EXHIBIT 2
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AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
HK MERGER CORP.
AND
HAPPY KIDS INC.
September 17, 1999
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TABLE OF CONTENTS
ARTICLE 1 THE MERGER..................................................2
Section 1.1 The Merger.........................................2
Section 1.2 Closing and Effective Time.........................2
Section 1.3 Effects of the Merger..............................2
Section 1.4 Certificate of Incorporation and Bylaws
of the Surviving Corporation....................2
Section 1.5 Directors..........................................2
Section 1.6 Officers...........................................3
ARTICLE 2 EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE COMPANY....3
Section 2.1 Effect on Capital Stock............................3
(a) Merger Consideration...............................3
(b) Conversion of Shares...............................3
(c) Cancellation of Treasury Stock.....................4
Section 2.2 Options; Stock Plan................................4
Section 2.3 Payment for Common Shares..........................4
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY...............6
Section 3.1 Organization and Qualification;
Subsidiaries; Investments.......................6
Section 3.2 Capitalization; Subsidiaries.......................7
Section 3.3 Authority Relative to this Agreement...............7
Section 3.4 SEC Reports and Financial Statements...............8
Section 3.5 Compliance with Applicable Laws....................9
Section 3.6 Litigation........................................10
Section 3.7 Information.......................................10
Section 3.8 Employee Benefit Plans............................10
Section 3.9 Taxes.............................................11
Section 3.10 Environmental Matters.............................13
Section 3.11 Absence of Certain Changes........................15
Section 3.12 Brokers...........................................17
Section 3.13 Opinion of Investment Banker......................17
Section 3.14 Material Contracts................................17
Section 3.15 Board Recommendation..............................20
Section 3.16 Required Company Vote.............................20
Section 3.17 Intellectual Property.............................20
Section 3.18 Related Party Transactions........................21
Section 3.19 State Takeover Statutes...........................21
Section 3.20 Labor Relations and Employment....................22
Section 3.21 Year 2000.........................................23
Section 3.22 Real Estate.......................................23
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(a) Owned Properties..................................23
(b) Leased Properties.................................23
(c) Real Property Disclosure..........................24
(d) No Proceedings....................................24
(e) Current Use.......................................24
(f) Condition and Operation of Improvements...........24
(g) Permits...........................................24
Section 3.23 International Trade Laws and Regulations..........25
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF HK.......................26
Section 4.1 Organization and Qualification....................26
Section 4.2 Authority Relative to this Agreement..............26
Section 4.3 No Violation......................................27
Section 4.4 Information.......................................27
Section 4.5 Financing.........................................27
Section 4.6 Beneficial Ownership of Shares....................27
Section 4.7 Brokers...........................................28
Section 4.8 Formation of HK; No Prior Activities..............28
Section 4.9 Litigation........................................28
Section 4.10 Confidentiality...................................28
ARTICLE 5 COVENANTS..................................................28
Section 5.1 Conduct of Business of the Company................28
Section 5.2 Access to Information.............................30
Section 5.3 Efforts...........................................31
Section 5.4 Public Announcements..............................32
Section 5.5 Employee Benefit Arrangements.....................32
Section 5.6 Indemnification; Directors' and
Officers' Insurance............................33
Section 5.7 Notification of Certain Matters...................34
Section 5.8 State Takeover Laws...............................34
Section 5.9 No Solicitation...................................34
Section 5.10 Interim Liabilities...............................36
Section 5.11 Reports...........................................36
Section 5.12 Shareholders' Meeting.............................36
Section 5.13 Letters of Accountants............................37
Section 5.15 Delisting.........................................37
ARTICLE 6 CONDITIONS TO CONSUMMATION OF THE MERGER ..................37
Section 6.1 Conditions........................................37
(a) Shareholder Approval..............................37
(b) Illegality........................................37
(c) HSR Act...........................................37
Section 6.2 Conditions to Obligations of HK...................37
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(a) Representations and Warranties....................38
(b) Performance of Obligations of the Company.........38
(c) Consents, etc.....................................38
(d) No Injunction.....................................38
(e) Financing.........................................38
(f) No Material Adverse Effect........................38
(g) Options...........................................39
(h) Directors.........................................39
(i) Opinion of the Company's Counsel..................39
Section 6.3 Conditions to Obligation of the Company...........39
(a) Representations and Warranties....................39
(b) Performance of Obligations of HK..................39
(c) Opinion of HK's Counsel...........................39
(e) No Injunction.....................................39
ARTICLE 7 TERMINATION; AMENDMENTS; WAIVER............................40
Section 7.1 Termination.......................................40
Section 7.2 Effect of Termination.............................41
Section 7.3 Fees and Expenses.................................41
Section 7.4 Amendment.........................................42
Section 7.5 Extension; Waiver.................................42
ARTICLE 8 MISCELLANEOUS..............................................42
Section 8.1 Non-Survival of Representations and Warranties....42
Section 8.2 Entire Agreement; Assignment......................42
Section 8.3 Validity..........................................43
Section 8.4 Notices...........................................43
Section 8.5 Governing Law; Exclusive Jurisdiction.............44
Section 8.6 Descriptive Headings..............................44
Section 8.7 Counterparts......................................44
Section 8.8 Parties in Interest...............................44
Section 8.9 Certain Definitions...............................44
Section 8.10 Specific Performance..............................46
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of September 17,
1999, by and between HK Merger Corp., a New York corporation ("HK"), and Happy
Kids Inc., a New York corporation (the "Company").
