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AGREEMENT AND PLAN OF MERGER
By and Among
HOM HOLDING, INC.
HIT OR MISS INC.
and
GANTOS, INC.
Dated as of May 12, 1998
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TABLE OF CONTENTS
PAGE
----
ARTICLE I THE MERGER ....................................... 1
1.01 The Merger ..................................... 1
1.02 Plan of Merger ................................. 1
1.03 Effective Time ................................. 1
1.04 Effect of the Merger ........................... 2
1.05 Conversion of Holding Stock .................... 2
1.06 Rights With Respect to Objecting Shares ........ 3
1.07 Articles of Incorporation ...................... 4
1.08 Bylaws ......................................... 4
1.09 Directors and Officers of the Surviving
Corporation ................................... 4
1.10 Articles, Bylaws, Directors and Officers of Sub. 4
1.11 Tax Consequences ............................... 5
1.12 Additional Actions ............................. 5
1.13 Possible Alternative Structure ................. 5
1.14 Holding Action; Company Action ................. 5
1.15 Financing ...................................... 6
ARTICLE II EXCHANGE OF SHARES .............................. 6
2.01 Exchange of Shares ............................. 6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY .. 7
3.01 Corporate Organization ......................... 7
3.02 Capitalization ................................. 7
3.03 Authority; No Violation ........................ 8
3.04 Consents and Approvals ......................... 9
3.05 Financial Statements ........................... 10
3.06 Broker's Fees .................................. 11
3.07 Absence of Certain Changes or Events ........... 11
3.08 Legal Proceedings .............................. 12
3.09 Taxes and Tax Returns .......................... 12
3.10 Employee Benefit Plans ......................... 13
3.11 SEC Reports .................................... 15
3.12 Company Information ............................ 15
3.13 Compliance with Applicable Law; Certain
Agreements .................................... 15
3.14 Certain Contracts .............................. 16
3.15 Agreements with Regulatory Agencies ............ 16
3.16 Environmental Matters .......................... 17
3.17 Properties ..................................... 18
3.18 Insurance ...................................... 18
3.19 Transactions with Certain Persons .............. 19
3.20 Disclosure ..................................... 19
(i)
3.21 Regulatory Approvals ........................... 20
3.22 Labor Matters .................................. 20
3.23 Intellectual Property .......................... 20
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF HOLDING AND SUB 20
4.01 Corporate Organization ......................... 20
4.02 Capitalization ................................. 22
4.03 Authority; No Violation ........................ 23
4.04 Consents and Approvals ......................... 24
4.05 Financial Statements ........................... 25
4.06 Broker's Fees .................................. 25
4.07 Absence of Certain Changes or Events ........... 26
4.08 Legal Proceedings .............................. 26
4.09 Taxes and Tax Returns .......................... 26
4.10 Employee Benefit Plans ......................... 27
4.11 Holding and Sub Information .................... 29
4.12 Compliance with Applicable Law; Certain
Agreements .................................... 30
4.13 Certain Contracts .............................. 30
4.14 Agreements with Regulatory Agencies ............ 31
4.15 Environmental Matters .......................... 31
4.16 Properties ..................................... 32
4.17 Insurance ...................................... 33
4.18 Transactions with Certain Persons .............. 33
4.19 Disclosure ..................................... 34
4.20 Regulatory Approvals ........................... 34
4.21 Labor Matters .................................. 34
4.22 Intellectual Property .......................... 34
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS ........ 34
5.01 Covenants of the Company ....................... 34
5.02 Covenants of Holding and Sub ................... 37
5.03 No Solicitation; Non-Disclosure ................ 39
ARTICLE VI ADDITIONAL AGREEMENTS ........................... 41
6.01 Regulatory Matters ............................. 41
6.02 Securities Laws Matters ........................ 42
6.03 Shareholder Meetings ........................... 43
6.04 Access to Information .......................... 43
6.05 Legal Conditions to Merger ..................... 44
6.06 Subsequent Interim and Annual Financial
Statements .................................... 45
6.07 Additional Agreements .......................... 45
6.08 Disclosure Supplements ......................... 45
6.09 Current Information ............................ 45
6.10 No Inconsistent Actions ........................ 46
(ii)
6.11 Indemnification of Directors ................... 46
ARTICLE VII CONDITIONS PRECEDENT ........................... 47
7.01 Conditions to Each Party's Obligation to Effect
the Merger ................................... 47
(a) Shareholder Approval ..................... 47
(b) Regulatory Approvals ..................... 47
(c) Securities Laws Matters .................. 47
(d) No Injunctions or Restraints; Illegality.. 48
(e) Financing ................................ 48
(f) Composition of Board of Directors ........ 48
(g) Appointment of Chief Executive Officer ... 48
(h) Management Termination Agreement ......... 48
7.02 Conditions to Obligations of Holding and Sub.. 48
(a) Representations and Warranties ........... 49
(b) Performance of Obligations of the Company. 49
(c) Consents Under Agreements ................ 49
(d) Accountant's Letter ...................... 49
(e) Company Indenture ........................ 49
(f) Michigan Statutes ........................ 49
(g) Termination Agreement .................... 49
(h) Insurance ................................ 50
7.03 Conditions to Obligations of the Company...... 50
(a) Representations and Warranties ........... 50
(b) Performance of Obligations of Holding
and Sub ................................ 50
(c) Consents Under Agreements ................ 50
(d) Accountant's Letter ...................... 50
(e) Sub Note ................................. 51
(f) Options .................................. 51
ARTICLE VIII TERMINATION AND AMENDMENT ..................... 51
8.01 Termination .................................. 51
8.02 Effect of Termination ........................ 53
8.03 Expenses; Termination Fee .................... 53
8.04 Amendment .................................... 54
8.05 Extension; Waiver ............................ 54
ARTICLE IX GENERAL PROVISIONS .............................. 54
9.01 Closing ...................................... 54
9.02 Non-Survival of Representations, Warranties
and Agreements ............................... 55
9.03 Obligations of the Surviving Corporation
Subsequent to the Closing .................... 55
9.04 Notices ...................................... 55
9.05 Interpretation ............................... 57
9.06 Counterparts ................................. 57
9.07 Entire Agreement ............................. 57
(iii)
9.08 Governing Law, Jurisdiction ........................ 57
9.09 Enforcement of Agreement ........................... 57
9.10 Severability ....................................... 58
9.11 Publicity .......................................... 58
9.12 Assignment ......................................... 58
(iv)
EXHIBITS
--------
Exhibit I - Holding Majority Stockholders
Exhibit II - Voting, Standstill and Proxy Agreement
Exhibit III - Company Common Stock Shareholders
Exhibit IV - Form of Letter of Transmittal
(viii)
SCHEDULES
---------
Schedule 3.01 - The Company's Direct or Indirect Interests
Schedule 3.02 - The Company's Capitalization
Schedule 3.03 - The Company's Authority
Schedule 3.04 - The Company's Consents and Approvals
Schedule 3.05 - The Company's Liabilities
Schedule 3.07 - The Company's Adverse Changes or Events
Schedule 3.08 - The Company's Legal Proceedings
Schedule 3.09 - The Company's Taxes
Schedule 3.10 - The Company's Employee Benefit Plans
Schedule 3.14 - The Company's Contracts
Schedule 3.17 - The Company's Properties
Schedule 3.18 - The Company's Insurance
Schedule 3.19 - The Company's Transactions with Certain Persons
Schedule 3.23 - The Company's Intellectual Property
Schedule 4.02 - Holding's Capitalization
Schedule 4.03 - Holding's Authority
Schedule 4.04 - Holding's Consents and Approvals
Schedule 4.05 - Holding's Liabilities
Schedule 4.07 - Holding's Adverse Changes or Events
Schedule 4.08 - Holding's Legal Proceedings
Schedule 4.09 - Holding's Taxes
Schedule 4.10 - Holding's Employee Benefit Plans
Schedule 4.13 - Holding's Contracts
Schedule 4.15 - Holding's Environmental Matters
Schedule 4.16 - Holding's Properties
Schedule 4.17 - Holding's Insurance
Schedule 4.18 - Holding's Transactions with Certain Persons
Schedule 4.21 - Holding's Labor Matters
Schedule 4.22 - Holding's Intellectual Property
Schedule 5.01 - The Company's Conduct of Business
Schedule 5.02 - Holding's Conduct of Business
(ix)
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of May 12, 1998, by and among
HOM Holding, Inc., a Delaware corporation ("Holding"), Hit or Miss, Inc., a
Delaware corporation and wholly-owned subsidiary of Holding ("Sub"), and
Gantos, Inc., a Michigan corporation (the "Company").
WHEREAS, the Boards of Directors of Holding and the Company have
determined that it is in the best interests of their respective companies and
their shareholders to consummate the business combination transaction
provided for herein in which Holding will, subject to the terms and
conditions set forth herein, merge with and into the Company (the "Merger");
and
WHEREAS, Holding, Sub and the Company desire to make certain
representations, warranties and covenants in connection with the Merger;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to
be legally bound hereby, the parties agree as follows:
ARTICLE I
THE MERGER
I.1 THE MERGER. Subject to the terms and conditions of this Agreement,
in accordance with the Michigan Business Corporation Act ("MBCA") and the
Delaware General Corporation Law ("DGCL"), at the Effective Time (as
hereinafter defined), Holding shall merge with and into the Company. The
Company shall become the surviving corporation (hereinafter sometimes called
the "Surviving Corporation") in the Merger, and shall continue its corporate
existence under the laws of the State of Michigan. Upon consummation of the
Merger, the separate corporate existence of Holding shall terminate.
I.2 PLAN OF MERGER. This Agreement shall constitute a plan of merger
for purposes of the MBCA and an agreement of merger for purposes of the DGCL.
I.3 EFFECTIVE TIME. As promptly as practicable after all of the
conditions set forth in Article VII shall have been satisfied or, if
permissible, waived by the party entitled to the benefit of the same, the
Company and Holding shall duly execute and file a certificate of merger (the
"Certificates of Merger") with the Department of Consumer and Industry
Services of the State of Michigan (the "Michigan Secretary") in accordance
with Sections 707 and 735 of the MBCA and with the Secretary of State of the
State of Delaware (the "Delaware Secretary") in accordance with Section 252
of the DGCL. The Merger shall become effective
on the date (the "Effective Date") and at such time (the "Effective Time") as
the last of the Certificates of Merger is filed with the Michigan Secretary
and the Delaware Secretary or at such later date and time as is specified in
the Certificates of Merger.
I.4 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided herein and as set forth in Section 724 of the
MBCA and Section 259 of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property,
rights, privileges, powers and franchises of Holding shall vest in the
Surviving Corporation, and all debts, liabilities, obligations, restrictions,
disabilities and duties of Holding shall become the debts, liabilities,
obligations, restrictions, disabilities and duties of the Surviving
Corporation.
I.5 CONVERSION OF HOLDING STOCK.
(a) At the Effective Time, subject to Section 2.01(c) hereof, each
share of the common stock, par value $.01 per share, of Holding (the "Holding
Common Stock") issued and outstanding immediately prior to the Effective Time
(other than (i) shares of Holding Common Stock held in Holding's treasury or
directly or indirectly by Holding, Sub or the Company and (ii) Objecting
Shares (as such term is defined in Section 1.06 hereof)) shall, by virtue of
this Agreement and without any action on the part of the holder thereof, be
converted into and exchangeable for one (1) common share, par value $.01 per
share, of the Company ("Company Common Stock") (such ratio, the "Common
Exchange Ratio").
(b) At the Effective Time, subject to Section 2.01(c) hereof, each
share of the preferred stock, Series A 12% Senior Convertible Participating,
par value $.01, of Holding (the "Holding Preferred Stock") issued and
outstanding immediately prior to the Effective Time (other than (i) shares of
Holding Preferred Stock held in the Holding's treasury or directly or
indirectly by Holding, Sub or Company and (ii) Objecting Shares) shall, by
virtue of this Agreement and without any action on the part of the holder
thereof, be converted into and exchangeable for 34.823529 shares of Company
Common Stock, rounded up or down to the nearest whole number of shares and a
warrant to purchase 3.738823 shares of Company Common Stock at an exercise
price of $1.50 per share exercisable in full for a period of five (5) years
beginning on the sixty-first (61st) day after the termination of the
Indenture (as hereinafter defined), (collectively, the "Merger Warrants," and
individually a "Merger Warrant"), rounded up or down to the nearest whole
number of shares (the "Preferred Exchange Ratios"and, together with the
Common Exchange Ratio, the "Exchange Ratios").
(c) All of the shares of Holding Common Stock and Holding
Preferred Stock converted into shares of Company Common Stock and, as the
case may be, Merger Warrants pursuant to this Article I shall no longer be
outstanding and shall automatically be canceled and shall cease to exist, and
each certificate (each a "Certificate," and collectively, the "Certificates")
previously representing any such shares of Holding Common Stock and Holding
Preferred Stock shall thereafter represent the right to receive the number of
whole shares of Company Common Stock and, as the case may be, Merger Warrants
to purchase
2
whole shares of Company Common Stock into which the shares of Holding Common
Stock or Holding Preferred Stock represented by such Certificate have been
converted pursuant to Sections 1.05(a) and (b) and Section 2.01(c) hereof
(the "Merger Consideration"). Certificates previously representing shares of
Holding Common Stock and Holding Preferred Stock shall be exchanged for
certificates representing whole shares of Company Common Stock and, as the
case may be, Merger Warrants for whole shares of Company Common Stock,
without any interest thereon. All shares of Company Common Stock and all
securities exercisable for or convertible into shares of Company Common Stock
which are issued and outstanding immediately prior to the Effective Time
shall (by virtue of the Merger and without any action on the part of the
holder of such shares of Company Common Stock or securities) remain and
continue to be shares of Company Common Stock or securities exercisable for
or convertible into shares of Company Common Stock.
(d) As of the Effective Time, the Company shall reserve for
issuance the number of shares of Company Common Stock that will become
issuable upon the exercise of such Merger Warrants and the Access Warrants
(as hereinafter defined).
(e) At the Effective Time, all shares of Holding Common Stock and
Holding Preferred Stock that are owned by the Company as treasury stock and
all shares of Holding Common Stock and Holding Preferred Stock that are owned
directly or indirectly by Holding, Sub or the Company shall be canceled and
shall cease to exist, and no stock of the Company or other consideration
shall be delivered in exchange therefor. All shares of Company Common Stock
that are owned by Holding or Sub shall become authorized but unissued shares
of Company Common Stock.
I.6 RIGHTS WITH RESPECT TO OBJECTING SHARES.
(a) Notwithstanding anything in this Agreement to the contrary and
unless otherwise provided by applicable law, shares of Holding Common Stock
and Holding Preferred Stock that are issued and outstanding immediately prior
to the Effective Time and that are owned by shareholders who have properly
exercised and perfected their rights of appraisal within the meaning of
Section 262 of the DGCL (the "Objecting Shares"), shall not be converted into
the right to receive the Merger Consideration, unless and until such
shareholders shall have failed to perfect or shall have effectively withdrawn
or lost their right of appraisal and payment under applicable law. If any
such shareholder shall have failed to perfect or shall have effectively
withdrawn or lost such right of appraisal, each share of Holding Common Stock
or Holding Preferred Stock held by such shareholder shall thereupon be deemed
to have been converted into the right to receive and become exchangeable for
the Merger Consideration, at the Effective Time, pursuant to Sections 1.05(a)
and (b) hereof. Any shares of Holding Common Stock or Holding Preferred
Stock owned by shareholders who have properly exercised and perfected their
rights of appraisal within the meaning of Section 262 of the DGCL shall be
canceled at the Effective Time and automatically (by virtue of the Merger) be
converted into the right to receive the consideration required to be paid to
such holder pursuant to the DGCL.
3
(b) Holding shall give the Company (i) prompt notice of any
demands for appraisal received by Holding, withdrawals of such demands, and
any other instruments served in connection with such demands pursuant to the
DGCL and received by Holding and (ii) the opportunity to participate with
Holding in all negotiations and proceedings with respect to demands for
appraisal under the DGCL consistent with the obligations of Holding
thereunder. Holding shall not, except with the prior written consent of the
Company, (x) make any payment with respect to any demands for appraisal, (y)
offer to settle or settle any such demands, or (z) waive any failure to
timely deliver a written demand for appraisal in accordance with the DGCL.
I.7 ARTICLES OF INCORPORATION. Unless otherwise agreed to by the
parties prior to the Effective Time, the Restated Articles of Incorporation
of the Company prior to the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation at and after the Effective Time,
until thereafter amended as provided by law and such Articles of
Incorporation.
I.8 BYLAWS. Unless otherwise agreed to by the parties prior to the
Effective Time, the Bylaws of the Company prior to the Effective Time shall
be the Bylaws of the Surviving Corporation at and after the Effective Time,
until thereafter amended as provided by law, the Articles of Incorporation of
the Surviving Corporation and such Bylaws.
I.9 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. At the
Closing Date (as hereinafter defined), the Board of Directors of the
Surviving Corporation shall consist of seven (7) members. As of the
Effective Time, four (4) directors of the Company shall resign. Three (3)
directors designated by Holding in writing prior to the Effective Time (the
"Holding Designees") shall fill the vacancies on the Surviving Corporation's
Board of Directors. The remaining four (4) members of the Board of Directors
of the Company (the "Company Designees") shall continue to serve as the
remaining four (4) members of the Board of Directors of the Surviving
Corporation. The Board of Directors of the Surviving Corporation shall be
re-classified consistent with Section 7.01(f) hereof. Each of the directors
of the Surviving Corporation shall hold office in accordance with the
Articles of Incorporation and Bylaws of the Surviving Corporation until their
respective successors are duly elected or appointed and qualified. The Board
of Directors of the Surviving Corporation shall elect the officers of the
Surviving Corporation, including without limitation and consistent with
Section 7.01(g) hereof, ▇▇▇▇▇ ▇▇▇▇▇▇▇ as Chief Executive Officer of the
Company.
I.10 ARTICLES, BYLAWS, DIRECTORS AND OFFICERS OF SUB. The Amended
Certificate of Incorporation and Bylaws of Sub shall continue as in effect
immediately prior to the Effective Time. The Board of Directors of Sub shall
consist of seven (7) members. As of the Effective Time, two (2) directors of
Sub shall resign, and two (2) directors designated by Holding in writing
prior to the Effective Time and the four (4) Company Designees shall fill the
vacancies. The remaining one (1) member of the Board of Directors of Sub
shall continue to serve as such. Each of the directors of Sub shall hold
office in accordance with the Amended
4
Certificate of Incorporation and Bylaws of Sub until their respective
successors are duly elected or appointed and qualified. The Board of
Directors of Sub shall elect the officers of Sub.
