations, unless the
end of such month is also the end of a fiscal quarter of the Acquiror, in
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which event, Acquiror will use its best efforts to publish such results within
45 days after the end of such month, and that it will notify the Shareholders
promptly following such publication. Acquiror shall be entitled to place
restrictive legends on the shares of Acquiror Common Stock issued to the
Shareholders pursuant to the Merger to enforce the foregoing restrictions.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF COMPANY AND THE SHAREHOLDERS
--------------------------------------------------------------
The Shareholders and Company, jointly and severally, hereby represent and
warrant to Acquiror as follows:
5.1 ORGANIZATION, STANDING, AND POWER. Company is a corporation duly
---------------------------------
organized and validly existing under the Laws of the State of Georgia, and has
the corporate power and authority to carry on its business as now conducted and
to own, lease and operate its Assets. Company is duly qualified or licensed to
transact business as a foreign corporation in the States of the United States
and foreign jurisdictions where the character of its Assets or the current
nature or current conduct of its business requires it to be so qualified or
licensed, except for such jurisdictions in which the failure to be so qualified
or licensed is not reasonably likely to have, individually or in the aggregate,
a Company Material Adverse Effect. The minute book and other organizational
documents for World Carpets, Inc., a Georgia corporation, (but only such entity
which is in existence and operating on the date of this Agreement and not any
predecessor entities that have merged into or combined with such entity or its
predecessors) have been made available to Acquiror for its review and, except as
disclosed in Section 5.1 of the Company and Shareholder Disclosure Memorandum,
are true and complete in all Material respects as in effect as of the date of
this Agreement and accurately reflect in all Material respects all amendments
thereto and all Material proceedings of the Board of Directors and shareholders
thereof prior to the date hereof.
5.2 AUTHORITY OF COMPANY; NO BREACH BY AGREEMENT.
--------------------------------------------
(a) Company has the corporate power and authority necessary to execute,
deliver, and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery, and performance of
this Agreement by Company and the consummation by Company of the transactions
contemplated herein, including the Merger, have been duly and validly authorized
by all necessary corporate action in respect thereof on the part of Company,
subject to the approval of the Merger and this Agreement by the Shareholders in
accordance with the requirements of the GBCC and the Company's Articles of
Incorporation and Bylaws. Subject to such requisite Shareholder approval, this
Agreement represents a legal, valid, and binding obligation of Company,
enforceable against Company in accordance with its terms (except in all cases as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, receivership, conservatorship, moratorium, or similar Laws
affecting the enforcement of creditors' rights generally and except that the
availability of
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the equitable remedy of specific performance or injunctive relief is subject to
the discretion of the court before which any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by Company, and
the Shareholders, nor the consummation by Company and the Shareholders of the
transactions contemplated hereby, nor compliance by Company and the Shareholders
with any of the provisions hereof, will (i) conflict with or result in a breach
of any provision of Company's Articles of Incorporation or Bylaws or the
certificate or articles of incorporation or bylaws of any Company Subsidiary or
any resolution adopted by the board of directors or the shareholders of any
Company Entity, or (ii) except as disclosed in Section 5.2 of the Company and
Shareholder Disclosure Memorandum, constitute or result in a Default under, or
require any Consent pursuant to, or result in the creation of any Lien on any
Asset of any Company Entity under, any Contract or Permit of any Company Entity
where such Default or Lien, or any failure to obtain such Consent, is reasonably
likely to have, individually or in the aggregate, a Company Material Adverse
Effect or, (iii) subject to receipt of the requisite Consents referred to in
Section 10.1(b), and other than with respect to matters addressed by Section
5.2(c) constitute or result in a Default under, or require any Consent pursuant
to, any Law or Order applicable to any Company Entity or any of their respective
Material Assets (including any Acquiror Entity or any Company Entity becoming
subject to or liable for the payment of any Tax or any of the Assets owned by
any Acquiror Entity or any Company Entity being reassessed or revalued by any
Taxing authority), where such Default, or any failure to obtain such Consent, is
reasonably likely to have, individually or in the aggregate, a Company Material
Adverse Effect.
(c) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws, and other than
Consents required from Regulatory Authorities, and other than notices to or
filings with the Internal Revenue Service or the Pension Benefit Guaranty
Corporation with respect to any employee benefit plans, or under the HSR Act,
and other than Consents, filings or notifications which, if not obtained or
made, are not reasonably likely to have, individually or in the aggregate, a
Company Material Adverse Effect, no notice to, filing with, or Consent of, any
public body or authority is necessary for the consummation by Company of the
Merger and the other transactions contemplated in this Agreement.
5.3 CAPITAL STOCK.
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(a) The authorized capital stock of Company consists of (i) 100,000,000
shares of Company Class C Common Stock, of which 126,920 shares are issued and
outstanding, (ii) 1,000,000 shares of Company Class A Preferred Stock, of which
3,000 shares are issued and outstanding, and (iii) 100,000,000 shares of Company
Class B Preferred Stock of which 151,280 shares are issued and outstanding.
Other than 38,800 shares of Company Class B Preferred Stock, no shares of
Company Capital Stock are held in treasury. All of the issued and outstanding
shares of Company Capital Stock are duly and validly issued and outstanding and
are fully paid and nonassessable under the GBCC. None of the outstanding shares
of Company Capital Stock has been issued in violation of any preemptive rights
of the
-8-
current or past shareholders of Company. There are no bonds, debentures, notes
or other indebtedness having the right to vote on any matters on which the
Shareholders may vote.
(b) Except as set forth in Section 5.3(a) or as disclosed in Section 5.3(b)
of the Company and Shareholder Disclosure Memorandum, there are no shares of
capital stock or other equity securities of Company outstanding and no
outstanding Equity Rights relating to the capital stock of Company.
Collectively, the Shareholders own all right, title and interest (legal and
beneficial) in and to all of the issued and outstanding shares of Company
Capital Stock. Except as specifically contemplated by this Agreement, no Person
has any Contract or any right or privilege (whether pre-emptive or contractual)
capable of becoming a Contract for the purchase of any of the shares of Company
Capital Stock, or any Contract or Equity Right for the purchase, subscription or
issuance of any securities of Company.
5.4 COMPANY SUBSIDIARIES. Company has disclosed in Section 5.4 of the
--------------------
Company and Shareholder Disclosure Memorandum each of the Company Subsidiaries
that are corporations (identifying its jurisdiction of incorporation, each
jurisdiction in which it is qualified and/or licensed to transact business, and
the number of shares owned and percentage ownership interest represented by such
share ownership) and each of the Company Subsidiaries that are general or
limited partnerships, limited liability companies, or other non-corporate
entities (identifying the Law under which such entity is organized, each
jurisdiction in which it is qualified and/or licensed to transact business, and
the amount and nature of the ownership interest therein). Except as disclosed
in Section 5.4 of the Company and Shareholder Disclosure Memorandum, Company or
one of its wholly-owned Company Subsidiaries owns all of the issued and
outstanding shares of capital stock (or other equity interests) of each Company
Subsidiary. No capital stock (or other equity interest) of any Company
Subsidiary is or may become required to be issued (other than to another Company
Entity) by reason of any Equity Rights, and there are no Contracts by which any
Company Subsidiary is bound to issue (other than to another Company Entity)
additional shares of its capital stock (or other equity interests) or Equity
Rights or by which any Company Entity is or may be bound to transfer any shares
of the capital stock (or other equity interests) of any Company Subsidiary
(other than to another Company Entity). There are no Contracts relating to the
rights of any Company Entity to vote or to dispose of any shares of the capital
stock (or other equity interests) of any Company Subsidiary. All of the shares
of capital stock (or other equity interests) of each Company Subsidiary held by
a Company Entity are fully paid and nonassessable under the applicable
corporation Law of the jurisdiction in which such Company Subsidiary is
incorporated or organized and are owned by the Company Entity free and clear of
any Lien other than under the Securities Laws and applicable state securities
Laws. Except as disclosed in Section 5.4 of the Company and Shareholder
Disclosure Memorandum, each Company Subsidiary is a corporation, and each such
Company Subsidiary is duly organized and validly existing under the Laws of the
jurisdiction in which it is incorporated or organized, and has the corporate
power and authority necessary for it to own, lease, and operate its Assets and
to carry on its business as now conducted. Each Company Subsidiary is duly
qualified or licensed to transact business as a foreign corporation in the
States of the United States and foreign jurisdictions where the character of its
Assets or the current nature or current conduct of its business requires it to
be so qualified or licensed, except for such jurisdictions in which the failure
to be so qualified or
-9-
licensed is not reasonably likely to have, individually or in the aggregate, a
Company Material Adverse Effect. The minute book and other organizational
documents for each Company Subsidiary have been made available to Acquiror for
its review, and, except as disclosed in Section 5.4 of the Company and
Shareholder Disclosure Memorandum, are true and complete in all Material
respects as in effect as of the date of this Agreement and accurately reflect in
all Material respects all amendments thereto and all Material proceedings of the
Board of Directors and shareholders thereof prior to the date hereof.
5.5 FINANCIAL STATEMENTS. Each of the audited Company Financial
--------------------
Statements (including, in each case, any related notes) was, except as may be
indicated in the notes thereto, prepared in accordance with GAAP and fairly
presents in all Material respects the consolidated financial position of Company
and the Company Subsidiaries as at the respective dates and the consolidated
results of operations and cash flows for the periods indicated. Each of the
unaudited Company Financial Statements, which are set forth in Section 5.5 of
the Company and Shareholder Disclosure Memorandum, consistently presents in all
Material respects the consolidated financial position of Company and the Company
Subsidiaries as at the respective dates and the consolidated results of
operations and cash flows for the periods indicated. The unaudited Company
Financial Statements were or are subject to normal and recurring year-end
adjustments, which are not expected to be Material in amount or effect, and lack
footnote disclosures.
5.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in
----------------------------------
Section 5.6 of the Company and Shareholder Disclosure Memorandum, as of June 28,
1998, no Company Entity had any Liabilities that are reasonably likely to have,
individually or in the aggregate, a Company Material Adverse Effect, except
Liabilities which are accrued or reserved against in the consolidated balance
sheets of Company as of June 28, 1998, included in the Company Financial
Statements or reflected in the notes thereto. Except as set forth in Section
5.6 of the Company and Shareholder Disclosure Memorandum, no Company Entity has
incurred or paid any Liability since June 28, 1998, except for such Liabilities
incurred or paid (i) in the ordinary course of business consistent with past
business practice and which are not reasonably likely to have, individually or
in the aggregate, a Company Material Adverse Effect or (ii) in connection with
the transactions contemplated by this Agreement. Except as disclosed in Section
5.6 of the Company and Shareholder Disclosure Memorandum, no Company Entity is
directly or indirectly liable, by guarantee, indemnity, or otherwise, upon or
with respect to, or obligated, by discount or repurchase agreement or in any
other way, to provide funds in respect to, or obligated to guarantee or assume
any Liability of any Person (other than Company and the Company Subsidiaries)
for any amount in excess of $25,000.
5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 28, 1998, except
------------------------------------
as disclosed in the Company Financial Statements or as disclosed in Section 5.7
of the Company and Shareholder Disclosure Memorandum: (i) except as a result of
changes in Laws of general applicability or changes in the national economy, to
the Knowledge of Company, there have been no events, changes, or occurrences
which have had, or are reasonably likely to have, individually or in the
aggregate, a Company Material Adverse Effect, and (ii) the Company has not:
-10-
(a) repurchased, redeemed, or otherwise acquired or exchanged, directly or
indirectly, any shares, or any securities convertible into any shares, of the
capital stock of Company, or declared or paid any dividend or made any other
distribution in respect of the capital stock of Company; or
(b) except pursuant to this Agreement, issued, sold, pledged, encumbered,
authorized the issuance of, entered into any Contract to issue, sell, pledge,
encumber, or authorize the issuance of, or otherwise permitted to become
outstanding, any additional shares of Company Capital Stock or any other capital
stock of Company, or any stock appreciation rights, or any option, warrant, or
other Equity Right with respect to any capital stock of Company; or
(c) sold, leased, mortgaged or otherwise disposed of or otherwise
encumbered any Material Asset of Company other than in the ordinary course of
Company's business consistent in amount and nature with Company's past practice,
or other than in connection with Liens incurred in the ordinary course of
Company's business consistent with Company's past practice; or
(d) granted any increase in compensation or benefits to the employees or
officers of Company, except as required by Law, or pursuant to the express terms
of Contracts or policies which are described in Section 5.7(d) of the Company
and Shareholder Disclosure Memorandum or other than Company's ordinary and
customary increases in employee salaries in connection with periodic employee
evaluations; paid or agreed to pay any severance or termination pay or any bonus
other than pursuant to written policies or written Contracts in effect on the
date of this Agreement and disclosed in Section 5.7(d) of the Company and
Shareholder Disclosure Memorandum; or entered into or amended any severance
agreements with officers of Company; granted any increase in fees or other
increases in compensation or other benefits to directors of Company, except as
disclosed in Section 5.7(d) of the Company and Shareholder Disclosure
Memorandum; or
(e) entered into any Material employment Contract between any Company
Entity and any Person that Company does not have the right to terminate without
Liability (other than Liability for services already rendered or other accrued
Liabilities in connection with any such Contract), at any time on or after the
Effective Time assuming that Company does not violate any Laws which would make
such a termination illegal; or
(f) adopted any new employee benefit plan of Company or terminated or
withdrawn from, or made any Material change in or to, any existing employee
benefit plans of Company other than any such change that was required by Law or
that, in the opinion of counsel to Company, was necessary or advisable to
maintain the tax qualified status of any such plan, or made any distributions
from such employee benefit plans, except as required by Law, the terms of such
plans or consistent with Company's past practice; or
(g) made any significant change in any Tax or accounting methods or systems
of internal accounting controls; or
-11-
(h) other than in the ordinary course of Company's business, consistent
with Company's past practice, commenced, which shall not include defending or
raising cross- or counter-claims in connection with any defense of Litigation,
any Litigation or settled any Litigation involving any Liability of any Company
Entity for Material money damages or Material restrictions upon the operations
of any Company Entity; or
(i) entered into, modified, amended or terminated any Material Company
Contract (including any loan Contract) or waived, released, compromised or
assigned any Material rights or claims under any such Company Contract.
5.8 TAX MATTERS.
-----------
(a) All Tax Returns required to be filed by or on behalf of any of the
Company Entities have been filed or requests for extensions have been filed,
granted, and have not expired for periods ended on or before June 28, 1998, and
all such Tax Returns filed are complete and accurate in all Material respects.
Except as set forth in the Company and Shareholder Disclosure Memorandum, all
Taxes of the Company Entities whether or not shown on filed Tax Returns have
been paid, other than Taxes incurred in the ordinary course of Company's
business since December 31, 1997 which are not due or payable. There is no
audit or examination and there is no deficiency, refund or other Litigation by
or with any taxing authority with respect to any Taxes of any of the Company
Entities, except as disclosed and reserved against in the Company Financial
Statements or as disclosed in Section 5.8 of the Company and Shareholder
Disclosure Memorandum. Except as disclosed in the Company and Shareholder
Disclosure Memorandum, there are no Liens with respect to Taxes upon any of the
Assets of any of the Company Entities.
(b) None of the Company Entities has executed an extension or waiver of any
statute of limitations on the assessment or collection of any Tax due (excluding
such statutes that relate to years currently under examination by the Internal
Revenue Service or other applicable taxing authorities) that is currently in
effect.
(c) The current provision for any Taxes due or to become due for any of the
Company Entities for the period or periods through and including the date of the
respective Company Financial Statements that has been made and is reflected on
such Company Financial Statements is sufficient in the aggregate to cover all
such Taxes.
(d) None of the Company Entities is a party to any Tax allocation or
sharing agreement and none of the Company Entities has been a member of an
affiliated group filing a consolidated federal income Tax Return (other than a
group the common parent of which was Company) or has any Liability for Taxes of
any Person (other than Company and its Subsidiaries) under Treasury Regulation
Section 1.1502-6 (or any similar provision of state, local or foreign Law) as a
transferee or successor or by Contract or otherwise.
-12-
(e) Each of the Company Entities is in Material compliance with, and its
records contain all information and documents (including properly completed IRS
Forms W-9) necessary to comply in all Material respects with, all applicable
information reporting and Tax withholding requirements under federal, state, and
local Tax Laws, and such records identify with specificity all accounts subject
to backup withholding under Section 3406 of the Internal Revenue Code.
(f) Except as disclosed in Section 5.8 of the Company and Shareholder
Disclosure Memorandum, none of the Company Entities has made any payments, is
obligated to make any payments, or is a party to any Contract that could
obligate it to make (or deem it to make) any payments that would be disallowed
as a deduction under Section 280G or 162(m) of the Internal Revenue Code.
(g) There has not been an ownership change, as defined in Internal Revenue
Code Section 382(g), with respect to any of the Company Entities that occurred
during or after any taxable period in which any of the Company Entities incurred
a net operating loss that carries over to any taxable period ending after June
28, 1998.
(h) No Company Entity has or has had in any foreign country a permanent
establishment, as defined in any applicable tax treaty or convention between the
United States and such foreign country as in effect on the date hereof.
(i) All sales and use Taxes with respect to the Company Entities have been
paid to the proper taxing authorities or all necessary certificates of exemption
have been received with respect thereto.
(j) With respect to all samples of inventory sold or given away by any of
the Company Entities, sales and use Taxes have been properly calculated and
submitted to the applicable taxing authorities.
(k) Except as disclosed in Section 5.8 of the Company and Shareholder
Disclosure Memorandum, no Company Entity has failed to make payment of any Tax,
assessment, deposit or other charge by any taxing authority and no Material
Liability is pending or has been assessed, asserted or, to the Knowledge of the
Company, threatened against a Company Entity or any of the Company Entities'
Assets in connection with any Tax. The Company Entities have withheld or
collected from each payment made to each of the employees of the Company
Entities the amount of all Taxes required to be withheld or collected therefrom
and the Company Entities have paid the same to the proper tax depositories or
collecting authorities.
(l) Except as disclosed in Section 5.8 of the Company and Shareholder
Disclosure Memorandum, none of the Company Entities has agreed, nor are they
required, to make any adjustment under Section 481(a) of the Internal Revenue
Code (or a similar provision under any state, local or foreign Law) by reason of
a change in method of accounting or otherwise.
-13-
5.9 ASSETS AND ACCOUNTS PAYABLE. Except as set forth in Section 5.9
---------------------------
of the Company and Shareholder Disclosure Memorandum:
(a) Except as disclosed or reserved against in the Company Financial
Statements, the Company Entities have good title, free and clear of all Liens,
to all of their respective Material Assets (other than those Assets described in
Section 5.9(d)), except for any such Liens or other defects of title which are
not reasonably likely to have a Company Material Adverse Effect. All Material
tangible properties used in the businesses of the Company Entities are in good
condition, reasonable wear and tear excepted, and are usable in the ordinary
course of Company's business consistent with Company's past practices.
(b) All items of inventory of the Company Entities reflected on the
consolidated balance sheet of Company dated June 28, 1998 and included in the
Company Financial Statements are reflected therein at the lower of cost or net
realizable value, subject to the reserves reflected therefor, and consist of
items of a quality and quantity usable and salable in the ordinary course of
Company's business, except for surplus or obsolete items or items of below
standard quality which have been written off, written down or reserved against
to net realizable value.
(c) The accounts receivable of the Company Entities as set forth on the
most recent consolidated balance sheet included in the Company Financial
Statements, to the extent uncollected on the date of this Agreement, are valid
and genuine and Company has made reserves reasonably considered adequate for
receivables not collectible or subject to returns, defenses, set-offs or
counterclaims in the ordinary course of Company's business consistent with
Company's past practice; and, subject to the aforesaid reserves, to the
Knowledge of Company, are not subject to valid defenses, set-offs or
counterclaims.
(d) All Assets which are Material to Company's business on a consolidated
basis, and which are held under leases or subleases by any of the Company
Entities, are held under valid Contracts enforceable in accordance with their
respective terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or other Laws affecting the
enforcement of creditors' rights generally and except that the availability of
the equitable remedy of specific performance or injunctive relief is subject to
the discretion of the court before which any proceedings may be brought), and
each such Contract is in full force and effect.
(e) Section 5.9(e) of the Company and Shareholder Disclosure Memorandum
describes all insurance policies currently maintained by the Company Entities.
None of the Company Entities has received notice from any insurance carrier that
(i) any policy of insurance covering its Assets will be canceled or that
coverage thereunder will be Materially reduced or eliminated, or (ii) premium
costs with respect to such policies of insurance will be substantially
increased. There are presently no claims pending under such policies of
insurance.
-14-
(f) The Assets of the Company Entities include all Assets required to
operate the business of the Company Entities as presently conducted, except with
respect to products and services which Company outsources in the ordinary course
of Company's business and with respect to supplies, raw materials, components,
inventory and other similar items which Company purchases from third parties in
the ordinary course of Company's business.
(g) The accounts payable shown on the Company Financial Statements (i)
represent valid obligations owing by the Company (except for those being
contested by the Company in good faith) and (ii) have been incurred by the
Company in the ordinary course of Company's business. Section 5.9(g) of the
Company and Shareholder Disclosure Memorandum briefly describes the payment
terms in effect with the Company's top twenty suppliers.
5.10 INTELLECTUAL PROPERTY. Except as set forth in Section 5.10 of
---------------------
the Company and Shareholder Disclosure Memorandum, each Company Entity owns or
has a license or right to use all of the Material Intellectual Property used by
such Company Entity in the course of its business. Each Company Entity is the
owner of or has a license to any Material Intellectual Property sold or licensed
to a third party by such Company Entity in connection with such Company Entity's
business operations, and such Company Entity has the right to convey by sale or
license any Material Intellectual Property so conveyed. No Company Entity is in
Default under any of its Intellectual Property licenses. No proceedings have
been instituted, or are pending or, to the Knowledge of Company, threatened,
which challenge the rights of any Company Entity with respect to Intellectual
Property used, sold or licensed by such Company Entity in the course of its
business, nor has any person claimed or alleged any rights to such Intellectual
Property. Except as set forth in Section 5.10 of the Company and Shareholder
Disclosure Memorandum, the conduct of the business of the Company Entities does
not infringe any Intellectual Property of any other Person. Except as disclosed
in Section 5.10 of the Company and Shareholder Disclosure Memorandum, no Company
Entity is obligated to pay any recurring royalties to any Person with respect to
any Intellectual Property used by such Company Entity in its business. To the
Knowledge of Company, no officer, director or employee of Company is party to
any Contract with any Person other than a Company Entity which requires such
officer, director or employee to assign any interest in any Intellectual
Property used by any Company Entity in the course of its business to any Person
other than a Company Entity or to keep confidential any trade secrets,
proprietary data, customer information, or other business information of any
Person other than a Company Entity. Except as disclosed in Section 5.10 of the
Company and Shareholder Disclosure Memorandum, to the Knowledge of Company no
officer, director or employee of any Company Entity is party to any Contract
which restricts or prohibits such officer, director or employee from engaging in
activities competitive with those conducted by Acquiror. Each item of Material
Intellectual Property is set forth in Section 5.10A of the Company and
Shareholder Disclosure Memorandum.
5.11 ENVIRONMENTAL MATTERS. Except as set forth in Section 5.11 of
---------------------
the Company and Shareholder Disclosure Memorandum:
(a) Each Company Entity, its Participation Facilities, and its Operating
Properties are, and have been, in compliance with all Environmental Laws, except
for violations
-15-
which are not reasonably likely to have, individually or in the aggregate, a
Company Material Adverse Effect.
(b) There is no Litigation (or, to the Knowledge of Company, any litigation
against any person whose liability, or any portion thereof, any Company Entity
has retained or assumed contractually or by operation of law) pending or, to the
Knowledge of the Company, threatened before any court, governmental agency, or
authority or other forum in which any Company Entity or any of its Operating
Properties or Participation Facilities has been or, with respect to threatened
Litigation, may be named as a defendant (i) for noncompliance or alleged
noncompliance (including by any predecessor) with any Environmental Law, (ii)
relating to the emission, release or threatened release, discharge, spillage, or
disposal into the environment of any Hazardous Material, whether or not
occurring from, at, on, under, adjacent to, or affecting any Company Entity or
at any of its Operating Properties or Participation Facilities, (iii) relating
to the transportation, treatment, storage, recycling or other handling of any
Hazardous Material, (iv) relating to the placement of structures or materials
into waters of the United States, or (v) relating to the presence of any
Hazardous Material, including, but not limited to, asbestos, in any building,
structure or workplace of any Company Entity or at any of its Operating
Properties or Participation Facilities, nor, to the Knowledge of the Company,
are there any past or present actions, activities, circumstances, conditions,
events, or incidents that could reasonably be expected to give rise to any
Litigation of a type described in this sentence.
(c) No surface or subsurface soil, surface water, ground water, or
subsurface strata in or under any Company Entity's Operating Properties or
Participation Facilities has been contaminated by any Hazardous Material, to
such an extent that is required to be reported to any Regulatory Authority or
investigated, removed, remediated or cleaned up under any Environmental Law, and
which has not been reported, investigated, removed, remediated or cleaned up as
so required.
(d) Without limiting the generality of any of the foregoing, during the
period of (i) any Company Entity's ownership or operation of any of their
respective current Operating Properties or Participation Facilities, (ii) any
Company Entity's participation in the management of any Participation Facility,
or (iii) any Company Entity's holding of a security interest in an Operating
Property, there have been no emissions, releases, discharges, spillages, or
disposals of Hazardous Material from, in, on, under, or affecting such
properties, except such as are not reasonably likely to have, individually or in
the aggregate, a Company Material Adverse Effect. To the Knowledge of Company,
prior to the period of (i) any Company Entity's ownership or operation of any of
their respective current properties, (ii) any Company Entity's participation in
the management of any Participation Facility, or (iii) any Company Entity's
holding of a security interest in an Operating Property, there were no
emissions, releases, discharges, spillages, or disposals of Hazardous Material
from, in, on, under, or affecting any such property, Participation Facility or
Operating Property, except such as are not reasonably likely to have,
individually or in the aggregate, a Company Material Adverse Effect. Each
Company Entity has complied in all Material respects with all reporting
requirements under Environmental Laws concerning the emission, release,
discharge, spillage, or disposal of Hazardous Materials and has not made any
such reports concerning any site owned, leased, or
-16-
operated by any Company Entity or any of its Operating Properties or
Participation Facilities or concerning operations or activities at such
properties.
(e) All waste containing any Hazardous Materials generated, used, handled,
stored, treated or disposed of (directly or indirectly) by any Company Entity or
at any Company Entity's Operating Properties or Participation Facilities has
been stored or disposed of by the Company in Material compliance with all
applicable Environmental Laws. Without limiting the generality of any of the
foregoing, all onsite and offsite locations where any Company Entity has stored,
disposed of or arranged for the disposal of Hazardous Materials during the five
years prior to execution of this Agreement are identified in Section 5.11 of the
Company and Shareholder Disclosure Memorandum.
(f) All underground storage tanks, including, but not limited to, oil-water
separators, and other underground storage facilities located at any Company
Entity's Operating Properties or Participation Facilities are listed together
with the capacity and contents of each such tank or facility set forth in
Section 5.11 of the Company and Shareholder Disclosure Memorandum. None of such
underground tanks or facilities is leaking or has leaked.
(g) None of the Operating Properties or Participation Facilities of any
Company Entity contains, to the Knowledge of the Company, any friable asbestos-
containing Materials and no polychlorinated biphenyls (PCB's) are used or stored
on or in any such properties.
(h) Section 5.11 of the Company and Shareholder Disclosure Memorandum
contains a correct and complete list of all Phase I and Phase II environmental
site assessments and other environmental studies related thereto, including,
without limitation, any environmental sampling and laboratory analytical data
related thereto, produced by any Party (other than any Acquiror Entity or its
agents, Company Entity or its employees, other than ▇▇▇▇▇ ▇▇▇▇▇) and in the
possession of any or all Company Entities relating to any Company Entity's
Operating Properties or Participation Facilities, and the Company has previously
delivered to Acquiror a correct and complete copy of each such assessment and
study and any such data.
5.12 COMPLIANCE WITH LAWS. Except as set forth in Section 5.12 of the
--------------------
Company and Shareholder Disclosure Memorandum, each Company Entity has in effect
all Permits necessary for it to own, lease, or operate its Material Assets and
to carry on its business as now conducted, except for those Permits the absence
of which are not reasonably likely to have, individually or in the aggregate, a
Company Material Adverse Effect, and except as set forth in Section 5.12 of the
Company and Shareholder Disclosure Memorandum, there has occurred and is
continuing no Default under any such Permit, other than Defaults which are not
reasonably likely to have, individually or in the aggregate, a Company Material
Adverse Effect. Except as disclosed in Section 5.12 of the Company and
Shareholder Disclosure Memorandum, none of the Company Entities:
(a) is in Default under any of the provisions of its Articles of
Incorporation or Bylaws (or other governing instruments);
-17-
(b) is in Default under any Laws or Orders applicable to its business or
employees conducting its business except for Defaults which are not reasonably
likely to have, individually or in the aggregate, a Company Material Adverse
Effect; or
(c) since January 1, 1998, has received any notification or communication
from any agency or department of federal, state, or local government or any
Regulatory Authority or the staff thereof (i) asserting that any Company Entity
is not in compliance with any of the Laws or Orders which such governmental
authority or Regulatory Authority enforces, or (ii) requiring any Company Entity
to enter into or consent to the issuance of a cease and desist order, formal
agreement, directive, commitment, or memorandum of understanding, or to adopt
any Board resolution or similar undertaking.