WHEREAS, the respective Boards of Directors of HK and the Company have
approved the merger of HK with and into the Company, as set forth below (the
"Merger"), in accordance with the New York Business Corporation Law (the "BCL")
and upon the terms and subject to the conditions set forth in this Agreement,
holders of shares of common stock, par value $.01 per share, of the Company (the
"Common Shares") issued and outstanding immediately prior to the Effective Time
(as defined below) will be entitled, subject to the terms hereof and other than
as set forth herein, to receive cash pursuant to this Agreement or, in the case
of certain specifically designated holders of Common Shares listed on Schedule I
attached hereto (the "Affliates"), to receive shares of common stock of the
Surviving Corporation (as defined below);
WHEREAS, the Board of Directors of the Company (the "Company Board"), upon
the recommendation of its special committee of disinterested Directors (the
"Special Committee"), has, in light of and subject to the terms and conditions
set forth herein: (i) determined that (A) the consideration to be paid for each
Common Share held by shareholders other than the Affiliates (the "Non-Affiliated
Shares") in the Merger (as hereinafter defined) is fair to such shareholders of
the Company, and (B) the Merger is otherwise in the best interests of the
Company and its shareholders, and (ii) resolved to approve and adopt this
Agreement and the transactions contemplated hereby and to recommend approval and
adoption by the shareholders of the Company of this Agreement;
WHEREAS, the Merger requires the vote of two-thirds of the votes cast by
all of the issued and outstanding Common Shares entitled to vote for the
approval thereof (the "Company Shareholder Approval");
WHEREAS, in order to induce HK to enter into this agreement, certain
shareholders of the Company have entered into a Support Agreement of even date
herewith;
WHEREAS, HK and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger, and also to
prescribe various conditions to the Merger; and
WHEREAS, it is intended that the Merger be recorded as a recapitalization
for financial reporting purposes.
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NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, HK and
the Company agree as follows:
ARTICLE 1
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the satisfaction or
waiver of the conditions hereof, and in accordance with the applicable
provisions of this Agreement and the BCL, at the Effective Time HK shall be
merged with and into the Company. Following the Merger, the separate corporate
existence of HK shall cease and the Company shall continue as the surviving
corporation (the "Surviving Corporation").
Section 1.2 Closing and Effective Time. The closing of the Merger (the
"Closing") will take place at 10:00 a.m., local time, on the fifth business day
after satisfaction or waiver of all of the conditions set forth in Article 4 of
this Agreement (other than conditions that are to be satisfied at the Closing,
which shall be satisfied or waived at the Closing) or such other date and time
as HK and the Company may agree upon (the "Closing Date"), at the offices of
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, New York, New York. Immediately following the Closing, the
parties hereto shall cause the Merger to become effective by filing a
Certificate of Merger with the New York Department of State in accordance with
the relevant provisions of the BCL, and the parties shall take such other and
further actions as may be required by law to make the Merger effective. The time
the Merger becomes effective in accordance with applicable law is referred to
herein as the "Effective Time."
Section 1.3 Effects of the Merger. The Merger shall have the effects set
forth in the BCL. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the properties, rights, privileges, powers
and franchises of the Company and HK shall vest in the Surviving Corporation,
and all debts, liabilities and duties of the Company and HK shall become the
debts, liabilities and duties of the Surviving Corporation.