I.11 TAX CONSEQUENCES. It is intended that the Merger shall constitute
a reorganization within the meaning of Section 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended (the "Code"), and that this Agreement shall
constitute a "plan of reorganization" for the purposes of Section 368 of the
Code.
I.12 ADDITIONAL ACTIONS. If, at any time after the Effective Time,
Surviving Corporation shall consider or be advised that any further
assignments or assurances in law or any other acts are necessary or desirable
(a) to vest, perfect or confirm, of record or otherwise, in Surviving
Corporation, title to and possession of any property or right of Holding
acquired or to be acquired by reason of, or as a result of, the Merger, or
(b) otherwise to carry out the purposes of this Agreement, Holding and its
proper officers and directors shall be deemed to have granted to Surviving
Corporation an irrevocable power of attorney to execute and deliver all such
proper deeds, assignments and assurances in law and to do all acts necessary
or proper to vest, perfect or confirm title to and possession of such
property or rights in Surviving Corporation and otherwise to carry out the
purposes of this Agreement; and the proper officers and directors of
Surviving Corporation are fully authorized in the name of Holding or
otherwise to take any and all such action.
I.13 POSSIBLE ALTERNATIVE STRUCTURE. Notwithstanding any other
provision of this Agreement to the contrary, to the extent necessary or
appropriate to assure fulfillment of the intentions of the parties that the
Company or an affiliate of the Company acquire a 100% ownership interest in
Sub and to minimize any adverse tax or accounting treatment, Holding, Sub,
and the Company may jointly elect, at or prior to the Effective Time, to
substitute an alternative structure in lieu of the structure described herein
to accomplish the aforementioned intentions of the parties.
I.14 HOLDING ACTION; COMPANY ACTION.
(a) Holding represents and warrants that (i) the Board of
Directors of Holding has duly approved the execution of this Agreement,
including the Merger, and, subject to the requirements of applicable law,
resolved to recommend approval of the Merger by Holding's stockholders, (ii)
the persons or entities listed on EXHIBIT I attached hereto own a majority of
the outstanding shares of Holding of each class entitled to vote on the
Merger and (iii) each such person or entity has executed and delivered a
Voting, Standstill and Proxy Agreement, in substantially the form annexed
hereto as EXHIBIT II (the "Voting Agreement").
(b) The Company represents and warrants that (i) the Board of
Directors of the Company has duly approved the execution of this Agreement,
including the Merger, and, subject to the requirements of applicable law,
resolved to recommend approval of the Merger by the Company's shareholders,
(ii) the persons or entities listed on EXHIBIT III attached hereto
5
own an aggregate of 107787.17 issued and outstanding shares of Company Common
Stock and (iii) each such person or entity has executed and delivered the
Voting Agreement.
I.15 FINANCING. The Company and Holding hereby represent that they have
received from a responsible financing source or sources a highly confident
letter or letters (the "Confidence Letter(s)") indicating its or their
willingness, subject to the conditions set forth therein, to lend the
Surviving Corporation $60,000,000 (the "Financing"), a true and complete copy
of which Confidence Letter(s) has been delivered to each of the Company and
Holding prior to the date hereof.
ARTICLE II
EXCHANGE OF SHARES
II.1 EXCHANGE OF SHARES.
(a) At the Closing (as hereinafter defined), upon surrender of a
Certificate for exchange and cancellation, together with a letter of
transmittal and instructions (in the form attached hereto as EXHIBIT IV) and
all other appropriate documentation, duly executed, the holder of such
Certificates shall receive in exchange therefor (x) a certificate
representing that number of whole shares of Company Common Stock to which
such holder of Holding Common Stock or Holding Preferred Stock shall have
become entitled pursuant to the provisions of Article I hereof, and (y) to
the extent applicable, a Merger Warrant exercisable for the number of whole
shares of Company Common Stock to which such holders of Holding Preferred
Stock shall have become entitled pursuant to the provisions of Article I
hereof, and the Certificate so surrendered shall forthwith be canceled. No
interest will be paid or accrued on the unpaid dividends and distributions,
if any, payable to holders of Certificates.
(b) After the Effective Time, there shall be no transfers on the
stock transfer books of Holding of the shares of Holding Common Stock and
Holding Preferred Stock which were issued and outstanding immediately prior
to the Effective Time.
(c) Notwithstanding anything to the contrary contained herein, no
certificates or scrip representing, or Merger Warrants granting the right to
receive, fractional shares of Company Common Stock shall be issued upon the
surrender for exchange of Certificates.
(d) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Company, the posting by such person of a bond in such amount as the
Company may direct as indemnity against any claim that may be made against it
with respect to such Certificate, the Company will issue in exchange for such
lost,
6
stolen or destroyed Certificate, the Merger Warrants and the shares of
Company Common Stock deliverable in respect thereof pursuant to this
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Holding and Sub as follows:
III.1 CORPORATE ORGANIZATION.
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Michigan. The Company
has the corporate power and authority to own or lease all of its properties
and assets and to carry on its business as it is now being conducted, and is
duly licensed or qualified to do business in each jurisdiction in which the
nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed or
qualified would not have a Material Adverse Effect (as defined below) on the
Company. As used in this Agreement, the term "Material Adverse Effect"
means, with respect to Holding, Sub, or the Company (or the Surviving
Corporation), as the case may be, any change or effect that is, or in the
judgment of the parties hereto, would be materially adverse to the business,
properties, assets, liabilities, financial condition, or results of
operations of such party and its Subsidiaries taken as a whole. As used in
this Agreement, the word "Subsidiary" means any corporation, partnership or
other organization, whether incorporated or unincorporated, which is or was
consolidated with such party (or with which such party is or was
consolidated) for financial reporting purposes. The Restated Articles of
Incorporation and Bylaws of the Company, copies of which have previously been
delivered to Holding, are true and complete copies of such documents as in
effect as of the date of this Agreement.
(b) The Company has no direct or indirect Subsidiaries. The
Company does not own, control or hold with the power to vote, directly or
indirectly of record, beneficially or otherwise, any capital stock or any
equity or ownership interest in any corporation, partnership, association,
joint venture or other entity, except as set forth in SCHEDULE 3.01 hereto
and except for less than five percent (5%) of any equity security registered
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
(c) The minute books of the Company contain true, accurate and
complete records of all meetings and other corporate actions held or taken of
its shareholders and board of directors (including committees thereof).
7
III.2 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of
20,000,000 shares of Company Common Stock each entitled to one (1) vote per
share and 2,000,000 preferred shares of the Company, par value $.01 per share
("Company Preferred Stock"). As of April 7, 1998, there were (x) 7,581,713
shares of Company Common Stock issued and outstanding, (y) 980,500 shares of
Company Common Stock reserved for issuance upon the exercise of outstanding
stock options or otherwise, and (z) no shares of Company Preferred Stock
issued and outstanding. All of the issued and outstanding shares of Company
Common Stock have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights with no personal liability
attaching to the ownership thereof. The shares of Company Common Stock to be
issued in exchange for shares of the Holding Common Stock and Holding
Preferred Stock upon consummation of the Merger and upon the exercise of the
Company Warrants (as hereinafter defined) will have been duly authorized and,
when issued in accordance with the terms of this Agreement, will be validly
issued and fully paid, non-assessable and free of preemptive rights, with no
personal liability attaching to the ownership thereof. Except as set forth
in SCHEDULE 3.02 hereto, the Company does not have, and is not bound by, any
outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any
shares of Company Common Stock or any other equity security of the Company or
any securities representing the right to purchase or otherwise receive any
shares of Company Common Stock, or any other equity security of the Company
other than as provided for in this Agreement. Except as set forth in
SCHEDULE 3.02 hereto, there are no bonds, debentures, notes or other
indebtedness of the Company having the right to vote (or convertible into, or
exchangeable for securities having the right to vote) on any matters on which
shareholders of the Company may vote.
(b) Except as contemplated herein, there are no agreements or
understandings, with respect to the voting of any shares of Company Common
Stock or which restrict the transfer of such shares, to which the Company is
a party, and, to the knowledge of the Company, there are no such agreements
or understandings to which the Company is not a party with respect to the
voting of any such shares or which restrict the transfer of such shares,
other than applicable federal and state securities laws.
(c) All dividends on Company Common Stock which have been declared
prior to the date of this Agreement have been paid in full.
(d) Set forth on SCHEDULE 3.02 hereto is a list of each
Registration Rights Agreement pursuant to which the Company is obligated to
register any securities.
III.3 AUTHORITY; NO VIOLATION.
8
(a) The Company has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation by
the Company of the transactions contemplated by this Agreement have been duly
and validly approved by the Board of Directors of the Company. Subject to
the requirements of applicable law, the Board of Directors of the Company has
directed that this Agreement and the transactions contemplated hereby be
submitted to the Company's shareholders for approval at a meeting of such
shareholders (the "Company Shareholder Meeting") and has voted to recommend
that its shareholders approve and adopt this Agreement and the transactions
contemplated thereby and, except for the adoption of this Agreement by the
requisite vote of the Company's shareholders and the filing of the
Certificates of Merger, no other corporate proceedings on the part of the
Company are necessary to approve this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company and (assuming the due authorization,
execution and delivery by Sub and Holding) constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to or affecting creditors' rights and to general equity principles.
(b) Except as set forth in SCHEDULE 3.03 hereto, neither the
execution and delivery of this Agreement by the Company, nor the performance
of this Agreement by the Company, nor compliance by the Company with any of
the terms or provisions hereof, will (i) violate, conflict with or result in
a breach of any provision of the Restated Articles of Incorporation or Bylaws
of the Company, (ii) assuming that the consents and approvals referred to in
Section 3.04(a) hereof are duly obtained, (x) violate any statute, code,
ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to the Company, or any of its properties or assets, or (y)
violate, conflict with, result in a breach of any provisions of or the loss
of any benefit under, constitute a default (or any event, which, with notice
or lapse of time, or both would constitute a default) under, result in the
termination of or a right of termination or cancellation under, accelerate
the performance required by, or result in the creation of any lien, pledge,
security interest, charge or other encumbrance upon any of the properties or
assets of the Company under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which the Company is a party, or by which
the Company or any of its respective properties or assets may be bound or
affected, including without limitation the Indenture dated as of April 1,
1995 by and between the Company and Shawmut Bank Connecticut, N.A., (and its
successors), as amended to date (the "Indenture"), except (in the case of
clause (y) above) for such violations, conflicts, breaches or defaults which,
either individually or in the aggregate, will not have a Material Adverse
Effect on the Company.
III.4 CONSENTS AND APPROVALS.
9
(a) Except for (i) the filing with the Securities and Exchange
Commission (the "SEC") of a proxy statement in definitive form relating to
the Company Shareholder Meeting and the transactions contemplated hereby (the
"Proxy Statement"), which Proxy Statement shall be part of and included in a
Registration Statement on Form S-4 (the "Registration Statement") filed with
the SEC by the Company to register the shares of Company Common Stock issued
in connection with the Merger, the Company Warrants, the shares of Company
Common Stock issuable upon the exercise of the Company Warrants, and the
resale and reoffer from time to time to certain employees of Sub of Company
Common Stock, the Company Warrants and the shares of Company Common Stock
issuable upon the exercise of such Company Warrants (such Registration
Statement to remain effective for thirty (30) days after going effective) to
be issued pursuant to the terms of this Agreement, (ii) the approval of this
Agreement by the requisite vote of the shareholders of the Company, (iii) the
filing of the Certificates of Merger with the Michigan Secretary pursuant to
the MBCA and with the Delaware Secretary pursuant to the DGCL to effect the
Merger, (iv) such filings, authorizations, consents or approvals as may be
set forth in SCHEDULE 3.04 hereto, and (v) such filings and approvals as are
required to be made or obtained under the securities or "Blue Sky" laws of
various states in connection with the issuance of shares of Company Common
Stock pursuant to this Agreement, no consents or approvals of, or filings or
registrations with, any court, administrative agency or commission or other
governmental authority or instrumentality (each a "Governmental Entity") or
with any third party, including without limitation any consents, approvals,
filings or registrations required pursuant to the Company's Second Amended
Joint Plan of Reorganization, as modified, confirmed March 7, 1995 and
effective as of March 31, 1995, are necessary in connection with the
execution and delivery by the Company of this Agreement and the consummation
by the Company of the Merger and the other transactions contemplated hereby.
(b) Subject to obtaining the consents or approvals set forth in
Section 3.04(a) hereof, the interest of the Company in all material claims,
contracts, licenses, leases and commitments and all of the other assets in
which the Company has an interest shall not, upon the consummation of the
transactions contemplated hereby, including the Merger, be terminated or
defaulted in any manner whatsoever by said consummation, except where such
termination or default would not have a Material Adverse Effect on the
Company. All material claims, contracts, licenses, leases, commitments and
assets of the Company shall be the property of the Surviving Corporation
immediately thereafter, and the Surviving Corporation shall have all of the
right, title and interest which the Company had available to it prior to the
consummation of the Merger in and to such claims, contracts, licenses,
leases, commitments and assets. The interest of the Company in all material
claims, contracts, licenses, leases, commitments and assets which are not
terminated or defaulted by the consummation of the transactions contemplated
hereby is sufficient to allow the Surviving Corporation to operate the
business of the Company, as currently conducted.
III.5 FINANCIAL STATEMENTS.
10
(a) The Company has previously delivered to Holding copies of the
audited balance sheets of the Company as of February 3, 1996 and February 1,
1997, and the related statements of income, changes in shareholders' equity
and cash flows for the fiscal years 1995 through 1996, inclusive, included in
the Company's Annual Report on Form 10-K for the fiscal year ended February
1, 1997 filed with the SEC under the Exchange Act and the unaudited balance
sheet of the Company as of January 31, 1998 and the unaudited statements of
income and cash flows for the fiscal year ended January 31, 1998. The
February 1, 1997 and January 31, 1998 balance sheets of the Company
(including the related notes, where applicable) fairly present in all
material respects the financial position of the Company as of the date
thereof, and the other financial statements referred to in this Section 3.05
(including the related notes, where applicable) fairly present in all
material respects, and the financial statements referred to in Section 6.06
hereof will fairly present (subject, in the case of the unaudited statements,
to recurring audit adjustments normal in nature and amount) in all material
respects the results of the operations and changes in shareholders' equity
and cash flows of the Company for the respective fiscal periods or as of the
respective dates therein set forth and each of such statements (including the
related notes, where applicable) has been, and the financial statements
referred to in Section 6.06 hereof will be, prepared in accordance with
generally accepted accounting principles ("GAAP") consistently applied during
the periods involved, except as indicated in the notes thereto or, in the
case of unaudited statements, as permitted by Form 10-Q.
(b) The books and records of the Company have been, and are being,
maintained in accordance with applicable legal and accounting requirements,
reflect only actual transactions and reflect all of their assets, liabilities
and accruals and all of their items of income and expense in accordance with
GAAP. All accounting ledgers and other books and records of the Company are
located at the principal office of the Company, are true, complete and
correct, and present fairly the financial condition, results of operations
and changes in financial position of the Company as of the date and for the
periods indicated.
(c) Except as set forth in SCHEDULE 3.05 hereto and except for
liabilities incurred since January 31, 1998 in the ordinary course of
business consistent with past practice, the Company does not have any
material liabilities or obligations of any nature whatsoever (whether
absolute, accrued, contingent or otherwise) which are not adequately reserved
or reflected on the balance sheet of the Company as of January 31, 1998,
except for liabilities or obligations which in the aggregate do not exceed
$100,000 or are related to the Merger, and there do not exist any
circumstances that, to the best knowledge of the Company, could reasonably be
expected to result in any such liabilities or obligations.
III.6 BROKER'S FEES. Neither the Company, nor any of its officers
or directors, has employed any broker or finder or incurred any liability for
any broker's fees, commissions or finder's fees in connection with any of the
transactions contemplated by this Agreement, except that the Company has
engaged, and will pay a fee or commission of Five Hundred Thousand Dollars
($500,000) to PaineWebber Incorporated ("PaineWebber") in accordance with the
terms of a letter agreement dated February 9, 1998 between PaineWebber and
the Company, a
11
true and complete copy of which has heretofore been furnished to Holding.
The Company has received the opinion of PaineWebber to the effect that, as of
the date of such opinion, the Merger Consideration is fair to the Company's
shareholders from a financial point of view, and such opinion has not been
amended or rescinded as of the date of this Agreement.
III.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as may be set
forth in SCHEDULE 3.07 hereto, since January 31, 1998 there has not been any
Material Adverse Effect on the Company and, to the best knowledge of the
Company, no fact or condition exists which will, or is reasonably likely to,
cause such a Material Adverse Effect on the Company in the future.
III.8 LEGAL PROCEEDINGS. Except as set forth in SCHEDULE 3.08
hereto, the Company is not a party to any, and there are no pending or to the
actual knowledge of the Company, threatened, legal, administrative, arbitral
or other proceedings, claims, actions or governmental or regulatory
investigations of any nature against or affecting the Company or any property
or asset of the Company, before any court, arbitrator or administrative,
governmental or regulatory authority or body, domestic or foreign, which
would, either individually or in the aggregate, have a Material Adverse
Effect, and no facts or circumstances have come to the Company's attention
which have caused it to believe that a claim, action, proceeding or
investigation against or affecting the Company could reasonably be expected
to occur. Neither the Company nor any property or asset of the Company is
subject to any order, writ, judgment, injunction, decree, determination or
award which restricts its ability to conduct business in any area in which it
presently does business or has or could reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect.
III.9 TAXES AND TAX RETURNS.