Copies of all Material reports, correspondence, notices and other documents
relating to any inspection, audit, monitoring or other form of review or
enforcement action by a Regulatory Authority have been made available to
Acquiror.
5.13 LABOR RELATIONS.
---------------
(a) No Company Entity is the subject of any currently pending Litigation
asserting that it or any other Company Entity has committed an unfair labor
practice (within the meaning of the National Labor Relations Act or comparable
state law) or seeking to compel it or any other Company Entity to bargain with
any labor organization as to wages or conditions of employment, nor is any
Company Entity party to any collective bargaining agreement, nor is there any
strike or other labor dispute involving any Company Entity, pending or, to the
Knowledge of the Company, threatened, nor to the Knowledge of Company, is there
any activity involving any Company Entity's employees seeking to certify a
collective bargaining unit or engaging in any other organization activity.
(b) Except as set forth in Section 5.13(b) of the Company and Shareholder
Disclosure Memorandum, to the Knowledge of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇▇,
the Company has not received any notice that any of the officers, employees,
consultants, agents, or other persons performing services for the Company and,
with respect to each of the foregoing, which receives base compensation from
Company at a rate in excess of $100,000 per annum, will terminate, or has stated
an intention to terminate, his or her employment currently or at any time before
or within 60 days after the Closing Date or will otherwise not be available to
Acquiror, or not agree to employment with Acquiror, on substantially equivalent
terms and conditions as his or her current employment by the Company.
(c) Except as set forth in Section 5.13(c) of the Company and Shareholder
Disclosure Memorandum, since 1989, the Company has not effectuated (i) a "plant
closing", as defined in the Worker Adjustment and Retraining Notification Act
(the "WARN Act"), affecting any site of employment or one or more facilities or
operating units within any site of employment or facility of the Company; or
(ii) a "mass layoff" (as defined in the WARN Act) affecting any site of
employment or facility of the Company; nor has the Company been
-18-
affected by any transaction or engaged in layoffs or employment terminations
sufficient in number to trigger application of any similar state or local law.
None of the Company's employees has suffered an "employment loss" (as defined in
the WARN Act) since six (6) months prior to the date hereof.
5.14 EMPLOYEE BENEFIT PLANS.
----------------------
(a) Company has listed in Section 5.14 of the Company and Shareholder
Disclosure Memorandum, and has made available to Acquiror copies in each case
of, all pension, retirement, profit-sharing, deferred compensation, stock
option, employee stock ownership, severance pay, vacation, bonus, or other
incentive plan, all other written employee programs, arrangements, or
agreements, all medical, vision, dental, or other health plans, all life
insurance plans, and all other employee benefit plans or fringe benefit plans,
including "employee benefit plans" as that term is defined in Section 3(3) of
ERISA, currently adopted, maintained by, sponsored in whole or in part by, or
contributed to by any Company Entity or ERISA Affiliate thereof for the benefit
of employees, retirees, dependents, spouses, directors, independent contractors,
or other beneficiaries and under which employees, retirees, dependents, spouses,
directors, independent contractors, or other beneficiaries are eligible to
participate (collectively, the "Company Benefit Plans"). Any of the Company
Benefit Plans which is an "employee pension benefit plan," as that term is
defined in Section 3(2) of ERISA, is referred to herein as a "Company ERISA
Plan." Each Company ERISA Plan which is also a "defined benefit plan" (as
defined in Section 414(j) of the Internal Revenue Code) is referred to herein as
a "Company Pension Plan." No Company Pension Plan is or has been a
multiemployer plan within the meaning of Section 3(37) of ERISA.
(b) Company has made available to Acquiror correct and complete copies of
the following documents: (i) all trust agreements or other funding arrangements
for such Company Benefit Plans (including insurance contracts), and all
amendments thereto, (ii) with respect to any such Company Benefit Plans or
amendments thereto, the most recent determination letters, and all rulings,
opinion letters, information letters, or advisory opinions issued by the
Internal Revenue Service, the United States Department of Labor, or the Pension
Benefit Guaranty Corporation, (iii) annual reports or returns, audited or
unaudited financial statements, actuarial valuations and reports, and summary
annual reports prepared for any Company Benefit Plan with respect to the most
recent plan year, (iv) the most recent summary plan descriptions for the Company
Benefit Plans and any modifications thereto, and (v) copies of any filings with
the Internal Revenue Service under Rev. Proc. 94-64 or its successor revenue
procedures (VCR Program), closing agreements involving a Employee Benefit Plan,
filings under Rev. Proc. 94-16 or its successor revenue procedures (Walk in CAP)
or documentation required under the field directive issued 1/7/97 or its
successor authority discussing the IRS Administrative Policy Regarding Self-
Correction where such procedure has been used in connection with an Employee
Benefit Plan.
(c) All Company Benefit Plans are in compliance with the applicable terms
of ERISA, the Internal Revenue Code, and any other applicable Laws the breach or
violation of which are reasonably likely to have, individually or in the
aggregate, a Company
-19-
Material Adverse Effect. Each Company ERISA Plan which is intended to be
qualified under Section 401(a) of the Internal Revenue Code has received a
favorable determination letter from the Internal Revenue Service, and Company
has no Knowledge of any circumstances likely to result in revocation of any such
favorable determination letter. No Company Entity has engaged in a transaction
with respect to any Company Benefit Plan that, assuming the taxable period of
such transaction expired as of the date hereof, would subject any Company Entity
to a Tax imposed by either Section 4975 of the Internal Revenue Code or Section
502(i) of ERISA in amounts which are reasonably likely to have, individually or
in the aggregate, a Company Material Adverse Effect. Neither Company nor, to the
Knowledge of Company, any administrator or fiduciary of any Company Benefit Plan
(or any agent of any of the foregoing) has engaged in any transaction, or acted
or failed to act in any manner which could subject Company to any direct or
indirect liability (by indemnity or otherwise) for breach of any fiduciary, co-
fiduciary, or other duty under ERISA, where such liability, individually or in
the aggregate, is reasonably likely to have a Company Material Adverse Effect.
No oral or written representation or communication with respect to any aspect of
the Company Benefit Plans has been made to employees of any Company Entity or
ERISA Affiliate which is not in accordance with the written or otherwise
preexisting terms and provisions of such plans, where any liability,
individually or in the aggregate, with respect to such representation or
disclosure is reasonably likely to have a Company Material Adverse Effect. There
are no unresolved claims or disputes under the terms of, or in connection with,
any Company Benefit Plan other than claims for benefits which are payable in the
ordinary course of Company's business and no action, proceeding, prosecution,
inquiry, hearing or investigation has been commenced and is continuing with
respect to any Company Benefit Plan.
(d) No Company Pension Plan has any "unfunded current liability," as that
term is defined in Section 302(d)(8)(A) of ERISA, and the fair market value of
the assets of any such plan exceeds the plan's "benefit liabilities," as that
term is defined in Section 4001(a)(16) of ERISA ,when determined under actuarial
factors that would apply if the plan terminated in a PBGC-trusteed termination
in accordance with all applicable legal requirements. Since the date of the
most recent actuarial valuation, there has been (i) no Material change in the
financial position of any Company Pension Plan, (ii) no change in the actuarial
assumptions with respect to any Company Pension Plan, and (iii) no increase in
benefits under any Company Pension Plan as a result of plan amendments or
changes in applicable Law which is reasonably likely to have, individually or in
the aggregate, a Company Material Adverse Effect or Materially adversely affect
the funding status of any such plan. Neither any Company Pension Plan nor any
"single-employer plan," within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by any Company Entity, or the single-employer
plan of any entity which is considered one employer with Company under Section
4001 of ERISA or Section 414 of the Internal Revenue Code or Section 302 of
ERISA (whether or not waived) (an "ERISA Affiliate") has an "accumulated funding
deficiency" within the meaning of Section 412 of the Internal Revenue Code or
Section 302 of ERISA. No Company Entity has provided, or is required to
provide, security to a Company Pension Plan or to any single-employer plan of an
ERISA Affiliate pursuant to Section 401(a)(29) of the Internal Revenue Code.
-20-
(e) Within the six-year period preceding the Effective Time, no Liability
under Subtitle C or D of Title IV of ERISA has been or is expected to be
incurred by any Company Entity with respect to any ongoing, frozen, or
terminated single-employer plan or the single-employer plan of any ERISA
Affiliate. No Company Entity has incurred any withdrawal Liability with respect
to a multiemployer plan under Subtitle B of Title IV of ERISA (regardless of
whether based on contributions of an ERISA Affiliate). No notice of a
"reportable event," within the meaning of Section 4043 of ERISA for which the
30-day reporting requirement has not been waived, has been required to be filed
for any Company Pension Plan or by any ERISA Affiliate within the 12-month
period ending on the date hereof.
(f) Except as disclosed in Section 5.14 of the Company and Shareholder
Disclosure Memorandum, no Company Entity has any Liability for retiree health
and life benefits under any of the Company Benefit Plans and there are no
restrictions on the rights of such Company Entity to amend or terminate any such
retiree health or benefit Plan without incurring any Liability thereunder.
(g) Except as disclosed in Section 5.14 of the Company and Shareholder
Disclosure Memorandum, neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute, or
otherwise) becoming due to any director or any employee of any Company Entity
from any Company Entity under any Company Benefit Plan or otherwise, (ii)
increase any benefits otherwise payable under any Company Benefit Plan, or (iii)
result in any acceleration of the time of payment or vesting of any such
benefit.
(h) The actuarial present values of all accrued deferred compensation
entitlements (including entitlements under any executive compensation,
supplemental retirement, or employment agreement) of employees and former
employees of any Company Entity and their respective beneficiaries, other than
entitlements accrued pursuant to funded retirement plans subject to the
provisions of Section 412 of the Internal Revenue Code or Section 302 of ERISA,
have been fully reflected on the audited Company Financial Statements to the
extent required by and in accordance with GAAP.
5.15 MATERIAL CONTRACTS. Except as listed in Section 5.15 of the
------------------
Company and Shareholder Disclosure Memorandum or otherwise reflected in the
Company Financial Statements, none of the Company Entities, nor any of their
respective Assets, businesses, or operations, is a party to, or is bound by, or
receives benefits under, (i) any employment, severance, termination, consulting,
or retirement Contract providing for aggregate payments to any Person in any
calendar year in excess of $50,000, (ii) any Contract relating to the borrowing
of money by any Company Entity or the guarantee by any Company Entity of any
such obligation (other than Contracts evidencing trade payables and Contracts
relating to borrowings or guarantees made in the ordinary course of Company's
business), (iii) any Contract which prohibits or restricts any Company Entity
from engaging in any business activities in any geographic area, line of
business or otherwise in competition with any other Person, (iv) any Contract
with, between or among Company Entities, or any Affiliate thereof, (v) any
Contract
-21-
involving Intellectual Property used by any Company Entity in the course of its
business (other than Contracts entered into in the ordinary course with
customers, and other than "shrink-wrap" software licenses), (vi) any Contract
relating to the provision of data processing, network communication, or other
technical services to or by any Company Entity requiring payments by Company in
excess of $50,000 in any calendar year, (vii) any written Contract relating to
the purchase or sale of any goods or services (other than Contracts entered into
in the ordinary course of Company's business or involving annual payments under
any individual Contract not in excess of $100,000), and (viii) any oral Contract
relating to the purchase or sale of any goods or services (other than Contracts
entered into in the ordinary course of Company's business or involving annual
payments under any individual Contract not in excess of $50,000) (together with
all Contracts referred to in Section 5.14(a), the "Company Contracts"). With
respect to each Company Contract and except as disclosed in Section 5.15 of the
Company and Shareholder Disclosure Memorandum: (i) the Contract is in full force
and effect; (ii) no Company Entity is in Material Default thereunder; (iii) no
Company Entity has repudiated or waived any Material provision of such Contract;
and (iv) no other party to any such Contract is, to the Knowledge of Company, in
Default in any Material respect or has repudiated or waived any Material
provision thereunder. Except as set forth in Section 5.15 of the Company and
Shareholder Disclosure Memorandum, all of the indebtedness of any Company Entity
under any Company Contract for money borrowed is prepayable at any time by such
Company Entity without penalty or premium.
5.16 LEGAL PROCEEDINGS. Except as set forth in Section 5.16 of the
-----------------
Company and Shareholder Disclosure Memorandum, there is no Litigation instituted
or pending, or, to the Knowledge of Company, threatened against any Company
Entity, or to the Knowledge of the Company against any director, employee or
employee benefit plan of any Company Entity, or to the Knowledge of Company
against any Asset, interest, or right of any of them, that is reasonably likely
to have, individually or in the aggregate, a Company Material Adverse Effect,
nor are there any Orders of any Regulatory Authorities, other governmental
authorities, or arbitrators outstanding against any Company Entity that are
reasonably likely to have, individually or in the aggregate, a Company Material
Adverse Effect. Section 5.16 of the Company and Shareholder Disclosure
Memorandum contains a summary of all pending Litigation as of the date of this
Agreement to which any Company Entity is a party and which names a Company
Entity as a defendant or cross-defendant.
5.17 REPORTS. Since January 1, 1994, or its respective date of
-------
organization if later, each Company Entity has filed all reports and
statements, together with any amendments required to be made with respect
thereto, that it was required to file with Regulatory Authorities, except those
reports whose failure to file would not be reasonably likely to have a Company
Material Adverse Effect. As of its respective dates, each of such reports and
documents, including the financial statements, exhibits, and schedules thereto,
complied in all Material respects with all applicable Laws. As of its
respective date, each such report and document did not, in all Material
respects, 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
made therein, in light of the circumstances under which they were made, not
misleading.
-22-
5.18 STATEMENTS TRUE AND CORRECT. No representation or warranty
---------------------------
contained in this Article 5 (or any statement made in the Company and
Shareholder Disclosure Memorandum with respect to this Article 5), contains any
untrue statement of Material fact or omits to state a Material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. All documents that any Company Entity is responsible for
filing with any Regulatory Authority in connection with the transactions
contemplated hereby will comply as to form in all Material respects with the
provisions of applicable Law.
5.19 ACCOUNTING, TAX AND REGULATORY MATTERS. To the Knowledge of
--------------------------------------
Company, no Company Entity or any Shareholder or any Affiliate thereof has taken
or agreed to take any action, or has any Knowledge of any fact or circumstance
that is reasonably likely, to (i) prevent the Merger from qualifying for
pooling-of-interests accounting treatment or as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code, or (ii) Materially
impede or delay receipt of any Consents of Regulatory Authorities referred to in
Section 10.1(a) or result in the imposition of a condition or restriction of the
type referred to in the last sentence of such Section.
5.20 STATE TAKEOVER LAWS. Each Company Entity and each Shareholder
-------------------
has taken all necessary action to exempt the transactions contemplated by this
Agreement from, or if necessary to challenge the validity or applicability of,
any applicable "moratorium," "fair price," "business combination," "control
share," or other anti-takeover Laws (collectively, "Takeover Laws"), including,
but not limited to, Section 14-2-1111 of the GBCC.
5.21 CHARTER PROVISIONS. Each Company Entity and each Shareholder has
------------------
taken all action so that the entering into of this Agreement and the
consummation of the Merger and the other transactions contemplated by this
Agreement do not and will not result in the grant of any rights to any Person
under the Articles of Incorporation, Bylaws or other governing instruments of
any Company Entity or restrict or impair the ability of Acquiror or any of its
Subsidiaries to vote, or otherwise to exercise the rights of a shareholder with
respect to, shares of any Company Entity that may be directly or indirectly
acquired or controlled by them.
5.22 BOARD RECOMMENDATION. The Board of Directors of Company, by
--------------------
unanimous consent in lieu of a meeting duly called and held, has (i) determined
that this Agreement and the transactions contemplated hereby, including the
Merger and the transactions contemplated thereby, taken together, are fair to
and in the best interests of the Shareholders and (ii) resolved to recommend
that the Shareholders approve this Agreement.
5.23 COMPLIANCE WITH THE IMMIGRATION REFORM AND CONTROL ACT. To the
------------------------------------------------------
Knowledge of Company, Company is in Material compliance with the terms and
provisions of the Immigration Reform and Control Act of 1986, as amended through
the date of this Agreement, and all related regulations promulgated thereunder
through the date of this Agreement (the "Immigration Laws"). With respect to
each employee (as defined in Section 274a.1(f) of Title 8, Code of Federal
Regulations, as amended through the date of this Agreement) of Company for whom
compliance with the Immigration Laws by an employer (as
-23-
defined in Section 274a.1(g) of Title 8, Code of Federal Regulations, as amended
through the date of this Agreement) is required, Company, upon request of
Acquiror, will make available to Acquiror prior to the Closing Date, such
employee's Form I-9 (Employment Eligibility Verification Form) and all other
records, documents or other papers which are retained with the Form I-9 by the
employer pursuant to the Immigration Laws. Except as set forth in Section 5.23
of the Company and Shareholder Disclosure Memorandum, Company has never been the
subject of any inspection or investigation relating to its compliance with or
violation of the Immigration Laws, nor has it been warned, fined or otherwise
penalized by reason of any failure to comply with the Immigration Laws, nor is
any such proceeding pending or, to Company's Knowledge, threatened.
5.24 LEGAL COMPLIANCE. To the Knowledge of Company, neither Company
----------------
nor any director, officer, agent, employee or other person acting on behalf of
Company has, directly or indirectly: (i) used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity; (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns from corporate funds; (iii) violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended; (iv) or made any bribe, illegal
rebate, payoff, influence payment, kickback or other unlawful payment, using
corporate funds.
5.25 YEAR 2000. Except as set forth in Section 5.25 of the Company
---------
and Shareholder Disclosure Memorandum, and except to the extent not reasonably
likely to have a Company Material Adverse Effect, Company's hardware and
software systems include design, performance and functionality so that Company
does not reasonably expect to experience invalid or incorrect results or
abnormal hardware or software operation related to calendar year 2000. Except
to the extent not reasonably likely to have a Company Material Adverse Effect,
Company's hardware and software systems include calendar year 2000 date
conversion and compatibility capabilities, including, but not limited to, date
data century recognition, same century and multiple century formula and date
value calculations, and user interface date data values that reflect the
century.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
----------------------------------------------
Each of the Shareholders severally represents and warrants to Acquiror as
follows:
6.1 OWNERSHIP OF SHARES. Except as set forth in Section 6.1 of the
-------------------
Company and Shareholder Disclosure Memorandum, such Shareholder is the owner of
all right, title and interest (legal and beneficial) in and to that number of
shares of Company Capital Stock listed opposite the name of such Shareholder in
Schedule I, free and clear of any and all Liens of any nature whatsoever, other
than Liens imposed by the Securities Laws or applicable state securities Laws.
Except as specifically contemplated by this Agreement, no person or entity has
any Contract or Equity Right (whether preemptive or contractual) capable of
becoming a Contract or Equity Right for the purchase of any shares of Company
Capital Stock from such Shareholder.
-24-
6.2 AUTHORITY OF SHAREHOLDERS; NO BREACH BY AGREEMENT.
-------------------------------------------------
(a) Such Shareholder has the absolute and unrestricted right, power,
authority, and capacity to execute and deliver this Agreement and the Other
Shareholder Agreements to which such Shareholder will be a party and to perform
its obligations under this Agreement and such Other Shareholder Agreements.
This Agreement represents a legal, valid, and binding obligation of such
Shareholder, enforceable against such Shareholder in accordance with its terms
(except in all cases as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, receivership, conservatorship,
moratorium, or similar Laws affecting the enforcement of creditors' rights
generally and except that the availability of the equitable remedy of specific
performance or injunctive relief is subject to the discretion of the court
before which any proceeding may be brought). Upon the execution and delivery by
such Shareholder of the Other Shareholder Agreements to which such Shareholder
will be a party, such Other Shareholder Agreements will constitute the legal,
valid, and binding obligations of such Shareholder, enforceable against such
Shareholder in accordance with their respective terms (except in all cases as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, receivership, conservatorship, moratorium, or similar Laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding may
be brought).
(b) Neither the execution and delivery of this Agreement by such
Shareholder, nor the consummation by such Shareholder of the transactions
contemplated hereby, nor compliance by such Shareholder with any of the
provisions hereof, will (i) conflict with or result in a breach of any provision
of the governing instruments of such Shareholder if it is not a natural person,
or (ii) except as disclosed in Section 6.2 of the Company and Shareholder
Disclosure Memorandum, constitute or result in a Default under, or require any
Consent pursuant to, or result in the creation of any Lien on any Asset of any
such Shareholder under, any Contract or Permit of any such Shareholder, where
such Default or Lien, or any failure to obtain such Consent, is reasonably
likely to have, individually or in the aggregate, a Company Material Adverse
Effect, or, (iii) subject to receipt of the requisite Consents referred to in
Section 10.1(b) and other than with respect to matters addressed by Section
6.2(c), constitute or result in a Default under, or require any Consent pursuant
to, any Law or Order applicable to any Shareholder or to any Company Entity or
any of their respective Material Assets, where such Default, or any failure to
obtain such Consent, is reasonably likely to have, individually or in the
aggregate, a Company Material Adverse Effect.
(c) Other than in connection or compliance with the provisions of the
Securities Laws and applicable state corporate and securities Laws, and other
than Consents required from Regulatory Authorities, and other than notices to or
filings with the Internal Revenue Service or the Pension Benefit Guaranty
Corporation with respect to any employee benefit plans, or under the HSR Act,
and other than Consents, filings or notifications which, if not obtained or
made, are not reasonably likely to have, individually or in the aggregate, a
Company Material Adverse Effect, no notice to, filing with, or Consent of, any
public body or
-25-
authority is necessary for the consummation by such Shareholder of the
transactions contemplated in this Agreement.
6.3 PURCHASE FOR INVESTMENT; ACCREDITED INVESTOR STATUS. Such
---------------------------------------------------
Shareholder is acquiring shares of Acquiror Common Stock for investment and not
with a present view toward, or for sale in connection with, any distribution
thereof, nor with any present intention of distributing or selling the shares of
Acquiror Common Stock so acquired. Each of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, as Trustee of the Revocable Trust
Agreement of ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, dated July 12, 1996, and the ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Trust, dated 12/15/72 severally represents and warrants to Acquiror that he, she
or it is an "accredited investor" as defined in Rule 501(a) of the rules
promulgated under the Securities Act of 1933, as amended, and has such knowledge
and experience in financial and business matters as to be capable of evaluating
the merits and risks of such Shareholder's investment in the Acquiror Common
Stock; such Shareholder has the ability to bear the economic risks of such
investment; such Shareholder has the capacity to protect such Shareholder's own
interests in connection with the transactions contemplated by this Agreement;
and such Shareholder has had an opportunity to obtain such financial and other
information from the Acquiror as such Shareholder deems necessary or appropriate
in connection with evaluating the merits of the investment in the Acquiror
Common Stock.
6.4 STATEMENTS TRUE AND CORRECT. No representation or warranty of
---------------------------
such Shareholder contained in this Article 6 (or any statement with respect to
such Shareholder made in the Company and Shareholder Disclosure Memorandum with
respect to this Article 6) contains any untrue statement of material fact or
omits to state a Material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. All
documents that such Shareholder is responsible for filing with any Regulatory
Authority in connection with the transactions contemplated hereby will comply as
to form in all Material respects with the provisions of applicable Law.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
------------------------------------------
Acquiror hereby represents and warrants to Company and the Shareholders as
follows:
7.1 ORGANIZATION, STANDING, AND POWER. Acquiror 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 carry on its business as
now conducted and to own, lease and operate its Assets. Acquiror is duly
qualified or licensed to transact business as a foreign corporation in good
standing in the States of the United States and foreign jurisdictions where the
character of its Assets or the nature or conduct of its business requires it to
be so qualified or licensed, except for such jurisdictions in which the failure
to be so qualified or licensed is not reasonably likely to have, individually or
in the aggregate, an Acquiror Material Adverse Effect. The organizational
documents for Acquiror (other than the minute books), have
-26-
been made available to the Shareholders for their review and are true and
complete in all Material respects as in effect as of the date of this Agreement
and accurately reflect all material respects all amendments thereto.
7.2 AUTHORITY; NO BREACH BY AGREEMENT.
---------------------------------
(a) Acquiror has the corporate power and authority necessary to execute,
deliver and perform its obligations under this Agreement and the Other Acquiror
Agreements and to consummate the transactions contemplated hereby and thereby.
The execution, delivery and performance of this Agreement and the Other Acquiror
Agreements by Acquiror and the consummation by Acquiror of the transactions
contemplated herein and therein, including the Merger, have been duly and
validly authorized by all necessary corporate action in respect thereof on the
part of Acquiror. This Agreement represents a legal, valid, and binding
obligation of Acquiror, enforceable against Acquiror in accordance with its
terms (except in all cases as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, receivership, conservatorship,
moratorium, or similar Laws affecting the enforcement of creditors' rights
generally and except that the availability of the equitable remedy of specific
performance or injunctive relief is subject to the discretion of the court
before which any proceeding may be brought). Upon the execution and delivery
by Acquiror of the Other Acquiror Agreements, such Other Acquiror Agreements
will constitute the legal, valid and binding obligations of Acquiror,
enforceable against Acquiror in accordance with their respective terms (except
in all cases as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, receivership, conservatorship, moratorium, or
similar Laws affecting the enforcement of creditors' rights generally and except
that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceeding may be brought.
(b) Neither the execution and delivery of this Agreement by Acquiror and
Sub, nor the consummation by Acquiror and Sub of the transactions contemplated
hereby, nor compliance by Acquiror and Sub with any of the provisions hereof,
will (i) conflict with or result in a breach of any provision of Acquiror's or
Sub's Certificate or Articles of Incorporation or Bylaws, or any resolution
adopted by the board of directors or the shareholders of Acquiror or Sub, or
(ii) except as disclosed in Section 7.2 of the Acquiror Disclosure Memorandum,
constitute or result in a Default under, or require any Consent pursuant to, or
result in the creation of any Lien on any Asset of any Acquiror Entity under,
any Contract or Permit of any Acquiror Entity, where such Default or Lien, or
any failure to obtain such Consent, is reasonably likely to have, individually
or in the aggregate, an Acquiror Material Adverse Effect, or, (iii) subject to
receipt of the requisite Consents referred to in Section 10.1(b), constitute or
result in a Default under, or require any Consent pursuant to, any Law or Order
applicable to any Acquiror Entity or any of their respective Material Assets
(including any Acquiror Entity or any Company Entity becoming subject to or
liable for the payment of any Tax or any of the Assets owned by any Acquiror
Entity or any Company Entity being reassessed or revalued by any Taxing
authority), where such Default, or any failure to obtain such Consent, is
reasonably likely to have, individually or in the aggregate, an Acquiror
Material Adverse Effect.
-27-
(c) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws, and rules of
the NYSE, and other than Consents required from Regulatory Authorities, and
other than notices to or filings with the Internal Revenue Service or the
Pension Benefit Guaranty Corporation with respect to any employee benefit plans,
or under the HSR Act, and other than Consents, filings, or notifications which,
if not obtained or made, are not reasonably likely to have, individually or in
the aggregate, an Acquiror Material Adverse Effect, no notice to, filing with,
or Consent of, any public body or authority is necessary for the consummation by
Acquiror or Sub of the Merger and the other transactions contemplated in this
Agreement.
7.3 CAPITAL STOCK. The authorized capital stock of Acquiror consists
-------------
of (i) 150,000,000 shares of Acquiror Common Stock, of which 52,410,725 shares
are issued and outstanding as of the close of business on October 16, 1998, and
(ii) 60,000 shares of Acquiror Preferred Stock, none of which are issued and
outstanding as of the date of this Agreement. All of the issued and outstanding
shares of Acquiror Capital Stock are, and all of the shares of Acquiror Common
Stock to be issued in exchange for shares of Company Capital Stock upon
consummation of the Merger, when issued in accordance with the terms of this
Agreement, will be, duly and validly issued and outstanding and fully paid and
nonassessable under the DGCL. None of the outstanding shares of Acquiror
Capital Stock has been, and none of the shares of Acquiror Common Stock to be
issued in exchange for shares of Company Capital Stock upon consummation of the
Merger will be, issued in violation of any preemptive rights of the current or
past shareholders of Acquiror. At the Effective Time, each Shareholder will own
the Acquiror Common Stock to be issued in the Merger in exchange for shares of
Company Capital Stock upon consummation of the Merger free and clear of all
Liens (other than the shares of Acquiror Common Stock subject to the terms of
the Escrow Agreement).
7.4 SEC FILINGS; FINANCIAL STATEMENTS.
---------------------------------
(a) Acquiror has timely filed and delivered to Company and the Shareholders
all SEC Documents required to be filed by Acquiror since and including December
31, 1995 (the "Acquiror SEC Reports"). The Acquiror SEC Reports (i) at the time
filed, complied in all Material respects with the applicable requirements of the
Securities Laws and other applicable Laws and (ii) did not, at the time they
were filed (or, if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
Material fact or omit to state a Material fact required to be stated in such
Acquiror SEC Reports or necessary in order to make the statements in such
Acquiror SEC Reports, in light of the circumstances under which they were made,
not misleading.