Section 1.4 Certificate of Incorporation and Bylaws of the Surviving
Corporation.
(a) The Certificate of Incorporation, as amended, of the Company, as
in effect immediately prior to the Effective Time and as further amended to
provide for the number and types of shares of capital stock designated on the
Rollover Schedule (as hereinafter defined), shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended in
accordance with the provisions thereof and hereof and applicable law.
(b) The Bylaws of the Company in effect at the Effective Time shall be
the Bylaws of the Surviving Corporation until amended, subject to the provisions
of Section 5.6 of this Agreement, in accordance with the provisions thereof and
applicable law.
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Section 1.5 Directors. Subject to applicable law, the directors of HK
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation and shall hold office until their respective successors
are duly elected and qualified, or their earlier death, resignation or removal.
Section 1.6 Officers. The officers of the Company immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation and
shall hold office until their respective successors are duly elected and
qualified, or their earlier death, resignation or removal. Section 1.6 of the
Disclosure Schedule sets forth the names and titles of each officer of the
Company and each of its Subsidiaries as of the date hereof.
ARTICLE 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE COMPANY
Section 2.1 Effect on Capital Stock. As of the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any Common Shares
or any shares of capital stock of HK:
(a) Merger Consideration. The Merger Consideration shall be equal to
$12.00 per share, except for those Common Shares held by those holders of record
listed in the Rollover Schedule (attached hereto) under the heading
"Non-Rollover Shares," in which case the Merger Consideration shall be equal to
$7.164 per share for such Common Shares (i.e. $49.25 million in the aggregate)
(as applicable, the "Merger Consideration"). In addition, the parties
acknowledge that the shares listed on the Rollover Schedule under the heading
"Rollover Shares" (the "Rollover Shares") shall be retained by the holders of
such shares.
(b) Conversion of Shares.
(i) Each issued and outstanding Common Share (except for those
Common Shares held by those holders of record listed in the Rollover Schedule,
but only up to the levels indicated in such Rollover Schedule under the heading
"Rollover Shares") shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into the right to receive from HK the
Merger Consideration, as applicable, without interest upon surrender of the
certificate formerly representing such Common Shares in the manner provided in,
and otherwise in accordance with, Section 2.3 hereof. All such Common Shares,
when so converted, shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a certificate
representing any such Common Shares shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration therefor upon the
surrender of such certificate in the manner provided in, and in accordance with,
Section 2.3 hereof.
(ii) At the Effective Time, (i) each Rollover Share and (ii) each
share of common stock, par value $.01 per share, of HK 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
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thereof, be converted into and become one validly issued, fully paid and
non-assessable share of common stock, par value $.01 per share, of the Surviving
Corporation.
(c) Cancellation of Treasury Stock. Each Common Share that is owned by
the Company or by any wholly owned subsidiary of the Company shall automatically
be canceled and retired and shall cease to exist, and no cash or other
consideration shall be delivered or deliverable in exchange therefor.
Section 2.2 Options; Stock Plan. Immediately prior to the Effective Time,
each holder of a then-outstanding employee stock option to purchase Common
Shares (an "Option") granted under the Company's 1997 Stock Plan (the "Stock
Plan") will be entitled to receive in settlement of such Option a cash payment
(the "Option Consideration") from the Company equal to the product of (i) the
total number of Common Shares previously subject to such Option, but only to the
extent such Option is exercisable as of the Closing Date (except for
non-employee holders of an Option, in which case this shall be the total number
of Common Shares previously subject to such Option whether or not such Option is
fully exercisable as of the Closing Date) and (ii) the excess of the Merger
Consideration over the exercise price per Common Share subject to such Option,
subject to any required withholding of taxes. The surrender of an Option to the
Company in exchange for the Option Consideration shall be deemed a release of
any and all rights the holder had or may have had in respect of such Option.
Immediately prior to the Effective Time, the Company will cause each Option (or
portion thereof) which is non-exercisable to be canceled. The amounts payable
pursuant to this Section 2.2 shall be paid as soon as reasonably practicable
following the Closing Date and shall be subject to and made net of all
applicable withholding taxes.
Section 2.3 Payment for Common Shares.