(a) The Company has duly filed all material federal, state, county
and local information returns and tax returns required to be filed by it on
or prior to the date hereof (all such returns being true and complete in all
material respects) and has duly paid, discharged or made provisions for the
payment of all material Taxes (as hereinafter defined) and other governmental
charges which have been incurred or are due or claimed to be due from it by
federal, state, county or local taxing authorities on or prior to the date
hereof (including without limitation, if and to the extent applicable, those
due in respect of its properties, income, business, capital stock, deposits,
franchises, licenses, sales and use and payrolls, and any net worth tax),
other than Taxes or other charges that are not yet delinquent or are being
contested in good faith and have not been finally determined. The amounts
set up as reserves for Taxes on the balance sheet of the Company as of
January 31, 1998 are reasonably sufficient in the aggregate for the payment
of all unpaid federal, state, county and local Taxes (including any interest
or penalties thereon), whether or not disputed, accrued or applicable, for
the fiscal year ended January 31, 1998 and all prior periods covered by such
returns, and for which the Company is liable in its own right or as
transferee of the assets of, or successor to, any corporation, person,
association, partnership, joint venture or other entity. The federal income
tax returns of the Company have not in the five (5) years prior to the date
of this
12
Agreement, been examined by the Internal Revenue Service ("IRS"). The State
of Michigan tax returns of the Company and any other state tax returns of the
Company, have not, in the five (5) years prior to the date of this Agreement,
been examined by the Department of Revenue of the State of Michigan or any
other state taxing authority. There are no disputes pending or claims
asserted for Taxes or assessments upon the Company, nor has the Company been
requested to give any currently effective waivers extending the statutory
period of limitation applicable to any federal, state, county or local income
tax return for any period. In addition, (a) proper and accurate amounts have
been withheld by the Company from its employees for all prior periods in
compliance with the tax withholding provisions of applicable federal, state,
county and local laws, (b) federal, state, county and local returns which are
accurate and complete in all material respects have been filed by the Company
for all periods for which returns were due with respect to income tax
withholding, Social Security and unemployment taxes, and (c) the amounts
shown on such returns to be due and payable have been paid in full in all
material respects or adequate provision therefor has been included by the
Company in its financial statements for the period ended January 31, 1998.
(b) No property of the Company is property that the Company is or
will be required to treat as being owned by another person pursuant to the
provisions of Section 168(f)(8) of the Code (as in effect prior to its
amendment by the Tax Reform Act of 1986) or is "tax-exempt use property"
within the meaning of Section 168(h) of the Code. Except as set forth in
SCHEDULE 3.09 hereto, the Company has not been required to include in income
any adjustment pursuant to Section 481 of the Code by reason of a voluntary
change in accounting method initiated by the Company, and the IRS has not
initiated or proposed any such adjustment or change in accounting method.
Except as set forth in SCHEDULE 3.09 hereto, the Company is not a party to
any agreement, contract or arrangement that would, individually or in the
aggregate, upon consummation of the transactions contemplated hereby, result
in the payment of an "excess parachute payment" within the meaning of Section
280G of the Code or that would result in payments that would be nondeductible
pursuant to Section 162(m) of the Code.
(c) As used in this Agreement, the term "Taxes" means all federal,
state, county, local and foreign income, excise, gross receipts, ad valorem,
profits, gains, property, sales, transfer, use, payroll, employment,
severance, withholding, duties, intangibles, franchise and other taxes,
charges, levies or like assessments, including any net worth tax, or other
tax of any kind whatsoever together with all penalties and additions to tax
and interest thereon.
(d) As of January 31, 1998, the Company had a net operating loss
for federal tax purposes of approximately $29,265,000.
III.10 EMPLOYEE BENEFIT PLANS.
13
(a) SCHEDULE 3.10 hereto sets forth a true and complete list of
all Plans maintained or contributed to by the Company since March 31, 1995.
The term "Plans" for purposes of this Article III means all employee benefit
plans, arrangements or agreements that are maintained or contributed to, or
that were maintained or contributed to at any time during the three years
preceding the date of this Agreement, by the Company, or by any trade or
business, whether or not incorporated (an "ERISA Affiliate"), all of which
together with the Company would be deemed a "single employer" within the
meaning of Section 4001 of the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
(b) The Company has heretofore delivered to Holding true and
complete copies of each of the Plans and all related documents, including but
not limited to (i) all required Forms 5500 and all related schedules for such
Plans (if applicable) for each of the last two years, (ii) the actuarial
report for such Plan (if applicable) for each of the last two years, and
(iii) the most recent determination letter from the IRS (if applicable) for
such Plan.
(c) (i) Except as may be provided in SCHEDULE 3.10 hereto, each of
the Plans has been operated and administered in all material respects in
accordance with applicable laws, including but not limited to ERISA and the
Code, (ii) each of the Plans intended to be "qualified" within the meaning of
Section 401(a) of the Code has been maintained so as to qualify from the
effective date of such Plan to the Effective Time, (iii) with respect to each
Plan which is subject to Title IV of ERISA, the present value of "benefit
liabilities" (within the meaning of Section 4001(a)(16) of ERISA) under such
Plan, based upon the actuarial assumptions currently used by the Plan for IRS
funding purposes did not, as of its latest valuation date, exceed the then
current value of the assets of such Plan allocable to such accrued benefits,
and there has been no "accumulated funding deficiency" (whether or not
waived), (iv) except as set forth in SCHEDULE 3.10 hereto, no Plan provides
benefits, including without limitation death, medical or other benefits
(whether or not insured), with respect to current or former employees of the
Company or any ERISA Affiliate beyond their retirement or other termination
of service, other than (u) coverage mandated by applicable law, (v) life
insurance death benefits payable in the event of the death of a covered
employee, (w) disability benefits payable to disabled former employees, (x)
death benefits or retirement benefits under any "employee pension plan," as
that term is defined in Section 3(2) of ERISA, (y) deferred compensation
benefits accrued as liabilities on the books of the Company or any ERISA
Affiliate or (z) benefits the full cost of which is borne by the current or
former employee (or his beneficiary), (v) with respect to each Plan subject
to Title IV of ERISA, no liability under Title IV of ERISA has been incurred
by the Company or any ERISA Affiliate that has not been satisfied in full, no
condition exists that presents a material risk to the Company or any ERISA
Affiliate of incurring a material liability to or on account of such Plan,
and there has been no "reportable event" (within the meaning of Section 4043
of ERISA and the regulations thereunder), (vi) neither the Company nor any
ERISA Affiliate has ever maintained or contributed to a "multiemployer plan,"
as such term is defined in Section 3(37) of ERISA, (vii) all contributions or
other amounts payable by the Company as of the Effective Time with respect to
each Plan in respect of current or prior plan years have been paid or accrued
in accordance with GAAP and Section 412 of the Code, (viii) neither the
Company nor any
14
ERISA Affiliate has engaged in a transaction in connection with which the
Company or any ERISA Affiliate has any material liability for either a civil
penalty assessed pursuant to Section 409 or 502(i) of ERISA or a tax imposed
pursuant to Section 4975 or 4976 of the Code, (ix) consummation of the
transactions contemplated hereby will not cause any amounts payable under any
of the Plans to fail to be deductible for federal income tax purposes under
Sections 280G or 162(m) of the Code, and (x) there are no pending or, to the
best knowledge of the Company, threatened or anticipated claims (other than
routine claims for benefits) by, on behalf of or against any of the Plans or
any trusts related thereto.
(d) With respect to any Plan that is a welfare plan (within the
meaning of Section 3(1) of ERISA) (i) no such Plan is funded through a
"welfare benefit fund," as such term is defined in Section 419(a) of the
Code, and (ii) each such Plan complies in all material respects with the
applicable requirements of Section 4980B(f) of the Code, Part 6 of Subtitle B
of Title I of ERISA and any applicable state continuation coverage
requirements ("COBRA").
(e) Except as prohibited by law (including Section 411(d)(6) of
the Code), each Plan may be amended, terminated, modified or otherwise
revised by the Company or its ERISA Affiliates as of the Effective Time to
eliminate, without material effect, any and all future benefit accruals under
any Plan (except claims incurred under any welfare plan).
III.11 SEC REPORTS. The Company has previously delivered to Holding
an accurate and complete copy of each (a) final registration statement,
prospectus, report, schedule and definitive proxy statement filed since March
31, 1995 by the Company with the SEC pursuant to the Exchange Act or the
Securities Act of 1933, as amended (the "Securities Act") (collectively, the
"SEC Reports") and (b) communication mailed by the Company to its
shareholders since March 31, 1995. The Company has timely filed all SEC
Reports and other documents required to be filed by it under the Securities
Act and the Exchange Act, and as of their respective dates, all SEC Reports
complied with all of the rules and regulations of the SEC with respect
thereto. As of their respective dates, no such SEC Reports or shareholder
communications contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances in which
they were made, not misleading. The Company has made available to Holding
true and complete copies of all amendments and modifications to all
agreements, documents and other instruments which previously had been filed
with the SEC by the Company and which are currently in effect.
III.12 COMPANY INFORMATION. The information supplied by the Company
relating to the Company contained in the Registration Statement, or in any
other document filed with any other regulatory agency in connection herewith,
will not contain, on the date of mailing of the Proxy Statement and on the date
of the Company Shareholder Meeting or in any document in connection with the
Holding Shareholder Meeting, any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances in which they are
made, not false or misleading or necessary to correct any statement in any
earlier communication with respect to
15
the solicitation of proxies for the Company Shareholder Meeting which shall
have become false or misleading. The Registration Statement will comply in
all material respects with the provisions of the Securities Act and the
Exchange Act and the rules and regulations thereunder and the rules and
regulations of the SEC with respect thereto. Nothing in this Section 3.12
relates to any information concerning Holding or Sub, or their business,
contracts, litigation, shareholders, directors or officers.
III.13 COMPLIANCE WITH APPLICABLE LAW; CERTAIN AGREEMENTS. The
Company holds all material licenses, franchises, permits and authorizations
necessary for the lawful conduct of its business under and pursuant to all,
and has complied with and is not in conflict with, or in default or violation
of any (a) statute, code, ordinance, law, rule, regulation, order, writ,
judgment, injunction or decree, published policies and guidelines of any
Governmental Entity, applicable to the Company or by which any property or
asset of the Company is bound or affected or (b) any note, bond, mortgage,
indenture, deed of trust, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Company is a party
or by which the Company or any property or asset of the Company is bound or
affected, except for any such non-compliance, conflicts, defaults or
violations that would not, individually or in the aggregate, have a Material
Adverse Effect; and the Company neither knows of, nor has received notice of,
any material violations of any of the above.
III.14 CERTAIN CONTRACTS.
(a) Except as set forth in SCHEDULE 3.14 hereto, the Company is
not a party to or bound by any contract, arrangement, commitment or
understanding (whether written or oral): (i) with respect to the employment
of any director, officer or employee, or with respect to the employment of
any consultant which cannot be terminated with a payment of less than
$50,000, (ii) which, upon the consummation of the transactions contemplated
by this Agreement, will result in any payment (whether of severance pay or
otherwise) becoming due from the Company to any officer or employee thereof,
(iii) which is a material contract (as defined in Item 601(b)(10) of
Regulation S-K of the SEC) to be performed after the date of this Agreement
that has not been filed or incorporated by reference in the SEC Reports, (iv)
which is a consulting or other agreement (including agreements entered into
in the ordinary course and data processing, software programming and
licensing contracts) not terminable on ninety (90) days or less notice and
involves the payment of more than $50,000 per annum, (v) which restricts the
conduct of any line of business by the Company, (vi) with or to a labor union
or guild (including any collective bargaining agreement), or (vii) (including
any stock option plan, stock appreciation rights plan, restricted stock plan
or stock purchase plan) any of the benefits of which will be increased, or
the vesting of the benefits of which will be accelerated, by the occurrence
of any of the transactions contemplated by this Agreement, or the value of
any of the benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement. The Company has previously
delivered to Holding true and complete copies of all employment, consulting
and deferred compensation agreements which are in writing and to which the
Company is a party. Each contract, arrangement, commitment or understanding
of the type described in this Section, whether or not set forth in SCHEDULE
3.14 hereto, is referred to herein as a "Company Contract".
16
(b) (i) Each Company Contract is legal, valid and binding upon
the Company, assuming due authorization of the other party or parties
thereto, and in full force and effect, (ii) the Company has in all material
respects performed all obligations required to be performed by it to date
under each such Company Contract, and (iii) no event or condition exists
which constitutes or, after notice or lapse of time or both, would
constitute, a default on the part of the Company under any such Company
Contract.
III.15 AGREEMENTS WITH REGULATORY AGENCIES. The Company is not
subject to any cease-and-desist or other order issued by, or is a party to
any written agreement, consent agreement or memorandum of understanding,
commitment letter or similar undertaking (each a "Regulatory Agreement"),
with any Regulatory Agency or other Governmental Entity that restricts the
conduct of its business, nor has the Company been notified by any Regulatory
Agency or other Governmental Entity that it is considering issuing or
requesting any Regulatory Agreement.
III.16 ENVIRONMENTAL MATTERS.
(a) The Company is, and has been, in material compliance with all
applicable environmental laws and with all rules, regulations, standards and
requirements of the United States Environmental Protection Agency (the "EPA")
and of state and local agencies with jurisdiction over pollution or
protection of the environment.
(b) There is no material suit, claim, action or proceeding pending
or, to the best knowledge of the Company, threatened, before any Governmental
Entity or other forum in which the Company has been or, with respect to
threatened proceedings, may be, named as a defendant, responsible party or
potentially responsible party (i) for alleged noncompliance (including by any
predecessor), with any environmental law, rule, regulation, standard or
requirement or (ii) relating to the release into or presence in the
Environment (as hereinafter defined) of any Hazardous Materials (as
hereinafter defined) or Oil (as hereinafter defined) whether or not occurring
at or on a site owned, leased or operated by the Company.
(c) The Company has not received any notice regarding a matter on
which a material suit, claim, action or proceeding as described in subsection
(b) of this Section 3.16 could reasonably be based. No facts or
circumstances have come to the Company's attention which have caused it to
believe that a material suit, claim, action or proceeding as described in
subsection (b) of this Section 3.16 could reasonably be expected to occur.
(d) During the period of the Company's ownership or operation of
any of its current properties, there has been no material release or presence
in the Environment of Hazardous Material or Oil in, on, under or affecting
such property. To the best knowledge of the Company prior to the period of
the Company's ownership or operation of any of its current properties or any
previously owned or operated properties but since March 31, 1995, there
17
was no material release or presence in the Environment of Hazardous Material
or Oil in, on, under or affecting any such property.
(e) The following definitions apply for purposes of this
Agreement: (i) "Hazardous Material" means any pollutant, contaminant, or
hazardous substance or hazardous material as defined in or pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act, 42
U.S.C. Section 9601 et seq., or any other federal, state, or local
environmental law, regulation, or requirement; (ii) "Oil" means oil or
petroleum of any kind or origin or in any form, as defined in or pursuant to
the Federal Clean Water Act, 33 U.S.C. Section 1251 ET SEQ., or any other
federal, state, or local environmental law, regulation, or requirement; and
(iii) "Environment" means any soil, surface waters, groundwaters, stream
sediments, surface or subsurface strata, and ambient air, and any other
environmental medium.
III.17 PROPERTIES.
(a) SCHEDULE 3.17 hereto contains a true, complete and correct
list and a brief description (including carrying value) of all real
properties owned by the Company. Except as set forth in SCHEDULE 3.17
hereto, the Company has good and marketable title to all the real property
and all other property owned by it and included in the balance sheet of the
Company as of January 31, 1998, and owns such property subject to no
encumbrances, liens, mortgages, security interests or pledges, except such
encumbrances, liens, mortgages, security interests and pledges that do not
have a Material Adverse Effect on the Company or which do not and will not
interfere with the use of the property as currently used by the Company, or
the conduct of the business of the Company.
(b) The Company has not received any notice of violation of any
applicable zoning or environmental regulation, ordinance or other law, order,
regulation or requirement relating to its operations or its properties and to
the knowledge of the Company, there is no such violation of a material
nature. Except as set forth in SCHEDULE 3.17 hereto, to the Company's actual
knowledge, all buildings and structures used by the Company conform in all
material respects with all applicable ordinances, codes and regulations, or
are not required to conform due to grandfathering clauses contained in such
ordinances, codes or regulations, except to the extent such noncompliance
does not and will not have a Material Adverse Effect on the Company and which
does not or will not interfere with the use of any property as currently used
by the Company, or the conduct of the business of the Company.
(c) SCHEDULE 3.17 contains a true, complete and correct list of
all leases pursuant to which the Company leases any material real or personal
property, and, in all cases, leases for store space, either as lessee or as
lessor (the "Company Leases"). Assuming due authorization of the other party
or parties thereto, each of the Company Leases is valid and binding on the
Company, and valid and binding on and enforceable against all other
respective parties to such leases, in accordance with their respective terms
(subject to bankruptcy, insolvency, reorganization, moratorium and similar
laws affecting the rights and remedies of creditors generally and general
principles of equity). There are not under such
18
Company Leases any existing breaches, defaults, events of default by the
Company, or events which with notice and/or lapse of time would constitute a
breach, default or event of default by the Company, nor has the Company
received notice of, or made a claim with respect to, any breach or default by
any other party to such Company Leases. The Company enjoys quiet and
peaceful possession of all such leased properties occupied by it as lessee.
III.18 INSURANCE. The Company has made available to Holding true and
complete copies of all material policies of insurance of the Company
currently in effect. All of the policies relating to insurance maintained by
the Company with respect to its material properties and the conduct of its
business in any material respect (or any comparable policies entered into as
a replacement therefor) are in full force and effect and the Company has not
received any notice of cancellation with respect thereto. Except as set
forth on SCHEDULE 3.18 hereto, all life insurance policies on the lives of
any of the current and former officers of the Company which are maintained by
the Company or which are otherwise included as assets on the books of the
Company (i) are, or will at the Effective Time be, owned by the Company, free
and clear of any claims thereon by the officers or members of their families
and are, or will be at the Effective Time, payable to the Company, except
with respect to the death benefits thereunder, as to which the Company agrees
that there will not be an amendment prior to the Effective Time without the
consent of Holding, and (ii) are accounted for properly on the books of the
Company in accordance with GAAP. The Company does not have any material
liability for unpaid premiums or premium adjustments not properly reflected
on the Company's financial statements contained in the SEC Reports. The
Company has been and is adequately insured with respect to its property and
the conduct of its business in such amounts and against such risks as are
substantially similar in kind and amount to that customarily carried by
parties similarly situated who own properties and engage in businesses
substantially similar to that of the Company (including without limitation
liability insurance and blanket bond insurance). All claims under any policy
or bond have been duly and timely filed.
III.19 TRANSACTIONS WITH CERTAIN PERSONS.
(a) Except as set forth in SCHEDULE 3.19 hereto, neither the
Company, nor any director, officer, agent or employee of the Company acting
on behalf of the Company, nor any other person or entity acting on behalf of
the Company, has, contrary to law, (i) given or agreed to give any gift or
similar benefit of more than nominal value to any customer, supplier, or
governmental employee or official or any other person or entity who is or may
be in a position to help or hinder the Company in connection with any
proposed transaction involving the Company, (ii) used any corporate or other
funds for contributions, payments, gifts, or entertainment, or made any
expenditures relating to political activity to, or on behalf of, government
officials or other persons or entities, (iii) accepted or received any
contributions, payments, gifts or expenditures or (iv) had any transaction or
payment on behalf of the Company which was not properly recorded in the
consolidated books and records of the Company or disclosed on the
consolidated financial statements of the Company in accordance with GAAP.