(b) Each of the Acquiror Financial Statements (including, in each case, any
related notes) contained in the Acquiror SEC Reports, including any Acquiror SEC
Reports filed after the date of this Agreement until the Effective Time,
complied as to form in all Material respects with the applicable published rules
and regulations of the SEC with respect thereto, was prepared in accordance with
GAAP applied on a consistent basis throughout the periods involved (except as
may be indicated in the notes to such financial statements or, in the case of
unaudited interim statements, as permitted by Form 10-Q of the SEC), and fairly
presented in all Material
-28-
respects the consolidated financial position of Acquiror and its Subsidiaries as
at the respective dates and the consolidated results of operations and cash
flows for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be Material in amount or effect.
7.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1997,
------------------------------------
except as disclosed in the Acquiror Financial Statements delivered prior to the
date of this Agreement or as disclosed in Section 7.5 of the Acquiror Disclosure
Memorandum, there have been no events, changes or occurrences which are required
to be reported in a Current Report on Form 8-K or which have had, or are
reasonably likely to have, individually or in the aggregate, an Acquiror
Material Adverse Effect.
7.6 LEGAL PROCEEDINGS. There is no Litigation instituted or pending,
-----------------
or, to the Knowledge of Acquiror, threatened (or unasserted but considered
probable of assertion and which if asserted would have at least a reasonable
probability of an unfavorable outcome) against any Acquiror Entity, or to the
Knowledge of Acquiror against any director, employee or employee benefit plan of
any Acquiror Entity, or to the Knowledge of Acquiror against any Asset,
interest, or right of any of them, that is reasonably likely to have,
individually or in the aggregate, an Acquiror Material Adverse Effect, nor are
there any Orders of any Regulatory Authorities, other governmental authorities,
or arbitrators outstanding against any Acquiror Entity that are reasonably
likely to have, individually or in the aggregate, an Acquiror Material Adverse
Effect.
7.7 STATEMENTS TRUE AND CORRECT. No representation or warranty
---------------------------
contained in this Article 7 (or any statement made in the Acquiror Disclosure
Memorandum with respect to this Article 7) contains any untrue statement of
Material fact or omits to state a Material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. All documents that any Acquiror Entity or any Affiliate thereof is
responsible for filing with any Regulatory Authority in connection with the
transactions contemplated hereby will comply as to form in all Material respects
with the provisions of applicable Law.
7.8 AUTHORITY OF SUB. Sub is a corporation duly organized, validly
----------------
existing and in good standing under the Laws of the State of Georgia as a wholly
owned first-tier Subsidiary of Acquiror. The authorized capital stock of Sub
consists of 1,000 shares of Sub Common Stock, 100 of which are validly issued
and outstanding, fully paid and nonassessable and are owned by Acquiror free and
clear of any Lien. Sub has the corporate power and authority necessary to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement by Sub and the consummation by Sub of the
transactions contemplated herein, including the Merger, have been duly and
validly authorized by all necessary corporate action in respect thereof on the
part of Sub. This Agreement represents a legal, valid, and binding obligation
of Sub, enforceable against Sub in accordance with its terms (except in all
cases as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar Laws affecting the
enforcement of creditors' rights generally and except
-29-
that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceeding may be brought). Acquiror, as the sole shareholder of Sub, has voted
the shares of Sub Common Stock in favor of approval of this Agreement, as and to
the extent required by applicable Law.
7.9 ACCOUNTING, TAX AND REGULATORY MATTERS. To the Knowledge of
--------------------------------------
Acquiror, except as disclosed in Section 7.9 of the Acquiror Disclosure
Memorandum, no Acquiror Entity or any Affiliate thereof has taken or agreed to
take any action or has any Knowledge of any fact or circumstance that is
reasonably likely to (i) prevent the Merger from qualifying for pooling-of-
interests accounting treatment or as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code, or (ii) Materially impede or delay
receipt of any Consents of Regulatory Authorities referred to in Section 10.1(a)
or result in the imposition of a condition or restriction of the type referred
to in the last sentence of such Section.
ARTICLE 8
CONDUCT OF BUSINESS PENDING CONSUMMATION
----------------------------------------
8.1 AFFIRMATIVE COVENANTS OF COMPANY. From the date of this Agreement
--------------------------------
until the earlier of the Effective Time or the termination of this Agreement in
accordance with the terms hereof, unless the prior written consent of Acquiror
shall have been obtained, which shall not be unreasonably withheld or delayed,
except as otherwise expressly contemplated herein, or except as may be required
to carry out the purposes and intent of this Agreement, Company shall, and shall
cause each of its Subsidiaries to, (a) operate its business only in the usual,
regular and ordinary course, consistent with Company's past practice, (b)
preserve intact its business organization and Assets and maintain its rights and
franchises, other than voluntary resignations of key employees and (c) take no
action which would (i) Materially and adversely affect the ability of any Party
to obtain any Consents required for the transactions contemplated hereby without
imposition of a condition or restriction of the type referred to in the last
sentences of Section 10.1(a) or 10.1(b), or (ii) Materially and adversely affect
the ability of any Party to perform its covenants and agreements under this
Agreement.
8.2 NEGATIVE COVENANTS OF COMPANY. From the date of this Agreement
-----------------------------
until the earlier of the Effective Time or the termination of this Agreement in
accordance with the terms hereof, unless the prior written consent of Acquiror
shall have been obtained, which shall not be unreasonably withheld or delayed,
or except as otherwise expressly contemplated herein, Company covenants and
agrees that it will not do or agree or commit to do, or permit any of its
Subsidiaries to do or agree or commit to do, any of the following:
(a) amend the Articles of Incorporation, Bylaws or other governing
instruments of any Company Entity; or
(b) except in the ordinary course of Company's business consistent with
Company's past practice, incur any additional debt obligation or other
obligation for borrowed money (other than (i) indebtedness of a Company Entity
to another Company Entity
-30-
and (ii) indebtedness under the Company Entities' existing credit facilities)
or, except in the ordinary course of Company's business consistent with
Company's past practice, impose, or suffer the imposition, on any Asset of any
Company Entity of any Lien or permit any such Lien to exist (other than in
connection with Liens that are incurred in connection with the Company Entities'
existing credit facilities or that are disclosed in Section 8.2(b) of the
Company and Shareholder Disclosure Memorandum); or
(c) repurchase, redeem, or otherwise acquire or exchange, directly or
indirectly, any shares, or any securities convertible into any shares, of the
capital stock of any Company Entity, or declare or pay any dividend or make any
other distribution in respect of the capital stock of any Company Entity; or
(d) except pursuant to this Agreement, issue, sell, pledge, encumber,
authorize the issuance of, enter into any Contract to issue, sell, pledge,
encumber, or authorize the issuance of, or otherwise permit to become
outstanding, any additional shares of Company Capital Stock or any other capital
stock of any Company Entity, or any stock appreciation rights, or any option,
warrant, or other Equity Right with respect to any capital stock of any Company
Entity; or
(e) adjust, split, combine or reclassify any capital stock of any Company
Entity or issue or authorize the issuance of any other securities in respect of
or in substitution for shares of Company Capital Stock, or sell, lease, mortgage
or otherwise dispose of or otherwise encumber (x) any shares of capital stock of
any Company Subsidiary or (y) any Material Asset of any Company Entity other
than in the ordinary course of Company's business for reasonable and adequate
consideration or in connection with Liens incurred in the ordinary course of
Company's business consistent with Company's past practice; or
(f) except for purchases of U.S. Treasury securities or U.S. Government
agency securities, which in either case have maturities of three years or less,
purchase any securities or make any Material investment, either by purchase of
securities, contributions to capital, or transfers or purchases of Assets
constituting a business, in any Person other than a wholly owned Company
Subsidiary, or otherwise acquire direct or indirect control over any Person,
other than in connection with (i) foreclosures in the ordinary course of
Company's business, or (ii) the creation of new wholly owned Subsidiaries
organized to conduct or continue activities otherwise permitted by this
Agreement; or
(g) grant any increase in compensation or benefits to the employees,
officers or directors of any Company Entity, except in accordance with past
practice (including Company's ordinary and customary increases in employee
salaries in connection with periodic employee evaluations) disclosed in Section
8.2(g) of the Company and Shareholder Disclosure Memorandum or as required by
Law; pay any severance or termination pay or any bonus other than pursuant to
written policies or written Contracts in effect on the date of this Agreement
and disclosed in Section 8.2(g) of the Company and Shareholder Disclosure
Memorandum; and enter into or amend any severance agreements with officers of
any Company Entity; grant any Material increase in fees or other increases in
compensation or other benefits to directors of any Company
-31-
Entity except in accordance with Company's past practice disclosed in Section
8.2(g) of the Company and Shareholder Disclosure Memorandum; or voluntarily
accelerate the vesting of any stock-based compensation or employee benefits or
other Equity Rights; or
(h) enter into or amend any Material employment Contract between any
Company Entity and any Person (unless such amendment is required by Law) that
the Company Entity does not have the right to terminate without Liability (other
than Liability for services already rendered), at any time on or after the
Effective Time assuming that Company does not violate any Laws which would make
such a termination illegal; or
(i) adopt any new employee benefit plan of any Company Entity or terminate
or withdraw from, or make any Material change in or to, any existing employee
benefit plans of any Company Entity other than any such change that is required
by Law or that, in the opinion of counsel to Company, is necessary or advisable
to maintain the tax qualified status of any such plan, or make any distributions
from such employee benefit plans, except as required by Law, the terms of such
plans or consistent with Company's past practice; or
(j) make any significant change in any Tax or accounting methods or systems
of internal accounting controls; or
(k) other than in the ordinary course of Company's business, consistent
with Company's past practice, commence, which shall not include defending or
raising cross- or counter-claims in connection with any defense of Litigation,
any Litigation or settle any Litigation involving any Liability of any Company
Entity for Material money damages or Material restrictions upon the operations
of any Company Entity; or
(l) except in the ordinary course of Company's business, enter into,
modify, amend or terminate any Material Company Contract (including any loan
Contract with an unpaid balance exceeding $25,000) or waive, release, compromise
or assign any Material rights or claims under any Material Company Contract; or
(m) except in the ordinary course of Company's business consistent with
Company's past practice, fail to pay any accounts payable to the Company's top
twenty suppliers in accordance with the terms applicable to such suppliers set
forth on Schedule 5.9(g) of the Company and Shareholder Disclosure Memorandum.
8.3 COVENANTS OF ACQUIROR. From the date of this Agreement until the
---------------------
earlier of the Effective Time or the termination of this Agreement in accordance
with the terms hereof (except with respect to the covenants set forth in
Sections 8.3(c) and 8.3(d), which shall continue after the Effective Time),
unless the prior written consent of Company and the Indemnitor Representative
shall have been obtained which shall not be unreasonably withheld or delayed, or
except as otherwise expressly contemplated herein, Acquiror covenants and agrees
that it shall and shall cause each of its Subsidiaries to:
-32-
(a) continue to conduct its business and the business of its Subsidiaries
in a manner designed in its reasonable judgment, to enhance the long-term value
of the Acquiror Common Stock and the business prospects of the Acquiror Entities
and to the extent consistent therewith use all reasonable efforts to preserve
intact the Acquiror Entities' core businesses;
(b) take no action which would (i) Materially and adversely affect the
ability of any Party to obtain any Consents required for the transactions
contemplated hereby without imposition of a condition or restriction of the type
referred to in the last sentences of Section 10.1(a) or 10.1(b), or (ii)
Materially and adversely affect the ability of any Party to perform its
covenants and agreements under this Agreement; provided, that the foregoing
shall not prevent any Acquiror Entity from acquiring any Assets or the capital
stock or assets constituting the business of any other Person or entity with
annual revenue of less than $100,000,000 or from discontinuing or disposing of
any of its Assets or businesses if such action is, in the reasonable judgment of
Acquiror, desirable in the conduct of the business of Acquiror and its
Subsidiaries and, in the reasonable judgment of Acquiror, would enhance the
long-term value of the Acquiror Common Stock and the business prospects of the
Acquiror Entities;
(c) file a "shelf" registration statement pursuant to Rule 415 under the
Securities Act (the "Shelf Registration") with respect to all of the Registrable
Securities. Acquiror shall, subject to Section 3(f) of the Stock Restriction
and Registration Rights Agreement dated the date hereof by and among Acquiror
and the Shareholders, use its reasonable efforts to cause the Shelf Registration
to become effective no later than at or immediately following the Effective Time
and shall use its reasonable efforts to keep the Shelf Registration continuously
effective from the date such Shelf Registration is effective until the earlier
of (A) the date on which all Registrable Securities may be sold pursuant to Rule
144(k) under the 1933 Act or (B) the second anniversary of the date of the
Effective Time, in order to permit the prospectus forming a part thereof to be
usable by the Shareholders during such period;
(d) take all action necessary to comply with the agreement of Acquiror set
forth in Section 9.2; and
(e) use its reasonable efforts to cause to be delivered the opinion of
▇▇▇▇▇▇ & Bird LLP referenced in Section 10.3(d).
8.4 ADVERSE CHANGES IN CONDITION. From the date of this Agreement
----------------------------
until the earlier of the Effective Time or the termination of this Agreement in
accordance with the terms hereof, each Party agrees to give written notice
promptly to the other Party upon obtaining Knowledge thereof of the occurrence
or impending occurrence of any event or circumstance relating to it or any of
its Subsidiaries which (i) is reasonably likely to have, individually or in the
aggregate, a Company Material Adverse Effect or an Acquiror Material Adverse
Effect, as applicable, or (ii) would cause or constitute a Material breach of
any of its representations, warranties, or covenants contained herein, and to
use its reasonable efforts to prevent or promptly to remedy the same.
-33-
ARTICLE 9
ADDITIONAL AGREEMENTS
---------------------
9.1 CONSENT SOLICITATION STATEMENT; SHAREHOLDER APPROVAL. Company
----------------------------------------------------
shall prepare a Consent Solicitation Statement and mail such Consent
Solicitation Statement to the Shareholders for the purpose of voting upon
approval of this Agreement and such other related matters as it deems
appropriate, and the Parties shall furnish to each other all information
concerning them that they may reasonably request in connection with such Consent
Solicitation Statement. The Board of Directors of Company shall recommend to the
Shareholders to consent to the approval of the matters submitted for approval in
the Consent Solicitation Statement, and the Board of Directors and officers of
Company shall use their reasonable efforts to obtain such Shareholders'
approval.
9.2 EXCHANGE LISTING. Prior to and after the effectiveness of the
----------------
Shelf Registration, Acquiror shall use its reasonable efforts to list on the
NYSE, subject to official notice of issuance, the shares of Acquiror Common
Stock to be issued to the Shareholders pursuant to the Merger, and Acquiror
shall give all notices and make all filings with the NYSE required in connection
with the transactions contemplated herein.
9.3 APPLICATIONS; ANTITRUST NOTIFICATION. Acquiror shall promptly
------------------------------------
prepare and file, and Company and the Shareholders shall cooperate in the
preparation and, where appropriate, filing of, applications with all Regulatory
Authorities having jurisdiction over the transactions contemplated by this
Agreement seeking the requisite Consents necessary to consummate the
transactions contemplated by this Agreement. The Parties shall deliver to each
other copies of all filings, correspondence and orders to and from all
Regulatory Authorities in connection with the transactions contemplated hereby.
9.4 FILINGS WITH STATE OFFICES. Upon the terms and subject to the
--------------------------
conditions of this Agreement, Company shall execute and file the Certificate of
Merger with the Secretary of State of the State of Georgia in connection with
the Closing.
9.5 AGREEMENT AS TO EFFORTS TO CONSUMMATE. From the date of this
-------------------------------------
Agreement until the earlier of the Effective Time or the termination of this
Agreement in accordance with the terms hereof, subject to the terms and
conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws to consummate and make effective, as soon as
reasonably practicable after the date of this Agreement, the transactions
contemplated by this Agreement, including using its reasonable efforts to lift
or rescind any Order adversely affecting its ability to consummate the
transactions contemplated herein and to cause to be satisfied the conditions
referred to in Article 10; provided, that nothing herein shall preclude either
Party from exercising its rights under this Agreement. From the date of this
Agreement until the earlier of the Effective Time or the termination of this
Agreement in accordance with the terms hereof, each Party shall use, and shall
cause each of its Subsidiaries to use, its reasonable efforts to obtain all
Consents necessary
-34-
or desirable for the consummation of the transactions contemplated by this
Agreement. From the date of this Agreement until the earlier of the Effective
Time or the termination of this Agreement in accordance with the terms hereof,
each Party shall use its reasonable efforts to obtain the pooling letters
referenced in Section 10.1(d).
9.6 INVESTIGATION AND CONFIDENTIALITY. From the date of this
---------------------------------
Agreement until the earlier of the Effective Time or the termination of this
Agreement in accordance with the terms hereof:
(a) Each Party shall keep the other Party advised of all Material
developments of which such Party has Knowledge and which are relevant to its
business and to consummation of the Merger and shall permit the other Party to
make or cause to be made such investigation of the business and properties of
such Party and its Subsidiaries and of their respective financial and legal
conditions as the other Party reasonably requests, provided that the
Confidentiality Agreement is complied with in connection with such
investigation, and provided that such investigation shall be reasonably related
to the transactions contemplated hereby and shall not interfere unnecessarily
with normal operations. No investigation by a Party shall affect the
representations and warranties of the other Party.
(b) In addition to the Parties' respective obligations under the
Confidentiality Agreement, which is hereby reaffirmed and adopted, and
incorporated by reference herein, each Party shall, and shall cause its advisers
and agents to, maintain the confidentiality of all confidential information
furnished to it by the other Party concerning such Party's and its Subsidiaries'
businesses, operations, and financial positions, and shall not use such
information for any purpose except in furtherance of the transactions
contemplated by this Agreement. If this Agreement is terminated in accordance
with the terms hereof prior to the Effective Time, each Party shall promptly
return or certify the destruction of all documents and copies thereof, and all
work papers containing confidential information received from the other Party.
(c) Company shall use its reasonable efforts to exercise its rights under
confidentiality agreements entered into with Persons which were considering an
Acquisition Proposal with respect to Company to preserve the confidentiality of
the information relating to the Company Entities provided to such Persons and
their Affiliates and Representatives.
(d) Each Party agrees to give the other Party notice as soon as practicable
after any determination by it of any fact or occurrence relating to the other
Party which it has discovered through the course of its investigation and which
represents, or is reasonably likely to represent, either a breach of any
representation, warranty, covenant or agreement of the other Party or the
Shareholders or which has had or is reasonably likely to have, individually or
in the aggregate, a Company Material Adverse Effect or an Acquiror Material
Adverse Effect, as applicable.
9.7 PRESS RELEASES. From the date of this Agreement until the earlier
--------------
of the Effective Time or the termination of this Agreement in accordance with
the terms hereof, neither
-35-
Company, Acquiror nor any other signatory hereto, or any Affiliate thereof,
shall make or issue any press release or other public disclosure materially
related to this Agreement or any other transaction contemplated hereby without
first obtaining the written consent of the other Parties hereto; provided, that
nothing in this Section 9.7 shall be deemed to prohibit any Party from making
any disclosure which its counsel reasonably deems necessary or advisable in
order to satisfy such Party's disclosure obligations imposed by Law (however,
the disclosing Party must promptly notify the other Party that such disclosure
is being made, and promptly provide a copy of the press release for review as
quickly as reasonably possible).
9.8 CERTAIN ACTIONS.
---------------
(a) From the date of this Agreement until the earlier of the Effective Time
or the termination of this Agreement in accordance with the terms hereof, except
for negotiations with Acquiror, Company shall not, and shall direct each of its
subsidiaries, affiliates, officers, employees, representatives or agents not to,
and Shareholders will not, directly or indirectly, encourage, solicit, initiate,
act upon, entertain or engage in discussions or negotiations with, or provide
any non-public information to, any person concerning any merger, sale of
substantial assets, sales of shares of capital stock or similar transactions
involving Company and Shareholders or any subsidiary thereof or enter into any
agreement with respect thereto. Company and Shareholders will promptly
communicate to Acquiror the terms of any proposal which it may receive in
respect of all such transactions prohibited by the foregoing. From the date of
this Agreement until the earlier of the Effective Time or the termination of
this Agreement in accordance with the terms hereof, Acquiror and its
Subsidiaries and other Affiliates shall not enter into any binding or non-
binding agreements to acquire the capital stock or assets constituting the
business of any other person or entity with annual revenues in excess of
$100,000,000 and shall not file with the United States Federal Trade Commission
or the United States Department of Justice a notification and report form
required by the HSR Act in connection with any acquisition of the capital stock
or assets (by merger or otherwise) constituting the business of any person or
entity with annual revenues in excess of $100,000,000. It is understood by the
Parties and the Shareholders that the foregoing sentence shall not prohibit
Acquiror and its Subsidiaries and other Affiliates from engaging in discussions
with third parties or entering into confidentiality agreements or conducting due
diligence investigations with respect to any proposed acquisition of the capital
stock or assets constituting the business of any other person or entity.
(b) Acquiror agrees that, from the date of this Agreement until the earlier
of the Effective Time or the termination of this Agreement in accordance with
the terms hereof, neither Acquiror nor any of its Subsidiaries or Affiliates
will solicit to employ or employ any of the persons listed on Exhibit A of that
certain letter agreement dated August 26, 1998 between Acquiror and Company,
without obtaining the prior written consent of the Chief Executive Officer of
Company. Company agrees that, from the date of this Agreement until the earlier
of the Effective Time or the termination of this Agreement in accordance with
the terms hereof, neither Company nor any of its Subsidiaries or Affiliates will
solicit to employ or employ any of the persons listed on Exhibit B of that
certain letter agreement dated August 26, 1998
-36-
between Acquiror and Company, without obtaining the prior written consent of the
Chief Executive Officer of Acquiror.
9.9 ACCOUNTING AND TAX TREATMENT. From the date of this Agreement
----------------------------
until the earlier of the Effective Time or the termination of this Agreement in
accordance with the terms hereof, each of the Parties and each Shareholder
undertakes and agrees to use its or his best efforts to cause the Merger, and to
take no action which would cause the Merger not, to qualify for treatment as a
pooling of interests for accounting purposes and as a "reorganization" within
the meaning of Section 368(a) of the Internal Revenue Code for federal income
tax purposes.
9.10 STATE TAKEOVER LAWS. From the date of this Agreement until the
-------------------
earlier of the Effective Time or the termination of this Agreement in accordance
with the terms hereof, each Party shall take all necessary steps to exempt the
transactions contemplated by this Agreement from, or if necessary to challenge
the validity or applicability of, any applicable Takeover Law, including, but
not limited to, Section 14-2-1111 of the GBCC.
9.11 CHARTER PROVISIONS. From the date of this Agreement until the
------------------
earlier of the Effective Time or the termination of this Agreement in accordance
with the terms hereof, each Party shall take all necessary action to ensure that
the entering into of this Agreement and the consummation of the Merger and the
other transactions contemplated hereby do not and will not result in the grant
of any rights to any Person under the Articles of Incorporation, Bylaws or other
governing instruments of such Party (including, with respect to Company, any
Company Entity) or restrict or impair the ability of Acquiror or any of its
Subsidiaries to vote, or otherwise to exercise the rights of a shareholder with
respect to, shares of any Company Entity that may be directly or indirectly
acquired or controlled by them.
9.12 AGREEMENT OF AFFILIATES. Company has disclosed in Section 9.12
-----------------------
of the Company and Shareholder Disclosure Memorandum each Person whom it
reasonably believes is an "affiliate" of Company for purposes of Rule 145 under
the 1933 Act. Company shall use its reasonable efforts to cause each such
Person to deliver to Acquiror not later than 5 days after the date of this
Agreement, a written agreement, substantially in the form of Exhibit 4,
---------
providing that such Person will not sell, pledge, transfer, or otherwise dispose
of the shares of Company Capital Stock held by such Person except as
contemplated by such agreement or by this Agreement and will not sell, pledge,
transfer, or otherwise dispose of the shares of Acquiror Common Stock to be
received by such Person upon consummation of the Merger except in compliance
with applicable provisions of the 1933 Act and the rules and regulations
thereunder and, since the Merger will be accounted for by the pooling-of-
interests method of accounting, until such time as financial results covering at
least 30 days of combined operations of Acquiror and Company have been published
within the meaning of Section 201.01 of the SEC's Codification of Financial
Reporting Policies. Since the Merger will be accounted for using the pooling-
of-interests method of accounting, shares of Acquiror Common Stock issued to
such affiliates of Company in exchange for shares of Company Capital Stock shall
not be transferable until such time as financial results covering at least 30
days of combined operations of Acquiror and Company have been published within
the meaning of Section 201.01 of the SEC's Codification of Financial Reporting
Policies, regardless of whether each such affiliate has provided the written
agreement
-37-
referred to in this Section 9.12 (and Acquiror shall be entitled to place
restrictive legends upon certificates for shares of Acquiror Common Stock issued
to affiliates of Company pursuant to this Agreement to enforce the provisions of
this Section 9.12).
9.13 AGREEMENT TO CONSENT.
--------------------
(a) Each Shareholder hereby agrees to execute a written consent in lieu of
a special meeting of the Shareholders which will set forth such Shareholder's
approval and adoption of this Agreement and the Merger.
(b) From the date of this Agreement until the earlier of the Effective Time
or the termination of this Agreement in accordance with the terms hereof, each
Shareholder hereby agrees that the Shareholders shall collectively continue to
own a number and kind of shares of Company Capital Stock having the right to
cast a majority of the votes of the outstanding capital stock of the Company
entitled to vote on this Agreement and the Merger and any other proposals.
(c) To the extent inconsistent with the foregoing provisions of this
Section 9.13, each Shareholder hereby revokes any and all previous proxies with
respect to such Shareholder's shares of Company Capital Stock.
9.14 SUPPLEMENTAL DISCLOSURES.
------------------------
(a) Company and the Shareholders shall have the continuing right and
obligation up to and including the Closing to supplement promptly or amend the
Company and Shareholder Disclosure Memorandum with respect to any matter
hereafter arising or discovered by or otherwise coming to the attention of the
Shareholders or the Company which, if existing or known by the Shareholders or
the Company at the date of this Agreement, would have been required to be set
forth or listed in the Company and Shareholder Disclosure Memorandum, provided
--------
however, that Acquiror may unilaterally extend the Closing Date if necessary to
-------
allow Acquiror five (5) business days to review such supplements prior to the
Closing Date.
(b) Acquiror shall have the continuing right and obligation up to and
including the Closing to supplement promptly or amend the Acquiror Disclosure
Memorandum with respect to any matter hereafter arising or discovered by or
otherwise coming to the attention of Acquiror which, if existing or known by
Acquiror at the date of this Agreement, would have been required to be set forth
or listed in the Acquiror Disclosure Memorandum, provided however, that Company
----------------
and the Shareholders may unilaterally extend the Closing Date if necessary to
allow Company and the Shareholders five (5) business days to review such
supplements prior to the Closing Date.
9.15 EMPLOYEE MATTERS.
----------------
With respect to severance and employee welfare benefits and seniority,
Acquiror shall recognize for purposes of participation, eligibility, vesting and
benefit accruals (to the
-38-
extent applicable under the employee severance plans of Acquiror) the service of
any employee of Company prior to the Closing Date with any Company Entity or any
of their respective predecessors, if such service is recognized for such
purposes by such Company Entity. Each employee of Company shall be entitled to
receive severance benefits pursuant to employee severance plans of Acquiror if,
and only if, such employee is not also entitled to receive severance benefits
pursuant to an existing employment contract between the Company and such
employee.
ARTICLE 10
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
-------------------------------------------------
10.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
---------------------------------------
obligations of each Party and the Shareholders to perform this Agreement and
consummate the Merger and the other transactions contemplated hereby are subject
to the satisfaction of the following conditions, unless waived pursuant to
Section 13.7:
(a) REGULATORY APPROVALS. All Consents of, filings and registrations with,
--------------------
and notifications to, all Regulatory Authorities required for consummation of
the Merger shall have been obtained or made and shall be in full force and
effect and all waiting periods required by Law shall have expired. No Consent
obtained from any Regulatory Authority which is necessary to consummate the
transactions contemplated hereby shall be conditioned or restricted in a manner
(including requirements relating to the raising of additional capital or the
disposition of Assets) which in the reasonable judgment of the Board of
Directors of either Party would so Materially and adversely impact the economic
or business benefits of the transactions contemplated by this Agreement that,
had such condition or requirement been known, such Party would not, in its
reasonable judgment, have entered into this Agreement.
(b) CONSENTS AND APPROVALS. Each Party shall have obtained any and all
----------------------
Consents required to be obtained by it for consummation of the Merger (other
than those referred to in Section 10.1(a)) or for the preventing of any Default
under any Contract or Permit of such Party which, if not obtained or made, is
reasonably likely to have, individually or in the aggregate, a Company Material
Adverse Effect or an Acquiror Material Adverse Effect, as applicable. No
Consent so obtained which is necessary to consummate the transactions
contemplated hereby shall be conditioned or restricted in a manner which in the
reasonable judgment of the Board of Directors of either Party would so
materially adversely impact the economic or business benefits of the
transactions contemplated by this Agreement that, had such condition or
requirement been known, such Party would not, in its reasonable judgment, have
entered into this Agreement.
(c) LEGAL PROCEEDINGS. No court or Regulatory Authority of competent
-----------------
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
Law or Order (whether temporary, preliminary or permanent) or taken any other
action which prohibits, restricts or makes illegal consummation of the
transactions contemplated by this Agreement.
-39-
(d) POOLING LETTERS. Each of the Parties shall have received letters,
---------------
dated as of the Effective Time, addressed to Acquiror, in form and substance
reasonably acceptable to each Party, from KPMG Peat Marwick LLP to the effect
that the Merger will qualify for pooling-of-interests accounting treatment.