(a) Prior to the Effective Time, HK and the Company shall designate
the Company's registrar and transfer agent or such other bank or trust company
as may be approved by HK and the Company Board, to act as exchange agent for the
holders of Common Shares in connection with the Merger, pursuant to an agreement
providing for the matters set forth in this Section 2.3 and such other matters
as may be appropriate and the terms of which shall be reasonably satisfactory to
the Company and HK (the "Exchange Agent"), to receive the funds to which holders
of Common Shares shall become entitled pursuant to Section 2.1(b) hereof. At the
Effective Time, HK shall deposit, or HK shall otherwise take all steps necessary
to cause to be deposited, in trust with the Exchange Agent in an account for the
benefit of holders of Common Shares (the "Exchange Fund") the aggregate Merger
Consideration to which holders of Common Shares shall be entitled at the
Effective Time pursuant to Section 2.1(b) hereof.
(b) Promptly after the Effective Time, and in any event not later than
three business days following the Effective Time, HK shall cause the Exchange
Agent to mail to each record holder of certificates (the "Certificates") that
immediately prior to the Effective Time represented Common Shares (other than
Rollover Shares) a form of letter of transmittal which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only
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upon proper delivery of the Certificates or an Affidavit of Loss in Lieu of Lost
Certificate (as defined below) to the Exchange Agent and instructions for use in
surrendering such Certificates and receiving the Merger Consideration in respect
thereof.
(c) In effecting the payment of the Merger Consideration in respect of
Common Shares (other than Rollover Shares) represented by Certificates entitled
to payment of the Merger Consideration pursuant to Section 2.1(b) hereof, upon
the surrender of each such Certificate, together with a letter of transmittal
duly executed, the Exchange Agent shall promptly, and in any event not later
than three business days following receipt of such Certificates and letter of
transmittal, pay the holder of such Certificate the Merger Consideration
multiplied by the number of Common Shares (other than Rollover Shares)
represented by such Certificate, in consideration therefor. Upon such payment
such Certificate shall forthwith be canceled.
(d) Until surrendered in accordance with paragraph (c) above, each
such Certificate (other than Certificates representing Common Shares held by HK
or any of its affiliates, in the treasury of the Company or by any wholly owned
subsidiary of the Company or Rollover Shares) shall represent solely the right
to receive the aggregate Merger Consideration relating thereto. No interest or
dividends shall be paid or accrued on the Merger Consideration. If the Merger
Consideration (or any portion thereof) is to be delivered to any person other
than the person in whose name the Certificate formerly representing Common
Shares surrendered therefor is registered, it shall be a condition to such right
to receive such Merger Consideration that the Certificate so surrendered shall
be properly endorsed or otherwise be in proper form for transfer and that the
person surrendering such Common Shares shall pay to the Exchange Agent any
transfer or other taxes required by reason of the payment of the Merger
Consideration to a person other than the registered holder of the Certificate
surrendered, or shall establish to the satisfaction of the Exchange Agent that
such tax has been paid or is not applicable.
(e) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person (who shall
be the record owner of such Certificate) claiming such Certificate to be lost,
stolen or destroyed (an "Affidavit of Loss in Lieu of Lost Certificate"), the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration deliverable in respect thereof, provided
that the Person to whom the Merger Consideration is paid may, as a condition
precedent to the payment thereof, be required to give the Surviving Corporation
a bond in such sum as it may direct or may otherwise be required to indemnify
the Surviving Corporation in a manner satisfactory to it against any claim that
may be made against the Surviving Corporation with respect to the Certificate
claimed to have been lost, stolen or destroyed.
(f) No dividends or other distributions with respect to Common Shares
with a record date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the Common Shares represented thereby
until the surrender of such Certificates or delivery of an Affidavit of Loss in
Lieu of Lost Certificate in accordance with this Section 2.3.
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(g) Promptly following the date which is 180 days after the Effective
Time, the Exchange Agent shall deliver to the Surviving Corporation all cash,
Certificates and other documents in its possession relating to the transactions
described in this Agreement, and the Exchange Agent's duties shall terminate.
Thereafter, each holder of a Certificate formerly representing a Common Share
(other than the Rollover Shares) may surrender such Certificate to the Surviving
Corporation and (subject to applicable abandoned property, escheat and similar
laws) receive in consideration therefor the aggregate Merger Consideration
relating thereto, without any interest or dividends thereon.