19
(b) Except as set forth in SCHEDULE 3.19 hereto and except as
expressly contemplated by this Agreement, the Company has no transaction with
any officer, director or greater-than-5% shareholder of the Company or any
"associate" (as defined in Rule 14a-1 under the Exchange Act) of any such
officer, director or shareholder or "affiliates" (as defined in Rule
144(a)(1) of the Securities Act) of any such officer, director or
shareholder, other than transactions in the ordinary course of business on
terms substantially the same as those prevailing at the time for comparable
transactions with other, unaffiliated persons, and which did not and do not
involve any unusual risk (including of non-collectibility) or other features
unfavorable to the Company.
III.20 DISCLOSURE. No representation or warranty contained in this
Agreement or any Schedule to this Agreement, contains any untrue statement of
a material fact or omits to state a material fact necessary in order to make
the statements herein or therein, in light of the circumstances in which they
are made, not misleading. No information material to the Merger and which is
necessary to make the representations and warranties herein contained not
misleading, has been withheld from, or has not been delivered in writing to
Holding.
III.21 REGULATORY APPROVALS. The Company is not, as of the date
hereof, aware of any reason why the regulatory approvals, including without
limitation those approvals required pursuant to the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), required to
be obtained by the Company or to consummate the Merger would not be satisfied
within the time frame customary for transactions of the nature contemplated
thereby.
III.22 LABOR MATTERS. The Company is not a party to any collective
bargaining or other labor union or guild contract. There is no pending or,
to the best knowledge of the Company, threatened, labor dispute, strike or
work stoppage against the Company which may interfere with the business
activities of the Company. Neither the Company nor its representatives or
employees, has committed any unfair labor practices in connection with the
operation of the business of the Company, and there is no pending or, to the
best knowledge of the Company, threatened, charge or complaint against the
Company by the National Labor Relations Board or any comparable state agency.
III.23 INTELLECTUAL PROPERTY. The Company owns or possesses valid
and binding licenses and other rights to use without payment of any material
amount all material patents, copyrights, trade secrets, trade names, service
marks and trademarks ("Intellectual Property") used in its business. All
material Intellectual Property used in the Company's business is set forth on
SCHEDULE 3.23 hereto. The Company has not received any notice of conflict
with respect to any of the Intellectual Property set forth on SCHEDULE 3.23
hereto that asserts the right of others. The Company has performed in all
material respects all the obligations required to be performed by it with
respect to any of the Intellectual Property set forth on SCHEDULE 3.23 hereto
and is not in default under any contract, agreement, arrangement or
commitment relating to any of the foregoing.
20
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF HOLDING AND SUB
Holding and Sub hereby represent and warrant to the Company as follows:
IV.1 CORPORATE ORGANIZATION.
(a Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Sub has the corporate
power and authority to own or lease all of its properties and assets and to
carry on its business as it is now being conducted, and is duly licensed or
qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified would not have a
Material Adverse Effect on Sub. The Amended Certificate of Incorporation and
Bylaws of Sub, copies of which have previously been delivered to the Company,
are true and complete copies of such documents as in effect as of the date of
this Agreement.
(b Holding is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. Holding has the
corporate power and authority to own or lease all of its properties and
assets and to carry on its business as it is now being conducted, and is duly
licensed or qualified to do business in each jurisdiction in which the nature
of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed or
qualified, either individually or in the aggregate, would not have a Material
Adverse Effect on Holding. The Amended and Restated Certificate of
Incorporation and Bylaws of Holding, copies of which have previously been
delivered to the Company, are true, complete and correct copies of such
documents as in effect as of the date of this Agreement.
(c Holding has no direct or indirect Subsidiaries other than Sub
and Avon Trading Corp. ("Avon"). Holding is the sole shareholder of Sub, and
Sub is the sole shareholder of Avon. Other than Sub and Avon, Holding does
not own, control or hold with the power to vote, directly or indirectly of
record, beneficially or otherwise, any capital stock or any equity or
ownership interest in any corporation, partnership, association, joint
venture or other entity, except for less than five percent (5%) of any equity
security registered under the Exchange Act. Sub has no direct or indirect
Subsidiaries, other than Avon. Other than Avon, Sub does not own, control or
hold with the power to vote, directly or indirectly of record, beneficially
or otherwise, any capital stock or any equity or ownership interest in any
corporation, partnership, association, joint venture or other entity, except
for less than five percent (5%) of any equity security registered under the
Exchange Act.
21
(d) Avon has no business, assets or liabilities other than the
Agreement by and between Avon and Local 313 Northern New England Boston Joint
Board District Council Union of Needletrades, Industrial and Textile
Employees (Unite) AFL-CIO dated April 15, 1998 and effective January 1, 1998
and certain agreements in connection with the Loan and Security Agreement by
and between Congress Financial Corporation and Hit or Miss Inc. dated October
4, 1995.
(e) The minute books of each of Holding and Sub contain true,
complete and accurate records of all meetings and other corporate actions
held or taken of their respective shareholders and boards of directors
(including committees of their respective boards of directors).
IV.2 CAPITALIZATION.
(a The authorized capital stock of Holding consists of 650,000
shares of Holding Common Stock and 350,000 shares of Holding Preferred Stock,
each entitled to one (1) vote per share. As of the date of this Agreement,
there are (w) 15,450 shares of Holding Common Stock issued and outstanding
and 17,250 shares of Holding Common Stock held in Holding's Treasury, and (x)
10,000 shares of Holding Common Stock reserved for issuance upon the exercise
of outstanding stock options or otherwise, and there are (y) 212,500 shares
of Holding Preferred Stock issued and outstanding, and (z) no shares of
Holding Preferred Stock reserved for issuance upon the exercise of
outstanding stock options or otherwise. All of the issued and outstanding
shares of Holding Common Stock and Holding Preferred Stock have been duly
authorized and validly issued and are fully paid, non-assessable, and free of
preemptive rights, with no personal liability attaching to the ownership
thereof. Except as set forth in SCHEDULE 4.02 hereto, Holding does not have
and is not bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the purchase or
issuance of any shares of Holding Common Stock, Holding Preferred Stock or
any other equity security of Holding or any securities representing the right
to purchase or otherwise receive any shares of Holding Common Stock, Holding
Preferred Stock or any other equity security of Holding. Except as set forth
in SCHEDULE 4.02 hereto, there are no bonds, debentures, notes or other
indebtedness of Holding having the right to vote (or convertible into, or
exchangeable for securities having the right to vote) on any matters on which
shareholders of Holding may vote.
(b Holding's sole direct or indirect Subsidiaries are Sub and
Avon. The authorized capital stock of Sub consists of 1,000 shares of common
stock, par value $1.00 ("Sub Stock"). As of the date of this Agreement,
there are 100 shares of Sub Stock issued and outstanding. The authorized
capital stock of Avon consists of 12,500 shares of common stock, no par value
("Avon Stock"). As of the date of this Agreement, there is one share of Avon
Stock issued and outstanding. All of the issued and outstanding shares of
Sub Stock and Avon Stock are duly authorized and validly issued and are fully
paid, non-assessable, and free of preemptive rights, with no personal
liability attaching to the ownership thereof. Neither Sub nor Avon has, nor
is bound by, any outstanding subscriptions, options, warrants, calls,
22
commitments or agreements of any character calling for the purchase or
issuance of any shares of capital stock or any other equity security of Sub
or Avon, as the case may be, or any securities representing the right to
purchase or otherwise receive any shares of capital stock or any other equity
security of Sub or Avon, as the case may be. At the Effective Time, there
will not be any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character by which Sub or Avon will be bound
calling for the purchase or issuance of any shares of the capital stock of
Sub or Avon. Except as set forth in SCHEDULE 4.02 hereto, there are no
bonds, debentures, notes or other indebtedness of Sub or Avon having the
right to vote (or convertible into, or exchangeable for securities having the
right to vote) on any matters on which shareholders of Sub or Avon, as the
case may be, may vote.
(c Except as set forth in SCHEDULE 4.02 hereto and except as
contemplated herein, there are no agreements or understandings, with respect
to the voting of any shares of Holding Common Stock, Holding Preferred Stock
or Sub Stock or which restrict the transfer of such shares, to which Holding
or Sub is a party, and to the knowledge of Holding and Sub, there are no such
agreements or understandings to which Holding or Sub is not a party with
respect to the voting of any such shares or which restrict the transfer of
such shares, other than applicable federal and state securities laws.
(d All dividends on Holding Common Stock and Sub Stock which have
been declared prior to the date of this Agreement have been paid in full.
(e Set forth on SCHEDULE 4.02 hereto is a list of each
Registration Rights Agreement pursuant to which Holding or Sub is obligated
to register any securities.
IV.3 AUTHORITY; NO VIOLATION.
23
(a Holding and Sub each have full corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Holding
and Sub and the consummation by Holding and Sub of the transactions
contemplated hereby have been duly and validly approved by the Board of
Directors of Holding and Sub. Subject to the requirements of applicable law,
the Board of Directors of Holding has directed that this Agreement and the
transactions contemplated hereby be submitted to Holding's shareholders
respectively for approval at a meeting of such shareholders (the "Holding
Shareholder Meeting," together with the Company Shareholder Meeting, the
"Shareholder Meetings") and has voted to recommend that its shareholders
approve and adopt this Agreement and the transactions contemplated thereby
and, except for the adoption of this Agreement by the requisite vote of
Holding's shareholders and the filing of the Certificates of Merger, no other
corporate proceedings on the part of Holding or Sub are necessary to approve
this Agreement and to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by Holding and Sub
and (assuming the due authorization, execution and delivery by the Company)
constitutes a valid and binding obligation of Holding and Sub, enforceable
against Holding and Sub in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws
of general applicability relating to or affecting creditors' rights and to
general equity principles.
(b Except as set forth in SCHEDULE 4.03 hereto, neither the
execution and delivery of this Agreement by each of Holding and Sub, nor the
performance of this Agreement by either Holding or Sub, as the case may be,
nor compliance by either Holding or Sub with any of the terms or provisions
hereof, will (i) violate, conflict with or result in a breach of any
provision of the Amended and Restated Certificate of Incorporation or Bylaws
of Holding, the Amended Certificate of Incorporation or Bylaws of Sub, as the
case may be, or (ii) assuming that the consents and approvals referred to in
Section 4.04(a) hereof are duly obtained, (x) violate any statute, code,
ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to Holding, Sub or any of their respective properties or assets,
or (y) violate, conflict with, result in a breach of any provisions of or the
loss of any benefit under, constitute a default (or any event which, with
notice or lapse of time, or both, would constitute a default) under, result
in the termination of or a right of termination or cancellation under,
accelerate the performance required by, or result in the creation of any
lien, pledge, security interest, charge or other encumbrance upon any of the
respective properties or assets of Holding or Sub under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to which
Holding or Sub is a party, or by which they or any of their respective
properties or assets may be bound or affected, including without limitation,
the Senior Subordinated Note due October 1, 2004, as amended effective August
1, 1997 by and between Sub and The TJX Companies, Inc., (the "Note"), except
(in the case of clause (y) above) for such violations, conflicts, breaches or
defaults which, either individually or in the aggregate, will not have a
Material Adverse Effect on or Holding or Sub.
24
IV.4 CONSENTS AND APPROVALS.
(a Except for (i) the filing with the SEC of the Registration
Statement, (ii) the approval of this Agreement by the requisite vote of the
shareholders of Holding, (iii) the filing of the Certificates of Merger with
the Michigan Secretary pursuant to the MBCA and with the Delaware Secretary
pursuant to the DGCL to effect the Merger, (iv) such filings and approvals as
are required to be made or obtained under the securities or "Blue Sky" laws
of various states in connection with the issuance of shares of Company Common
Stock pursuant to this Agreement, and (v) such filings, authorizations,
consents or approvals as may be set forth in SCHEDULE 4.04 hereto, no
consents or approvals of or filings or registrations with any Governmental
Entity or with any third party are necessary in connection with the execution
and delivery by Holding and Sub of this Agreement and the consummation by
Holding and Sub of the Merger and the other transactions contemplated hereby.
(b Subject to obtaining the consents or approvals set forth in
Section 4.04(a) hereof, the interest of Holding and Sub in all material
claims, contracts, licenses, leases and commitments and all of the other
assets in which Holding or Sub have an interest shall not, upon the
consummation of the transactions contemplated hereby, including the Merger,
be terminated or defaulted in any manner whatsoever by said consummation,
except where such termination or default would not have a Material Adverse
Effect on Holding or Sub, as the case may be. All material claims,
contracts, licenses, leases, commitments and assets of Holding shall be the
property of the Surviving Corporation immediately thereafter, and the
Surviving Corporation shall have all of the right, title and interest which
Holding had available to it prior to the consummation of the Merger in and to
such claims, contracts, licenses, leases, commitments and assets. The
interest of Holding and Sub in all material claims, contracts, licenses,
leases, commitments and assets which are not terminated or defaulted by
consummation of the transactions contemplated hereby is sufficient to allow
the Surviving Corporation to operate the business of Holding and Sub, as
currently conducted.
25
IV.5 FINANCIAL STATEMENTS.
(a Holding has previously delivered to the Company copies of the
audited consolidated balance sheets of Holding and Sub as of February 3, 1996
and February 1, 1997 and the related consolidated statements of income,
changes in shareholders' equity and cash flows for the fiscal years 1995
through 1996, inclusive and the unaudited consolidated balance sheet of
Holding as of January 31, 1998 and the unaudited statements of income and
cash flows for the fiscal year ended January 31, 1998. The February 1, 1997
and January 31, 1998 consolidated balance sheets of Holding (including the
related notes, where applicable) fairly present in all material respects the
consolidated financial position of Holding and Sub as of the date thereof,
and the other financial statements referred to in this Section 4.05
(including the related notes, where applicable) fairly present in all
material respects and the financial statements referred to in Section 6.06
hereof will fairly present (subject, in the case of the unaudited statements,
to recurring audit adjustments normal in nature and amount) in all material
respects, the results of the consolidated operations and changes in
shareholders' equity and cash flows of Holding and Sub for the respective
fiscal periods or as of the respective dates therein set forth and each of
such statements (including the related notes, where applicable) has been and
the financial statements referred to in Section 6.06 hereof will be, prepared
in accordance with GAAP consistently applied during the periods involved,
except as indicated in the notes thereto, or in the case of unaudited
statements, which do not include footnote disclosure and are subject to
normal, immaterial audit adjustments.
(b The books and records of Holding and Sub have been, and are
being, maintained in accordance with applicable legal and accounting
requirements, reflect only actual transactions and reflect all of their
assets, liabilities and accruals and all of their items of income and expense
in accordance with GAAP. All accounting ledgers and other books and records
of Holding and Sub are located at the principal office of Holding and Sub,
respectively, are true, complete and correct, and present fairly the
financial condition, results of operations and changes in financial position
of Holding and Sub as of the date and for the periods indicated.
(c Except as set forth in SCHEDULE 4.05 hereto and except for
liabilities incurred since January 31, 1998 in the ordinary course of
business consistent with past practice, neither Holding nor Sub has any
material liabilities or obligations of any nature whatsoever (whether
absolute, accrued, contingent or otherwise) which are not adequately reserved
or reflected on the consolidated balance sheet of Holding as of January 31,
1998, except for liabilities or obligations which in the aggregate do not
exceed $100,000 or are related to the Merger, and there do not exist any
circumstances that, to the best knowledge of Holding and Sub, could
reasonably be expected to result in any such liabilities or obligations.
IV.6 BROKER'S FEES. Neither Holding, Sub, nor any of their officers or
directors, has employed any broker or finder or incurred any liability for
any broker's fee, commission or finder's fee in connection with any of the
transactions contemplated by this Agreement.
26
IV.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as may be set forth
in SCHEDULE 4.07 hereto, since January 31, 1998, there has not been any
Material Adverse Effect on Holding or Sub and, to the best knowledge of
Holding and Sub, no fact or condition exists which will, or is reasonably
likely to, cause such a Material Adverse Effect on Holding or Sub in the
future.
IV.8 LEGAL PROCEEDINGS. Except as set forth in SCHEDULE 4.08 hereto,
Holding and Sub are not party to any, and there are no pending or, to
Holding's or Sub's actual knowledge, threatened, legal, administrative,
arbitral or other proceedings, claims, actions or governmental or regulatory
investigations of any nature against or affecting Holding, Sub or any
property or asset of Holding or Sub, before any court, arbitrator or
administrative, governmental or regulatory authority or body, domestic or
foreign, which would, either individually or in the aggregate, have a
Material Adverse Effect and no facts or circumstances have come to Holding's
or Sub's attention which have caused either of them to believe that a claim,
action, proceeding or investigation against or affecting Holding could
reasonably be expected to occur. Neither Holding nor Sub, nor any property
or asset of Holding or Sub, is subject to any order, writ, judgment,
injunction, decree, determination or award which restricts its ability to
conduct business in any area in which it presently does business or has or
could reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect.
IV.9 TAXES AND TAX RETURNS.
27
(a Holding and Sub have duly filed all material federal, state,
county and local information returns and tax returns required to be filed by
them on or prior to the date hereof (all such returns being true and complete
in all material respects) and have duly paid, discharged or made provisions
for the payment of all material Taxes (as hereinafter defined) and other
governmental charges which have been incurred or are due or claimed to be due
from it by federal, state, county or local taxing authorities on or prior to
the date hereof (including without limitation, if and to the extent
applicable, those due in respect of its properties, income, business, capital
stock, deposits, franchises, licenses, sales and use and payrolls, any net
worth tax), other than Taxes or other charges that are not yet delinquent or
are being contested in good faith and have not been finally determined. The
amounts set up as reserves for Taxes on the consolidated balance sheet of
Holding as of August 31, 1997 are reasonably sufficient in the aggregate for
the payment of all unpaid federal, state, county and local Taxes (including
any interest or penalties thereon), whether or not disputed, accrued or
applicable, for the period ended August 31, 1997 and all prior periods
covered by such returns, and for which Holding or Sub is liable in its own
right or as transferee of the assets of, or successor to, any corporation,
person, association, partnership, joint venture or other entity. The federal
income tax returns of Holding and Sub have not, since October 1, 1995, been
examined by the IRS. Except as set forth in SCHEDULE 4.09 hereto, the State
of Delaware and the Commonwealth of Massachusetts tax returns of Holding and
Sub, and any other state tax returns of Holding and Sub, have not, since
October 1, 1995, been examined by the Department of Revenue of the State of
Delaware or the Commonwealth of Massachusetts or any other state taxing
authority. There are no disputes pending or claims asserted for Taxes or
assessments upon Holding or Sub, nor has Holding or Sub been requested to
give any waivers extending the statutory period of limitation applicable to
any federal, state, county or local income tax return for any period. In
addition, (a) proper and accurate amounts have been withheld by Holding and
Sub from their respective employees for all prior periods in compliance with
the tax withholding provisions of applicable federal, state, county and local
laws, (b) federal, state, county and local returns which are accurate and
complete in all material respects have been filed by Holding and Sub for all
periods for which returns were due with respect to income tax withholding,
Social Security and unemployment taxes, and (c) the amounts shown on such
returns to be due and payable have been paid in full in all material respects
or adequate provision therefor has been included by Holding in its
consolidated financial statements for the period ended August 31, 1997.