Each of the Parties also shall have received letters, dated as of the Effective
Time, addressed to Company, in form and substance reasonably acceptable to each
Party, from PricewaterhouseCoopers LLP to the effect that such firm is not aware
of any matters relating to Company and its Subsidiaries which would preclude the
Merger from qualifying for pooling-of-interests accounting treatment.
10.2 CONDITIONS TO OBLIGATIONS OF ACQUIROR. The obligations of
-------------------------------------
Acquiror to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by Acquiror pursuant to Section 13.7(a):
(a) REPRESENTATIONS AND WARRANTIES. For purposes of this Section 10.2(a),
------------------------------
the accuracy of the representations and warranties of Company and the
Shareholders set forth in this Agreement shall be assessed as of the date of
this Agreement and as of the Effective Time with the same effect as though all
such representations and warranties had been made on and as of the Effective
Time (provided that representations and warranties which are confined to a
specified date shall speak only as of such date). On and as of the Effective
Time, the representations and warranties set forth in Section 5.3 shall be true
and correct. On and as of the Effective Time, the representations and
warranties set forth in Sections 5.19, 5.20, and 5.21 shall be true and correct
in all Material respects. On and as of the Effective Time, there shall not
exist inaccuracies in the representations and warranties of Company and the
Shareholders set forth in this Agreement (including the representations and
warranties set forth in Sections 5.3, 5.19, 5.20, and 5.21) such that the
aggregate effect of such inaccuracies, together with any supplemental
disclosures made pursuant to Section 9.14(a), has, or is reasonably likely to
have, a Company Material Adverse Effect; provided that, for purposes of this
sentence only, those representations and warranties which are qualified by
references to "Company Material Adverse Effect" shall be deemed not to include
such qualifications.
(b) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all of the
---------------------------------------
agreements and covenants of Company and the Shareholders to be performed and
complied with pursuant to this Agreement and the other agreements contemplated
hereby prior to the Effective Time shall have been duly performed and complied
with in all Material respects.
(c) CERTIFICATES. Each of the Shareholders (as to matters described below
------------
involving Shareholders) and Company (as to matters described below involving
Company) shall have delivered to Acquiror (i) a certificate, dated as of the
Effective Time and signed by each Shareholder and on behalf of the Company by
its chief executive officer and its chief financial officer, to the effect that
the conditions set forth in Section 10.1 as they relate to Company and in
Section 10.2(a) and 10.2(b) have been satisfied, and (ii) certified copies of
resolutions duly adopted by Company's Board of Directors and Shareholders
evidencing the taking of all corporate action necessary to authorize the
execution, delivery and performance of
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this Agreement, and the consummation of the transactions contemplated hereby,
all in such reasonable detail as Acquiror and its counsel shall request.
(d) AFFILIATES AGREEMENTS. Acquiror shall have received from each
---------------------
affiliate of Company the letter referred to in Section 9.12, to the extent
necessary to assure in the reasonable judgment of Acquiror that the transactions
contemplated hereby will qualify for pooling-of-interests accounting treatment.
(e) NONCOMPETITION AGREEMENTS. Each of ▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------
shall have executed and delivered to Acquiror a Noncompetition and
Confidentiality Agreement in substantially the form of Exhibit 2 (collectively,
---------
the "Noncompetition Agreements").
(f) ESCROW AGREEMENT. Escrow Agent and each Shareholder Indemnitor shall
----------------
have executed and delivered to Acquiror the Escrow Agreement, in the form
attached hereto as Exhibit 1.
---------
(g) RELEASES. Each of the Shareholders shall have executed and delivered
--------
to Acquiror a Release, in the form attached hereto as Exhibit 3.
----------
(h) SATISFACTION LETTERS. Acquiror shall have received, from each of
--------------------
Prudential Securities Incorporated, Chorey, Taylor & ▇▇▇▇, A Professional
Corporation, PricewaterhouseCoopers LLP, Hunton & ▇▇▇▇▇▇▇▇, LAW Engineering and
Environmental Services, Inc., ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C., and ▇▇▇▇▇▇,
▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, P.A. letters confirming payment in full of all amounts owing
to each such party by Company and releasing Acquiror and Company from any and
all obligations to pay any such party any amount after the Effective Time for
services rendered on or prior to the Closing Date.
10.3 CONDITIONS TO OBLIGATIONS OF COMPANY AND THE SHAREHOLDERS. The
---------------------------------------------------------
obligations of Company and the Shareholders to perform this Agreement and
consummate the Merger and the other transactions contemplated hereby are subject
to the satisfaction of the following conditions, unless waived by Company and
the Indemnitor Representative pursuant to Section 13.7(b):
(a) REPRESENTATIONS AND WARRANTIES. For purposes of this Section 10.3(a),
------------------------------
the accuracy of the representations and warranties of Acquiror set forth in this
Agreement shall be assessed as of the date of this Agreement and as of the
Effective Time with the same effect as though all such representations and
warranties had been made on and as of the Effective Time (provided that
representations and warranties which are confined to a specified date shall
speak only as of such date). On and as of the Effective Time, the
representations and warranties of Acquiror set forth in Section 7.3 shall be
true and correct. On and as of the Effective Time, the representations and
warranties of Acquiror set forth in Section 7.9 shall be true and correct in all
Material respects. On and as of the Effective Time, there shall not exist
inaccuracies in the representations and warranties of Acquiror set forth in this
Agreement (including the representations and warranties set forth in Sections
7.3, and 7.9) such that the
-41-
aggregate effect of such inaccuracies, together with any supplemental
disclosures made pursuant to Section 9.14(b), has, or is reasonably likely to
have, an Acquiror Material Adverse Effect; provided that, for purposes of this
sentence only, those representations and warranties which are qualified by
references to "Acquiror Material Adverse Effect" shall be deemed not to include
such qualifications.
(b) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all of the
---------------------------------------
agreements and covenants of Acquiror to be performed and complied with pursuant
to this Agreement and the other agreements contemplated hereby prior to the
Effective Time shall have been duly performed and complied with in all Material
respects.
(c) CERTIFICATES. Acquiror shall have delivered to the Shareholders (i) a
------------
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer and its chief financial officer, to the effect that the
conditions set forth in Section 10.1 as they relate to Acquiror and in Section
10.3(a) and 10.3(b) have been satisfied, and (ii) certified copies of
resolutions duly adopted by Acquiror's Board of Directors and Sub's Board of
Directors and sole shareholder evidencing the taking of all corporate action
necessary to authorize the execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated hereby, all in
such reasonable detail as Company and its counsel shall request.
(d) TAX MATTERS. Company shall have received a written opinion of counsel,
-----------
which shall state that the Shareholders may rely thereon, from ▇▇▇▇▇▇ & Bird
LLP, in form reasonably satisfactory to Company (the "Tax Opinion"), to the
effect that (i) the Merger will constitute a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code, and (ii) the exchange in the
Merger of Company Capital Stock for Acquiror Common Stock will not give rise to
recognition of gain or loss to the Shareholders with respect to such exchange
(except to the extent of any cash received). In rendering such Tax Opinion,
such counsel shall be entitled to rely upon representations substantially in the
form attached hereto as Exhibit 5 of the Shareholders and of officers of Company
---------
and Acquiror reasonably satisfactory in form and substance to such counsel.
Acquiror shall bear all fees and expenses included in the preparation and
delivery of the Tax Opinion.
(e) ESCROW AGREEMENT. Acquiror and Escrow Agent shall have executed and
----------------
delivered to the Shareholder Indemnitors the Escrow Agreement, in the form
attached hereto as Exhibit 1.
---------
(f) NONCOMPETITION AGREEMENTS. The Acquiror shall have executed and
-------------------------
delivered to ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ the Noncompetition Agreements.
(g) SHELF REGISTRATION AND LISTING ON NYSE. The Shelf Registration shall
--------------------------------------
have been declared effective by the SEC and the shares of Acquiror Common Stock
to be issued pursuant to Section 3.1(c) hereof shall have been listed for
trading on the NYSE, subject to official notice of issuance; provided, however,
that if the Shelf Registration has not been declared effective by the SEC prior
to Closing because of requirements by a third party that can
-42-
only be satisfied after the Closing has occurred and that the Company and the
Shareholders have reasonable assurance will be satisfied immediately after
Closing, the condition contained in this Section 10.3(g) shall not apply.
ARTICLE 11
INDEMNIFICATION
---------------
11.1 AGREEMENT OF SHAREHOLDER INDEMNITORS TO INDEMNIFY. Subject to
-------------------------------------------------
the terms and conditions of this Article 11 and the Escrow Agreement,
Shareholder Indemnitors jointly and severally (except with respect to (i) the
representation and warranties of the Shareholder Indemnitors contained in
Article 6, (ii) the covenants or agreements of the Shareholder Indemnitors made
in or pursuant to this Agreement and (iii) the representations, warranties and
covenants of the Shareholder Indemnitors made in or pursuant to the Other
Shareholder Agreements, in each of which cases such obligation shall be several
as to each Shareholder Indemnitor's individual representations, warranties,
covenants and agreements (but as to representations, warranties, covenants and
agreements of the remaining Shareholders made in or pursuant to this Agreement
or the Other Shareholder Agreements, the obligations of the Shareholder
Indemnitors shall be joint and several as between the Shareholder Indemnitors))
agree to indemnify, defend, and hold harmless Acquiror Indemnitees, and each of
them, from, against, for and in respect of any and all Losses asserted against,
or paid, suffered or incurred by, an Acquiror Indemnitee and resulting from,
based upon, or arising out of:
(a) the inaccuracy, untruth, incompleteness or breach of any representation
or warranty of any Shareholder or Company contained in or made pursuant to this
Agreement or any Other Shareholder Agreement;
(b) a breach of or failure to perform any covenant or agreement of any
Shareholder or Company made in this Agreement or any Other Shareholder
Agreement; or
(c) the case styled ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇-▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇
-------------------------------------------------------
▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ v. World Carpets, Inc., Civil Action No. 4:98-CV-
--------------------------------------------------
120-HLM.
11.1A AGREEMENT OF ACQUIROR INDEMNITOR TO INDEMNIFY. Subject to the
---------------------------------------------
terms and conditions of this Article 11, Acquiror Indemnitor agrees to
indemnify, defend, and hold harmless Shareholder Indemnitees, and each of them,
from, against, for and in respect of any and all Losses asserted against, or
paid, suffered or incurred by, a Shareholder Indemnitee and resulting from,
based upon, or arising out of:
(a) a breach of or failure to perform any covenant or agreement of Acquiror
Indemnitor made in this Agreement or any Other Acquiror Agreement.
11.2 PROCEDURES FOR INDEMNIFICATION.
------------------------------
-43-
(a) An Indemnification Claim shall be made by an Indemnitee by delivery of
a written notice to the Acquiror or the Indemnitor Representative, as
appropriate, requesting indemnification and specifying in reasonable detail the
basis on which indemnification is sought and the amount of asserted Losses and,
in the case of a Third Party Claim, containing (by attachment or otherwise) such
other information as such Indemnitee shall have concerning such Third Party
Claim.
(b) If the Indemnification Claim involves a Third Party Claim, the
procedures set forth in Section 11.3 shall be observed by the Indemnitee and the
Acquiror or the Indemnitor Representative, as appropriate.
(c) If the Indemnification Claim involves a matter other than a Third Party
Claim, the Acquiror or the Indemnitor Representative, as appropriate, shall have
30 days after actual receipt by him or it of the written notice described in
Section 11.2(a) to object to such Indemnification Claim by delivery of a written
notice of such objection to the Indemnitee specifying in reasonable detail the
basis for such objection. Failure to timely so object shall constitute a final
and binding acceptance of the Indemnification Claim by the Acquiror, or the
Indemnitor Representative on behalf of all Shareholder Indemnitors, as
appropriate, and the Indemnification Claim shall be paid in accordance with
subsection (d) hereof. If an objection is timely interposed by the Acquiror or
the Indemnitor Representative, as appropriate, and the dispute is not resolved
by the Indemnitee and the Acquiror or the Indemnitor Representative, as
appropriate, within 15 days after the date the Indemnitee receives such
objection, such dispute shall be resolved by arbitration as provided in Section
11.12.
(d) Upon determination of the amount of an Indemnification Claim, whether
by agreement between the Acquiror or the Indemnitor Representative, as
appropriate, and the Indemnitee or by an arbitration award or by any other final
adjudication, the Indemnitors shall pay the amount of such Indemnification Claim
within thirty days after the date such amount is determined. Subject to the
terms of the Escrow Agreement, such payment shall be made by delivering to the
Indemnitee certificates, duly endorsed for transfer, representing that number of
shares of Acquiror Common Stock having a value (based on the Closing Price),
rounded to the nearest share, equal to the amount due such Indemnitee hereunder,
in each case subject to Sections 11.6 and 11.7.
11.3 THIRD PARTY CLAIMS. The obligations and liabilities of the
------------------
parties hereunder with respect to a Third Party Claim shall be subject to the
following terms and conditions:
(a) The Indemnitee shall give the Acquiror or the Indemnitor
Representative, as appropriate, written notice of a Third Party Claim promptly
after receipt by the Indemnitee of notice thereof, and the Acquiror, or the
Indemnitor Representative on behalf of the Shareholder Indemnitors, as
appropriate, may undertake the defense, compromise and settlement thereof by
representatives of its own choosing reasonably acceptable to the Indemnitee.
The failure of the Indemnitee to notify the Acquiror or the Indemnitor
Representative, as appropriate, of such Third Party Claim shall not relieve any
Indemnitor of any liability that any
-44-
Indemnitor may have with respect to such Third Party Claim except to the extent
the defense of such Third Party Claim is prejudiced by such failure. If the
Indemnitee desires to participate in, but not control, any such defense,
compromise and settlement, it may do so at its sole cost and expense. If,
however, the Acquiror or the Indemnitor Representative, as appropriate, fails or
refuses to undertake the defense of such Third Party Claim within fifteen (15)
days after notice of such claim has been actually received by the Acquiror or
the Indemnitor Representative, as appropriate, the Indemnitee shall have the
right to undertake the defense, compromise and settlement of such claim with
counsel of its own choosing reasonably acceptable to the Acquiror or the
Indemnitor Representative, as appropriate. In the circumstances described in the
preceding sentence, the Indemnitee shall, promptly upon its assumption of the
defense of such claim, make an Indemnification Claim as specified in Section
11.2 which shall be deemed an Indemnification Claim that is not a Third Party
Claim for the purposes of the procedures set forth herein.
(b) No compromise or settlement of a Third Party Claim involving the
asserted liability of the Indemnitors under this Article shall be made without
the prior written consent by or on behalf of the Acquiror or the Indemnitor
Representative, as appropriate, which consent shall not be unreasonably withheld
or delayed. Consent shall be presumed in the case of settlements of $100,000 or
less where the Acquiror or the Indemnitor Representative, as appropriate, has
not responded within ten business days after actually receiving from the
Indemnitee notice of a proposed settlement. If the Acquiror or the Indemnitor
Representative, as appropriate, assumes the defense of such a Third Party Claim,
(a) no compromise or settlement thereof may be effected by the Acquiror or the
Indemnitor Representative, as appropriate, without the Indemnitee's consent,
which consent shall not be unreasonably withheld or delayed, unless (i) there is
no finding or admission of any violation of law or any violation of the rights
of any person and no effect on any other claim that may be made against the
Indemnitee, (ii) the sole relief provided is monetary damages that are paid in
full by the Indemnitors, and (iii) the compromise or settlement includes, as an
unconditional term thereof, the giving by the claimant or the plaintiff to the
Indemnitee of a release, in form and substance reasonably satisfactory to the
Indemnitee, from all liability in respect of such Third Party Claim, and (b) the
Indemnitee shall have no liability with respect to any compromise or settlement
thereof effected without its consent (if such consent was not unreasonably
withheld or delayed).
(c) In connection with the defense, compromise or settlement of any Third
Party Claim, the parties to this Agreement shall execute such powers of attorney
as may reasonably be necessary or appropriate to permit participation of counsel
selected by any party hereto and, as may reasonably be related to any such claim
or action, shall provide access to the counsel, accountants and other
representatives of each party during normal business hours to all properties,
personnel, books, tax records, contracts, commitments and all other business
records of such other party and will furnish to such other party copies of all
such documents as may reasonably be requested (certified, if requested).
11.4 EXCLUSIVE REMEDY. The Parties and the Shareholders acknowledge
----------------
and agree that, except as provided in Section 13.14 of this Agreement, the
indemnification provisions in this Article 11 shall provide the exclusive remedy
of the Parties hereto and the Shareholders with respect to this Agreement.
-45-
11.5 SURVIVAL. All representations, warranties and agreements of the
--------
Company, the Shareholders and Acquiror contained in this Agreement or in any
Other Shareholder Agreements or any Other Acquiror Agreements shall survive the
consummation of the transactions provided for herein and therein for such period
of time as an Indemnification Claim for breach thereof may be made as provided
in Section 11.6 hereof, notwithstanding any investigation conducted with respect
thereto or any knowledge acquired as to the accuracy or inaccuracy of any such
representation or warranty.
11.6 TIME LIMITATIONS.
----------------
(a) The Shareholder Indemnitors will have no Liability to the Acquiror
Indemnitees under Article 11 of this Agreement in connection with this Agreement
or the transactions contemplated hereby, including any breach of any of the
representations, warranties, covenants or agreements made or to be performed by
the Company or the Shareholders contained in this Agreement and/or the Other
Shareholder Agreements or the Other Acquiror Agreements contemplated hereby,
unless notice asserting a bona fide Indemnification Claim based thereon is given
to the Indemnitor Representative prior to (i) with respect to any
Indemnification Claim asserted under clause (c) of Section 11.1, thirty (30)
days after the date of a final nonappealable judgment by a court of competent
jurisdiction is rendered in each such litigation; (ii) with respect to any
Indemnification Claim asserted under clause (a) of Section 11.1 based upon the
inaccuracy, untruth, incompleteness or breach of any representation or warranty
of any Shareholder or the Company contained in Sections 5.1, 5.2, 5.8 except for
subsection(c), 5.10, 5.11, 5.12, 5.13, 5.14, 5.15, 5.16, 5.17, 5.20, 5.21, 5.23,
5.25, 6.1, 6.2, 6.3 or 6.4 one (1) year from the Effective Time; and (iii) with
respect to all other Indemnification Claims not covered by (i) or (ii), the
earlier of (i) one (1) year from the Effective Time, or (ii) the date of
issuance of the first independent accountants report on the consolidated
financial statements of Acquiror which reflect the combined results of Acquiror
and Company subsequent to the Effective Time (but in no event shall any such
time period be longer than the maximum period permitted in order for the Merger
to qualify for "pooling of interests" accounting treatment).
(b) The Acquiror Indemnitor will have no Liability to the Shareholder
Indemnitees under Article 11 of this Agreement in connection with this Agreement
or the transactions contemplated hereby, including any breach of any of the
representations, warranties, covenants or agreements made or to be performed by
the Acquiror contained in this Agreement and/or the Other Shareholder Agreements
or the Other Acquiror Agreements contemplated hereby, unless notice asserting a
bona fide Indemnification Claim based thereon is given to the Acquiror prior to
the earlier of (i) one (1) year from the Effective Time, or (ii) the date of
issuance of the first independent accountants report on the consolidated
financial statements of Acquiror which reflect the combined results of Acquiror
and Company subsequent to the Effective Time (but in no event shall such time
period be longer than the maximum period permitted in order for the Merger to
qualify for "pooling of interests" accounting treatment).
11.7 LIMITATIONS AS TO AMOUNT.
------------------------
-46-
(a) Shareholder Indemnitors shall have no Liability with respect to the
matters described in clauses (a) or (b) of Section 11.1 until the total of all
Losses described in Section 11.1(a) and (b) with respect thereto exceeds
$2,000,000 and then only for the amount by which such Losses described in
Section 11.1(a) and (b) exceed $2,000,000. Shareholder Indemnitors shall be
liable for all Losses with respect to the matters described in clause (c) of
Section 11.1. The limitations set forth in this Section 11.7(a) shall not apply
to: (i) any intentional misrepresentation or breach of warranty of any
Indemnitor or any intentional failure to perform or comply with any covenant or
agreement of any Indemnitor or (ii) any breach of the representations and
warranties contained in Section 5.14, and the Indemnitors shall be liable for
all Losses with respect thereto.
(b) In no event shall the aggregate liability of the Indemnitors under this
Article 11, this Agreement, the Other Shareholder Agreements and the Other
Acquiror Agreements entered into in connection with the consummation of the
transactions contemplated hereby, exceed the lesser of $15,000,000 or the amount
which is ten percent (10%) of the total number of shares of Acquiror Common
Stock issued in the Merger multiplied by the Closing Price (but in any event
such aggregate liability shall not be greater than the maximum amount permitted
in order for the Merger to qualify for "pooling of interests" accounting
treatment).
11.8 TAX EFFECT AND INSURANCE. The liability of the Indemnitors with
------------------------
respect to any Indemnification Claim shall be reduced by the tax benefit
actually realized and any insurance proceeds received by the Indemnitees as a
result of any Losses upon which such Indemnification Claim is based, and shall
include any tax detriment actually suffered by the Indemnitees as a result of
such Losses. The amount of any such tax benefit or detriment shall be
determined by taking into account the effect, if any and to the extent
determinable, of timing differences resulting from the acceleration or deferral
of items of gain or loss resulting from such Losses and shall otherwise be
determined so that payment by the Indemnitors of the Indemnification Claim, as
adjusted to give effect to any such tax benefit or detriment, will make the
Indemnitee as economically whole as is reasonably practical with respect to the
Losses upon which the Indemnification Claim is based. Any dispute as to the
amount of such tax benefit or detriment shall be resolved by arbitration as
provided in Section 11.12 of this Agreement.
11.9 ESCROW. Upon notice to the Indemnitor Representative specifying in
------
reasonable detail the basis therefor, an Acquiror Indemnitee may give notice of
a Claim to any amount to which it may be entitled under this Article 11 under
the Escrow Agreement. To the extent shares of Acquiror Common Stock remain
available to Acquiror under the Escrow Agreement, Acquiror shall satisfy any
Indemnification Claim in accordance with the provisions of the Escrow Agreement
before pursuing other remedies for an Indemnification Claim against the
Shareholder Indemnitors.
11.10 SUBROGATION. Upon payment in full of any Indemnification Claim
-----------
the Indemnitors shall be subrogated to the extent of such payment to the rights
of the Indemnitee against any person or entity with respect to the subject
matter of such Indemnification Claim or Third Party Claim.
-47-
11.11 APPOINTMENT OF INDEMNITOR REPRESENTATIVE. Each Shareholder
----------------------------------------
Indemnitor constitutes and appoints the Indemnitor Representative as his or her
true and lawful attorney-in-fact to act for and on behalf of such Shareholder
Indemnitor in all matters relating to or arising out of this Article 11 and the
Liability or asserted Liability of such Shareholder Indemnitor hereunder,
including specifically, but without limitation, accepting and agreeing to the
Liability of such Shareholder Indemnitor with respect to any Indemnification
Claim, objecting to any Indemnification Claim, disputing the Liability of such
Shareholder Indemnitor, or the amount of such Liability, with respect to any
Indemnification Claim and prosecuting and resolving such dispute as herein
provided, accepting the defense, compromise and settlement of any Third Party
Claim on behalf of such Shareholder Indemnitor or refusing to accept the same,
settling and compromising the Liability of such Shareholder Indemnitor
hereunder, instituting and prosecuting such actions (including arbitration
proceedings) as the Indemnitor Representative shall deem appropriate in
connection with any of the foregoing, retaining counsel, accountants, appraisers
and other advisers in connection with any of the foregoing, all for the account
of the Shareholder Indemnitor, such Shareholder Indemnitor agreeing to be fully
bound by the acts, decisions and agreements of the Indemnitor Representative
taken and done pursuant to the authority herein granted. Each Shareholder
Indemnitor hereby agrees to indemnify and to save and hold harmless the
Indemnitor Representative from any Liability incurred by the Indemnitor
Representative based upon or arising out of any act, whether of omission or
commission, of the Indemnitor Representative pursuant to the authority herein
granted, other than acts, whether of omission or commission, of the Indemnitor
Representative that constitute gross negligence or willful misconduct in the
exercise by the Indemnitor Representative of the authority herein granted. The
Indemnitor Representative, or any successor hereafter appointed, may resign and
shall be discharged of his duties hereunder upon the appointment of a successor
Indemnitor Representative, as hereinafter provided. In case of such
resignation, or in the event of the death or inability to act of the Indemnitor
Representative, a successor shall be named from among the Shareholders by a
majority of the Shareholders. Each such successor Indemnitor Representative
shall have all the power, authority, rights and privileges hereby conferred upon
the original Indemnitor Representative, and the term "Indemnitor Representative"
as used herein shall be deemed to include such successor Indemnitor
Representative.
11.12 ARBITRATION. Any dispute, claim or controversy relating in any
-----------
way to this Agreement or to any of the Other Shareholder Agreements or any of
the Other Acquiror Agreements, or the transactions contemplated hereby or
thereby, whether in contract, in tort or otherwise, except a request for
equitable, injunctive or restraining relief (as described in Section 13.14) or
to enforce an arbitration award, shall be resolved by arbitration in Atlanta,
Georgia, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association ("AAA"), subject to the limitations of this Section
11.12. This agreement to arbitrate will be specifically enforceable under the
prevailing law of any court having jurisdiction. Notice of a demand for
arbitration will be filed in writing with the applicable other signatory hereto
and with AAA. The demand for arbitration shall be made in accordance with the
specific terms of Article 11 of this Agreement, if applicable, and otherwise
within a reasonable time after the claim, dispute or other matter in question
has arisen, and in no event shall any such demand be made after the date when
institution of legal or equitable proceedings based on such claim, dispute or
other matter in question would be barred by the applicable statute of
limitations. The signatories hereto agree that three (3) arbitrators
experienced in the matters at issue shall arbitrate all disputes. The
arbitrators shall be selected by the joint agreement of the signatories hereto,
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but if they do not so agree within twenty (20) days after the date of the notice
of a demand for arbitration referred to above, the selection shall be made
pursuant to the Commercial Arbitration Rules of AAA from the panels of
arbitrators maintained by AAA. The award rendered by the arbitrators will be
final, judgment may be entered upon it in any court having jurisdiction thereof,
and the award will not be subject to vacation, modification or appeal, except to
the extent permitted by Sections 10 and 11 of the Federal Arbitration Act, the
terms of which Sections the signatories hereto agree shall apply. Each
participant in the arbitration shall pay its own expenses of arbitration, and
the expenses of the arbitrators shall be equally shared; provided, however, that
if in the opinion of the arbitrators any claim, or any defense or objection
thereto, was unreasonable, the arbitrators may assess, as part of their award,
all or any part of the arbitration expenses against the participant(s) raising
such unreasonable claim, defense or objection.
11.13 CONTRIBUTION AGREEMENT. Notwithstanding any joint and several
----------------------
liability of the Shareholder Indemnitors under certain provisions of this
Agreement, the Shareholder Indemnitors hereby agree among themselves that each
Shareholder Indemnitor's respective liability and obligation under any of said
provisions shall be equal to the other Shareholder Indemnitor's liability and
obligation under such provision. If any liability or obligation under this
Agreement is paid or otherwise satisfied by any Shareholder Indemnitor in excess
of his or its proportionate share, such Shareholder Indemnitor shall have an
immediate right of contribution from the other Shareholder Indemnitor for such
excess.
ARTICLE 12
TERMINATION
-----------
12.1 TERMINATION. Notwithstanding any other provision of this
-----------
Agreement, and notwithstanding the approval of this Agreement by the
Shareholders, this Agreement may be terminated and the Merger abandoned at any
time prior to the Effective Time:
(a) By mutual written consent of Acquiror and Company; or
(b) By the Acquiror or Company (provided that the terminating Party is not
then in Material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event of an inaccuracy or
inaccuracies in the representations and warranties of the other Party contained
in this Agreement and also, in the case of Acquiror, of any Shareholder
contained in this Agreement, which cannot be or has not been cured within 30
days after the giving of notice to the breaching Party, or breaching
Shareholder, of such breach, which notice includes a reasonably detailed
description of such inaccuracy or inaccuracies; but only if the existence of
such inaccuracy or inaccuracies would give the terminating Party the right to
refuse to perform this Agreement and consummate the Merger under Section 10.2(a)
or Section 10.3(a), as applicable; or
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(c) By Acquiror or Company (provided that the terminating Party is not then
in Material breach of any representation, warranty, covenant, or other agreement
contained in this Agreement) in the event of a Material breach by the other
Party of any covenant or agreement contained in this Agreement and also, in the
case of Acquiror, in the event of any such Material breach by any Shareholder of
any covenant or agreement of such Shareholder contained in this Agreement, which
cannot be or has not been cured within 30 days after the giving of notice to
the breaching Party of such breach; which notice includes a reasonably detailed
description of such breach; but only if the existence of any such Material
breach would give the terminating Party the right to refuse to perform this
Agreement and consummate the Merger under Section 10.2 or 10.3, as applicable;
or
(d) By Acquiror or Company (provided that the terminating Party is not then
in Material breach of any representation, warranty, covenant, or other agreement
contained in this Agreement) in the event any Consent of any Regulatory
Authority required for consummation of the Merger and the other transactions
contemplated hereby shall have been denied by final nonappealable action of such
authority or if any action taken by such authority is not appealed within the
time limit for appeal; but only if the failure to obtain any such Consent would
give the terminating Party the right to refuse to perform this Agreement and
consummate the Merger under Section 10.1; or
(e) By either Party in the event that the Merger shall not have been
consummated by December 31, 1998, if the failure to consummate the transactions
contemplated hereby on or before such date is not caused by any breach of this
Agreement by the Party electing to terminate pursuant to this Section 12.1(e);
or
(f) By Company if the average of the daily weighted average sales prices
for the shares of Acquiror Common Stock during the ten consecutive trading days
on which such shares were actually traded on the NYSE (as reported by the NYSE)
ending on the trading day two days prior to the Closing Date (the "Average
Price") is less than $22.50.