(b No property of Holding or Sub is property that Holding or Sub
is or will be required to treat as being owned by another person pursuant to
the provisions of Section 168(f)(8) of the Code (as in effect prior to its
amendment by the Tax Reform Act of 1986) or is "tax-exempt use property"
within the meaning of Section 168(h) of the Code. Except as set forth in
SCHEDULE 4.09 hereto neither Holding nor Sub has been required to include in
income any adjustment pursuant to Section 481 of the Code by reason of a
voluntary change in accounting method initiated by Holding or Sub, and the
IRS has not initiated or proposed any such adjustment or change in accounting
method. Except as set forth in SCHEDULE 4.09 hereto, neither Holding nor Sub
is a party to any agreement, contract or arrangement that would, individually
or in the aggregate, upon consummation of the transactions contemplated
hereby,
28
result in the payment of an "excess parachute payment" within the meaning of
Section 280G of the Code or that could result in payments that would be
nondeductible pursuant to Section 162(m) of the Code.
(c As of August 31, 1997, Holding had a consolidated net operating
loss for federal tax purposes of approximately $7,629,344.
IV.10 EMPLOYEE BENEFIT PLANS.
(a SCHEDULE 4.10 hereto sets forth a true and complete list of
all Plans maintained or contributed to by Holding or Sub since October 1,
1995. The term "Plans" for purposes of this Article IV means all employee
benefit plans, arrangements or agreements that are maintained or contributed
to, or that were maintained or contributed to at any time since October 1,
1995, by Holding or Sub or by any ERISA Affiliate, all of which together with
Holding or Sub would be deemed a "single employer" within the meaning of
Section 4001 of ERISA. Notwithstanding the foregoing, the term "Plans" shall
not include any "multiemployer plan" as such term is defined in Section 3(37)
of ERISA.
(b Except as may be provided in SCHEDULE 4.10, Holding has
heretofore delivered to the Company true and complete copies of each of the
Plans and all related documents, including but not limited to (i) all
required Forms 5500 and all related schedules for such Plans (if applicable)
for each of the last two years, (ii) the actuarial report for such Plan (if
applicable) for each of the last two years, and (iii) the most recent
determination letter from the IRS (if applicable) for such Plan.
(c (i) Except as may be provided in SCHEDULE 4.10 hereto, each of
the Plans has been operated and administered in all material respects in
accordance with applicable laws, including but not limited to ERISA and the
Code, (ii) each of the Plans intended to be "qualified" within the meaning of
Section 401(a) of the Code has been maintained so as to qualify from the
effective date of such Plan to the Effective Time, (iii) with respect to each
Plan which is subject to Title IV of ERISA, the present value of "benefit
liabilities" (within the meaning of Section 4001(a)(16) of ERISA) under such
Plan, based upon the actuarial assumptions currently used by the Plan for IRS
funding purposes, did not, as of its latest valuation date, exceed the then
current value of the assets of such Plan allocable to such accrued benefits,
and there has been no "accumulated funding deficiency" (whether or not
waived), (iv) except as set forth in SCHEDULE 4.10 hereto, no Plan provides
benefits, including without limitation death, medical or other benefits
(whether or not insured), with respect to current or former employees of
Holding or Sub or any ERISA Affiliate beyond their retirement or other
termination of service, other than (u) coverage mandated by applicable law,
(v) life insurance death benefits payable in the event of the death of a
covered employee, (w) disability benefits payable to disabled former
employees, (x) death benefits or retirement benefits under any "employee
pension plan," as that term is defined in Section 3(2) of ERISA, (y) deferred
compensation benefits accrued as liabilities on the books of Holding or Sub
or any ERISA Affiliate or (z) benefits the full cost of which is borne by the
current or former
29
employee (or his beneficiary), (v) with respect to each Plan subject to Title
IV of ERISA, no liability under Title IV of ERISA has been incurred by
Holding or Sub or any ERISA Affiliate that has not been satisfied in full, no
condition exists that presents a material risk to Holding or Sub or any ERISA
Affiliate of incurring a material liability to or on account of such Plan,
and there has been no "reportable event" (within the meaning of Section 4043
of ERISA and the regulations thereunder), (vi) except as set forth on
SCHEDULE 4.10 hereto, neither Holding nor Sub nor any ERISA Affiliate has
ever maintained or contributed to a "multiemployer plan" as such term is
defined in Section 3(37) of ERISA, (vii) all contributions or other amounts
payable by Holding or Sub as of the Effective Time with respect to each Plan
in respect of current or prior plan years have been paid or accrued in
accordance with GAAP and Section 412 of the Code, (viii) neither Holding nor
Sub nor any ERISA Affiliate has engaged in a transaction in connection with
which Holding or Sub or any ERISA Affiliate has any material liability for
either a civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or
a tax imposed pursuant to Section 4975 or 4976 of the Code, (ix) consummation
of the transactions contemplated hereby will not cause any amounts payable
under any of the Plans to fail to be deductible for federal income tax
purposes under Sections 280G or 162(m) of the Code, and (x) there are no
pending or, to the best knowledge of Holding or Sub, threatened or
anticipated claims (other than routine claims for benefits) by, on behalf of
or against any of the Plans or any trusts related thereto.
(d With respect to any Plan that is a welfare plan (within the
meaning of Section 3(1) of ERISA) (i) no such Plan is funded through a
"welfare benefit fund," as such term is defined in Section 419(a) of the
Code, and (ii) each such Plan complies in all material respects with the
applicable requirements of Section 4980B(f) of the Code, Part 6 of Subtitle B
of Title I of ERISA, and COBRA.
(e Except as prohibited by law (including Section 411(d)(6) of
the Code), each Plan may be amended, terminated, modified or otherwise
revised by Holding, its Subsidiaries or its ERISA Affiliates as of the
Effective Time to eliminate, without material effect, any and all future
benefit accruals under any Plan (except claims incurred under any welfare
plan).
(f With respect to each plan identified on SCHEDULE 4.10 hereto
that is a "multiemployer plan" within the meaning of Section 3(37) of ERISA
and except as noted on such SCHEDULE 4.10 or on SCHEDULE 5.02, (i) neither
Holding nor Sub nor any ERISA Affiliate has withdrawn, partially withdrawn,
or received any notice of any claim or demand for withdrawal liability or
partial withdrawal liability, (ii) neither Holding nor Sub nor any ERISA
Affiliate has received any notice that any such plan is in reorganization,
that increased contributions may be required to avoid a reduction in plan
benefits or the imposition of any excise tax, or that any such plan is or may
become insolvent, (iii) neither Holding nor Sub nor any ERISA Affiliate has
failed to make any required contribution, (iv) to the best knowledge of
Holding and Sub, no such plan is a party to any pending merger or asset or
liability transfer, (v) to the best knowledge of Holding and Sub, there are
no Pension Benefit Guaranty Corporation proceedings against or affecting any
such plan, (vi) neither Holding nor Sub nor
30
any ERISA Affiliate has any withdrawal liability by reason of a sale of
assets pursuant to Section 4204 of ERISA, and (vii) neither Holding nor Sub
nor any ERISA Affiliate has engaged in a transaction in connection with which
Holding or Sub or any ERISA Affiliate has any material liability for either a
civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a tax
imposed pursuant to Section 4975 or 4976 of the Code.
(g SCHEDULE 4.10 hereto includes for each multiemployer plan, the
most recent estimate of potential withdrawal liability of Holding, Sub and
any ERISA Affiliate, as calculated by such multiemployer plan as of December
31, 1996, and identifies the specific obligor. Except as disclosed in
SCHEDULE 4.10 hereto, to the best knowledge of Holding and Sub, nothing has
occurred or is expected to occur that would materially increase the amount of
the total potential withdrawal liability of a specified obligor for any such
plan over the amount shown in SCHEDULE 4.10 hereto.
IV.11 HOLDING AND SUB INFORMATION. The information supplied by
Holding and Sub relating to Holding or Sub contained in the Registration
Statement, or in any other document filed with any other regulatory agency in
connection herewith, will not contain, on the date of mailing of the Proxy
Statement and on the date of the Company Shareholder Meeting or in any
document in connection with the Holding Shareholder Meeting, any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances in which they are made, not false or misleading or
necessary to correct any statement to any earlier communication with respect
to the Holding Shareholder Meeting which shall have become false or
misleading. The Registration Statement will comply in all material respects
with the provisions of the Securities Act and the Exchange Act and the rules
and regulations thereunder and the rules and regulations of the SEC with
respect thereto. Nothing in this Section 4.11 relates to any information
concerning the Company or its business, contracts, litigation, shareholders,
directors or officers.
IV.12 COMPLIANCE WITH APPLICABLE LAW; CERTAIN AGREEMENTS. Holding
and Sub hold all material licenses, franchises, permits and authorizations
necessary for the lawful conduct of their businesses under and pursuant to
all, and have complied with and are not in conflict with, or in default or
violation of any, (a) statute, code, ordinance, law, rule, regulation, order,
writ, judgment, injunction or decree, published policies and guidelines of
any Governmental Entity, applicable to Holding or Sub or by which any
property or asset of Holding or Sub is bound or affected or (b) any note,
bond, mortgage, indenture, deed of trust, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Holding
or Sub is a party or by which Holding or Sub or any property or asset of
Holding or Sub is bound or affected, except for any such non-compliance,
conflicts, defaults or violations that would not, individually or in the
aggregate, have a Material Adverse Effect; and neither Holding nor Sub knows
of, or has received notice of, any material violations of any of the above.
31
IV.13 CERTAIN CONTRACTS.
(a Except as set forth in SCHEDULE 4.13 hereto, neither Holding
nor Sub is a party to or bound by any contract, arrangement, commitment or
understanding (whether written or oral): (i) with respect to the employment
of any director, officer or employee, or with respect to the employment of
any consultant which cannot be terminated with a payment of less than
$50,000, (ii) which, upon the consummation of the transactions contemplated
by this Agreement, will result in any payment (whether of severance pay or
otherwise) becoming due from Holding or Sub to any officer or employee
thereof, (iii) which is a material contract (as defined in Item 601(b)(10) of
Regulation S-K of the SEC) to be performed after the date of this Agreement,
(iv) which is a consulting or other agreement (including agreements entered
into in the ordinary course and data processing, software programming and
licensing contracts) not terminable on ninety (90) days or less notice and
involves the payment of more than $50,000 per annum, (v) which restricts the
conduct of any line of business by Holding or Sub, (vi) with or to a labor
union or guild (including any collective bargaining agreement), or (vii)
(including any stock option plan, stock appreciation rights plan, restricted
stock plan or stock purchase plan) any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Agreement, or
the value of any of the benefits of which will be calculated on the basis of
any of the transactions contemplated by this Agreement. Holding has
previously delivered to the Company true and complete copies of all
employment, consulting and deferred compensation agreements which are in
writing and to which Holding or Sub is a party. Each contract, arrangement,
commitment or understanding of the type described in this Section, whether or
not set forth in SCHEDULE 4.13 hereto is referred to herein as a "Holding
Contract".
(b (i) Each Holding Contract is legal, valid and binding upon
Holding or Sub, as the case may be, assuming due authorization of the other
party or parties thereto, and in full force and effect, (ii) Holding or Sub
each has in all material respects performed all obligations required to be
performed by it to date under each such Holding Contract, and (iii) no event
or condition exists which constitutes or, after notice or lapse of time or
both, would constitute, a default on the part of Holding or Sub under any
such Holding Contract.
IV.14 AGREEMENTS WITH REGULATORY AGENCIES. Neither Holding nor Sub
is subject to any cease-and-desist or other order issued by, or is a party to
any written agreement, consent agreement or memorandum of understanding,
commitment letter or similar undertaking, with any Regulatory Agency or other
Governmental Entity that restricts the conduct of its business, nor has
Holding or Sub been notified by any Regulatory Agency or other Governmental
Entity that it is considering issuing or requesting any Regulatory Agreement.
32
IV.15 ENVIRONMENTAL MATTERS.
(a Except as set forth in SCHEDULE 4.15 hereto, each of Holding
and Sub are, and have been, in material compliance with all applicable
environmental laws and with all rules, regulations, standards and
requirements of the EPA and of state and local agencies with jurisdiction
over pollution or protection of the environment.
(b Except as set forth in SCHEDULE 4.15 hereto, there is no
material suit, claim, action or proceeding pending or, to the best knowledge
of Holding or Sub, threatened, before any Governmental Entity or other forum
in which Holding or Sub has been or, with respect to threatened proceedings,
may be, named as a defendant, responsible party or potentially responsible
party (i) for alleged noncompliance (including by any predecessor), with any
environmental law, rule, regulation, standard or requirement or (ii) relating
to the release into or presence in the Environment of any Hazardous Materials
or Oil whether or not occurring at or on a site owned, leased or operated by
Holding or Sub.
(c Except as set forth in SCHEDULE 4.15 hereto, neither Holding
nor Sub has received any notice regarding a matter on which a material suit,
claim, action or proceeding as described in subsection (b) of this Section
4.15 could reasonably be based. Except as set forth in SCHEDULE 4.15 hereto,
no facts or circumstances have come to Holding's or Sub's attention which
have caused either to believe that a material suit, claim, action or
proceeding as described in subsection (b) of this Section 4.15 could
reasonably be expected to occur.
(d Except as set forth in SCHEDULE 4.15 hereto, during the period
of Holding's or Sub's ownership or operation of any of their respective
current properties, there has been no material release or presence in the
Environment of Hazardous Material or Oil in, on, under or affecting such
property. Except as set forth in SCHEDULE 4.15 hereto, to the best knowledge
of Holding and Sub prior to the period of Holding's or Sub's ownership or
operation of any of their respective current properties or any previously
owned or operated properties but since October 1, 1995 there was no material
release or presence in the Environment of Hazardous Material or Oil in, on,
under or affecting any such property.
IV.16 PROPERTIES.
(a SCHEDULE 4.16 hereto contains a true, complete and correct
list and a brief description (including carrying value) of all real
properties, owned by Holding and Sub. Except as set forth in SCHEDULE 4.16
hereto, Holding and Sub each has good and marketable title to all the real
property and all other property owned by it and included in the consolidated
balance sheet of Holding as of January 31, 1998, and owns such property
subject to no encumbrances, liens, mortgages, security interests or pledges,
except such encumbrances, liens, mortgages, security interests and pledges
that do not have a Material Adverse Effect on Holding or Sub or which do not
and will not interfere with the use of the property as currently used by
Holding or Sub, or the conduct of the business of Holding or Sub.
33
(b Neither Holding nor Sub has received any notice of violation
of any applicable zoning or environmental regulation, ordinance or other law,
order, regulation or requirement relating to its operations or its properties
and to the knowledge of Holding and Sub, there is no such violation of a
material nature. Except as set forth in SCHEDULE 4.16 hereto, to Holding's
and Sub's actual knowledge, all buildings and structures used by Holding or
Sub conform in all material respects with all applicable ordinances, codes
and regulations, or are not required to conform due to grandfathering clauses
contained in such ordinances, codes or regulations, except to the extent such
noncompliance does not and will not have a Material Adverse Effect on Holding
or Sub and which does not or will not interfere with the use of any property
as currently used by Holding or Sub, or the conduct of the business of
Holding or Sub.
(c SCHEDULE 4.16 hereto contains a true, complete and correct
list of all leases pursuant to which Holding or Sub lease any material real
or personal property, and, in all cases, leases for store space, either as
lessee, as lessor (the "Holding Leases"). Assuming due authorization of the
other party or parties thereto, each of the Holding Leases is valid and
binding on Holding or Sub, as the case may be, and valid and binding on and
enforceable against all other respective parties to such leases, in
accordance with their respective terms (subject to bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the rights and remedies
of creditors generally and general principles of equity). There are not
under such Holding Leases any existing breaches, defaults, events of default
by Holding or Sub, or events which with notice and/or lapse of time would
constitute a breach, default or event of default by Holding or Sub, nor has
Holding or Sub received notice of, or made a claim with respect to, any
breach or default by any other party to such Holding Leases. Holding and Sub
each enjoy quiet and peaceful possession of all such leased properties
occupied by it as lessee.
IV.17 INSURANCE. Holding has made available to the Company true and
complete copies of all material policies of insurance of Holding and Sub
currently in effect. All of the policies relating to insurance maintained by
Holding or Sub with respect to their material properties and the conduct of
their business in any material respect (or any comparable policies entered
into as a replacement therefor) are in full force and effect and neither
Holding nor Sub has received any notice of cancellation with respect thereto.
Except as set forth on SCHEDULE 4.17 hereto, all life insurance policies on
the lives of any of the current and former officers of Holding or Sub which
are maintained by Holding or Sub or which are otherwise included as assets on
the books of Holding or Sub (i) are, or will at the Effective Time be, owned
by Holding or Sub, free and clear of any claims thereon by the officers or
members of their families and are, or will be at the Effective Time, payable
to Holding or Sub, except with respect to the death benefits thereunder, as
to which Holding and Sub each agree that there will not be an amendment prior
to the Effective Time without the consent of the Company, and (ii) are
accounted for properly on the books of Holding or Sub, as the case may be, in
accordance with GAAP. Neither Holding nor Sub has any material liability for
unpaid premiums or premium adjustments not properly reflected on Holding's
consolidated financial statements. Each of Holding and Sub has been and is
adequately insured with respect to its
34
property and the conduct of its business in such amounts and against such
risks as are substantially similar in kind and amount to that customarily
carried by parties similarly situated who own properties and engage in
businesses substantially similar to that of Holding and Sub (including
without limitation liability insurance and blanket bond insurance). All
claims under any policy or bond have been duly and timely filed.
IV.18 TRANSACTIONS WITH CERTAIN PERSONS.
(a Except as set forth in SCHEDULE 4.18 hereto, neither Holding
nor Sub, nor any director, officer, agent or employee of Holding or Sub
acting on behalf of Holding or Sub, nor any other person or entity acting on
behalf of Holding or Sub, has, contrary to law, (i) given or agreed to give
any gift or similar benefit of more than nominal value to any customer,
supplier, or governmental employee or official or any other person or entity
who is or may be in a position to help or hinder Holding or Sub in connection
with any proposed transaction involving Holding or Sub, (ii) used any
corporate or other funds for contributions, payments, gifts, or
entertainment, or may any expenditures relating to political activity to, or
on behalf of, government officials or other persons or entities, (iii)
accepted or received any contributions, payments, gifts or expenditures or
(iv) had any transaction or payment on behalf of Holding or Sub which was not
properly recorded in the consolidated books and records of Holding or
disclosed on the consolidated financial statements of Holding in accordance
with GAAP.
(b Except as set forth in SCHEDULE 4.18 hereto and except as
expressly contemplated by this Agreement, neither Holding nor Sub has any
transaction with any officer, director or greater-than-5% shareholder of
Holding or Sub, or any associate (as defined in Rule 14a-1 under the Exchange
Act) of any such officer, director or shareholder or "affiliates" (as defined
in Rule 144(a)(1) of the Securities Act) of any such officer, director or
shareholder.
IV.19 DISCLOSURE. No representation or warranty contained in this
Agreement or any Schedule to this Agreement, contains any untrue statement of
a material fact or omits to state a material fact necessary in order to make
the statements herein or therein, in light of the circumstances in which they
are made, not misleading. No information material to the Merger and which is
necessary to make the representations and warranties herein contained not
misleading, has been withheld from, or has not been delivered in writing to
the Company.
IV.20 REGULATORY APPROVALS. Holding is not, as of the date hereof,
aware of any reason why the regulatory approvals, including without
limitation those approvals required pursuant to the HSR Act, required to be
obtained by it or Sub to consummate the Merger would not be satisfied within
the time frame customary for transactions of the nature contemplated thereby.
35
IV.21 LABOR MATTERS. Except as disclosed in SCHEDULE 4.21 hereto,
neither Holding nor Sub is a party to any collective bargaining or other
labor union or guild contract. There is no pending or, to the best knowledge
of Holding, threatened, labor dispute, strike or work stoppage against
Holding or Sub which may interfere with the respective business activities of
Holding or Sub. Neither Holding nor Sub, nor, their respective
representatives or employees, has committed any unfair labor practices in
connection with the operation of the respective businesses of Holding or Sub,
and there is no pending or, to the best knowledge of Holding or Sub,
threatened, charge or complaint against Holding or Sub by the National Labor
Relations Board or any comparable state agency.
IV.22 INTELLECTUAL PROPERTY. Holding and Sub each owns or
possesses valid and binding licenses and other rights to use without payment
of any material amount all material Intellectual Property used in its
businesses. All material Intellectual Property used in Holding's or Sub's
business is set forth on SCHEDULE 4.22 hereto. Neither Holding nor Sub has
received any notice of conflict with respect to any of the Intellectual
Property set forth in SCHEDULE 4.22 that asserts the right of others.
Holding and Sub each has performed in all material respects all the
obligations required to be performed by them with respect to any of the
Intellectual Property set forth in SCHEDULE 4.22 hereto and are not in
default under any contract, agreement, arrangement or commitment relating to
any of the foregoing.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
V.1 COVENANTS OF THE COMPANY. During the period from the date of this
Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement or with the prior written consent
of Holding, the Company shall carry on its business in the ordinary course
consistent with past practice. The Company will use all reasonable efforts
to (x) preserve its business organization, (y) keep available the present
services of its employees and (z) preserve for itself and Holding the
goodwill of the customers of the Company and others with whom business
relationships exist. Without limiting the generality of the foregoing, and
except as set forth in SCHEDULE 5.01 hereto or as otherwise contemplated by
this Agreement or consented to in writing by Holding, whose consent shall not
be unreasonably withheld or delayed, the Company shall not:
(a declare or pay any dividends on, or make other distributions
in respect of, any of its capital stock;
(b (i) split, combine or reclassify any shares of its capital
stock or issue or authorize or propose the issuance of any other securities
in respect of, in lieu of or in substitution for shares of its capital stock
except upon the exercise or fulfillment of rights or options issued or
existing pursuant to employee benefit plans, programs or arrangements, all to
the extent outstanding and in existence on the date of this Agreement, or
(ii) repurchase,
36
redeem or otherwise acquire, any shares of the capital stock of the Company,
or any securities convertible into or exercisable for any shares of the
capital stock of the Company;
(c issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or any securities
convertible into or exercisable for, or any rights, warrants or options to
acquire, any such shares, or enter into any agreement with respect to any of
the foregoing;
(d amend its Restated Articles of Incorporation, or Bylaws, or
elect or appoint any new directors, except as required to comply with
Sections 1.07 and 1.08 hereof;
(e make any capital expenditures in excess of $100,000
individually, or $250,000 in the aggregate;
(f enter into any new line of business; (g acquire or
agree to acquire, by merging or consolidating with, or by purchasing a
substantial equity interest in or a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or otherwise
acquire any assets, other than in the ordinary course of business, which
would be material to the Company;
(h take any action that is intended or would result in any of its
representations and warranties set forth in this Agreement being or becoming
untrue in any material respect, or in any of the conditions to the Merger set
forth in Article VII not being satisfied, or in breach of any provision of
this Agreement, except, in every case, as may be required by applicable law;
(i) change its methods of accounting in effect at January 31,
1998, except as required by changes in GAAP or regulatory accounting
principles as concurred to by the Company's independent auditors;
(j) (i) except as required by applicable law or to maintain
qualification pursuant to the Code, (x) adopt, amend, renew or terminate any
Plan or any agreement, arrangement, plan or policy between the Company and
one or more of its current or former directors, officers or employees or (y)
except for normal increases in the ordinary course of business consistent
with past practice, increase in any manner the compensation or fringe
benefits of any director, officer or employee or pay any benefit not required
by any plan or agreement as in effect as of the date hereof (including,
without limitation, the granting of stock options, stock appreciation rights,
restricted stock, restricted stock units or performance units or shares) or
(ii) except as contemplated by Section 1.09 hereof, enter into, modify or
renew any employment, severance or other agreement with any director, officer
or employee of the Company, or establish, adopt, enter into or amend any
collective bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred
37
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement providing for any benefit to any director,
officer or employee;
(k) take or cause to be taken any action which would disqualify
the Merger as a tax free reorganization under Section 368(a)(1)(A) of the
Code;
(l) other than in the ordinary course of business consistent with
past practice, incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise as an accommodation become responsible for the
obligations of any other individual, corporation or other entity;
(m) sell, lease, encumber, assign or otherwise dispose of, or
agree to sell, lease, encumber, assign or otherwise dispose of, any of its
material assets, properties or other rights or agreements;
(n) make any material tax election or settle or compromise any
material federal, state, local or foreign tax liability;
(o) pay, discharge or satisfy any claim, liability or obligation,
other than the payment, discharge or satisfaction, in the ordinary course of
business and consistent with past practice, of liabilities reflected or
reserved against in the balance sheet as of January 31, 1998, or subsequently
incurred in the ordinary course of business and consistent with past practice;
(p) enter into or renew, amend or terminate, or give notice of a
proposed renewal, amendment or termination, or make any commitment with
respect to: (i) any contract, agreement or lease for office space,
operations space or store space to which the Company is a party or by which
the Company or its property is bound; PROVIDED, HOWEVER, that,
notwithstanding the foregoing, the Company may renew, amend or terminate any
contract, agreement or lease for store space on arm's length terms,
consistent with past practices; and (ii) regardless of whether consistent
with past practices, any lease, contract, agreement or commitment (other than
for office space, operations space or store space) involving an aggregate
payment by or to the Company of more than $50,000 or having a term of one
year or more from the time of execution;
(q) waive any material right, whether in equity or at law, that it
has with respect to any loan, except in the ordinary course of business
consistent with prudent banking practices; or
(r) agree to do any of the foregoing.
V.2 COVENANTS OF HOLDING AND SUB. During the period from the date of
this Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement or with the prior written consent
of the Company, Holding and Sub shall carry on their respective businesses in
the ordinary course consistent with past
38
practice. Holding and Sub will use all reasonable efforts to (x) preserve
their present business organizations intact, (y) keep available the present
services of their employees and (z) preserve for themselves and the Company
the goodwill of the customers of Holding and Sub and others with whom
business relationships exist. Without limiting the generality of the
foregoing, and except as set forth in SCHEDULE 5.02 hereto or as otherwise
contemplated by this Agreement or consented to in writing by the Company,
whose consent shall not be unreasonably withheld or delayed, neither Holding
nor Sub shall:
(a) declare or pay any dividends on, or make other distributions
in respect of, any of its capital stock;
(b) (i) split, combine or reclassify any shares of its capital
stock or issue or authorize or propose the issuance of any other securities
in respect of, in lieu of or in substitution for shares of its capital stock
except upon the exercise or fulfillment of rights or options issued or
existing pursuant to employee benefit plans, programs or arrangements, all to
the extent outstanding and in existence on the date of this Agreement, or
(ii) repurchase, redeem or otherwise acquire shares of the capital stock of
Holding or Sub, or any securities convertible into or exercisable for any
shares of the capital stock of the Holding or Sub;
(c) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or any securities
convertible into or exercisable for, or any rights, warrants or options to
acquire, any such shares, or enter into any agreement with respect to any of
the foregoing;
(d) amend its Certificate of Incorporation or Bylaws in effect on
the date hereof or elect or appoint directors;
(e) make any capital expenditures in excess of $100,000
individually, or $250,000 in the aggregate;
(f) enter into any new line of business;
(g) acquire or agree to acquire, by merging or consolidating with,
or by purchasing a substantial equity interest in or a substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof
or otherwise acquire any assets, other than in the ordinary course of
business, which would be material to Holding or Sub;
(h) take any action that is intended or would result in any of its
representations and warranties set forth in this Agreement being or becoming
untrue in any material respect, or in any of the conditions to the Merger set
forth in Article VII not being satisfied, or in breach of any provision of
this Agreement, except, in every case, as may be required by applicable law;
39
(i) change its methods of accounting in effect at January 31,
1998, except as required by changes in GAAP or regulatory accounting
principles as concurred to by Holding's independent auditors;
(j) (i) except as required by applicable law or to maintain
qualification pursuant to the Code, (x) adopt, amend, renew or terminate any
Plan or any agreement, arrangement, plan or policy between Holding or Sub and
one or more of its current or former directors, officers or employees or (y)
except for normal increases in the ordinary course of business consistent
with past practice, increase in any manner the compensation or fringe
benefits of any director, officer or employee or pay any benefit not required
by any plan or agreement as in effect as of the date hereof (including,
without limitation, the granting of stock options, stock appreciation rights,
restricted stock, restricted stock units or performance units or shares) or
(ii) except as contemplated by Section 1.09 hereof, enter into, modify or
renew any employment, severance or other agreement with any director, officer
or employee of Holding or Sub, or establish, adopt, enter into or amend any
collective bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund,
policy or arrangement providing for any benefit to any director, officer or
employee;
(k) take or cause to be taken any action which would disqualify
the Merger as a tax free reorganization under Section 368(a)(1)(A) of the
Code;
(l) other than in the ordinary course of business consistent with
past practice, incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise as an accommodation become responsible for the
obligations of any other individual, corporation or other entity;
(m) sell, lease, encumber, assign or otherwise dispose of, or
agree to sell, lease, encumber, assign or otherwise dispose of, any of its
material assets, properties or other rights or agreements;
(n) make any material tax election or settle or compromise any
material federal, state, local or foreign tax liability;
(o) pay, discharge or satisfy any claim, liability or obligation,
other than the payment, discharge or satisfaction, in the ordinary course of
business and consistent with past practice, of liabilities reflected or
reserved against in the balance sheet as of January 31, 1998, or subsequently
incurred in the ordinary course of business and consistent with past practice;
(p) enter into or renew, amend or terminate, or give notice of a
proposed renewal, amendment or termination, or make any commitment with
respect to: (i) any contract, agreement or lease for office space,
operations space or store space to which the Company is a party or by which
the Company or its property is bound; PROVIDED, HOWEVER, that,
notwithstanding the foregoing, Holding and Sub may renew, amend or terminate
any
40
contract, agreement or lease for store space on arm's length terms,
consistent with past practices; and (ii) regardless of whether consistent
with past practices, any lease, contract, agreement or commitment (other than
for office space, operations space or store space) involving an aggregate
payment by or to Holding and Sub of more than $50,000 or having a term of one
year or more from the time of execution;
(q) waive any material right, whether in equity or at law, that it
has with respect to any loan, except in the ordinary course of business
consistent with prudent banking practices; or
(r) agree to do any of the foregoing.
41
V.3 NO SOLICITATION; NON-DISCLOSURE.
(a) Neither the Company nor any of its directors, officers,
employees, representatives, agents and advisors or other persons controlled
by the Company shall solicit or hold discussions or negotiations with, or
assist or provide any information to, any Third Party, concerning any merger,
business combination, disposition of a significant portion of its assets, or
acquisition of a significant portion of its capital stock or similar
transactions (each, an "Acquisition Proposal") involving the Company.
Nothing contained in this Section shall prohibit the Company or its Board of
Directors from taking, and disclosing to the Company's shareholders a
position with respect to, a tender offer by a Third Party pursuant to Rules
14d-9 and 14e-2 promulgated under the Exchange Act or making such other
disclosure to the Company's shareholders which, in the judgment of its Board
of Directors, based upon the advice of counsel, may be required under
applicable law. Notwithstanding the foregoing, the Company may discuss and
negotiate, subject to the second to last sentence of this Section 5.03(a),
with, and assist and provide information to, any Third Party which after the
date hereof makes an unsolicited written bona fide offer (including any
unsolicited written bona fide offer subject to customary due diligence) to
consummate an Acquisition Proposal if the Board of Directors of the Company
determines in good faith, (x) upon advice of its independent financial
advisors that the Acquisition Proposal, if consummated as proposed, would
result in a transaction more favorable to the Company's stockholders from a
financial point of view than the transactions contemplated by this Agreement,
including consideration of, among other matters, the ability of the Third
Party to obtain any financing necessary to consummate the Acquisition
Proposal and (y) after receiving advice from its outside legal counsel and
based upon such advice that the failure to take any such action could
reasonably be expected to be a breach of the directors' fiduciary duties
under applicable law (any such Acquisition Proposal being referred to herein
as a "Superior Offer"). The Company agrees to terminate, immediately
following the execution of this Agreement, any pending discussions or
negotiations with Third Parties (other than with Holding and Sub) with
respect to any possible Acquisition Proposal including the Company. The
Company will promptly communicate to Holding, in reasonable detail, the terms
and conditions of any Acquisition Proposal involving the Company, including,
without limitation, the amount and form of the proposed consideration and
whether such Acquisition Proposal is subject to financing, due diligence or
any other material conditions, and the identity of the party making such
Acquisition Proposal. For purposes of this Agreement, "Third Party" shall
mean any corporation, partnership, person, or other entity or "group" (as
defined in Section 13(d)(3) of the Exchange Act) other than Holding, Sub or
the Company or any of their respective directors, officers, partners,
members, managers, employees, representatives, affiliates and agents.
(b) Neither Holding, Sub nor any of their directors, officers,
employees, representatives, agents and advisors or other persons controlled
by Holding or Sub shall solicit or hold discussions or negotiations with, or
assist or provide any information to, any Third Party, concerning any merger,
business combination, disposition of a significant portion of its assets, or
acquisition of a significant portion of its capital stock or similar
transactions (each, a "Holding Acquisition Proposal") involving Holding or
Sub. Nothing contained in this Section
42
shall prohibit Holding or its Board of Directors from making any disclosures
to Holding's shareholders which, in the judgment of its Board of Directors,
based upon the advice of counsel, may be required under applicable law.
Notwithstanding the foregoing, Holding or Sub may discuss and negotiate,
subject to the last sentence of this Section 5.03(b), with, and assist and
provide information to, any Third Party which after the date hereof makes an
unsolicited written bona fide offer (including any unsolicited written bona
fide offer subject to customary due diligence) to consummate a Holding
Acquisition Proposal if the Board of Directors of Holding or Sub determines
in good faith, (x) upon advice of its independent financial advisors that the
Holding Acquisition Proposal, if consummated as proposed, would result in a
transaction more favorable to Holding's stockholders from a financial point
of view than the transactions contemplated by this Agreement, including
consideration of, among other matters, the ability of the Third Party to
obtain any financing necessary to consummate the Holding Acquisition Proposal
and (y) after receiving advice from its outside legal counsel and based upon
such advice that the failure to take any such action could reasonably be
expected to be a breach of the directors' fiduciary duties under applicable
law (any such Holding Acquisition Proposal being referred to herein as a
"Holding Superior Offer"). Holding and Sub each agrees to terminate,
immediately following the execution of this Agreement, any pending
discussions or negotiations with Third Parties (other than with the Company)
with respect to any possible Holding Acquisition Proposal including Holding
or Sub. Holding and Sub will promptly communicate to the Company, in
reasonable detail, the terms and conditions of any Holding Acquisition
Proposal involving Holding or Sub, including, without limitation, the amount
and form of the proposed consideration and whether such Holding Acquisition
Proposal is subject to financing, due diligence or any other material
conditions, and the identity of the party making such Holding Acquisition
Proposal.
(c) No party (or its representatives, agents, counsel or
accountants) hereto shall disclose to any Third Party, other than the
potential lenders previously disclosed to the Company and Holding in writing,
any confidential or proprietary information about the business, assets or
operations of the other parties to this Agreement or the transactions
contemplated hereby, except as may be required by applicable law. Disclosure
of such information by (i) the Company or Holding with respect to obtaining
the Financing, (ii) the Company with respect to any Acquisition Proposal or
(iii) Holding with respect to any Holding Acquisition Proposal shall be made
only if the recipient agrees to hold such information confidential. The
parties hereto agree that the remedy at law for any breach of the
requirements of this subsection will be inadequate and that any breach would
cause such immediate and permanent damage as would be impossible to
ascertain, and, therefore, the parties hereto agree and consent that in the
event of any breach of this subsection, in addition to any and all other
legal and equitable remedies available for such breach, including a recovery
of damages, the non-breaching parties shall be entitled to obtain preliminary
or permanent injunctive relief without the necessity of proving actual damage
by reason of such breach and, to the extent permissible under applicable law,
a temporary restraining order may be granted immediately on commencement of
such action.
43
ARTICLE VI
ADDITIONAL AGREEMENTS
VI.1 REGULATORY MATTERS.