12.2 EFFECT OF TERMINATION. In the event of the termination and
---------------------
abandonment of this Agreement pursuant to Section 12.1, this Agreement shall
become void and have no effect, except that (i) the provisions of this Section
12.2 and Article 13 and Sections 9.6(b) and 9.8(b) shall survive any such
termination and abandonment, and (ii) a termination pursuant to Sections 12.1(b)
and 12.1(c) shall not relieve the breaching Party or Shareholder from Liability
for an uncured willful breach of a representation, warranty, covenant, or
agreement giving rise to such termination.
12.3 NON-SURVIVAL OF ACQUIROR REPRESENTATIONS AND WARRANTIES. The
-------------------------------------------------------
representations and warranties of Acquiror in this Agreement shall not survive
the Effective Time.
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ARTICLE 13
MISCELLANEOUS
-------------
13.1 DEFINITIONS.
-----------
(a) Except as otherwise provided herein, the capitalized terms set forth
below shall have the following meanings:
"1933 ACT" shall mean the Securities Act of 1933, as amended through the
date of this Agreement.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as amended
through the date of this Agreement.
"ACQUIROR CAPITAL STOCK" shall mean, collectively, the Acquiror Common
Stock, the Acquiror Preferred Stock and any other class or series of capital
stock of Acquiror.
"ACQUIROR COMMON STOCK" shall mean the $0.01 par value common stock of
Acquiror.
"ACQUIROR DISCLOSURE MEMORANDUM" shall mean the written information
entitled "Acquiror Disclosure Memorandum" delivered to Company simultaneously
with Acquiror's execution of this Agreement, as supplemented in accordance
with Section 9.14(b), describing in reasonable detail the matters contained
therein. Information disclosed with respect to one Section of this Agreement
in the Acquiror Disclosure Memorandum will also be deemed to be disclosed for
purposes of all other Sections, to the extent applicable, if appropriately
cross-referenced in such other Sections.
"ACQUIROR ENTITIES" shall mean, collectively, Acquiror and all Acquiror
Subsidiaries.
"ACQUIROR FINANCIAL STATEMENTS" shall mean (i) the consolidated balance
sheets (including related notes and schedules, if any) of Acquiror as of June
27, 1998, and as of December 31, 1997, 1996 and 1995, and the related
statements of income, changes in shareholders' equity, and cash flows
(including related notes and schedules, if any) for the six months ended June
27, 1998, and for each of the three fiscal years ended December 31, 1997,
1996 and 1995, as filed by Acquiror in SEC Documents, and (ii) the
consolidated balance sheets of Acquiror (including related notes and
schedules, if any) and related statements of income, changes in stockholders'
equity, and cash flows (including related notes and schedules, if any)
included in SEC Documents filed with respect to periods ended subsequent to
June 27, 1998.
"ACQUIROR INDEMNITEES" shall mean Acquiror, Company and their respective
officers, directors, shareholders, controlling persons, Affiliates and
Representatives.
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"ACQUIROR INDEMNITOR" shall mean the Acquiror.
"ACQUIROR MATERIAL ADVERSE EFFECT" shall mean an event, change or
occurrence which has a Material adverse impact on (i) the financial position,
business, or results of operations of Acquiror and its Subsidiaries, taken as
a whole, or (ii) the ability of Acquiror to perform its obligations under
this Agreement or to consummate the Merger or the other transactions
contemplated by this Agreement, provided that "Acquiror Material Adverse
Effect" shall not be deemed to include the impact of (a) actions and
omissions of Acquiror (or any of its Subsidiaries) taken with the prior
written Consent of Company in contemplation of the transactions contemplated
hereby and (b) the direct effects of compliance with this Agreement on the
operating performance of Acquiror, including expenses incurred by Acquiror in
consummating the transactions contemplated by this Agreement.
"ACQUIROR PREFERRED STOCK" shall mean the $0.01 par value preferred stock
of Acquiror.
"ACQUIROR SUBSIDIARIES" shall mean the Subsidiaries of Acquiror and any
corporation or other organization acquired as a Subsidiary of Acquiror in the
future and held as a Subsidiary by Acquiror at the Effective Time.
"ACQUISITION PROPOSAL" shall mean any tender offer or exchange offer or any
proposal for a merger, acquisition of all of the stock or assets of, or other
business combination involving the acquisition of Company or any of its
Subsidiaries or the acquisition of a substantial equity interest in, or a
substantial portion of the assets of, Company or any of its Subsidiaries.
"AFFILIATE" of a Person shall mean: (i) any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by or
under common control with such Person; (ii) any officer, director, partner,
employer, or direct or indirect beneficial owner of any 10% or greater equity
or voting interest of such Person; or (iii) any other Person for which a
Person described in clause (ii) acts in any such capacity.
"AGREEMENT" shall mean this Agreement and Plan of Merger, including the
Exhibits attached hereto and incorporated herein by reference.
"ASSETS" of a Person shall mean all of the assets, properties, businesses
and rights of such Person of every kind, nature, character and description,
whether real, personal or mixed, tangible or intangible, accrued or
contingent, or otherwise relating to or utilized in such Person's business,
directly or indirectly, in whole or in part, whether or not carried on the
books and records of such Person, and, other than assets held under leases,
to the extent owned by such Person or by any Affiliate of such Person, and
wherever located.
"CERTIFICATE OF MERGER" shall mean the Certificate of Merger setting forth
the information required by the GBCC to be executed by Company and filed with
the Secretary of State of the State of Georgia relating to the Merger as
contemplated by Section 1.1.
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"CLOSING DATE" shall mean the date on which the Effective Time occurs.
"COMPANY CAPITAL STOCK" shall mean the Company Common Stock and the Company
Preferred Stock.
"COMPANY COMMON STOCK" shall mean the Class C Common Stock, no par value,
of Company.
"COMPANY AND SHAREHOLDER DISCLOSURE MEMORANDUM" shall mean the written
information entitled "Company and Shareholder Disclosure Memorandum"
delivered to Acquiror simultaneously with Company's and Shareholders'
execution of this Agreement, as supplemented in accordance with Section
9.14(a), describing in reasonable detail the matters contained therein.
Information disclosed with respect to one Section or subsection of this
Agreement in the Company and Shareholder Disclosure Memorandum will also be
deemed to be disclosed for purposes of all other Sections or subsections, to
the extent applicable, if appropriately cross-referenced in such other
Sections or subsections. Any sentence of any Section or subsection of this
Agreement may be qualified by specific facts described in a corresponding
Section or subsection of the Company and Shareholder Disclosure Memorandum,
whether or not a specific reference to the Company and Shareholder Disclosure
Memorandum is made in the applicable sentence of such Section or subsection
of this Agreement.
"COMPANY ENTITIES" shall mean, collectively, Company and all Company
Subsidiaries.
"COMPANY FINANCIAL STATEMENTS" shall mean (i) the audited consolidated
balance sheets (including related notes and schedules, if any) of Company as
of June 28, 1998, June 29, 1997, June 30, 1996, July 2, 1995 and July 3,
1994, and the related audited statements of income, changes in shareholders'
equity, and cash flows (including related notes and schedules, if any) for
each of the five fiscal years ended June 28, 1998, June 29, 1997, June 30,
1996, July 2, 1995 and July 3, 1994, and (ii) those unaudited consolidated
balance sheets of Company (including related notes and schedules, if any) and
related unaudited statements of income, changes in shareholders' equity, and
cash flows (including related notes and schedules, if any) with respect to
the Company's fiscal months ended subsequent to June 28, 1998 and prior to
and including the Company's fiscal month which ends not more than sixty (60)
days and not less than thirty (30) days prior to the Effective Time, which
are set forth in Section 5.5 of the Company and Shareholder Disclosure
Memorandum.
"COMPANY MATERIAL ADVERSE EFFECT" shall mean an event, change or occurrence
which has a Material adverse impact on (i) the financial position, business,
or results of operations of Company and the Company Subsidiaries, taken as a
whole, or (ii) the ability of Company to perform its obligations under this
Agreement or to consummate the Merger or the other transactions contemplated
by this Agreement, provided that "Company Material Adverse Effect" shall not
be deemed to include the impact of (a) actions and omissions of Company (or
any of the Company Subsidiaries) taken with the prior written Consent of
-53-
Acquiror in contemplation of the transactions contemplated hereby and (b) the
direct effects of compliance with this Agreement on the operating performance
of Company, including expenses incurred by Company in consummating the
transactions contemplated by this Agreement.
"COMPANY PREFERRED STOCK" shall mean the Class A (Voting) Preferred Stock,
$100.00 par value, and the Class B Preferred Stock, $100.00 par value, of the
Company.
"COMPANY SUBSIDIARIES" shall mean the Subsidiaries of Company, which are in
existence on the date of this Agreement and any corporation or other
organization acquired as a Subsidiary of Company after the date of this
Agreement and held as a Subsidiary by Company at the Effective Time.
"CONFIDENTIALITY AGREEMENT" shall mean that certain Confidentiality
Agreement, dated May 27, 1997, between Company and Acquiror.
"CONSENT" shall mean any consent, approval, authorization, clearance,
exemption, waiver or similar affirmation by any Person pursuant to any
Contract, Law, Order or Permit.
"CONSENT SOLICITATION STATEMENT" shall mean the consent solicitation
statement used by Company to solicit the approval of the Shareholders of the
transactions contemplated by this Agreement.
"CONTRACT" of a Person shall mean any written or oral agreement,
arrangement, commitment, contract, indenture, instrument, lease, obligation,
restriction, understanding, or undertaking of any kind or character, or other
document to which such Person is a party or that is binding on such Person or
its capital stock, Assets or business.
"DEFAULT" shall mean (i) any breach or violation of, default under,
contravention of, or conflict with, any Contract, Law, Order, or Permit; (ii)
any occurrence of any event that with the passage of time or the giving of
notice or both would constitute a breach or violation of, default under,
contravention of, or conflict with, any Contract, Law, Order, or Permit; or
(iii) any occurrence of any event that with or without the passage of time or
the giving of notice, or both, would give rise to a right of any Person to
exercise any remedy or obtain any relief under, terminate or revoke, suspend,
cancel, or modify or change the current terms of, or renegotiate, or to
accelerate the maturity or performance of, or to increase or impose any
Liability under, any Contract, Law, Order, or Permit.
"DGCL" shall mean the Delaware General Corporation Law.
"ENVIRONMENTAL LAWS" shall mean all Laws relating to pollution or
protection of human health or the environment (including ambient air, surface
water, ground water, land surface, or subsurface strata), including, without
limitation (i) the Comprehensive Environmental Response Compensation and
Liability Act, 42 U.S.C. (S)(S)9601 et seq. ("CERCLA"); (ii) the Solid Waste
Disposal Act, as amended by the Resource Conservation and Recovery Act, as
-54-
amended, 42 U.S.C. (S)(S)6901 et seq., ("RCRA"); (iii) the Emergency Planning
and Community Right to Know Act (42 U.S.C. (S)(S)11001 et seq.); (iv) the
Clean Air Act (42 U.S.C. (S)(S) 7401 et seq.); (v) the Clean Water Act (33
U.S.C. (S) 1251 et seq.); (vi) the Toxic Substances Control Act (15 U.S.C.
(S) 2601 et seq.); (vii) the Hazardous Materials Transportation Act (49
U.S.C. (S)(S) 5101 et seq.); (viii) the Federal Insecticide, Fungicide and
Rodenticide Act (7 U.S.C. (S) 136 et seq.); (ix) the Safe Drinking Water Act
(42 U.S.C. (S) 300f et seq.); (x) any state, county, municipal or local
statues, laws or ordinances similar or analogous to the federal statutes
listed in parts (i) - (ix) of this subparagraph, including, but not limited
to, the Georgia Solid Waste Management Act, O.C.G.A. (S)(S)13-8-20 et seq.,
the Georgia Hazardous Waste Management Act, O.C.G.A. (S)(S)12-8-60 et seq.,
and the Georgia Hazardous Sites Response Act, O.C.G.A. (S)(S)12-8-90 et seq.
("HSRA"), (xi) any amendments to the statutes, laws or ordinances listed in
parts (i) - (x) of this subparagraph through the date of this Agreement, and
(xii) any rules, regulations, guidelines, directives, orders or the like
adopted through the date of this Agreement pursuant to or implementing the
statutes, laws, ordinances and amendments listed in parts (i) - (xi) of this
subparagraph; and (xiii) any other Law relating to environmental matters.
"EQUITY RIGHTS" shall mean all arrangements, calls, commitments, Contracts,
options, rights to subscribe to, scrip, understandings, warrants, or other
binding obligations of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for, shares of the capital stock of a
Person or by which a Person is or may be bound to issue additional shares of
its capital stock or other securities, or rights convertible into or
exchangeable for shares of its capital stock or other securities.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended through the date of this Agreement.
"ESCROW AGENT" shall mean SunTrust Bank, Atlanta, and its successor(s) or
any other entity mutually acceptable to the Parties and the Shareholder
Indemnitors.
"EXHIBITS" 1 through 5, inclusive, shall mean the Exhibits so marked,
copies of which are attached to this Agreement. Such Exhibits are hereby
incorporated by reference herein and made a part hereof, and may be referred
to in this Agreement and any other related instrument or document without
being attached hereto or thereto.
"GAAP" shall mean generally accepted accounting principles, consistently
applied during the periods involved.
"GBCC" shall mean the Georgia Business Corporation Code.
"HAZARDOUS MATERIAL" shall mean any chemical, substance, waste, material,
pollutant, contaminant, equipment or fixture defined as or deemed hazardous
or toxic or otherwise regulated under any Environmental Law, including,
without limitation, RCRA hazardous wastes, CERCLA hazardous substances, and
HSRA regulated substances, pesticides and other agricultural chemicals, oil
and petroleum products or byproducts and any constituents thereof, asbestos,
and polychlorinated biphenyls (PCBs).
-▇▇-
"▇▇▇ ▇▇▇" shall mean Section 7A of the ▇▇▇▇▇▇▇ Act, as added by Title II of
the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended, and the
rules and regulations promulgated thereunder.
"INDEMNIFICATION CLAIM" shall mean a claim for indemnification under
Article 11.
"INDEMNITEES" shall mean the Acquiror Indemnitees or the Shareholder
Indemnitees, as appropriate.
"INDEMNITOR REPRESENTATIVE" shall mean ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇.
"INDEMNITORS" shall mean the Shareholder Indemnitors or the Acquiror
Indemnitor, as appropriate.
"INTELLECTUAL PROPERTY" shall mean copyrights, patents, trademarks, service
marks, service names, trade names, applications therefor, technology rights
and licenses, computer software (including any source or object codes
therefor or documentation relating thereto), trade secrets, franchises, know-
how, and inventions.
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
"KNOWLEDGE" as used with respect to a Person (including references to such
Person being aware of a particular matter) shall mean those facts that are
actually known by: (i) such Person, (ii) with respect to the Company, by the
Chief Executive Officer, President, Chief Operating Officer, Vice President
of Financial Services, Secretary, Treasurer, Vice President of Marketing,
Vice President of Manufacturing & Operations, Vice President of Product &
Design, Vice President of Information Services, Vice President-Chief
Accounting Officer, or for purposes of Section 5.11, the Company's
Environmental Engineer, or for purposes of Section 5.14, the Company's
Director of Human Resources and (iii) with respect to Acquiror, by the
Chairman of the Board, the Chief Executive Officer, the Chief Financial
Officer, the President, the Chief Operating Officer or the Corporate
Controller.
"LAW" shall mean any code, law (including, without limitation, common law),
ordinance, regulation, reporting or licensing requirement, rule, or statute
in effect on the date hereof and applicable to a Person or its Assets,
Liabilities, or business, including, without limitation, those promulgated,
interpreted or enforced by any Regulatory Authority.
"LIABILITY" shall mean any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost or expense (including
costs of investigation, collection and defense), deficiency, guaranty or
endorsement of or by any Person (other than endorsements of notes, bills,
checks, and drafts presented for collection or deposit in the ordinary course
-56-
of business) of any type, whether accrued, absolute or contingent, liquidated
or unliquidated, matured or unmatured, or otherwise.
"LIEN" shall mean any conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title
retention or other security arrangement, or any adverse right or interest,
charge, or claim of any nature whatsoever of, on, or with respect to any
property or property interest, other than (i) Liens for current Taxes not yet
due and payable or being properly contested; (ii) Liens which do not
Materially impair the current use of or title to the Asset(s) subject to such
Lien; (iii) statutory Liens securing the claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords, and other like persons for
labor, materials, supplies or rentals, if any; (iv) Liens resulting from
deposits made in connection with workers compensation, unemployment
insurance, social security and like laws; and (v) Liens of banks or financial
institutions with respect to funds on deposit therewith or other property in
possession thereof.
"LITIGATION" shall mean any action, arbitration, cause of action, claim,
complaint, criminal prosecution, governmental or other examination or
investigation, hearing, administrative or other proceeding relating to or
affecting a Party, its business, its Assets (including Contracts related to
it), or the transactions contemplated by this Agreement.
"LOSSES" shall mean any and all direct or indirect payments, obligations,
actions or causes of action, assessments, losses, diminution in value,
damages (including special and consequential damages), costs, and expenses,
including interest, penalties, cost of investigation and defense, and
reasonable attorneys' and other professional fees and expenses.
"MATERIAL" OR "MATERIALLY" for purposes of this Agreement shall be
determined in light of the facts and circumstances of the matter in question;
provided that any specific monetary amount stated in this Agreement shall
determine materiality in that instance.
"NYSE" shall mean the New York Stock Exchange, Inc.
"OPERATING PROPERTY" shall mean any property owned, leased, or operated by
the Party in question or by any of its Subsidiaries or in which such Party or
Subsidiary holds a security interest or other interest (including an interest
in a fiduciary capacity), and, where required by the context, includes the
owner or operator of such property, but only with respect to such property.
"ORDER" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or
writ of any federal, state, local or foreign or other court, arbitrator,
mediator, tribunal, administrative agency, or Regulatory Authority.
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"OTHER ACQUIROR AGREEMENTS" shall mean the agreements, documents,
certificates and instruments to be executed and delivered by Acquiror or Sub
pursuant to the terms of this Agreement.
"OTHER SHAREHOLDER AGREEMENTS" shall mean the agreements, documents,
certificates and instruments to be executed and delivered by any Shareholder
pursuant to the terms of this Agreement.
"PARTICIPATION FACILITY" shall mean any facility or property in which the
Party in question or any of its Subsidiaries participates in the management
and, where required by the context, said term means the owner or operator of
such facility or property, but only with respect to such facility or
property.
"PARTY" shall mean either Company, Sub or Acquiror, and "PARTIES" shall
mean Company, Sub and Acquiror.
"PERMIT" shall mean any federal, state, local, and foreign governmental
approval, authorization, certificate, easement, filing, franchise, license,
notice, permit, or right to which any Person is a party or that is or may be
binding upon or inure to the benefit of any Person or its securities, Assets,
or business.
"PERSON" shall mean a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company,
trust, business association, group acting in concert, or any person acting in
a representative capacity.
"REGISTRABLE SECURITIES" shall mean (A) the aggregate number of shares of
Acquiror Common Stock to be issued to the Shareholders pursuant to this
Agreement (including any Escrow Shares until such time, if ever, as such
shares are required to be returned to the Acquiror for cancellation pursuant
to the terms of the Escrow Agreement), and (B) any securities of the Acquiror
issued as a dividend or other distribution with respect to, or in exchange
for or in replacement of, the shares of Acquiror Common Stock referred to in
clause (A); provided, that Registrable Securities shall not include (i)
securities with respect to which a registration statement with respect to the
sale of such securities has become effective under the 1933 Act and all such
securities have been disposed of in accordance with such registration
statement, (ii) securities as are actually sold pursuant to Rule 144 (or any
successor provision thereto) under the 1933 Act ("Rule 144"), or (iii)
securities as are acquired by Acquiror or any of its Subsidiaries.
"REGULATORY AUTHORITIES" shall mean, collectively, the SEC, the NYSE, the
Federal Trade Commission, the United States Department of Justice, the U.S
Environmental Protection Agency, the Georgia Department of Natural Resources,
the Georgia Environmental Protection Division, and all other federal, state,
county, local or other governmental or regulatory agencies, authorities
(including self-regulatory authorities), instrumentalities, commissions,
boards or bodies having jurisdiction over the Parties and their respective
Subsidiaries or any Shareholder or over any site owned, leased, or operated
-58-
by any Company Entity or any of its Operating Properties or Participation
Facilities.
"REPRESENTATIVE" shall mean any investment banker, financial advisor,
attorney, accountant, consultant, or other representative engaged by a
Person.
"SEC" shall mean the Securities and Exchange Commission.
"SEC DOCUMENTS" shall mean all forms, proxy statements, registration
statements, reports, schedules, and other documents filed, or required to be
filed, by a Party or any of its Subsidiaries with any Regulatory Authority
pursuant to the Securities Laws.
"SECURITIES LAWS" shall mean the 1933 Act, the 1934 Act, the Investment
Company Act of 1940, as amended, the Investment Advisors Act of 1940, as
amended, the Trust Indenture Act of 1939, as amended, and the rules and
regulations of any Regulatory Authority promulgated thereunder.
"SHAREHOLDER INDEMNITEES" shall mean the Shareholders and their respective
trustees, if any, and Representatives.
"SHAREHOLDER INDEMNITORS" shall mean ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, as Trustee of the
Revocable Trust Agreement of ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, dated July 12, 1996, ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇ and their respective successors and assigns.
"SUB COMMON STOCK" shall mean the $0.01 par value common stock of Sub.
"SUBSIDIARIES" shall mean all those corporations, associations, or other
business entities of which the entity in question either (i) owns or controls
50% or more of the outstanding equity securities either directly or through
an unbroken chain of entities as to each of which 50% or more of the
outstanding equity securities is owned directly or indirectly by its parent
(provided, there shall not be included any such entity the equity securities
of which are owned or controlled in a fiduciary capacity), (ii) in the case
of partnerships, serves as a general partner, (iii) in the case of a limited
liability company, serves as a managing member, or (iv) otherwise has the
ability to elect a majority of the directors, trustees or managing members
thereof.
"SURVIVING CORPORATION" shall mean Company as the surviving corporation
resulting from the Merger.
"TAX" or "TAXES" shall mean any federal, state, county, local, or foreign
taxes, charges, fees, levies, imposts, duties, or other assessments,
including income, gross receipts, excise, employment, sales, use, transfer,
license, payroll, franchise, severance, stamp, occupation, windfall profits,
environmental, federal highway use, commercial rent, customs duties, capital
stock, paid-up capital, profits, withholding, Social Security, single
business and unemployment, disability, real property, personal property,
registration, ad valorem, value added, taxes and fees related to unclaimed
property, alternative or add-on minimum, estimated, or other tax or
-59-
governmental fee of any kind whatsoever, imposed or required to be withheld
by the United States or any state, county, local or foreign government or
subdivision or agency thereof, including any interest, penalties, and
additions imposed thereon or with respect thereto.
"TAX RETURN" shall mean any report, return, information return, or other
information required or permitted to be supplied to a taxing authority in
connection with Taxes, including any return of an affiliated or combined or
unitary group that includes a Party or its Subsidiaries.
"THIRD PARTY CLAIM" shall mean any Litigation that is instituted against an
Indemnitee by a person or entity other than an Indemnitor and which, if
prosecuted successfully, would result in a Loss for which such Indemnitee is
entitled to indemnification under Article 11.
(b) The terms set forth below shall have the meanings ascribed thereto in
the referenced sections:
Acquiror SEC Reports Section 7.4(a)
Average Price Section 12.1(f)
Class A Exchange Shares Section 3.1(c)
Class B Exchange Shares Section 3.1(c)
Closing Section 1.2
Closing Price Section 3.5
Common Stock Share Number Section 3.1(c)
Company Benefit Plans Section 5.14(a)
Company Contracts Section 5.15
Company ERISA Plan Section 5.14(a)
Company Pension Plan Section 5.14(a)
Common Stock Exchange Ratio Section 3.1(c)
Effective Time Section 1.3
Eligible Company Common Shares Section 3.1(c)
Eligible Company Class A Preferred
Shares Section 3.1(c)
Eligible Company Class B Preferred
Shares Section 3.1(c)
ERISA Affiliate Section 5.14(d)
Escrow Agreement Section 2.4(a)
Escrow Shares Section 3.1
Immigration Laws Section 5.23
Merger Section 1.1
Noncompetition Agreements Section 10.2(e)
Class A Preferred Stock Exchange
Ratio Section 3.1(c)
Class B Preferred Stock Exchange
Ratio Section 3.1(c)
Takeover Laws Section 5.20
Tax Opinion Section 10.3(d)
WARN Act Section 5.13(c)
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(c) Any singular term in this Agreement shall be deemed to include the
plural, and any plural term the singular. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed
followed by the words "without limitation."
13.2 EXPENSES. Except as otherwise provided in this Agreement,
--------
each of the Parties and the Shareholders each shall bear and pay all direct
costs and expenses incurred by it or on its behalf in connection with the
transactions contemplated hereunder, including filing, registration and
application fees, printing fees, and fees and expenses of its own financial or
other consultants, investment bankers, accountants, and counsel.
13.3 TRANSFER TAXES AND RECORDING FEES. All sales, use, transfer
---------------------------------
and all other non-income Taxes, including any Taxes imposed by virtue of the
change in ownership of the Company, (the "Transfer Taxes") shall be borne by
Acquiror. At the Shareholders' request, the Company will file all necessary Tax
returns and other documents required to be filed with respect to all such
Transfer Taxes. The Parties will cooperate to the extent reasonably necessary
to make such filings or returns as may be required.
13.4 BROKERS AND FINDERS. Except for Prudential Securities
-------------------
Incorporated as to Company and Credit Suisse First Boston as to Acquiror and
Sub, each of the Parties, Sub and each of the Shareholders represents and
warrants that neither it nor any of its officers, directors, employees, or
Affiliates has employed any broker or finder or incurred any Liability for any
financial advisory fees, investment bankers' fees, brokerage fees, commissions,
or finders' fees in connection with this Agreement or the transactions
contemplated hereby. In the event of a claim by any broker or finder based upon
his or its representing or being retained by or allegedly representing or being
retained by Company or any Shareholder or by Acquiror or Sub, each of Company
and the Shareholders, on the one hand, and each of Acquiror and Sub, on the
other hand, as the case may be, agrees to indemnify and hold the other Parties
or Shareholders harmless from and against any Liability in respect of any such
claim.
13.5 ENTIRE AGREEMENT. Except as otherwise expressly provided
----------------
herein, this Agreement (including the Exhibits, the documents and instruments
referred to herein) constitutes the entire agreement between the Parties and
each of the Shareholders with respect to the transactions contemplated hereunder
and supersedes all prior arrangements or understandings with respect thereto,
written or oral (except, as to Section 9.6, for the Confidentiality Agreement).
Nothing in this Agreement, expressed or implied, is intended to confer upon any
Person, other than the Parties or the Shareholders or their respective
successors, permitted assigns, heirs, beneficiaries and legal representatives,
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement.
13.6 AMENDMENTS. To the extent permitted by Law, this Agreement
----------
may be amended by a subsequent writing signed by each of the Parties and each of
the Shareholders upon the approval of each of the Parties and the Shareholders
whether before or after Shareholder approval of this Agreement has been
obtained; provided, that after any such approval by the Shareholders, there
shall be made no amendment that pursuant to Section 14-2-1101 et. seq. of the
GBCC requires further approval by such Shareholders without the further approval
of such Shareholders.
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13.7 WAIVERS.
-------
(a) Prior to or at the Effective Time, Acquiror, acting through its
Board of Directors, chief executive officer or other authorized officer, shall
have the right to waive any Default in the performance of any term of this
Agreement by Company or the Shareholders, to waive or extend the time for the
compliance or fulfillment by Company or the Shareholders of any and all of their
respective obligations under this Agreement, and to waive any or all of the
conditions precedent to the obligations of Acquiror under this Agreement, except
any condition which, if not satisfied, would result in the violation of any Law.
No such waiver shall be effective unless in writing signed by a duly authorized
officer of Acquiror.
(b) Prior to or at the Effective Time, Company, acting through its
Board of Directors, chief executive officer or other authorized officer, and the
Shareholders shall have the collective right to waive any Default in the
performance of any term of this Agreement by Acquiror, to waive or extend the
time for the compliance or fulfillment by Acquiror of any and all of its
obligations under this Agreement, and to waive any or all of the conditions
precedent to the obligations of Company and the Shareholders under this
Agreement, except any condition which, if not satisfied, would result in the
violation of any Law. No such waiver shall be effective unless in writing
signed by a duly authorized officer of Company and the Shareholders.