(a) The parties hereto shall cooperate with each other and use all
reasonable efforts promptly to prepare and file all necessary documentation,
to effect all applications, notices, petitions and filings, and to obtain as
promptly as practicable all permits, consents, approvals and authorizations
of all third parties and Governmental Entities which are necessary or
advisable to consummate the transactions contemplated by this Agreement
(including without limitation the Merger). The Company and Holding shall
have the right to review in advance, and to the extent practicable each will
consult with the other on, in each case subject to applicable laws relating
to the exchange of information, all the information relating to the Company,
Holding or Sub, as the case may be, which appear in any filing made with or
written materials submitted to, any third party or any Governmental Entity in
connection with the transactions contemplated by this Agreement. In
exercising the foregoing right, each of the parties hereto shall act
reasonably and as promptly as practicable. The parties hereto agree that
they will consult with each other with respect to the obtaining of all
permits, consents, approvals and authorizations of all third parties and
Governmental Entities necessary or advisable to consummate the transactions
contemplated by this Agreement and each party will keep the other apprised of
the status of matters relating to completion of the transactions contemplated
herein.
(b) Holding (or Sub as the case maybe) and the Company shall, upon
request, furnish each other with all information concerning themselves, their
respective directors, officers and shareholders and such other matters as may
be reasonably necessary or advisable in connection with the Proxy Statement,
the Registration Statement or any other statement, filing, notice or
application made by or on behalf of Holding, Sub or the Company to any
Governmental Entity in connection with the Merger and the other transactions
contemplated hereby.
(c) Holding (or Sub as the case may be) and the Company shall
promptly furnish each other with copies of written communications received by
Holding, Sub or the Company, as the case may be, from, or delivered by any of
the foregoing to, any Governmental Entity in respect of the transactions
contemplated hereby.
VI.2 SECURITIES LAWS MATTERS.
(a) As soon as reasonably practicable after the date hereof, the
Company shall file the Registration Statement, in which the Proxy Statement
will be included as part of the Prospectus, with the SEC under the Securities
Act and the Exchange Act. Holding, Sub and the Company shall use all
reasonable efforts to have the Registration Statement cleared by the SEC as
promptly as practicable after such filing.
44
(b) Holding, Sub and the Company shall cooperate with each other
in the preparation of the Registration Statement, and each shall notify the
other of the receipt of any comments of the SEC with respect to the
Registration Statement and of any requests by the SEC for any amendment or
supplement thereto or for additional information and shall provide to the
other parties promptly copies of all correspondence between the party or any
representative or agent of the party and SEC. Each party shall review the
Registration Statement prior to its being filed with the SEC and shall review
all amendments and supplements to the Registration Statement and all
responses to requests for additional information and replies to comments
prior to their being filed with, or sent to, the SEC. The parties agree to
use all reasonable efforts, after consultation with each other, to respond
promptly to all such comments of and requests by the SEC.
(c) The Company will advise Holding, promptly after the Company
receives notice thereof, of the time when the Registration Statement has
become effective or any supplement or amendment has been filed or the
issuance of any stop order or the suspension of the qualification of Company
Common Stock issued in connection with the Merger, the Company Warrants, the
shares of Company Common Stock issuable upon the exercise of the Company
Warrants, or the resale and reoffer from time to time to certain employees of
Sub of Company Common Stock, the Company Warrants and the shares of Company
Common Stock issuable upon the exercise of such Company Warrants for offering
or sale in any jurisdiction, or the initiation or threat or any proceeding
for any such purpose.
(d) Holding and the Company shall each use all reasonable efforts
to obtain, prior to the effective date of the Registration Statement, all
necessary state securities laws or "blue sky" permits and approvals required
in connection with the issuance of Company Common Stock in the Merger, the
Company Warrants, the shares of Company Common Stock issuable upon the
exercise of the Company Warrants, and the resale and reoffer from time to
time to certain employees of Sub of Company Common Stock, the Company
Warrants and the shares of Company Common Stock issuable upon the exercise of
such Company Warrants.
(e) The Company further agrees to cause the Registration Statement
and all required amendments and supplements thereto to be mailed to the
Company's shareholders entitled to vote at the Company Shareholder Meeting at
the earliest practicable time.
VI.3 SHAREHOLDER MEETINGS.
(a) In order to consummate the Merger, the Company and Holding
shall take all steps necessary to duly call, give notice of, convene and hold
their respective Shareholder Meetings (or in the case of Holding, written
consent in lieu thereof) as soon as reasonably practicable for the purpose of
voting upon the approval of this Agreement and the transactions contemplated
hereby and shall use all reasonable efforts to obtain such approval and
adoption. The Company and Holding each shall, through their respective Board
of Directors, recommend to their shareholders approval of this Agreement and
the transactions
45
contemplated hereby. The Company and Holding shall coordinate and cooperate
with respect to the foregoing matters.
(b) At the Holding Shareholder Meeting, each of Holding's
shareholders who is a party to the Voting Agreement shall, subject to the
terms and provisions of such Voting Agreement, vote, or cause to be voted,
all of the shares of Holding capital stock then owned by it, if any, in favor
of the approval of this Agreement and the transactions contemplated hereby,
including the Merger. At the Company Shareholder Meeting, each of the
Company's shareholders who is a party to the Voting Agreement shall, subject
to the terms and provisions of such Voting Agreement, vote, or cause to be
voted, all of the shares of Company Common Stock then owned by it, if any, in
favor of the approval of this Agreement and the transactions contemplated
hereby, including the Merger.
VI.4 ACCESS TO INFORMATION.
(a) Upon reasonable notice and subject to applicable laws relating
to the exchange of information, the parties shall afford each other's
officers, employees, counsel, accountants, agents, advisors and other
authorized representatives, access, during normal business hours during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, make available to the other
party (i) when applicable, a copy of each report, schedule, registration
statement and other document filed or received by it during such period
pursuant to the requirements of federal securities laws (other than reports
or documents which are not permitted to be disclosed under applicable law),
(ii) copies of all periodic reports to senior management, and (iii) all other
information concerning its business, properties, assets and personnel as
either party may reasonably request.
(b) No party shall be required to provide access to or to disclose
information where such access or disclosure would jeopardize the
attorney-client privilege of the institution in possession or control of such
information or contravene any law, rule, regulation, order, judgment, decree,
fiduciary duty or binding agreement entered into prior to the date of this
Agreement. The parties hereto will make appropriate substitute disclosure
arrangements under circumstances in which the restrictions of the preceding
sentence apply.
(c) All information (the "Confidential Information") furnished by
one party (the "Providing Party") to the other party or its directors,
officers, employees, counsel, accountants, agents, and advisors (the
"Representatives") (such party, the "Receiving Party") shall be treated as
the sole property of the Providing Party and, if this Agreement terminates,
the Receiving Party shall return to the Providing Party, or destroy, all such
written Confidential Information. The Receiving Party shall, and shall use
reasonable efforts to cause its Representatives to, keep confidential all
such Confidential Information, and shall not directly or indirectly use such
information for any competitive or commercial purpose. Confidential
Information shall not include information which: (i) was already in the
possession of the Receiving Party prior to receipt from the Providing Party,
provided that such
46
information is not known by the Receiving Party or its Representatives to be
subject to another confidentiality agreement with or other obligation of
secrecy to the Providing Party; (ii) becomes generally available to the
public other than as a result of a disclosure by the Receiving Party; (iii)
becomes available to the Receiving Party on a non-confidential basis from a
source other than the Providing Party or its Representatives, provided that
such source is not known by the Receiving Party to be bound by a
confidentiality agreement with or other obligation of secrecy to the
Providing Party; (iv) has been approved for release by written authorization
of the Providing Party; or (v) has been publicly disclosed pursuant to a
requirement of a government agency or of law.
VI.5 LEGAL CONDITIONS TO MERGER. Each of Holding, Sub and the Company
shall use all reasonable efforts (a) to take, or cause to be taken, all
actions necessary, proper or advisable to comply promptly with all legal
requirements which may be imposed on such party with respect to the Merger
and, subject to the conditions set forth in Article VII hereof, to consummate
the transactions contemplated by this Agreement and (b) to obtain (and to
cooperate with the other party to obtain) any consent, authorization, order
or approval of, or any exemption by, any Governmental Entity and any other
third party which is required to be obtained by Holding, Sub or the Company
in connection with the Merger and the other transactions contemplated by this
Agreement, including without limitation those approvals required pursuant to
the HSR Act.
VI.6 SUBSEQUENT INTERIM AND ANNUAL FINANCIAL STATEMENTS. As soon as
reasonably available, but in no event later than June 1, 1998, Holding will
deliver to the Company its annual audited financial statements for the fiscal
year ended January 31, 1998 prepared in accordance with GAAP. As soon as
reasonably available, but in no event more than 45 days after the end of each
fiscal quarter ending after the date of this Agreement until the Effective
Time or the termination of this Agreement, the Company will deliver to
Holding its Quarterly Reports on Form 10-Q, as filed with the SEC under the
Exchange Act and Holding will deliver to the Company copies of its unaudited
quarterly financial statements prepared in accordance with GAAP (except that
Holdings' unaudited financial statements do not include footnote disclosure
and are subject to normal, immaterial audit adjustments).
VI.7 ADDITIONAL AGREEMENTS. If at any time after the Effective Time any
further action is necessary or desirable to carry out the purpose of this
Agreement or to vest the Surviving Corporation with full title to all
properties, assets, rights, approvals, immunities and franchises of any of
the parties to the Merger, the proper officers and directors of each party to
this Agreement shall take all such necessary action as may be reasonably
requested by the Company or Holding (without additional cost to them).
VI.8 DISCLOSURE SUPPLEMENTS. Prior to the Effective Time, each party
will supplement or amend the Schedules hereto delivered in connection with
the execution of this Agreement to reflect any matter which, if existing,
occurring or known at the date of this Agreement, would have been required to
be set forth or described in such Schedules or which is necessary to correct
any information in such Schedules which has been rendered inaccurate
47
thereby. No supplement or amendment to such Schedules shall have any effect
for the purposes of determining satisfaction of the conditions set forth in
Sections 7.02(a) or 7.03(a) hereof, as the case may be, or the compliance by
the Company or Holding, as the case may be, with the respective covenants set
forth in Sections 5.01 and 5.02 hereof.
VI.9 CURRENT INFORMATION.
(a) During the period from the date of this Agreement to the
Effective Time, each of the Company and Holding will cause one or more of its
designated representatives to be available to confer from time to time with
representatives of the other and to report the general status of their
ongoing operations. Without limiting the generality of the foregoing, each
such party will provide monthly reports on same store sales, the type and mix
of products and services, management and personnel matters, results of
operations, and any other data reasonably requested by the other party. Each
such party will promptly notify the other party of any material change in the
normal course of its business and of any governmental complaints,
investigations or hearings or the institution of significant litigation
involving them or their Subsidiaries or properties and will keep the other
party reasonably informed of such events.
(b) To the extent not covered by paragraph (a) above, the Company
shall give prompt notice to Holding, and Holding shall give prompt notice to
the Company, of (i) the occurrence or non-occurrence of any event which would
be reasonably likely to cause any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect and (ii)
any failure of Holding, Sub or the Company, as the case may be, to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement; PROVIDED, HOWEVER, that the delivery of
any notice pursuant to this paragraph (b) shall not limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
VI.10 NO INCONSISTENT ACTIONS. Prior to the Effective Time except
as otherwise permitted in this Agreement, no party will: (i) enter into any
transaction or make any agreement or commitment and will use reasonable
efforts not to permit any event to occur, which could reasonably be
anticipated to result in (x) a denial of the regulatory approvals referred to
in Section 7.01(b) or (y) the imposition of any condition or requirement that
would materially adversely affect the economic or business benefits to the
Surviving Corporation of the transactions contemplated by this Agreement; or
(ii) adopt by plan or arrangement, or take or cause to be taken any action,
that would adversely affect holders of Company Common Stock issued in
connection with the Merger, the Company Warrants or the shares of Company
Common Stock issuable upon the exercise of the Company Warrants in a
disproportionate manner after the Effective Time. Without limiting the scope
of the immediately preceding sentence, no party hereto shall take or cause to
be taken any action, either before or after the Effective Time, that would
disqualify the Merger as a tax free reorganization within the meaning of
Section 368(a)(1)(A) of the Code.
48
VI.11 INDEMNIFICATION OF DIRECTORS. It is understood and agreed
that the Company shall, and Holding and the Company shall cause the Surviving
Corporation to (and the Surviving Corporation shall) (a) for six (6) years
after the Effective Date, indemnify and hold harmless each present and former
director, officer, employee and agent of the Company, Holding, Sub or any of
their Subsidiaries, and any present and former trustees and fiduciaries of
any option plan, benefit plan, stock purchase plan or any other plan for the
benefit of the employees of the Company, Holding, Sub or any of their
Subsidiaries, against all losses, claims, damages or liabilities arising out
of actions or omissions occurring at or prior to the Effective Date, whether
or not with respect to the transactions contemplated by this Agreement, to
the same extent as such person is currently indemnified under the Company's
Restated Articles of Incorporation or Bylaws in effect on the date hereof, or
the Certificates of Incorporation or Bylaws of Holding or Sub in effect on
the date hereof and (b) for four (4) years after the Effective Date, maintain
the Company's current directors' and officers' liability insurance policy, or
an equivalent policy, subject in either case to terms and conditions no less
advantageous to the directors and officers of the Company and its
Subsidiaries, and any present and former trustees and fiduciaries of any
option plan, benefit plan, stock purchase plan or any other plan for the
benefit of the employees of the Company or any of its Subsidiaries, than
those contained in the policy or policies in effect on the date hereof, for
all present and former officers and directors of the Company and its
Subsidiaries, and any present and former trustees and fiduciaries of any
option plan, benefit plan, stock purchase plan or other plan for the benefit
of the employees of the Company or any of its Subsidiaries, covering events
on or prior to the Effective Date, to the extent such insurance continues to
be available from reputable insurers. The premiums for such directors' and
officers' liability insurance policy shall be paid on or prior to the
Effective Date.
ARTICLE VII
CONDITIONS PRECEDENT
VII.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following conditions:
(a) SHAREHOLDER APPROVAL. This Agreement and the transactions
contemplated hereby shall have been approved and adopted by the affirmative
vote of (i) the shareholders of the Company to the extent required by
Michigan law and the Company's Restated Articles of Incorporation and Bylaws
and (ii) the shareholders of Holding to the extent required by Delaware law
and Holding's Amended and Restated Certificate of Incorporation and Bylaws.
(b) REGULATORY APPROVALS. All necessary approvals, authorizations
and consents of all Governmental Entities required to consummate the
transactions contemplated hereby, including without limitation those
approvals required pursuant to the HSR Act, shall
49
have been obtained and shall remain in full force and effect and all
statutory waiting periods in respect thereof shall have expired or been
terminated (all such approvals and the expiration of all such waiting periods
being referred to herein as the "Requisite Regulatory Approvals").
(c) SECURITIES LAWS MATTERS. The Registration Statement shall
have become effective under the Securities Act and no stop order suspending
the effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the
SEC or any other regulatory authority. The Company and Holding shall have
received all necessary state securities laws and "blue sky" permits and other
authorizations required in connection with the issuance of Company Common
Stock in the Merger, the Company Warrants, the shares of Company Common Stock
issuable upon the exercise of the Company Warrants, and the resale and
reoffer from time to time to certain employees of Sub of Company Common
Stock, the Company Warrants and the shares of Company Common Stock issuable
upon the exercise of such Company Warrants. The Company Common Stock issued
and outstanding immediately prior to the Effective Time, issued in the
Merger, and issuable upon the exercise of the Company Warrants shall be
listed or approved for listing on the Nasdaq National Market or the Nasdaq
SmallCap Market or shall be trading or prepared to trade on the OTC Bulletin
Board.
(d) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No order,
injunction or decree issued by any court or agency of competent jurisdiction
or other legal restraint or prohibition (an "Injunction") preventing the
consummation of the Merger, or any of the other transactions contemplated by
this Agreement shall be in effect and no proceeding initiated by any
Governmental Entity seeking an Injunction shall be pending. No statute,
rule, regulation, order, injunction or decree shall have been enacted,
entered, promulgated or enforced by any Governmental Entity which prohibits,
restricts or makes illegal consummation of the Merger, or any of the other
transactions contemplated by this Agreement.
(e) FINANCING. The Financing shall have been consummated pursuant
to the terms and conditions set forth in the Confidence Letter(s).
(f) COMPOSITION OF BOARD OF DIRECTORS. The Board of Directors of
the Company and Sub shall have been fixed and elected in the manner provided
in Sections 1.09 and 1.10 and shall consist of the directors designated as
provided therein, and the officers of the Company and Sub shall be elected as
provided in Sections 1.09 and 1.10. The Board of Directors of the Company
shall be re-classified into three (3) classes such that the directors in the
first class ("Class I") shall hold office until the Annual Meeting of the
shareholders of the Company to be held in the year 1999 (or until their
earlier death, removal or resignation), the directors in the second class
("Class II") shall hold office until the Annual Meeting of the shareholders
of the Company to be held in the year 2000 (or until their earlier death,
removal or resignation), and the directors in the third class ("Class III")
shall hold office until the Annual Meeting of the shareholders of the Company
to be held in the year 2001 (or until their earlier death, removal or
resignation). Class I shall consist of ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and
50
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇. Class II shall consist of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇ ▇.
▇▇▇▇▇. Class III shall consist of the Holding Designees.
(g) APPOINTMENT OF CHIEF EXECUTIVE OFFICER. As of the Closing
Date, the Board of Directors of the Company shall elect ▇▇▇▇▇ ▇▇▇▇▇▇▇ as the
Chief Executive Officer of the Company.
(h) MANAGEMENT TERMINATION AGREEMENT. As of the Closing Date, the
the Management Termination Agreement by and among Sub, Access Industries,
L.L.C. and the Company, dated May 12, 1998, shall be in full force and effect
and, pursuant to such Management Termination Agreement, the Company shall
have issued 455,500 warrants to purchase shares of Company Common Stock at an
exercise price of $1.50 per share exercisable in full for a period of five
(5) years beginning on the sixty-first (61st) day after the termination of
the Indenture (collectively, the "Access Warrants," together with the Merger
Warrants, the "Company Warrants").
VII.2 CONDITIONS TO OBLIGATIONS OF HOLDING AND SUB. The obligation
of Holding and Sub to effect the Merger is also subject to the satisfaction,
or waiver by Holding and Sub, at or prior to the Effective Time of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and (except
to the extent such representations and warranties speak as of an earlier
date) as of the Closing Date as though made on and as of the Closing Date.