(c) The failure of any Party or Shareholder at any time or times to
require performance of any provision hereof shall in no manner affect the right
of such Party or Shareholder at a later time to enforce the same or any other
provision of this Agreement. No waiver of any condition or of the breach of any
term contained in this Agreement in one or more instances shall be deemed to be
or construed as a further or continuing waiver of such condition or breach or a
waiver of any other condition or of the breach of any other term of this
Agreement.
13.8 ASSIGNMENT. Except as expressly contemplated hereby,
----------
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by any Party hereto or Shareholder (whether by operation of
Law or otherwise) without the prior written consent of all other signatories
hereto. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the Parties and the Shareholders,
and their respective heirs, beneficiaries, legal representatives and successors
and assigns.
13.9 NOTICES. All notices or other communications which are
-------
required or permitted hereunder shall be in writing and sufficient if delivered
by hand, by facsimile transmission (with confirmation received by the sender),
by registered or certified mail, postage pre-paid, or by courier or overnight
carrier, to the persons at the addresses set forth below (or at such other
address as may be provided hereunder), and shall be deemed to have been
delivered as of the date so delivered:
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Company or
any Shareholder: World Carpets, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Copy to Counsel: Chorey, Taylor & ▇▇▇▇, A Professional Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇.▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇., Esq.
Acquiror or Sub: Mohawk Industries, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇
Copy to Counsel: ▇▇▇▇▇▇ & Bird LLP
One Atlantic Center
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
13.10 GOVERNING LAW. This Agreement shall be governed by and
-------------
construed in accordance with the Laws of the State of Georgia, without regard to
any applicable conflicts of Laws.
13.11 COUNTERPARTS. This Agreement may be executed in two or
------------
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
13.12 CAPTIONS; ARTICLES AND SECTIONS. The captions contained
-------------------------------
in this Agreement are for reference purposes only and are not part of this
Agreement. Unless otherwise indicated, all references to particular Articles or
Sections shall mean and refer to the referenced Articles and Sections of this
Agreement.
13.13 INTERPRETATIONS. Neither this Agreement nor any
---------------
uncertainty or ambiguity herein shall be construed or resolved against any party
hereto, whether under any rule of construction or otherwise. No party to this
Agreement shall be considered the draftsman. The parties acknowledge and agree
that this Agreement has been reviewed, negotiated, and accepted by all parties
hereto and their attorneys and shall be construed and interpreted according to
the ordinary meaning of the words used so as fairly to accomplish the purposes
and intentions of all parties hereto.
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13.14 ENFORCEMENT OF AGREEMENT. The Parties and the
------------------------
Shareholders agree that irreparable damage would occur in the event that any of
the provisions of this Agreement was not performed in accordance with its
specific terms or was otherwise breached. It is accordingly agreed that the
Parties and the Shareholders shall be entitled to an injunction or injunctions
to prevent breaches of this Agreement and to enforce specifically the terms and
provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to the remedies set forth in Article 11
hereof.
13.15 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 or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
13.16 TIME OF THE ESSENCE. Time is of the essence of this
-------------------
Agreement.
13.17 FACSIMILE SIGNATURES. Execution and delivery of this
--------------------
Agreement, or any other agreements to be entered into in connection with this
Agreement, by exchange of facsimile copies bearing the facsimile signature of a
signatory hereto or thereto, as applicable, shall constitute a valid and binding
execution and delivery of this Agreement, or such other agreements, as
applicable, by such signatory. Such facsimile copies shall constitute
enforceable original documents.
[Signatures on following pages.]
-64-
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf by its duly authorized officers and each of the
Shareholders has executed this Agreement as of the day and year first above
written.
ACQUIROR
BY: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
---------------------------------------
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
SUBSIDIARY
BY: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
---------------------------------------
PRESIDENT
COMPANY
BY: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------------
CHAIRMAN OF THE BOARD
THE SHAREHOLDERS:
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-65-
REVOCABLE TRUST OF ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, DATED JULY 12, 1996
BY: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------------------------
TRUSTEE
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ AND ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, AS CO-TRUSTEES
PURSUANT TO THAT CERTAIN VOTING TRUST AGREEMENT DATED
APRIL 30, 1992
BY: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------------------------
TRUSTEE
BY: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------------------------
TRUSTEE
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ TRUST, DATED 12/8/76
BY: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------------------
TRUSTEE
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ TRUST, DATED 12/15/72
BY: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------------------
TRUSTEE
▇▇▇▇▇▇▇ ▇. AND ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ TRUST, DATED 12/10/74
BY: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------------------
TRUSTEE
▇▇▇▇▇▇▇ ▇. AND ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ TRUST, DATED 12/8/76
BY: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------------------
TRUSTEE
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ TRUST (J-1), DATED 12/8/76
BY: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------------------
TRUSTEE
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ TRUST (J-2), DATED 12/8/76
BY: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------------------
TRUSTEE
-66-
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ FAMILY TRUST, DATED 12/30/80
BY: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------------------------
TRUSTEE
IRREVOCABLE TRUST OF ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (J-6), DATED
12/27/82
BY: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------------------------
TRUSTEE
IRREVOCABLE TRUST OF ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (J-7), DATED
12/27/82
BY: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------------------------
TRUSTEE
IRREVOCABLE TRUST OF ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (J-8), DATED
3/24/83
BY: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------------------------
TRUSTEE
IRREVOCABLE TRUST OF ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (J-9), DATED
3/24/83
BY: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------------------
TRUSTEE
IRREVOCABLE TRUST OF ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (J-10), DATED
12/7/87
BY: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------------------
TRUSTEE
-67-
SCHEDULE I
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 74,990 shares of Class B
Nonvoting Preferred
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 76,290 shares of Class B Nonvoting
Preferred
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 63,460 shares of Class C Nonvoting
Common
540 shares of Class A Voting Preferred
Revocable Trust Agreement of
▇▇▇▇ ▇. ▇▇▇▇▇▇▇, dated July 12, 1996 31,995 shares of Class C Nonvoting
Common
540 shares of Class A Voting Preferred
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
as Co-Trustees pursuant to that certain
Voting Trust Agreement dated
April 30, 1992 1,920 shares of Class A
Voting Preferred
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Trust, dated 12/15/72 21,260 shares of Class C Nonvoting
Common
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Trust, dated 12/8/76 540 shares of Class C Nonvoting Common
▇▇▇▇▇▇▇ ▇. and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Trust,
dated 12/10/74 950 shares of Class C Nonvoting Common
▇▇▇▇▇▇▇ ▇. and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Trust,
dated 12/8/76 950 shares of Class C Nonvoting Common
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Trust (J-1), dated
12/8/76 590 shares of Class C Nonvoting Common
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Trust (J-2), dated
12/8/76 590 shares of Class C Nonvoting Common
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Family Trust, dated
12/30/80 890 shares of Class C Nonvoting Common
Irrevocable Trust of ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
(J-6), dated 12/27/82 1,243 shares of Class C Nonvoting
Common
Irrevocable Trust of ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
(J-7), dated 12/27/82 1,933 shares of Class C Nonvoting
Common
Irrevocable Trust of ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
(J-8), dated 3/24/83 293 shares of Class C Nonvoting Common
Irrevocable Trust of ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
(J-9), dated 3/24/83 293 shares of Class C Nonvoting Common
Irrevocable Trust of ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
(J-10), dated 12/7/87 1,933 shares of Class C Nonvoting
Common
EXHIBIT 1
---------
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made and entered into as of
_______, 19__, by and among Mohawk Industries, Inc., a Delaware corporation
("Acquiror"), ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, as Trustee of the Revocable
Trust Agreement of ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, dated July 12, 1996 (each a "Shareholder"
and collectively the "Shareholders"), and ___________, a ________ banking
corporation ("Escrow Agent").
W I T N E S S E T H
- - - - - - - - - -
WC Acquisition Corp. ("Sub") is a wholly owned subsidiary of Acquiror, and
each of Acquiror and Sub is a party to an Agreement and Plan of Merger (the
"Merger Agreement") with World Carpets, Inc., a Georgia corporation ("Company")
and the Shareholders and other shareholders of Company, dated as of October 22,
1998, pursuant to which Sub has on this date merged (the "Merger") with and into
Company with Company surviving the Merger and becoming a wholly owned subsidiary
of Acquiror. Pursuant to Section 3.1 of the Merger Agreement, the Shareholders
each received the Escrow Shares and have agreed to deposit the Escrow Shares in
escrow with the Escrow Agent pursuant to the terms hereof.
Pursuant to the terms of the Merger Agreement, the Escrow Shares have been
issued and will be held by the Escrow Agent pursuant to the terms of this
Agreement until delivered or canceled pursuant to the terms of this Agreement or
until termination of this Agreement as provided herein.
The Shareholders have agreed to indemnify Acquiror pursuant to Article 11
of the Merger Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
ARTICLE 1
ESTABLISHMENT OF ESCROW
1.1 ESCROW SHARES. On this date, Acquiror has executed two stock
-------------
certificates in negotiable form representing the Escrow Shares and naming ▇▇▇▇▇
▇. ▇▇▇▇▇▇▇ (the "Indemnitor Representative") as the registered holder. The
Escrow Agent acknowledges receipt of the Escrow Shares and agrees to hold and
disburse the Escrow Shares for the benefit of Acquiror and the Shareholders, as
the case may be, in accordance with the provisions of this Agreement, with the
same force and effect as if the Escrow Shares had been delivered by Acquiror to
each Shareholder and subsequently delivered by such Shareholder to the Escrow
Agent.
1.2 SHAREHOLDER PERCENTAGE INTERESTS. Attached as Schedule I hereto is a
--------------------------------
schedule showing for each Shareholder the respective percentage interest (the
"Percentage Interest") of each such Shareholder in the Escrow Shares.
ARTICLE 2
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
"CLOSING PRICE" shall mean the closing price for the shares of Acquiror
Common Stock on the trading day next preceding the Closing Date.
"DISTRIBUTION DATE" shall mean any of the EEOC Litigation Distribution Date
and the General Distribution Date.
"EEOC LITIGATION DISTRIBUTION DATE" shall mean the date that is thirty (30)
days after the date of a final nonappealable judgment by a court of competent
jurisdiction is rendered in the case of [______________________].
"FINAL DISTRIBUTION DATE" shall mean the date that is the latest to occur
of (i) the EEOC Litigation Distribution Date and (ii) the General Distribution
Date.
"GENERAL DISTRIBUTION DATE" shall mean the date that is one year from the
date of the Effective Time.
"INITIAL ESCROW VALUE" shall mean the number of Escrow Shares originally
placed in escrow multiplied by the Closing Price.
Any other capitalized term used herein but not defined herein shall have
the same meaning as provided in the Merger Agreement.
ARTICLE 3
TERM; DISTRIBUTION OF ESCROW SHARES; LIMITS
3.1 TERM. The term of this Agreement shall commence at the Effective Time
----
and shall terminate at such time as all Escrow Shares shall have been
distributed to the Shareholders or canceled pursuant to the terms of this
Agreement.
3.2 ADJUSTMENT OF ESCROW SHARES. [ADJUST LANGUAGE IF 2 TRANCHES REMAIN.]
---------------------------
The number of Escrow Shares subject to this Agreement shall be adjusted from
time to time, as follows: If, between the date of this Agreement and the Final
Distribution Date, Acquiror shall be entitled to be indemnified pursuant to an
Indemnification Claim under Article 11 of the Merger Agreement, then Acquiror
2
shall deliver to the Indemnitor Representative a notice thereof (a "Notice of
Indemnification Obligation"), and if Acquiror and the Indemnitor Representative
shall agree in writing on the dollar amount owed by the Shareholders pursuant to
such Indemnification Claim (the "Indemnification Amount") or upon determination
of the amount of such Indemnification Claim by an arbitration award or by any
other final adjudication, as applicable; then upon execution by the parties of
the agreement, or upon issuance of such arbitration award or final adjudication,
setting forth the Indemnification Amount, Acquiror shall (A) issue (or cause to
be issued) new stock certificates (the "Replacement Certificates") in the
respective names of the Shareholders representing, in each case, the number of
shares of Acquiror Common Stock equal to the product of (i) the difference
between (x) the number of Escrow Shares (the "Claim Shares") in escrow
immediately prior to such Notice of Indemnification Obligation minus (y) the
quotient (rounded to the next highest whole number) obtained by dividing the
Indemnification Amount by the Closing Price, and (ii) each such Shareholder's
Percentage Interest; provided, however, that solely to the extent the
Indemnification Amount relates to an Indemnification Claim the liability for
which is several with respect to any Shareholder (the "Liable Shareholder"), the
foregoing calculation shall be performed only with respect to the Liable
Shareholder, and for purposes of the foregoing calculation, the Claim Shares
shall consist only of those Escrow Shares registered in the name of the Liable
Shareholder and the Liable Shareholder's Percentage Interest shall be deemed to
be 100%, (B) cancel the Acquiror Common Stock certificates representing the
Claim Shares, as determined in accordance with the proviso set forth in clause
(A), if applicable, held in escrow immediately prior to delivery of the Notice
of Indemnification Obligation (such certificates, the "Old Certificates"), and
(C) deliver the Replacement Certificates to the Escrow Agent to hold in escrow
pursuant to this Agreement. Upon the issuance of any Replacement Certificates,
the shares represented by such Replacement Certificates shall be deemed to be
"Escrow Shares" for all purposes of this Agreement.
3.3 DISTRIBUTION OF ESCROW SHARES.
-----------------------------
(a) On the General Distribution Date, the Escrow Agent shall deliver to
Acquiror for cancellation certificates representing _________ of the Escrow
Shares then held in escrow as of the General Distribution Date and with respect
to which an Indemnification Claim (other than an Indemnification Claim pursuant
to Section 11.1(c) of the Merger Agreement) (a "General Indemnification Claim")
is not pending. With respect to General Indemnification Claims pending as of
the General Distribution Date, Acquiror and the Indemnitor Representative shall
use their reasonable efforts to agree in writing on the Indemnification Amount
with respect to any such pending General Indemnification Claims; provided, that
if Acquiror and the Indemnitor Representative are not able to agree on the
Indemnification Amount with respect to such General Indemnification Claims by
the General Distribution Date, the amount of the Indemnification Amount solely
for purposes of the calculations in the following sentence of this Section
3.3(a) shall be the amount reasonably claimed by Acquiror in its Notice of
Indemnification Claim in connection with such General Indemnification Claim.
Upon determination of the Indemnification Amount in accordance with the
preceding sentence, Acquiror shall promptly:
3
(i) issue and deliver to the Shareholders new certificates representing the
number of shares of Acquiror Common Stock (the "General Distribution Shares")
equal to the quotient obtained by dividing (A) the difference between $3,200,000
and the aggregate Indemnification Amount with respect to such pending General
Indemnification Claims by (B) the Closing Price and subtracting from such
--
quotient the number of shares of Acquiror Common Stock previously cancelled in
connection with previously resolved General Indemnification Claims (the
"Undisputed General Escrow Shares"), and such certificates shall be denominated
in the names of the respective Shareholders in amounts equal to the product of
the Undisputed General Escrow Shares and each Shareholder's Percentage Interest,
and
(ii) issue and deliver to the Escrow Agent for retention in escrow pending
final determination of the Indemnification Amount, new certificates representing
the number of shares of Acquiror Common Stock equal to the quotient obtained by
dividing (C) the aggregate Indemnification Amount with respect to such pending
General Indemnification Claims by (D) the Closing Price ("Disputed General
--
Escrow Shares").
Any delivery of Acquiror Common Stock to Shareholders pursuant to this
Section 3.3(a) shall be of full shares, and any fractional portions shall be
rounded to a whole number by the Escrow Agent so that the number of shares
remaining in escrow to be delivered will be fully allocated among such
Shareholders. Upon the final resolution of all Indemnification Claims for which
Disputed General Escrow Shares are retained in escrow after the General
Distribution Date, the Escrow Agent shall promptly deliver to Acquiror for
cancellation the appropriate number of Disputed General Escrow Shares
corresponding to the finally resolved Indemnification Amount and shall deliver
any remaining Disputed General Escrow Shares to the Shareholders in accordance
with their respective Percentage Interests in such remaining Disputed General
Escrow Shares.
(b) On the EEOC Litigation Distribution Date, the Escrow Agent shall
deliver to Acquiror for cancellation certificates representing _________ of the
Escrow Shares then held in escrow as of the EEOC Litigation Distribution Date
and with respect to which an Indemnification Claim pursuant to Section 11.1(c)
of the Merger Agreement (an "EEOC Litigation Indemnification Claim") is not
pending. With respect to EEOC Litigation Indemnification Claims pending as of
the EEOC Litigation Distribution Date, Acquiror and the Indemnitor
Representative shall use their reasonable efforts to agree in writing on the
Indemnification Amount with respect to any such pending EEOC Litigation
Indemnification Claims; provided, that if Acquiror and the Indemnitor
Representative are not able to agree on the Indemnification Amount with respect
to such EEOC Litigation Indemnification Claims by the EEOC Litigation
Distribution Date, the amount of the Indemnification Amount solely for purposes
of the calculations in the following sentence of this Section 3.3(b) shall be
the amount reasonably claimed by Acquiror in its Notice of Indemnification Claim
in connection with such EEOC Litigation Indemnification Claim. Upon
determination of the Indemnification Amount in accordance with the preceding
sentence, Acquiror shall promptly:
(i) issue and deliver to the Shareholders new certificates representing the
number of shares of Acquiror Common Stock (the "EEOC Litigation Distribution
4
Shares") equal to the quotient obtained by dividing (A) the difference between
$1,800,000 and the aggregate Indemnification Amount with respect to such pending
EEOC Litigation Indemnification Claims by (B) the Closing Price and subtracting
--
from such quotient the number of shares of Acquiror Common Stock previously
cancelled in connection with previously resolved EEOC Litigation Indemnification
Claims (the "Undisputed EEOC Litigation Escrow Shares"), and such certificates
shall be denominated in the names of the respective Shareholders in amounts
equal to the product of the Undisputed EEOC Litigation Escrow Shares and each
Shareholder's Percentage Interest, and
(ii) issue and deliver to the Escrow Agent for retention in escrow pending
final determination of the Indemnification Amount, new certificates representing
the number of shares of Acquiror Common Stock equal to the quotient obtained by
dividing (C) the aggregate Indemnification Amount with respect to such pending
EEOC Litigation Indemnification Claims by (D) the Closing Price ("Disputed EEOC
--
Litigation Escrow Shares").
Any delivery of Acquiror Common Stock to Shareholders pursuant to this
Section 3.3(b) shall be of full shares, and any fractional portions shall be
rounded to a whole number by the Escrow Agent so that the number of shares
remaining in escrow to be delivered will be fully allocated among such
Shareholders. Upon the final resolution of all Indemnification Claims for which
Disputed EEOC Litigation Escrow Shares are retained in escrow after the EEOC
Litigation Distribution Date, the Escrow Agent shall promptly deliver to
Acquiror for cancellation the appropriate number of Disputed EEOC Litigation
Escrow Shares corresponding to the finally resolved Indemnification Amount and
shall deliver any remaining Disputed EEOC Litigation Escrow Shares to the
Shareholders in accordance with their respective Percentage Interests in such
remaining Disputed EEOC Litigation Escrow Shares.
(c) Notwithstanding anything to the contrary contained herein, the
Indemnitor Representative may, at any time after the Acquiror has published the
financial results covering at least 30 days of combined operations of Acquiror
and Company after the Effective Time, direct the Escrow Agent, in writing, to
sell for cash any Escrow Shares then held by the Escrow Agent pursuant to this
Agreement. The cash proceeds of any such sale (collectively, the "Cash
Proceeds") shall be retained by the Escrow Agent and shall be subject to the
escrow covered by this Agreement. Notwithstanding anything to the contrary
contained herein, if any distribution is made pursuant to this Section 3.3 at
such time as Cash Proceeds are held in escrow, then the Escrow Agent shall
distribute a number of Escrow Shares equal to the number of Escrow Shares
remaining in escrow times a fraction, the numerator of which is (i) the
Indemnification Amount for which the distribution is being made or (ii) the
value of the shares to be distributed on the Distribution Date for which the
calculation is being performed, as appropriate, and the denominator of which is
(i) the Initial Escrow Value less (ii) the sum of all Indemnification Amounts
theretofore paid out of escrow and the value of all shares theretofore
distributed on any Distribution Date (such fraction being hereinafter referred
to as the "Fraction"), and shall distribute Cash Proceeds equal to the Cash
Proceeds remaining in escrow times the Fraction. As used in this Section
3.3(c), the phrase "value of shares to be distributed on any Distribution Date"
shall mean the number of shares to be distributed on such date as set forth in
this Section 3.3 multiplied by the Closing Price. If any distribution is made
5
pursuant to this Section 3.3 at such time as only Cash Proceeds are held in
escrow, then the Escrow Agent shall distribute Cash Proceeds equal to the Cash
Proceeds remaining in escrow times the Fraction. Interest on any Cash Proceeds
shall accrue for the benefit of the Shareholders.
3.4 EFFECT OF FINAL DELIVERY. This Agreement shall continue in full force
------------------------
and effect until the Escrow Agent has delivered or canceled all of the Escrow
Shares pursuant to the terms hereof. After all of such shares have been so
delivered or canceled, all rights, duties and obligations of the respective
parties hereunder shall terminate.
ARTICLE 4
ESCROW STOCK CERTIFICATES
The Escrow Agent may, with the prior written consent of the Indemnitor
Representative, at any time request Acquiror to issue new certificates
representing the Escrow Shares in such denominations as may be necessary or
appropriate in carrying out the Escrow Agent's obligations under this Agreement.
ARTICLE 5
DIVIDENDS; VOTING RIGHTS
5.1 CASH DIVIDENDS; VOTING RIGHTS. The Shareholders shall be entitled to
-----------------------------
receive currently any and all cash dividends or other cash income with respect
to the Escrow Shares. Each Shareholder shall have the right to direct the
Escrow Agent in writing as to the exercise of voting rights with respect to such
Escrow Shares held by the Escrow Agent on behalf of such Shareholder, and the
Escrow Agent shall comply with any such directions if received in a timely
manner. In the absence of such directions, the Escrow Agent shall not vote any
such Escrow Shares.
5.2 STOCK SPLITS; STOCK DIVIDENDS. In the event of any stock split or
-----------------------------
stock dividend with respect to Acquiror Common Stock that becomes effective
during the term of this Agreement, the additional shares so issued with respect
to the Escrow Shares shall be added to the Escrow Shares and subject to the
escrow covered by this Agreement and any other references herein to a specific
number of shares of Acquiror Common Stock or references herein to Closing Price
shall be adjusted accordingly.
ARTICLE 6
THE ESCROW AGENT
6.1 LIABILITY. The Escrow Agent, in its capacity as such, or any
---------
successor Escrow Agent, shall be liable only to hold the Escrow Shares and to
deliver the same to the persons named herein in accordance with the provisions
of this Agreement. By acceptance of this Escrow Agreement, the Escrow Agent, in
6
its capacity as such, or any successor Escrow Agent, is acting in the capacity
of a depository only, and shall not be liable or responsible for any damages,
losses or expenses unless such damages, losses or expenses shall be caused by
the negligence or malfeasance of the Escrow Agent or the negligence or
malfeasance of any successor Escrow Agent. Neither the Escrow Agent, in its
capacity as such, nor any successor Escrow Agent, shall incur any liability with
respect to (i) any action taken or omitted in good faith upon the advice of its
counsel with respect to any questions relating to the duties and
responsibilities of the Escrow Agent under this Agreement; or (ii) any action
taken or omitted in reliance upon any instrument, including the written
instructions provided for herein, not only as to the due execution of such
instrument, or the identity or authority of any person executing such
instrument, or the validity and effectiveness of such instrument, but also as to
the truth and accuracy of any information contained therein, provided that the
Escrow Agent shall in good faith believe such instrument to be genuine, to have
been signed by a proper person or persons, and to conform to the provisions of
this Agreement. In the event of any disagreement between Acquiror and the
Shareholders or the presentation of adverse claims or demands by Acquiror or the
Shareholders in connection with or for any item affected hereby, the Escrow
Agent shall, at its option, be entitled to refuse to comply with any such claims
or demands during the continuance of such disagreement and may refrain from
delivering any item affected hereby, and in so doing the Escrow Agent shall not
become liable to the parties, or to any other person, due to its failure to
comply with any such adverse claim or demand. The Escrow Agent shall be
entitled to continue, without liability, to refrain and refuse to act until all
of the rights of the adverse claimants have been either fully resolved among
themselves, arbitrated to a final award, or finally adjudicated by a court
having jurisdiction over the dispute. The Escrow Agent shall be held harmless
and indemnified by the parties hereto in connection with any claims against it
in connection with its service as escrow agent hereunder, except to the extent
such claims arise out of the negligence or malfeasance of the Escrow Agent. Any
action requested to be taken by the Escrow Agent hereunder and not otherwise
specifically set forth herein shall require the agreement in writing of the
Indemnitor Representative, Acquiror and any successor Escrow Agent.
6.2 SUCCESSOR. The Escrow Agent, with the prior written consent of the
---------
Indemnitor Representative, may by written instrument designate a bank or trust
company to act as successor Escrow Agent. Any such successor Escrow Agent must
agree to be and shall be bound by, and shall have all the rights, duties and
responsibilities of the Escrow Agent under, this Agreement.
6.3 EXPENSES. Compensation for the normal services of the Escrow Agent
--------
shall be borne by the Shareholders and Acquiror equally. The Escrow Agent shall
be reimbursed for any reasonable expenses, including the actual out-of-pocket
cost of outside legal services should the Escrow Agent deem it necessary in its
reasonable discretion to retain an outside attorney, and Acquiror and the
Shareholders shall share equally the reimbursement of such expenses of the
Escrow Agent, except that (a) if Acquiror is unsuccessful in any litigation
relating to the Escrow Agent, then the fees and expenses of the Escrow Agent in
connection therewith shall be paid by Acquiror, or (b) should the Shareholders
be the unsuccessful party in any such litigation, then the Shareholders will
bear the fees and expenses of the Escrow Agent in connection therewith.
7
ARTICLE 7
INDEMNITOR REPRESENTATIVE
7.1 POWER AND AUTHORITY. The Indemnitor Representative shall have full
-------------------
power and authority to represent the Shareholders and their successors with
respect to all matters arising under this Agreement, and all action taken by the
Indemnitor Representative hereunder shall be binding upon such Shareholders and
their successors as if expressly ratified and confirmed in writing by each of
them. Without limiting the generality of the foregoing, the Indemnitor
Representative shall have full power and authority, on behalf of all the
Shareholders and their successors, to interpret all the terms and provisions of
this Agreement, to dispute or fail to dispute any claim of Indemnifiable Loss
against the Escrow Shares made by an Indemnitee, to negotiate and compromise any
dispute which may arise under this Agreement, to sign any releases or other
documents with respect to any such dispute, and to authorize payments to be made
with respect thereto. Each Shareholder hereby agrees to indemnify and to save
and hold harmless the Indemnitor Representative from any Liability incurred by
the Indemnitor Representative based upon or rising out of any act, whether of
omission or commission, of the Indemnitor Representative pursuant to the
authority herein granted, other than acts, whether of omission or commission, of
the Indemnitor Representative that constitute gross negligence or willful
misconduct in the exercise by the Indemnitor Representative of the authority
herein granted.
7.2 RESIGNATION; SUCCESSORS. The Indemnitor Representative, or any
-----------------------
successor hereafter appointed, may resign and shall be discharged of his duties
hereunder upon the appointment of a successor Indemnitor Representative as
hereinafter provided. In case of such resignation, or in the event of the death
or inability to act of the Indemnitor Representative, a successor shall be named
from among the Shareholders by a majority of the Shareholders. Each such
successor Indemnitor Representative shall have all the power, authority, rights
and privileges hereby conferred upon the original Indemnitor Representative, and
the term "Indemnitor Representative" as used herein shall be deemed to include
such successor Indemnitor Representative.
ARTICLE 8
MISCELLANEOUS
8.1 TRANSFERABILITY. Except as otherwise permitted in Section 3.3(c), a
---------------
Shareholder may not transfer any interest in the Escrow Shares or any other
right under this Escrow Agreement to any other party, except that upon written
notice from the legal representative of the estate of a deceased Shareholder to
the Escrow Agent, the rights of such Shareholder under this Escrow Agreement
shall be transferred to the estate of such Shareholder, and subsequently to any
beneficiary thereof, in the event of the Shareholder's death; provided, however,
that any such beneficiary or the legal representative of any such estate shall
be bound by the provisions of this Escrow Agreement without taking any further
action. The Escrow Agent shall be entitled to treat the legal representative of
the estate of such Shareholder, and subsequently any beneficiary thereof, as the
absolute owner of the rights of such Shareholder under this Escrow Agreement in
all respects and shall incur no liability for distributions made in good faith
8
to the legal representatives of such Shareholder or such beneficiary in
accordance with the terms of this Escrow Agreement. The contingent right to
receive Escrow Shares shall not be transferable by the Shareholders otherwise
than by will or by the laws of descent and distribution.
8.2 NOTICES. All notices or other communications which are required or
-------
permitted hereunder shall be in writing and sufficient if delivered by hand, by
facsimile transmission (with confirmation received by the sender), by registered
or certified mail, postage pre-paid, or by courier or overnight courier, to the
persons at the addresses set forth below (or at such other address as may be
provided hereunder), and shall be deemed to have been delivered as of the date
so delivered:
If to Acquiror:
Mohawk Industries, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ & Bird LLP
One Atlantic Center
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Shareholders or the Indemnitor Representative:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
________________
________________
________________
________________
Attn: ___________
Telecopy: (___) ___-____
9
If to Escrow Agent:
________________
________________
________________
Attn: ___________
Telecopy: (___) ___-____
or such other person or address as shall be furnished in writing by any of the
parties and any such notice or communication shall be deemed to have been given
as of the date so mailed.
8.3 CONSTRUCTION. This Agreement shall be governed by and construed in
------------
accordance with the laws of the State of Georgia, without regard to any
applicable conflicts of laws.
8.4 BINDING EFFECT. This Agreement shall inure to the benefit of and be
--------------
binding upon the respective heirs, executors, administrators, successors and
assigns of the parties hereto.
8.5 SEPARABILITY. If any provision or section of this Agreement is
------------
determined to be void or otherwise unenforceable, it shall not affect the
validity or enforceability of any other provisions of this Agreement which shall
remain enforceable in accordance with their terms.
8.6 HEADINGS. The headings and subheadings contained in this Agreement
--------
are for reference only and for the benefit of the parties and shall not be
considered in the interpretation or construction of this Agreement.
8.7 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
-------------------------
number of counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument.
8.8 AMENDMENTS. This Agreement may be amended from time to time but only
----------
by written agreement signed by all of the parties hereto.
8.9 THIRD PARTY BENEFICIARIES. Each Subsidiary of Acquiror and each of
-------------------------
the directors, officers and employees of Acquiror and each of its Subsidiaries
are expressly intended to be third party beneficiaries of the indemnities and
obligations of the Shareholders as if they were parties to this Agreement.
8.10 ARBITRATION. Any dispute, claim or controversy relating in any way to
-----------
this Agreement or the transactions contemplated hereby or thereby, whether in
contract, in tort or otherwise, except a request for equitable, injunctive or
restraining relief, shall be resolved by arbitration in Atlanta, Georgia, in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association ("AAA"), subject to the limitations of this Section 8.10. This
agreement to arbitrate will be specifically enforceable under the prevailing law
of any court having jurisdiction. Notice of a demand for arbitration will be
filed in writing with the applicable other signatory hereto and with AAA. The
10
demand for arbitration shall be made within a reasonable time after the claim,
dispute or other matter in question has arisen, and in no event shall any such
demand be made after the date when institution of legal or equitable proceedings
based on such claim, dispute or other matter in question would be barred by the
applicable statute of limitations. The signatories hereto agree that three (3)
arbitrators experienced in the matters at issue shall arbitrate all disputes.
The arbitrators shall be selected by the joint agreement of the signatories
hereto, but if they do not so agree within twenty (20) days after the date of
the notice of a demand for arbitration referred to above, the selection shall be
made pursuant to the Commercial Arbitration Rules of AAA from the panels of
arbitrators maintained by AAA. The award rendered by the arbitrators will be
final, judgment may be entered upon it in any court having jurisdiction thereof,
and the award will not be subject to vacation, modification or appeal, except to
the extent permitted by Sections 10 and 11 of the Federal Arbitration Act, the
terms of which Sections the signatories hereto agree shall apply. Each
participant in the arbitration shall pay its own expenses of arbitration, and
the expenses of the arbitrators shall be equally shared; provided, however, that
if in the opinion of the arbitrators any claim, or any defense or objection
thereto, was unreasonable, the arbitrators may assess, as part of their award,
all or any part of the arbitration expenses against the participant(s) raising
such unreasonable claim, defense or objection.
11
IN WITNESS WHEREOF, the parties have executed this Escrow Agreement as of
the day and year first above written.
MOHAWK INDUSTRIES, INC.
BY:__________________________________
NAME:________________________________
TITLE:_______________________________
SHAREHOLDERS:
________________________________(SEAL)
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇, as Trustee of the
Revocable Trust Agreement of ▇▇▇▇ ▇.
▇▇▇▇▇▇▇, dated July 12, 1996
BY:__________________________________
NAME:________________________________
TITLE:_______________________________
ESCROW AGENT
BY:__________________________________
NAME:________________________________
TITLE:_______________________________
12
SCHEDULE I
TO ESCROW AGREEMENT
SHAREHOLDERS
NUMBER OF SHARES
OF COMMON STOCK PERCENTAGE
NAME OWNED INTEREST
------------------------------------------------ ------------------------------ ------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 50%
▇▇▇▇ ▇. ▇▇▇▇▇▇▇, as Trustee of the Revocable 50%
Trust Agreement of ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, dated July
12, 1996
EXHIBIT 2
---------
FORM OF
-------
SHAREHOLDER'S NONCOMPETITION
----------------------------
AND CONFIDENTIALITY AGREEMENT
-----------------------------
THIS SHAREHOLDER'S NONCOMPETITION AND CONFIDENTIALITY AGREEMENT (this
"Agreement") is made as of the ____ day of ____, 1998, among MOHAWK INDUSTRIES,
INC., a Delaware corporation ("Acquiror"), WORLD CARPETS, INC., a Georgia
corporation ("Company"), and ____________ (the "Shareholder"), being the owner
of issued and outstanding shares of the capital stock of Company.
W I T N E S S E T H:
WHEREAS, Acquiror, Company and the Shareholder, among others, are parties
to that certain Agreement and Plan of Merger (the "Merger Agreement"), dated as
of October 22, 1998, among Acquiror, WC Acquisition Corp. ("Sub"), Company and
the shareholders of Company, pursuant to which Sub has merged with and into
Company; and
WHEREAS, the Merger Agreement provides that as a condition precedent to the
transaction contemplated thereby, the Shareholder will enter into a
noncompetition and confidentiality agreement with Acquiror and Company; and
WHEREAS, Acquiror, Company and the Shareholder desire to enter into this
Noncompetition and Confidentiality Agreement to memorialize the terms and
conditions hereinafter set forth; and
WHEREAS, Acquiror would not consummate the transactions contemplated by the
Merger Agreement unless the Shareholder executed and delivered this
Noncompetition and Confidentiality Agreement; and
WHEREAS, Company is engaged in and throughout the Area (as defined herein)
in the Business (as defined herein); and
WHEREAS, the Shareholder has obtained knowledge of the business, affairs,
finances, management, marketing programs and philosophy, clients and methods of
operation of Company; and
WHEREAS, Acquiror and Company would suffer irreparable harm, including the
destruction or substantial diminishment of the value of the Business and
goodwill being acquired by Acquiror if the Shareholder was to use such
knowledge, information and business acumen.
NOW, THEREFORE, in consideration of Acquiror's acquisition of Company by
virtue of Sub's merger with and into Company, the above premises and the mutual
covenants and agreements hereinafter set forth, the receipt, adequacy and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Definitions
-----------
(a) "Affiliate" or "Affiliated," used to indicate a relationship to a
--------- ----------
specified person, firm, corporation, partnership, association or entity, means
any person, firm, corporation, partnership, association or entity that, directly
or indirectly or through one or more intermediaries, controls, is controlled by
or is under common control with such person, firm, corporation, partnership,
association or entity.
(b) "Applicable Period" means the period of five (5) consecutive years
-----------------
commencing on the Closing (as defined in the Merger Agreement).
(c) "Area" means Canada, the United States of America and Mexico.
----
(d) "Business" means the Company's business of designing, manufacturing,
--------
marketing and distributing woven and tufted broadloom carpet and rugs for
residential and commercial applications, as such business exists as of, or prior
to, the Closing.
(e) "Competing Business" means any person, business organization or
------------------
enterprise in whatever form which is engaged in a business that is the same or
substantially similar to the Business.
(f) "Proprietary Information" means all information with respect to Company
-----------------------
as it exists as of, or existed prior to, the Closing or the Business which (i)
derives economic value, actual or potential, from not being generally known or
readily ascertainable by other persons (outside Acquiror or Company) who can
obtain economic value from its disclosure or use, and (ii) is the subject of
efforts by Company that are reasonable under the circumstances to maintain its
secrecy or confidentiality. Nothing in the foregoing sentence shall be deemed
to require that all documents of Company be stamped "confidential" or maintained
in locked or otherwise secured files within Company in order to maintain secrecy
or confidentiality. Assuming the foregoing criteria are met, Proprietary
Information includes, but is not limited to, technical or nontechnical data
related to the formulas, patterns, designs, compilations, programs, inventions,
methods, techniques, drawings, processes, finances, actual or potential
customers and suppliers, existing and future products sales and marketing
information, and employees of Company, and all physical embodiments of the
foregoing. Proprietary Information does not include any information which
before being divulged by the Shareholder (i) has become generally known or
available to the public through no wrongful act of the Shareholder; (ii) except
as otherwise provided in clause (i) above, has been approved for release and
2
released to the general public by written authorization of Company or Acquiror
or any Affiliates of Company or Acquiror; (iii) has been disclosed pursuant to a
requirement of a governmental agency or of law without similar restrictions or
other protections against public disclosure, or has been required to be
disclosed by operation of law; provided, however, that the Shareholder must
first have given written notice of such required disclosure to Company,
reasonably cooperated in Company's efforts to obtain a protective order
requiring that the Proprietary Information so disclosed be used only for the
purposes for which disclosure is required, and taken reasonable steps requested
in writing by Company to allow Company to seek to protect the confidentiality of
the information required to be disclosed; or (iv) is furnished to a non-
Affiliated third party by Company or Acquiror or any Affiliates of Company or
Acquiror without restrictions on the third party's right to disclose the
information. Proprietary Information may include information disclosed to
Company by a third party which Company is obliged to treat as confidential.
2. Consideration. As consideration to the Shareholder for Shareholder's
-------------
covenants set forth in this Agreement, Acquiror agrees to pay the Shareholder
$1,500,000 (the "Consideration"). Simultaneously with the Closing, Acquiror
shall pay the Shareholder $300,000 of the Consideration. Commencing upon the
first day of the month first commencing after the first anniversary of the
Closing, Acquiror shall pay the Shareholder $25,000 (or such greater amount as
Acquiror shall choose in Acquiror's sole discretion) per month on the first day
of each month until the balance of the Consideration has been paid in full.
3. Agreement Not to Compete. The Shareholder agrees that commencing on
------------------------
the date hereof and continuing through the Applicable Period he will not (except
on behalf of or with the prior written consent of Acquiror, which consent may be
withheld in Acquiror's sole discretion), within the Area, either directly or
indirectly, on the Shareholder's own behalf, or in the service or on behalf of
others, engage in or provide managerial, supervisory, sales, financial,
administrative or consulting services or assistance to, or own (other than
ownership of (i) any securities of Acquiror or (ii) less than five percent of
the outstanding voting securities of an entity whose voting securities are
traded on a national securities exchange or quoted on the National Association
of Securities Dealers, Inc. Automated Quotation System) a beneficial interest in
any Competing Business. For purposes of this Section 3, the Shareholder
acknowledges and agrees that the Business is conducted in the Area.
4. Agreement Not to Solicit Customers.
----------------------------------
The Shareholder agrees that commencing on the date hereof and continuing
through the Applicable Period, he will not, without the prior written consent of
Acquiror, which consent may be withheld in Acquiror's sole discretion, within
the Area, either directly or indirectly, on the Shareholder's own behalf or in
the service or on behalf of others, solicit, divert or appropriate, or attempt
to solicit, divert or appropriate, to any Competing Business any customer or
3
client of the Business who was, prior to the date hereof, serviced by or under
the supervision of the Shareholder.
5. Agreement Not to Solicit Employees.
----------------------------------
The Shareholder agrees that commencing on the date hereof and continuing
through the Applicable Period, he will not, either directly or indirectly, on
the Shareholder's own behalf or in the service of or on behalf of others,
solicit, divert or hire, or attempt to solicit, divert or hire, any person
employed by Acquiror or Company, whether or not such employment is pursuant to
written agreement and whether or not such employment is for a determined period
or is at will unless such person shall have ceased to be employed by Company or
Acquiror or any Affiliate of Company or Acquiror for a period of at least one
(1) year immediately prior to such action by the Shareholder.
6. Ownership and Protection of Proprietary Information.
---------------------------------------------------
(a) Confidentiality. All Proprietary Information and all physical
---------------
embodiments thereof received or developed by the Shareholder are confidential to
and are and will remain the sole and exclusive property of Company. The
Shareholder will hold such Proprietary Information in trust and strictest
confidence, and will not use, reproduce, distribute, disclose or otherwise
disseminate the Proprietary Information or any physical embodiments thereof, and
may in no event take any action causing any Proprietary Information disclosed to
or developed by the Shareholder to lose its character or cease to qualify as
Proprietary Information.
(b) Return of Company Property. Upon request by Acquiror, the Shareholder
--------------------------
will promptly deliver to Acquiror or Company, as directed, all property
belonging to Company, including, without limitation, all Proprietary Information
(and all embodiments thereof) then in the Shareholder's custody, control or
possession.
(c) Survival. The covenants of confidentiality set forth in this Section 6
--------
will apply on and after the date hereof to any Proprietary Information disclosed
by Acquiror or Company to the Shareholder prior to or after the date hereof and
will continue and be maintained by the Shareholder (i) with respect to
Proprietary Information which does not constitute a trade secret under the
Georgia Trade Secrets Act, during the Applicable Period, and (ii) with respect
to the Proprietary Information consisting of trade secrets under the Georgia
Trade Secrets Act, including but not limited to scientific or technical data, at
any and all times following the date hereof so long as such Proprietary
Information remains a trade secret under the Georgia Trade Secrets Act.
7. Severability, Etc.
------------------
The Shareholder agrees that the covenants and agreements contained in
Sections 3, 4, 5, 6, 7 and 8 of this Agreement, and the subsections of those
Sections, are of the essence of this Agreement; that each of such covenants is
reasonable and necessary to protect and preserve the interests and properties of
4
Acquiror, Company and the Business; that Company is engaged in and throughout
the Area in the Business; that irreparable loss and damage will be suffered by
Acquiror and Company should the Shareholder breach any of such covenants and
agreements; that each of such covenants and agreements is separate, distinct and
severable not only from the other of such covenants and agreements but also from
the other and remaining provisions of this Agreement; that the unenforceability
of any such covenant or agreement shall not affect the validity or
enforceability of any other such covenant or agreement or any other provision or
provisions of this Agreement; and that, in addition to other remedies available
to it, Acquiror and Company shall be entitled to specific performance of this
Agreement and to both temporary and permanent injunctions to prevent a breach or
contemplated breach by the Shareholder of any of such covenants or agreements.
8. Nature of Remedies.
------------------
The respective obligations of the parties hereto pursuant to this Agreement
constitute separate, independent legal obligations of such parties, therefore
the failure or refusal of one party hereto to comply, in whole or in part, with
such party's obligations under this Agreement shall not in any way relieve any
other party to this Agreement of such other party's obligations under this
Agreement. Without limiting the generality of the foregoing sentence, any breach
or alleged breach by Acquiror of Acquiror's payment obligations under this
Agreement shall not expressly or implicitly provide or bestow any right to or on
the Shareholder to fail or refuse to perform or comply with the Shareholder's
obligations under this Agreement, and in any such situation or circumstance, the
Shareholder shall rely exclusively upon his rights to seek legal and equitable
remedies in a court of competent jurisdiction to require Acquiror to fulfill
Acquiror's payment obligations under this Agreement. Without limiting the
generality of the first sentence of this Section 8, any breach or alleged breach
by Shareholder of Shareholder's obligations under this Agreement shall not
expressly or implicitly provide or bestow any right to or on Acquiror to fail or
refuse to perform or comply with Acquiror's obligations under this Agreement,
and in any such situation or circumstance, Acquiror shall rely exclusively upon
its rights to seek legal and equitable remedies in a court of competent
jurisdiction to require Shareholder to comply with or fulfill Shareholder's
obligations under this Agreement.
9. Notice.
------
All notices, requests, demands and other communications required hereunder
shall be in writing and shall be deemed to have been duly given if delivered or
if mailed, by United States certified or registered mail, prepaid to the party
to which the same is directed at the following addresses (or at such addresses
as shall be given, in writing by the parties to one another in accordance with
this Section 9):
5
If to Acquiror or Company: Mohawk Industries, Inc.
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▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇
With a copy to: ▇▇▇▇▇▇ & Bird LLP
One Atlantic Center
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▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
If to the Shareholder:
------------------------------------
------------------------------------
------------------------------------
With a copy to:
------------------------------------
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------------------------------------
Notices delivered in person shall be effective on the date of delivery. Notices
delivered by mail as aforesaid shall be effective upon the third calendar day
subsequent to the postmark date thereof.
10. Miscellaneous.
-------------
(a) Assignment. This Agreement may be assigned by Acquiror and Company and
----------
shall inure to the benefit of and shall be binding upon the successors and
assigns of Acquiror and Company. In the event of any such assignment, Acquiror
shall remain liable for the performance of its obligations hereunder unless the
Shareholder otherwise consents in writing, which consent may not be unreasonably
withheld. For purposes of this Agreement, an assignment shall not include any
merger or consolidation to which Acquiror or Company is a party. This Agreement
may not be assigned by the Shareholder (or the Shareholder's legal
representative, if applicable), nor may the Shareholder in any way delegate the
performance of the Shareholder's covenants and obligations hereunder. This
Agreement shall inure to the benefit of the Shareholder and the Shareholder's
heirs, beneficiaries and legal representatives.
(b) Waiver. Acquiror or Company's waiver of any breach of this Agreement
------
by the Shareholder shall not be effective unless in writing, and no such waiver
shall constitute the waiver of the same or another breach on a subsequent
occasion.
6
(c) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws of the State of Georgia.
(d) Entire Agreement. This Agreement, together with the Merger Agreement
----------------
and the other documents and agreements referred to therein, embodies the entire
agreement of the parties hereto relating to the subject matter hereof and
supersedes all oral agreements, and to the extent inconsistent with the terms
hereof, all other written agreements between the parties hereto in respect of
the subject matter contained herein.
(e) Amendment. This Agreement may not be modified, amended, supplemented
---------
or terminated except by a written instrument executed by the parties hereto.
11. Captions and Section Headings. Except as set forth in Section 1
-----------------------------
hereof, captions and section headings used herein are for convenience only and
are not a part of this Agreement and shall not be used in construing it.
ACQUIROR:
MOHAWK INDUSTRIES, INC.
By: ___________________________
Name: _________________________
Title: ________________________
[CORPORATE SEAL]
COMPANY:
WORLD CARPETS, INC.
By: ___________________________
Name: _________________________
Title: ________________________
SHAREHOLDER:
_________________________ (SEAL)
7
EXHIBIT 3
---------
AGREEMENT FOR MUTUAL RELEASE OF CLAIMS
THIS AGREEMENT FOR THE MUTUAL RELEASE OF CLAIMS (the "Agreement") is
entered into as of ___________, 1998 by and among ______________ ("Shareholder")
and World Carpets, Inc., a Georgia corporation ("Company"). Capitalized terms
used herein without definition shall have the meanings provided therefor in the
Merger Agreement (as hereinafter defined).
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, on October 22, 1998, Mohawk Industries, Inc., a Delaware
corporation ("Acquiror"), Company and WC Acquisition Corp., a Georgia
corporation ("Sub") entered into an Agreement and Plan of Merger (the "Merger
Agreement"), pursuant to which Sub will merge with and into Company (the
"Merger"), whereby Company shall survive the Merger as a wholly owned subsidiary
of Acquiror; and
WHEREAS, it is a condition to the obligation of each of Acquiror and
Sub to consummate the Closing under the Merger Agreement that on or prior to the
Closing the Company, on the one hand, and each of the shareholders of Company,
on the other hand, enter into an agreement for the mutual release of claims; and
WHEREAS, the parties hereto wish to consummate the transactions
contemplated by the Merger Agreement.
NOW, THEREFORE, for and in consideration of the forgoing and the
mutual promises, covenants and agreements contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. Shareholder Release: Shareholder, for Shareholder and
-------------------
Shareholder's heirs, beneficiaries, successors, assigns, agents, attorneys,
legal representatives and for anyone else claiming by, through or under any of
them (together with Shareholder, collectively "Shareholder Releasors"), does
hereby remise, release and forever discharge Company and its subsidiaries,
affiliates and associates, and all of their respective successors, assigns,
agents, attorneys, legal representatives, officers, directors and shareholders
(collectively, the "Company Releasees"), and each of them, from all manner of
actions, causes of action, suits, debts, dues, accounts, bonds, covenants,
contracts, claims and demands (collectively, "Claims") whatsoever which as
against the said Company Releasees (or any of them) Shareholder Releasors, or
any of them, ever had, now has or shall or may have for or by reason of any
cause, matter or thing whatsoever existing up to the present time, including,
without limiting the generality of the foregoing, all Claims arising out of or
in any way connected with the employment of Shareholder by any of the Company
Releasees (including as an officer, director or employee) or the obligations
(statutory, contractual or otherwise) of the Company Releasees to Shareholder
Releasors, or any of them, in respect thereof. Notwithstanding the foregoing or
any other provision of this Agreement, Shareholder Releasors shall not release
the Company Releasees, or any of them, from their respective (a) obligations to
Shareholder Releasors, or any of them, under the Merger Agreement and the Other
Acquiror Agreements, (b) obligations to Shareholder Releasors, or any of them,
for any salary, wages or other compensation or reimbursement of expenses arising
prior to the Closing out of any employment or consulting arrangements between
Shareholder and the Company Releasees, or any of them, and (c) obligations to
Shareholder Releasors which are funded by third party insurance.
The Claims released herein specifically include, but are not limited
to, any Claims arising in tort or contract, any Claim based on wrongful
discharge, any Claim based on breach of contract, any Claim arising under
federal, state or local law prohibiting race, sex, religion, national origin,
handicap, disability or other forms of discrimination, or retaliation, including
but not limited to Title VII of the Civil Rights Act of 1964, as amended, 42
U.S.C. (S) 1981, The Americans With Disabilities Act, the Age Discrimination in
Employment Act, and the Employment Retirement Income Security Act, as amended.
Shareholder specifically waives any right to reinstatement or any other remedy
which might be available under these statutes.
Shareholder expressly acknowledges that the consideration referred to
herein shall not in any way constitute an admission of any liability by the
Company Releasees or any one of them with respect to the Claims released by
Shareholder pursuant to this Section 1.
Shareholder agrees not to make any claim or take any proceeding
against any person or corporation who might claim, pursuant to the provisions of
any applicable statute or otherwise, contribution or indemnity from the Company
Releasees or any one of them with respect to the Claims released by Shareholder
pursuant to this Section 1.
2. The Company's Release: The Company, for Company, Company's
---------------------
subsidiaries and affiliates and their respective successors, assigns, agents,
attorneys, legal representatives, and for anyone claiming by, through or under
any of them (together with Company, collectively the "Company Releasors") does
hereby remise, release and forever discharge Shareholder and Shareholder's
heirs, beneficiaries, successors, assigns, agents, attorneys and legal
representatives (collectively, "Shareholder Releasees"), and each of them, from
all Claims whatsoever which as against Shareholder Releasees, or any of them,
the Company Releasors, or any of them, ever had, now has or shall or may have
for or by reason of any cause, matter or thing whatsoever existing up to the
present time, including, without limiting the generality of the foregoing, all
Claims arising out of or in any way connected with the employment of Shareholder
by the Company Releasors (or any of them) (including as officer, director or
employee) or the obligations (statutory, contractual or otherwise) of
Shareholder to the Company Releasors, or any of them, in respect thereof.
Notwithstanding the foregoing or any other provision of this Agreement, the
Company Releasors shall not release Shareholder Releasees, or any of them, from
2
his, her or its obligations to the Company Releasors, or any of them, under the
Merger Agreement and the Other Shareholder Agreements.
The Claims released herein specifically include, but are not limited
to, any Claims arising in tort or contract, any Claim based on breach of
contract, any Claim arising under federal, state or local law prohibiting race,
sex, religion, national origin, handicap, disability or other forms of
discrimination, or retaliation, including but not limited to Title VII of the
Civil Rights Act of 1964, as amended, 42 U.S.C. (S) 1981, The Americans With
Disabilities Act, the Age Discrimination in Employment Act, and the Employment
Retirement Income Security Act, as amended. The Company specifically waives any
remedy which might be available under these statutes.
The Company expressly acknowledges that the consideration referred to
herein shall not in any way constitute an admission of any liability by
Shareholder Releasees, or any of them, with respect to the Claims released by
Company pursuant to this Section 2.
The Company agrees not to make any claim or take any proceeding
against any person or corporation who might claim, pursuant to the provisions of
any applicable statute or otherwise, contribution or indemnity from Shareholder
Releasees, or any of them, with respect to the Claims released by Company
pursuant to this Section 2.
3. Shareholder Acknowledgment. Shareholder expressly declares that
--------------------------
he, she or it has been given sufficient time to consider his, her or its actions
and to seek such independent legal or other advice as he, she or it considers
appropriate with respect to this matter and the terms of this document.
Shareholder voluntarily accepts the said terms for the purpose of making full
and final compromise, adjustment and settlement of all claims as aforesaid.
Shareholder acknowledges that no representation of fact or opinion, threat or
inducement has been made or given by the Company Releasees or any of them to
induce the signing of this Agreement.
4. Company's Acknowledgment. The Company expressly declares that it
------------------------
has been given sufficient time to consider its actions and to seek such
independent legal or other advice as it considers appropriate with respect to
this matter and the terms of this document. The Company voluntarily accepts the
said terms for the purpose of making full and final compromise, adjustment and
settlement of all claims as aforesaid. The Company acknowledges that no
representation of fact or opinion, threat or inducement has been made or given
by Shareholder to induce the signing of this Agreement.
5. Severability. In the event that any term or provision in this
------------
Agreement is held to be invalid, void, illegal or unenforceable in any respect,
the Agreement shall not fail, but shall be deemed amended to delete the void or
unenforceable term or provision, and the remainder of this Agreement shall be
enforced in accordance with its terms and shall not in any way be affected or
impaired thereby. In the event that any term or provision of this Agreement is
held to be overbroad or otherwise unreasonable, the same shall not fail, but
3
shall be deemed amended only to the extent necessary to render it reasonable,
and the parties agree to be bound by the same as thus amended.
6. Entire Agreement. This Agreement (including the recitals set
----------------
forth at the beginning), together with the Merger Agreement, the Other
Shareholder Agreements and the Other Acquiror Agreements, sets forth the entire
agreement and understanding of the parties with respect to the subject matter
hereof, and supersedes all prior agreements, arrangements and understandings
(other than those contained in the Merger Agreement, the Other Shareholder
Agreements and the Other Acquiror Agreements) relating to the specific subject
matter of this Agreement.
7. Governing Law. This Agreement has been negotiated, executed and
-------------
delivered in, and shall be governed by, and construed and enforced in accordance
with, the laws of the State of Georgia without respect to the laws related to
choice or conflicts of laws.
8. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of and be enforceable by the parties hereto, and their
respective estates, successors, legal or personal representatives, heirs,
distributees, designees and assigns.
9. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, and all such counterparts
shall constitute one and the same Agreement, binding on all the parties
notwithstanding that all the parties are not signatories to the same
counterpart.
[Signatures on Following Page]
4
IN WITNESS WHEREOF the undersigned have executed this Agreement this ____
day of ___________, 1998.
SHAREHOLDER:
__________________________(SEAL)
__________________________
COMPANY:
WORLD CARPETS, INC.
Attest:_____________________ By:______________________________
Title:______________________ Title:___________________________
[CORPORATE SEAL]
5
EXHIBIT 4
---------
October __, 1998
Mohawk Industries, Inc.
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▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
The undersigned has been advised that the undersigned may be deemed to be
an "affiliate" of World Carpets, Inc., a Georgia corporation ("World"), as the
term "affiliate" is used in Rule 405 promulgated under the Securities Act of
1933, as amended. Pursuant to the terms of the Agreement and Plan of Merger
(the "Agreement"), by and among Mohawk Industries, Inc. ("Mohawk"), WC
Acquisition Corp., a Georgia corporation ("Sub"), World and the shareholders of
World, dated as of October 22, 1998, Sub will be merged with and into World (the
"Merger") and all of the outstanding shares of capital stock, of World will be
converted into shares of common stock, par value $.01 per share, of Mohawk
("Mohawk Common Stock").
The undersigned hereby acknowledges and agrees with Mohawk that, within the
30 days prior to the Effective Time (as such term is defined in the Agreement)
of the Merger, the undersigned will not sell, transfer or otherwise dispose of,
or direct or cause the sale, transfer or other disposition of, or reduce the
undersigned's risk relative to, any Mohawk Common Stock held by the undersigned
or on the undersigned's behalf, whether owned on the date hereof or hereafter
acquired. The undersigned further acknowledges and agrees with Mohawk that the
undersigned will not sell, transfer or otherwise dispose of, or direct or cause
the sale, transfer or other disposition of, or reduce the undersigned's risk
relative to, any shares of Mohawk Common Stock held by the undersigned or on the
undersigned's behalf, whether owned on the date hereof or hereafter acquired,
until at least one business day after such time as Mohawk shall have publicly
released a report in the form of a quarterly earnings report, registration
statement filed with the Securities and Exchange Commission (the "Commission"),
a report filed with the Commission on Form 10-K, 10-Q or 8-K or any other public
filing, statement or public announcement which includes the combined financial
results (including combined sales and net income) of Mohawk and World for a
period of at least 30 days of combined operations of Mohawk and World following
the Effective Time.