Holding shall have received a certificate signed on behalf of the Company by
its Chief Executive Officer and Chief Financial Officer to the foregoing
effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall
have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and
Holding shall have received a certificate signed on behalf of the Company by
its Chief Executive Officer and Chief Financial Officer to such effect.
(c) CONSENTS UNDER AGREEMENTS. The consent, approval, waiver or
amendment (with financial covenants) of each person (other than the
Governmental Entities referred to in Section 7.01(b)) whose consent or
approval shall be required in order to permit the succession by the Surviving
Corporation pursuant to the Merger, to any obligation, right or interest of
the Company under any loan or credit agreement, note, mortgage, indenture,
lease, license or other agreement or instrument, shall have been obtained and
shall be reasonably satisfactory to Holding.
(d) ACCOUNTANT'S LETTER. The Company shall have caused to be
delivered to Holding letters from Price Waterhouse LLP, independent public
accountants with respect to the Company, dated the date on which the
Registration Statement or last amendment thereto
51
shall become effective, and dated as of the Closing Date, and addressed to
Holding and Sub, covering such matters as Holding and Sub shall reasonably
request with respect to facts concerning the Company's financial condition.
(e) COMPANY INDENTURE. A consent, waiver and amendment to the
Indenture shall have become effective, all in form and substance satisfactory
to Holding within forty-five (45) days of the date of this Agreement.
(f) MICHIGAN STATUTES. Holding shall be satisfied that both the
Michigan control share acquisition statute (Chapter 7B of the MBCA) and the
Michigan business combination provision (Chapter 7A of the MBCA) shall be
inapplicable to the Merger, Company Common Stock issued in connection with
the Merger, including without limitation Company Common Stock issuable upon
the exercise of the Company Warrants, or any transaction expressly
contemplated in connection with the Merger.
(g) TERMINATION AGREEMENT. As of the Closing Date, the
Termination Agreement dated May 12, 1998 by and between ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and
the Company shall be in full force and effect, and from and after the date
hereof, shall not have been amended or terminated without Holding's express
prior written consent.
(h) INSURANCE. As of the Closing Date, the Company shall have
maintained at all times from the date of this Agreement through and including
the Effective Date, its current directors' and officers' liability insurance
policy, or an equivalent policy, subject in either case to terms and
conditions (including without limitation the amount of coverage) no less
advantageous to the directors and officers of the Company and its
Subsidiaries, and any present and former trustees and fiduciaries of any
option plan, benefit plan, stock purchase plan or any other plan for the
benefit of the employees of the Company or any of its Subsidiaries, than
those contained in the policy or policies in effect on the date hereof, for
all present and former officers and directors of the Company and its
Subsidiaries, and any present and former trustees and fiduciaries of any
option plan, benefit plan, stock purchase plan or other plan for the benefit
of the employees of the Company or any of its Subsidiaries, covering events
on or prior to the Effective Date.
VII.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of
the Company to effect the Merger is also subject to the satisfaction, or
waiver by the Company, at or prior to the Effective Time of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Holding and Sub set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and (except
to the extent such representations and warranties speak as of an earlier
date) as of the Closing Date as though made on and as of the Closing Date.
The Company shall have received a certificate signed on behalf of Holding and
Sub by their respective Chief Executive Officers and Chief Financial Officers
to the foregoing effect.
52
(b) PERFORMANCE OF OBLIGATIONS OF HOLDING AND SUB. Holding and
Sub shall have each performed in all material respects all obligations
required to be performed by them under this Agreement at or prior to the
Closing Date, and the Company shall have received a certificate signed on
behalf of Holding and Sub by their respective Chief Executive Officers and
Chief Financial Officers to such effect.
(c) CONSENTS UNDER AGREEMENTS. The consent, approval, waiver or
amendment (with financial covenants) of each person (other than the
Governmental Entities referred to in Section 7.01(b)) whose consent or
approval shall be required in order to permit the succession by the Surviving
Corporation pursuant to the Merger to any obligation, right or interest of
Holding or Sub under any loan or credit agreement, note, mortgage, indenture,
lease, license or other agreement or instrument, shall have been obtained and
shall be reasonably satisfactory to the Company.
(d) ACCOUNTANT'S LETTER. Holding shall have caused to be
delivered to the Company letters from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP, independent public
accountants with respect to Holding and Sub, dated the date on which the
Registration Statement or last amendment thereto shall become effective, and
dated as of the Closing Date, and addressed to the Company, covering such
matters as the Company shall reasonably request with respect to facts
concerning Holding's financial condition.
(e) SUB NOTE. A consent and waiver to the Note shall have become
effective, all in form and substance satisfactory to the Company within
forty-five (45) days of the date of this Agreement.
(f) OPTIONS. The options or any rights to receive options granted
pursuant to (i) the Employment Agreement by and between ▇▇▇▇▇ ▇▇▇▇▇▇▇ and
Holding dated March 12, 1998 and (ii) Holding's 1996 Stock Option and
Restricted Stock Plan shall have been terminated.
ARTICLE VIII
TERMINATION AND AMENDMENT
VIII.1 TERMINATION. This Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time, whether before or after
approval of the matters presented in connection with the Merger by the
shareholders of the Company and Holding:
(a) by mutual consent of Holding and the Company in a written
instrument, if the Board of Directors of each so determines by a vote of a
majority of the members of its entire Board;
53
(b) by either Holding or the Company upon written notice to the
other party (i) at least ninety (90) days after the date on which any request
or application for a Requisite Regulatory Approval shall have been denied or
withdrawn at the request or recommendation of the Governmental Entity which
must grant such Requisite Regulatory Approval, unless within the ninety (90)
day period following such denial or withdrawal a petition for rehearing or an
amended application has been filed with the applicable Governmental Entity,
PROVIDED, HOWEVER, that no party shall have the right to terminate this
Agreement pursuant to this Section 8.01(b)(i) if such denial or request or
recommendation for withdrawal shall be due to the failure of the party
seeking to terminate this Agreement to perform or observe the covenants and
agreements of such party set forth herein, or (ii) if any Governmental Entity
of competent jurisdiction shall have issued a final nonappealable order
enjoining or otherwise prohibiting the consummation of any of the
transactions contemplated by this Agreement;
(c) by either Holding or the Company if the Merger shall not have
been consummated on or before August 31, 1998, unless the failure of the
Closing to occur by such date shall be due to the failure of the party
seeking to terminate this Agreement to perform or observe in any material
respect the covenants and agreements of such party set forth herein;
(d) by either Holding or the Company (PROVIDED, that the
terminating party shall not be in material breach of any of its obligations
under Section 6.03) if any approval of the shareholders of the Company
required for the consummation of the Merger shall not have been obtained by
reason of the failure to obtain the required vote at a duly held meeting of
shareholders or at any adjournment or postponement thereof;
(e) by either Holding or the Company (PROVIDED, that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein) if there shall have
been a material breach of any of the representations or warranties set forth
in this Agreement on the part of the other party, (i) which breach (if
susceptible to cure) is not cured within twenty (20) business days following
written notice to the party committing such breach, or (ii) which breach, by
its nature, cannot be cured;
(f) by either Holding or the Company (PROVIDED, that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein) if there shall have
been a material breach of any of the covenants or agreements set forth in
this Agreement on the part of the other party, (i) which breach (if
susceptible to cure) shall not have been cured within twenty (20) business
days following receipt by the breaching party of written notice of such
breach from the other party hereto, or (ii) which breach, by its nature
cannot be cured;
(g) by Holding, if the Board of Directors of the Company does not
publicly recommend, as required by Section 6.03 hereof, in the Proxy
Statement that the Company's shareholders approve and adopt this Agreement,
or if after recommending in the Proxy Statement that shareholders approve and
adopt this Agreement, the Board of Directors of the
54
Company shall have withdrawn, modified or amended such recommendation in any
respect materially adverse to Holding;
(h) by the Company, if the Board of Directors of Holding does not
publicly recommend, as required by Section 6.03 hereof, that Holding's
shareholders approve and adopt this Agreement, or if after recommending that
shareholders approve and adopt this Agreement, the Board of Directors of
Holding shall have withdrawn, modified or amended such recommendation in any
respect materially adverse to the Company;
(i) by the Company, if the Board of Directors of the Company votes
to recommend a Superior Offer rather than publicly recommending shareholder
approval and adoption of this Agreement and the Merger or, if after
recommending in the Proxy Statement that shareholders approve and adopt this
Agreement and the Merger, the Board of Directors of the Company shall have
withdrawn, modified or amended such recommendation in order to recommend a
Superior Offer; PROVIDED, HOWEVER, that the Company shall notify Holding in
writing at least three (3) business days prior to the exercise of its
termination rights under this Section 8.01(i);
(j) by Holding, if the Board of Directors of Holding votes to
recommend a Holding Superior Offer rather than publicly recommending
shareholder approval and adoption of this Agreement and the Merger or, if
after recommending that Holding's shareholders approve and adopt this
Agreement and the Merger, the Board of Directors of Holding shall have
withdrawn, modified or amended such recommendation in order to recommend a
Holding Superior Offer; PROVIDED, HOWEVER, that Holding shall notify the
Company in writing at least three (3) business days prior to the exercise of
its termination rights under this Section 8.01(j); or
(k) by either Holding or the Company (PROVIDED, that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein) after a reasonable
and objective determination that any of the conditions in Section 7.01 or
7.02, in the case of a termination by Holding, or that any of the conditions
in Section 7.01 or 7.03, in the case of a termination by the Company, are
deemed incurable of being satisfied by August 31, 1998.
VIII.2 EFFECT OF TERMINATION.
In the event of termination of this Agreement by either Holding or the
Company as provided in Section 8.01, this Agreement shall forthwith become
void and have no effect except Sections 6.04(c) and 8.03 shall survive any
termination of this Agreement, and there shall be no further obligation on
the part of Holding, Sub, the Company, or their respective officers or
directors except for the obligations under such provisions. Notwithstanding
anything to the contrary contained in this Agreement, no party shall be
relieved or released from any liabilities or damages arising out of its
material breach of any provision of this Agreement.
55
VIII.3 EXPENSES; TERMINATION FEE.
(a) Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expense;
PROVIDED, HOWEVER, that the filing fees required to be paid under the HSR Act
and fees in connection with the Confidence Letter and the Financing shall be
shared equally by Holding and the Company; PROVIDED FURTHER, HOWEVER, that
nothing contained herein shall limit Holding's rights under Section 8.03(b)
hereof or the Company's rights under Section 8.03(c) hereof.
(b) In order to induce Holding to enter into this Agreement and to
reimburse Holding for incurring the costs and expenses related to entering
into this Agreement and consummating the transactions contemplated by this
Agreement, the Company will make a cash payment to Holding of Five Hundred
Thousand Dollars ($500,000), (x) promptly upon, but in any case no sooner
than five (5) days after, the occurrence of a Payment Event (as defined
below) or, (y) if the transactions contemplated by this Agreement are not
consummated as a result of a termination by the Company under Section 8.01(i)
hereof. Such liquidated damages shall accrue interest at the rate of eight
percent (8%) per annum from the date of the termination, compounded
quarterly. A "Payment Event" shall mean the termination of this Agreement or
the failure to consummate the Merger if, prior to the Effective Date, (i) the
Board of Directors of the Company votes to recommend a Superior Offer rather
than publicly recommending shareholder approval and adoption of this
Agreement and the Merger or, (ii) if after recommending in the Proxy
Statement that shareholders approve and adopt this Agreement and the Merger,
the Board of Directors of the Company shall have withdrawn, modified or
amended such recommendation in order to recommend a Superior Offer.
(c) In order to induce the Company to enter into this Agreement
and to reimburse the Company for incurring the costs and expenses related to
entering into this Agreement and consummating the transactions contemplated
by this Agreement, Holding will make a cash payment to the Company of Five
Hundred Thousand Dollars ($500,000), (x) promptly upon, but in any case no
sooner than five (5) days after, the occurrence of a Holding Payment Event
(as defined below) or, (y) if the transactions contemplated by this Agreement
are not consummated as a result of a termination by Holding under Section
8.01(j) hereof. Such liquidated damages shall accrue interest at the rate of
eight percent (8%) per annum from the date of the termination, compounded
quarterly. A "Holding Payment Event" for the purposes of Section 8.03(c)
shall mean the termination of this Agreement or the failure to consummate the
Merger if, prior to the Effective Date, (i) the Board of Directors of Holding
votes to recommend a Holding Superior Offer rather than publicly recommending
shareholder approval and adoption of this Agreement and the Merger or, (ii)
if after recommending that Holding's shareholders approve and adopt this
Agreement and the Merger, the Board of Directors of Holding shall have
withdrawn, modified or amended such recommendation in order to recommend a
Holding Superior Offer.
56
VIII.4 AMENDMENT. Subject to compliance with applicable law, this
Agreement may be amended by the parties hereto, by action taken or authorized
by their respective Boards of Directors, at any time before or after approval
of the matters presented in connection with the Merger by the shareholders of
Holding and the Company. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
VIII.5 EXTENSION; WAIVER. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Board
of Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (b) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and (c) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in a written instrument signed on behalf of such
party, but such extension or waiver shall not operate as a waiver of, or
estoppel with respect to, any subsequent or other failure.
ARTICLE IX
GENERAL PROVISIONS
IX.1 CLOSING. Subject to the terms and conditions of this Agreement,
the closing of the Merger (the "Closing") will take place at ▇▇▇▇▇▇▇, Procter
& ▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, at 10:00 a.m. on a date to be
specified by Holding and satisfactory to the Company, which shall be not more
than five (5) business days after the satisfaction of the conditions set
forth in Article VII hereof or at such other date, time and place as is
mutually agreed upon by the Company and Holding. The date on which such
Closing takes place is referred to herein as the "Closing Date." Holding
shall provide the Company written notice of the date specified by it as the
Closing Date at least three (3) business days prior to such date.
IX.2 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
Notwithstanding any term or provision of this Agreement to the contrary and
regardless of any investigation made by any party, none of the
representations, warranties, covenants and agreements in this Agreement or
otherwise made or delivered pursuant to, or in connection with, this
Agreement, the Merger or any related transactions shall survive the Closing
Date, except for those covenants and agreements contained herein and therein
which by their express terms apply in whole or in part after the Effective
Time.
IX.3 OBLIGATIONS OF THE SURVIVING CORPORATION SUBSEQUENT TO THE CLOSING.
(a) At any time after the Closing, the Surviving Corporation shall
not do anything or fail to do anything which would cause the Merger to fail
to constitute a tax free reorganization within the meaning of Section
368(a)(1)(A) of the Code.
57
(b) For a period of three (3) years after the Closing, to the
extent any action or inaction of the Surviving Corporation requires a vote of
the Board of Directors of Surviving Corporation, including without limitation
the nomination of directors to the Board of Directors, to be effective such
approval requires an affirmative vote of more than seventy percent (70%) of
the directors of the Surviving Corporation then in office except as otherwise
set forth in the provisos to Sections 3.1 and 3.6 to the Company's By-Laws.
(c) The Surviving Corporation shall maintain an effective
registration statement filed with SEC with respect to the shares of Company
Common Stock issuable upon the exercise of the Company Warrants during any
period after the Effective Date in which the Company Warrants are exercisable.
IX.4 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given when delivered personally or telecopied
(with confirmation from recipient), three (3) days after mailed by registered
or certified mail (return receipt requested) or on the day delivered by an
express courier (with confirmation from recipient) to the parties at the
following addresses (or at such other address for a party as shall be
specified by like notice):
58
(a) if to Holding or Sub, to:
Hit or Miss Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: President
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
HOM Holding, Inc.
▇/▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇.▇.▇.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇ ▇▇▇▇▇▇▇
East End Capital Management, Inc.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ ▇. Floor, P.C.
H. ▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇, Procter & ▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to the Company to:
Gantos, Inc.
▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: President
59
with a copy to:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Shereff, Friedman, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
and
▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Honigman, Miller, ▇▇▇▇▇▇▇▇ & ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
IX.5 INTERPRETATION. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table
of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation
of this Agreement. Whenever the words "include," "includes" or "including"
are used in this Agreement, they shall be deemed to be followed by the words
"without limitation." The phrases "the date of this Agreement," "the date
hereof" and terms of similar import, unless the context otherwise requires,
shall be deemed to be May 12, 1998.
IX.6 COUNTERPARTS. This Agreement may be executed in counterparts, all
of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart.
IX.7 ENTIRE AGREEMENT. This Agreement (including the documents and the
instruments referred to herein) constitutes the entire agreement and
supersedes all prior agreements, representations and warranties, and
understandings, both written and oral, among the parties with respect to the
subject matter hereof.
IX.8 GOVERNING LAW, JURISDICTION. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware, without
regard to any applicable conflicts of law, except to the extent that the
corporate laws of the State of Michigan are mandatorily applicable. Each of
the parties hereby consents to personal jurisdiction, service of process and
venue in the federal or state courts sitting in the State of Delaware for any
claim, suit or proceeding arising under this Agreement.
IX.9 ENFORCEMENT OF AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that the provisions contained in
Section 6.04(c) of this Agreement
60
were not performed in accordance with its specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of Section 6.04(c) of this
Agreement and to enforce specifically the terms and provisions thereof in any
court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.
IX.10 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 deemed to be so
broad as to be unenforceable, the provision shall be interpreted to be only
so broad as is enforceable.
IX.11 PUBLICITY. Except as otherwise required by law or the rules
of the National Association of Securities Dealers, so long as this Agreement
is in effect, each of Holding, Sub and the Company shall not, or shall not
permit any of its Subsidiaries to, issue or cause the publication of any
press release or other public announcement with respect to, or otherwise make
any public statement concerning, the transactions contemplated by this
Agreement without the consent of the other party, which consent shall not be
unreasonably withheld.
IX.12 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns. Except as otherwise
expressly provided herein, this Agreement (including the documents and
instruments referred to herein) is not intended to confer upon any person
other than the parties hereto any rights or remedies hereunder.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
61
IN WITNESS WHEREOF, Holding, Sub and the Company have caused this
Agreement to be executed by their respective officers thereunto duly
authorized as of the date first above written.
HOM HOLDING, INC.
Attest: By
-----------------------------
Title: Treasurer
By
-------------------------
Title:
HIT OR MISS INC.
Attest: By
-----------------------------
Title: President
By
-------------------------
Title:
GANTOS, INC.
Attest: By
-----------------------------
Title:
By
-------------------------
Title:
62
EXHIBIT I
HOLDING SHAREHOLDERS
Access Capital Partners, L.P.
▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
63
EXHIBIT II
VOTING AGREEMENT
64
EXHIBIT III
COMPANY SHAREHOLDERS
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
L. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇
65
EXHIBIT IV
FORM OF LETTER OF TRANSMITTAL
66