Execution of this letter should not be considered an admission on the
undersigned's part that the undersigned is an "affiliate" of World as described
in the first paragraph of this letter, or as a waiver of any rights the
undersigned may have to object to any claim that the undersigned is such an
affiliate on or after the date of this letter.
Very truly yours,
_____________________________
Name: _______________________
Title: ______________________
Accepted and agreed to as
of the date first written above:
MOHAWK INDUSTRIES, INC.
By: ___________________________
Name: _________________________
Title: ________________________
2
AFFILIATE AGREEMENT
-------------------
Mohawk Industries, Inc.
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▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
The undersigned is a shareholder of World Carpets, Inc. ("Company"), a
corporation organized and existing under the laws of the State of Georgia, and
will become a shareholder of Mohawk Industries, Inc. ("Acquiror"), a corporation
organized and existing under the laws of the State of Delaware, pursuant to the
transactions described in the Agreement and Plan of Merger, dated as of October
22, 1998 (the "Agreement"), by and among Acquiror, WC Acquisition Corp. ("Sub"),
Company and the shareholders of Company. Under the terms of the Agreement, Sub
will be merged into and with Company (the "Merger"), and the shares of Class A
voting preferred stock, par value $100.00 per share, Class B nonvoting preferred
stock, $100.00 par value per share and Class C nonvoting common stock, no par
value per share, of Company (collectively, "Company Capital Stock") will be
converted into and exchanged for shares of the $0.01 par value common stock of
Acquiror ("Acquiror Common Stock"). This Affiliate Agreement represents an
agreement between the undersigned and Acquiror regarding certain rights and
obligations of the undersigned in connection with the shares of Acquiror Common
Stock to be received by the undersigned as a result of the Merger.
In consideration of the Merger and the mutual covenants contained herein,
the undersigned and Acquiror hereby agree as follows:
1. Affiliate Status. The undersigned understands and agrees that as to
----------------
Company the undersigned is an "affiliate" under Rule 145(c) as defined in Rule
405 of the Rules and Regulations of the Securities and Exchange Commission
("SEC") under the Securities Act of 1933, as amended ("1933 Act"), and the
undersigned anticipates that the undersigned will be such an "affiliate" at the
time of the Merger.
2. Initial Restriction on Disposition. The undersigned agrees that he
----------------------------------
will not sell, transfer, or otherwise dispose of his interests in, or reduce his
risk relative to, any of the shares of Acquiror Common Stock into which his
shares of Company Capital Stock are converted upon consummation of the Merger
until one business day after publication by Acquiror of its results of post-
Merger operations for the period which includes at least 30 days of post-Merger
combined operations of Acquiror and Company. Acquiror agrees that it will use
its best efforts to publish such results within 60 days after the end of the
first fiscal month containing the required thirty (30) day period of post-
Closing combined operations, unless the end of such month is also the end of a
fiscal quarter of Acquiror, in which event, Acquiror will use its best efforts
to publish such results within 45 days after the end of such month, and that it
will notify the undersigned promptly following such publication of Acquiror
containing the required period of post-Merger combined operations.
3. Covenants and Warranties of Undersigned. The undersigned represents,
---------------------------------------
warrants and agrees that:
(a) The Acquiror Common Stock received by the undersigned as a result of
the Merger will be taken for the undersigned's own account and not for
others, directly or indirectly, in whole or in part.
(b) Acquiror has informed the undersigned that the shares of Acquiror
Common Stock received pursuant to the Merger can only be sold by the
undersigned (1) pursuant to an effective registration statement under the
1933 Act, or (2) in conformity with the volume and other requirements of Rule
145(d) promulgated by the SEC as the same now exist or may hereafter be
amended, or (3) to the extent some other exemption from registration under
the 1933 Act might be available.
(c) The undersigned will, and will cause each of the other parties whose
shares are deemed to be beneficially owned by the undersigned pursuant to
Section 8 hereof to, have all shares of Company Capital Stock beneficially
owned by the undersigned registered in the name of the undersigned or such
parties, as applicable, prior to the effective date of the Merger and not in
the name of any bank, broker-dealer, nominee or clearinghouse.
(d) During the 30 consecutive days immediately preceding the Effective Time
of the Merger, the undersigned will not sell, transfer, or otherwise dispose
of the undersigned's interests in, or reduce the undersigned's risk relative
to, any of the shares of Company Capital Stock beneficially owned by the
undersigned as of the date the undersigned executed a written consent in lieu
of a special meeting of the shareholders of Company to approve and adopt the
Agreement and the Merger.
4. Restrictions on Transfer. The undersigned understands and agrees that
------------------------
stop transfer instructions with respect to the shares of Acquiror Common Stock
received by the undersigned pursuant to the Merger will be given to Acquiror's
Transfer Agent and that there will be placed on the certificates for such
shares, or shares issued in substitution thereof, a legend stating in substance:
"The shares represented by this certificate were issued pursuant to a
business combination which is accounted for as a "pooling of interests" and
may not be sold, nor may the owner thereof reduce his risks relative thereto
in any way, until such time as Mohawk Industries, Inc. ("Mohawk") has
published the financial results covering at least 30 days of combined
operations after the effective date of the merger through which the business
combination was effected. In addition, the shares represented by this
certificate may not be sold, transferred or otherwise disposed of except or
unless (1) covered by an effective registration statement under the
Securities Act of 1933, as amended, (2) in accordance with (i) Rule 145(d)
(in the case of shares issued to an individual who is not an affiliate of
---
Mohawk) or (ii) Rule 144 (in the case of shares issued to an individual who
is an affiliate of Mohawk) of the Rules and Regulations
2
of such Act, or (3) in accordance with a legal opinion satisfactory to
counsel for Acquiror that such sale or transfer is otherwise exempt from the
registration requirements of such Act."
Such legend will also be placed on any certificate representing Acquiror
securities issued subsequent to the original issuance of the Acquiror Common
Stock pursuant to the Merger as a result of any transfer of such shares or any
stock dividend, stock split, or other recapitalization as long as the Acquiror
Common Stock issued to the undersigned pursuant to the Merger has not been
transferred in such manner to justify the removal of the legend therefrom. Upon
the request of the undersigned, Acquiror shall cause the certificates
representing the shares of Acquiror Common Stock issued to the undersigned in
connection with the Merger to be reissued free of any legend relating to
restrictions on transfer by virtue of ASR 130 and 135 as soon as practicable
after the requirements of ASR 130 and 135 have been met. In addition, if the
provisions of Rules 144 and 145 are amended to eliminate restrictions applicable
to the Acquiror Common Stock received by the undersigned pursuant to the Merger,
or at the expiration of the restrictive period set forth in Rule 145(d),
Acquiror, upon the request of the undersigned, will cause the certificates
representing the shares of Acquiror Common Stock issued to the undersigned in
connection with the Merger to be reissued free of any legend relating to the
restrictions set forth in Rules 144 and 145(d) upon receipt by Acquiror of an
opinion of its counsel to the effect that such legend may be removed.
5. Understanding of Restrictions on Dispositions. The undersigned has
---------------------------------------------
carefully read the Agreement and this Affiliate Agreement and discussed their
requirements and impact upon the undersigned's ability to sell, transfer, or
otherwise dispose of the shares of Acquiror Common Stock received by the
undersigned to the extent the undersigned believes necessary, with the
undersigned's counsel or counsel for Company.
6. Filing of Reports by Acquiror. Acquiror agrees, for a period of two
-----------------------------
(2) years after the effective date of the Merger, to file on a timely basis all
reports required to be filed by it pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended, so that the public information provisions of
Rule 145(d) promulgated by the SEC as the same are presently in effect will be
available to the undersigned in the event the undersigned desires to transfer
any shares of Acquiror Common Stock issued to the undersigned pursuant to the
Merger.
7. Transfer Under Rule 145(d). If the undersigned desires to sell or
--------------------------
otherwise transfer the shares of Acquiror Common Stock received by the
undersigned in connection with the Merger at any time during the restrictive
period set forth in Rule 145(d), the undersigned will provide the necessary
representation letter to the transfer agent for Acquiror Common Stock together
with such additional information as the transfer agent may reasonably request.
If Acquiror's counsel concludes that such proposed sale or transfer complies
with the requirements of Rule 145(d), Acquiror shall cause such counsel to
provide such opinions as may be necessary to Acquiror's Transfer Agent so that
the undersigned may complete the proposed sale or transfer.
8. Acknowledgments. The undersigned recognizes and agrees that the
---------------
foregoing provisions also apply to all shares of the capital stock of Company
and Acquiror that are deemed
3
to be beneficially owned by the undersigned pursuant to applicable federal
securities laws, which the undersigned agrees may include, without limitation,
shares owned or held in the name of (i) the undersigned's spouse, (ii) any
relative of the undersigned or of the undersigned's spouse who has the same home
as the undersigned, (iii) any trust or estate in which the undersigned, the
undersigned's spouse, and any such relative collectively own at least a 10%
beneficial interest or of which any of the foregoing serves as trustee,
executor, or in any similar capacity, and (iv) any corporation or other
organization in which the undersigned, the undersigned's spouse and any such
relative collectively own at least 10% of any class of equity securities or of
the equity interest. The undersigned further recognizes that, in the event that
the undersigned is a director or officer of Acquiror or becomes a director or
officer of Acquiror upon consummation of the Merger, among other things, any
sale of Acquiror Common Stock by the undersigned within a period of less than
six months following the effective time of the Merger may subject the
undersigned to liability pursuant to Section 16(b) of the Securities Exchange
Act of 1934, as amended.
9. Miscellaneous. This Affiliate Agreement is the complete agreement
-------------
between Acquiror and the undersigned concerning the subject matter hereof. Any
notice required to be sent to any party hereunder shall be sent by registered or
certified mail, return receipt requested, using the addresses set forth herein
or such other address as shall be furnished in writing by the parties. This
Affiliate Agreement shall be governed by the laws of the State of Georgia.
4
This Affiliate Agreement is executed as of the ____ day of October, 1998.
Very truly yours,
_________________________ _____________________________
Signature Signature
_________________________ _____________________________
Print Name Print Name
_________________________ _____________________________
_________________________ _____________________________
_________________________ _____________________________
Address Address
[add below the signatures of all registered owners
of shares deemed beneficially owned by the
affiliate]
___________________________
Name:
___________________________
Name:
___________________________
Name:
AGREED TO AND ACCEPTED as of
_______________, 1998
MOHAWK INDUSTRIES, INC.
BY:_________________________
5
EXHIBIT 5
---------
FORM OF
CERTIFICATE OF REPRESENTATIONS
OF MOHAWK INDUSTRIES, INC.
--------------------------
Reference is hereby made to that certain Agreement and Plan of Merger dated
as of ______ __, 1998, by and between Mohawk Industries, Inc., a Delaware
corporation ("Acquiror"), WC Acquisition Corp., a Georgia corporation and a
newly-formed wholly-owned subsidiary of Acquiror ("Sub"), World Carpets, Inc., a
Georgia corporation ("Company"), and the shareholders of Company
("Shareholders"), including the exhibits thereto (the "Agreement"), which sets
forth the terms and conditions of the proposed merger. Pursuant to the
Agreement, Sub will merge with and into Company ("Merger"), and the Shareholders
will receive Acquiror Common Stock in exchange for their Company Capital Stock.
Company will be the surviving corporation in the Merger. Terms used herein
without definition shall have the respective meanings specified in the
Agreement, and unless otherwise specified, all Section references herein are to
the Internal Revenue Code of 1986, as amended.
The undersigned hereby certifies that he is a duly elected officer of
Acquiror and, on behalf of Acquiror, hereby certifies that he has knowledge of
the following matters and that each of the following representations is true,
correct and complete as of the Effective Time:
1. The fair market value of the Acquiror Common Stock and other
consideration, if any, received by the Shareholders will be approximately equal
to the fair market value of the Company Capital Stock surrendered in exchange
therefor.
2. Acquiror has no plan or intention to cause Company to sell or
otherwise dispose of any of its assets or any of the assets acquired from Sub in
the Merger, except for dispositions made in the ordinary course of business or
transfers made to lower tier subsidiaries of Sub that are members of Acquiror's
qualified group. For purposes of these representations, Acquiror's qualified
group means one or more chains of corporations connected through stock ownership
with Acquiror where Acquiror controls at least one of the corporations and
control of each corporation (other than Acquiror) is owned by one of the other
corporations in the group. For purposes of the definition of qualified group,
control means ownership of at least eighty percent (80%) of the total combined
voting power of all classes of stock entitled to vote and at least eighty
percent (80%) of the number of shares of each of the other classes of stock.
3. Taking into account shares of Company Capital Stock exchanged for cash
or property other than Acquiror Common Stock in the Merger, any distributions
made by Company in connection with the Merger (other than regular, normal
dividends), and cash received in lieu of fractional shares of Acquiror Common
Stock, holders of the outstanding shares of Company Capital Stock immediately
prior to the Effective Time will receive in the Merger in exchange for Company
Capital Stock a number of shares of Acquiror Common Stock with a value as of the
Effective Time equal to at least fifty percent (50%) of the total value of all
shares of Company Capital Stock outstanding immediately prior to the Effective
Time. For purposes of this representation, shares of Company Capital Stock held
by former holders who receive cash
pursuant to the exercise of their rights of appraisal shall be treated as
outstanding immediately prior to the Effective Time.
4. None of (i) Acquiror, (ii) any member of Acquiror's affiliated group as
defined in Section 1504 without regard to Section 1504(b) (including but not
limited to Sub), (iii) any corporation in which at least fifty percent (50%) of
the total combined voting power of all classes of stock entitled to vote or at
least fifty percent (50%) of the value of all classes of stock outstanding is
owned directly or indirectly by Acquiror, or (iv) any entity that is treated as
a partnership for federal income tax purposes and has as an owner a corporation
described in (i), (ii) or (iii) of this representation has the intent to, at the
time of the Merger, or shall, in a transaction that may be considered in
connection with the Merger, acquire or redeem (directly or indirectly) any
shares of Acquiror Common Stock issued in connection with the Merger, except for
repurchases by Acquiror of a small percentage of its stock in the open market as
part of any ongoing stock repurchase program not created or modified in any way
in connection with the Merger. For purposes hereof, an entity described in
(ii), (iii), or (iv) shall be referred to as an Acquiror Related Party. An
entity will be treated as an Acquiror Related Party if the requisite
relationship exists immediately before or immediately after the acquisition or
redemption. In addition, an entity (other than Company or any Company Related
Party) will be treated as an Acquiror Related Party if the requisite
relationship is created in connection with the Merger. A Company Related Party
means any corporation in which at least fifty percent (50%) of the total
combined voting power of all classes of stock entitled to vote or at least fifty
percent (50%) of the value of all classes of stock outstanding is owned directly
or indirectly by Company.
5. Acquiror has no plan or intention to liquidate Company, to merge
Company with or into another corporation, or to sell or otherwise dispose of any
of the shares of Company Capital Stock, except for transfers to members of
Acquiror's qualified group.
6. Following the Merger, Company or lower-tier subsidiaries of Company
that are members of Acquiror's qualified group will continue the historic
business of Company or use a significant portion of Company's historic business
assets in a business.
7. Acquiror and Sub have paid or will pay their respective expenses, if
any, incurred in connection with the Merger.
8. There is no intercorporate indebtedness existing between Company and
Acquiror or between Company and Sub that was issued, acquired, or will be
settled at a discount.
9. None of the compensation received, or to be received, by any former
shareholder-employees of Company will be separate consideration for, or
allocable to, any of their shares of Company Capital Stock; none of the shares
of Acquiror Common Stock to be received by any shareholder-employees of Company
in exchange for Company Capital Stock pursuant to the Merger will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any former or continuing employees of Company following the
Merger will be for services actually rendered, or to be rendered, and will be
commensurate with amounts paid to third parties bargaining at arm's length for
similar services; none of the cash paid to ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ in connection with
the Merger will be considered a payment for stock of the Company; none of the
cash paid to employees of the Company for covenants not to compete will be
considered a payment for stock of the Company.
2
10. Neither Acquiror nor Sub is an investment company. For purposes of the
foregoing, an "investment company" is a corporation that is a regulated
investment company, a real estate investment trust, or a corporation fifty
percent (50%) or more of the value of whose total assets are stock and
securities and eighty percent (80%) or more of the value of whose total assets
are assets held for investment. In making the fifty percent (50%) and eighty
percent (80%) determinations under the preceding sentence, stock and securities
in any subsidiary corporation shall be disregarded and the parent corporation
shall be deemed to own its ratable share of the subsidiary's assets, and a
corporation shall be considered a subsidiary if the parent owns fifty percent
(50%) or more of the combined voting power of all classes of stock entitled to
vote or fifty percent (50%) or more of the total value of shares of all classes
of stock outstanding.
11. Neither Acquiror, Sub nor any other Acquiror Related Party has at any
time owned (directly or indirectly) any Company Capital Stock during the five
(5) year period ending at the Effective Time.
12. Prior to the Merger, Acquiror will be in control of Sub. Acquiror has
no plan or intention to cause Company to issue additional shares of its stock
that would result in Acquiror losing control of Sub. For purposes of this
representation and representation 16, a corporation is considered to control a
corporation in which it owns at least eighty percent (80%) of the total combined
voting power of all classes of stock entitled to vote and at least eighty
percent (80%) of the total number of shares of each of the other classes of
stock.
13. The payment of cash to shareholders of Company in lieu of fractional
shares of Acquiror Common Stock will not be a separately bargained for
consideration, but will be undertaken solely for the purpose of avoiding the
expense and inconvenience of issuing and transferring fractional shares, and the
total cash that will be paid to Company's shareholders in lieu of fractional
shares of Acquiror Common Stock will represent less than one percent (1%) of the
total consideration issued in the Merger.
14. Following the Merger, Company will hold at least ninety percent (90%)
of the fair market value of its net assets and at least seventy percent (70%) of
the fair market value of its gross assets held immediately prior to the Merger
and at least ninety percent (90%) of the fair market value of Sub's net assets
and at least seventy percent (70%) of the fair market value of Sub's gross
assets held immediately prior to the Merger. For purposes of this
representation, amounts paid by Company to dissenters, amounts paid by Company
to stockholders who receive cash or other property, amounts used by Company or
Sub to pay reorganization expenses, and all redemptions and distributions
(except for regular, normal dividends) made by Company will be included as
assets of Company or Sub, respectively, immediately prior to the Merger.
15. The Merger is being undertaken for one or more valid business purposes.
16. In the Merger, shares of Company Capital Stock representing control of
Company will be exchanged solely for voting Acquiror Common Stock. For purposes
of this representation, shares of Company Capital Stock exchanged for cash or
other property originating with Acquiror will be treated as outstanding Company
Capital Stock on the date of the Merger.
17. Sub will have no liabilities assumed by Company, and will not transfer
to Company any assets subject to liabilities in the Merger.
3
18. Except with respect to Escrow Shares which continue to be the subject
of a dispute, all of the Acquiror Common Stock that may be issued to the
Shareholders after the Closing Date will be issued within five (5) years from
the Effective Time.
19. There is a valid business reason for not issuing all the Acquiror
Common Stock at the Effective Time.
20. At least fifty percent (50%) of the total number of shares of Acquiror
Common Stock that may be issued in the Merger will be issued at the Effective
Time.
21. The right to receive Acquiror Common Stock after the Closing Date will
not be evidenced by a negotiable certificate of any kind and will not be readily
marketable.
22. The issuance of Acquiror Common Stock after the Closing Date will not
be triggered by an event the occurrence or nonoccurrence of which is within the
control of the Shareholders.
23. The issuance of Acquiror Common Stock after the Closing Date will not
be triggered by the payment of additional tax or reduction in tax paid as a
result of an Internal Revenue Service audit of Sub, Company, the Shareholders or
of Acquiror with respect to the Merger.
24. The Agreement represents the entire understanding of Sub and Acquiror
with respect to the Merger.
The undersigned acknowledges that this certificate is provided to ▇▇▇▇▇▇ &
Bird LLP in connection with the preparation of an opinion with respect to
certain of the federal income tax consequences of the Merger described in the
Agreement and that such opinion may not be relied upon if any of the foregoing
representations should prove to be inaccurate or incomplete in any material
respect.
IN WITNESS WHEREOF, the undersigned has executed the foregoing certificate
as of this __ day of ____, 1998.
MOHAWK INDUSTRIES, INC.
By: _______________________________
Title: ___________________________
4
FORM OF
CERTIFICATE OF REPRESENTATIONS
OF WORLD CARPETS, INC.
----------------------
Reference is hereby made to that certain Agreement and Plan of Merger dated
as of ________ __, 1998, by and between Mohawk Industries, Inc., a Delaware
corporation ("Acquiror"), WC Acquisition Corp., a Georgia corporation and a
newly-formed, wholly-owned subsidiary of Acquiror ("Sub"), World Carpets, Inc.,
a Georgia corporation ("Company"), and the shareholders of Company
("Shareholders"), including the exhibits thereto (the "Agreement"), which sets
forth the terms and conditions of the proposed merger. Pursuant to the
Agreement, Sub will merge with and into Company ("Merger"), and the Shareholders
will receive Acquiror Common Stock in exchange for their Company Capital Stock.
Company will be the surviving corporation in the Merger. Terms used herein
without definition shall have the respective meanings specified in the
Agreement.
The undersigned hereby certifies that she is a duly elected officer of
Company and, on behalf of Company, hereby certifies that she has knowledge of
the following matters and that each of the following representations is true,
correct and complete as of the Effective Time:
1. The fair market value of the Acquiror Common Stock and other
consideration, if any, received by each Shareholder will, in each instance, be
approximately equal to the fair market value of the Company Capital Stock
surrendered in exchange therefor.
2. Following the Merger, Company will hold at least ninety percent (90%)
of the fair market value of its net assets and at least seventy percent (70%) of
the fair market value of its gross assets held immediately prior to the Merger
and at least ninety percent (90%) of the fair market value of Sub's net assets
and at least seventy percent (70%) of the fair market value of Sub's gross
assets held immediately prior to the Merger. For purposes of this
representation, amounts paid by Company to dissenters, amounts paid by Company
to stockholders who receive cash or other property, amounts used by Company or
Sub to pay reorganization expenses, and all redemptions and distributions
(except for regular, normal dividends) made by Company will be included as
assets of Company or Sub, respectively, immediately prior to the Merger.
3. Taking into account shares of Company Capital Stock exchanged for cash
or property other than Acquiror Common Stock in the Merger, any distributions
made by Company in connection with the Merger (other than regular, normal
dividends), and cash received in lieu of fractional shares of Acquiror Common
Stock, holders of the outstanding shares of Company Capital Stock immediately
prior to the Effective Time will receive in the Merger in exchange for Company
Capital Stock a number of shares of Acquiror Common Stock with a value as of the
Effective Time equal to at least fifty percent (50%) of the total value of all
shares of Company Capital Stock outstanding immediately prior to the Effective
Time. For purposes of this representation, shares of Company Capital Stock held
by former holders who receive cash pursuant to the exercise of their rights of
appraisal shall be treated as outstanding immediately prior to the Effective
Time.
4. Company and the Shareholders each have paid or will pay its or their
respective expenses, if any, incurred in connection with the Merger.
5. There is no intercorporate indebtedness existing between Company and
Acquiror or between Company and Sub that was issued, acquired, or will be
settled at a discount.
6. None of the compensation received, or to be received, by any
shareholder-employees of Company will be separate consideration for, or
allocable to, any of their shares of Company Capital Stock; none of the shares
of Acquiror Common Stock to be received by any shareholder-employees of Company
pursuant to the Merger will be separate consideration for, or allocable to, any
employment agreement; and the compensation paid to any employees of Company will
be for services actually rendered, or to be rendered, and will be commensurate
with amounts paid to third parties bargaining at arm's length for similar
services; none of the cash paid in connection with the Merger to ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
will be considered a payment for stock of the Company; none of the cash paid to
employees of the Company for covenants not to compete will be considered a
payment for stock of the Company.
7. Company is not an investment company. For purposes of the foregoing, an
"investment company" is a corporation that is a regulated investment company, a
real estate investment trust, or a corporation fifty percent (50%) or more of
the value of whose total assets are stock and securities and eighty percent
(80%) or more of the value of whose total assets are assets held for investment.
In making the fifty percent (50%) and eighty percent (80%) determinations under
the preceding sentence, stock and securities in any subsidiary corporation shall
be disregarded and the parent corporation shall be deemed to own its ratable
share of the subsidiary's assets, and a corporation shall be considered a
subsidiary if the parent owns fifty percent (50%) or more of the combined voting
power of all classes of stock entitled to vote or fifty percent (50%) or more of
the total value of shares of all classes of stock outstanding.
8. The payment of cash to shareholders of Company in lieu of fractional
shares of Acquiror Common Stock will not be a separately bargained for
consideration, but will be undertaken solely for the purpose of avoiding the
expense and inconvenience of issuing and transferring fractional shares, and the
total cash that will be paid to Shareholders in lieu of fractional shares of
Acquiror Common Stock will represent less than one percent (1%) of the total
consideration issued in the Merger.
9. The Merger is being undertaken for one or more valid business purposes.
10. Other than cash paid to former Shareholders who dissent from the
Merger and perfect their rights of appraisal, neither Company nor any Company
Related Party has redeemed or acquired any Company Capital Stock during the
three (3) year period prior to the Merger. A Company Related Party means any
corporation in which at least fifty percent (50%) of the total combined voting
power of all classes of stock entitled to vote or at least fifty percent (50%)
of the value of all classes of stock outstanding is owned directly or indirectly
by Company.
11. During the three (3) year period prior to the Merger, neither Company
nor any Company Related Party declared or paid any dividends with respect to the
outstanding Company Capital Stock, other than regular, normal dividends.
12. Company is not under the jurisdiction of a court in a case under Title
11 of the United States Code or a receivership, foreclosure, or similar
proceeding in a federal or state court.
2
13. On the date of the Merger, the fair market value of the assets of
Company will exceed the sum of its liabilities, plus the amount of liabilities,
if any, to which the assets are subject.
14. At all times during the five-year period ending at the Effective Time,
the fair market value of all of Company's United States real property interests
was and will have been less than fifty percent (50%) of the fair market value of
the total of (a) its United States real property interests, (b) its interests in
real property located outside the United States, and (c) its other assets
(including without limitation accounts receivable and inventory) used or held
for use in a trade or business. For purposes of the preceding sentence, (i)
United States real property interests include all interests (other than an
interest solely as a creditor) in real property and associated personal property
(such as movable walls and furnishings) located in the United States or the
Virgin Islands and interests in any domestic corporation (other than a
controlled corporation) owning any United States real property interest, (ii)
Company is treated as owning its proportionate share (based on the relative fair
market value of its ownership interest to all ownership interests) of the assets
owned by any controlled corporation or any partnership, trust, or estate in
which Company is a partner or beneficiary, and (iii) any such entity in turn is
treated as owning its proportionate share of the assets owned by any controlled
corporation or any partnership, trust, or estate in which the entity is a
partner or beneficiary. As used in this representation, "controlled
corporation" means any corporation at least fifty percent (50%) of the fair
market value of the stock of which is owned by Company, in the case of a first-
tier subsidiary of Company, or by a controlled corporation, in the case of a
lower-tier subsidiary.
15. At the time of the Merger, Company will not have outstanding any
warrants, options, convertible securities, or any other type of right pursuant
to which any person could acquire stock in Company that, if exercised or
converted, would affect Acquiror's acquisition or retention of control of
Company. For purposes of this representation and representation 16, control
means ownership of at least eighty percent (80%) of the total combined voting
power of all classes of stock entitled to vote and at least eighty percent (80%)
of the number of shares of each of the other classes of stock.
16. In the Merger, shares of Company Capital Stock representing control of
Company will be exchanged solely for voting Acquiror Common Stock. For purposes
of this representation, shares of Company Capital Stock exchanged for cash or
other property originating with Acquiror will be treated as outstanding Company
Capital Stock on the date of the Merger.
17. Except with respect to Escrow Shares which continue to be the subject
of a dispute, all of the Acquiror Common Stock that may be issued to the
Shareholders after the Closing Date will be issued within five (5) years from
the Effective Time.
18. There is a valid business reason for not issuing all the Acquiror
Common Stock at the Effective Time.
19. At least fifty percent (50%) of the total number of shares of Acquiror
Common Stock that may be issued in the Merger will be issued at the Effective
Time.
20. The right to receive Acquiror Common Stock after the Closing Date will
not be evidenced by a negotiable certificate of any kind and will not be readily
marketable.
3
21. The issuance of Acquiror Common Stock after the Closing Date will not
be triggered by an event the occurrence or nonoccurrence of which is within the
sole control of the Shareholders.
22. The issuance of Acquiror Common Stock after the Closing Date will not
be triggered by the payment of additional tax or reduction in tax paid as a
result of an Internal Revenue Service audit of Sub, Company, the Shareholders or
of Acquiror with respect to the Merger.
23. The Agreement represents the entire understanding of Company, Sub and
Acquiror with respect to the Merger.
The undersigned acknowledges that this certificate is provided to
▇▇▇▇▇▇ & Bird LLP in connection with the preparation of an opinion with respect
to certain of the federal income tax consequences of the Merger described in the
Agreement and that such opinion may not be relied upon if any of the foregoing
representations should prove to be inaccurate or incomplete in any material
respect.
IN WITNESS WHEREOF, the undersigned has executed the foregoing
certificate as of this __ day of ____, 1998.
WORLD CARPETS, INC.
BY: _______________________________
TITLE _______________________________
4