(h) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of any Common Shares which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates formerly representing Common Shares (other than the Rollover
Shares) are presented to the Surviving Corporation or the Exchange Agent, they
shall be surrendered and canceled in return for the payment of the aggregate
Merger Consideration relating thereto, as provided in this Article 2.
(i) None of HK, the Company or Exchange Agent shall be liable to any
person in respect of any cash from the Exchange Fund delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
If any Certificates shall not have been surrendered prior to seven years after
the Effective Time, any such shares, cash, dividends or distributions in respect
of such Certificate shall, to the extent permitted by applicable law, become the
property of the Surviving Corporation, free and clear of all claims or interest
of any person previously entitled thereto.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to HK as follows:
Section 3.1 Organization and Qualification; Subsidiaries; Investments. The
Company and each of its Subsidiaries (as hereinafter defined) is a corporation
duly organized, validly existing and in good standing under the laws of its
state or jurisdiction of incorporation and has all requisite corporate power and
corporate authority to own, lease and operate its properties and to carry on its
business as now being conducted and is in good standing as a foreign corporation
in each jurisdiction where the properties owned, leased or operated, or the
business conducted, by it require such qualification and where failure to be in
good standing or to so qualify would have a Material Adverse Effect on the
Company. The term "Material Adverse Effect on the Company," as used in this
Agreement, means any effect, event, occurrence, change or state of facts that
is, or when aggregated with other effects, events, occurrences, changes or
states of facts, is, or is reasonably likely to be, materially adverse to (i)
the assets, liabilities, business, property, operations or financial condition
of the Company and its Subsidiaries taken as a whole, or (ii) the ability of the
Company and its Subsidiaries, taken as a whole, to perform their obligations
under this Agreement. The Company has heretofore made available to HK a complete
and correct copy of its Certificate of
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Incorporation, as amended, and Bylaws. Except as set forth on Section 3.1 of the
Disclosure Schedule, there is no corporation, limited liability company,
partnership or other business organization or entity of which the Company owns
either directly or through its Subsidiaries, (a) more than 50% of (i) the total
combined voting power of all classes of voting securities of such entity, (ii)
the total combined equity interests therein, or (iii) the capital or profit
interests therein, in the case of a partnership; or (b) or otherwise has the
power to vote or direct the voting of sufficient securities to elect a majority
of the board of directors or similar governing body of such entity (the
"Subsidiaries"). Except as set forth on Schedule 3.1 of the Disclosure Schedule,
neither the Company nor any Subsidiary owns or holds the right to acquire any
shares of stock or any other security or interest in any other person.
Section 3.2 Capitalization; Subsidiaries. The authorized capital stock of
the Company consists of 30,000,000 Common Shares and 5,000,000 shares of
preferred stock, par value $.01 per share ("Preferred Stock"). As of the close
of business on September 17, 1999, 10,375,693 Common Shares were issued and
outstanding, all of which are entitled to vote on this Agreement except for
those shares held in treasury. The Company has no shares of Preferred Stock
issued and outstanding. As of September 17, 1999, except for 305,000 Common
Shares reserved for issuance pursuant to outstanding Options and rights granted
under the Stock Plan, there are not now, and at the Effective Time there will
not be, any existing options, warrants, calls, subscriptions, or other rights,
or other agreements or commitments, obligating the Company to issue, transfer or
sell any shares of capital stock of the Company or any of its Subsidiaries.
Section 3.2 of the Disclosure Schedule sets forth the name of each holder of an
outstanding Option under the Stock Plan, and with respect to each Option held by
any such holder, the grant date, vesting schedule, exercise price and number of
Common Shares for which such Option is exercisable. All issued and outstanding
Common Shares are, and all Common shares which may be issued pursuant to the
exercise of outstanding Options will be, when issued in accordance with the
respective terms thereof, validly issued, fully paid, nonassessable and free of
preemptive rights. All of the outstanding shares of capital stock of each of the
Company's Subsidiaries have been validly issued and are fully paid and
non-assessable and, except as set forth on Section 3.2 of the Disclosure
Schedule, are owned by either the Company or another of its Subsidiaries free
and clear of all liens, charges, claims or encumbrances. There are no
outstanding options, warrants, calls, subscriptions, or other rights, or other
agreements or commitments, obligating any Subsidiary of the Company to issue,
transfer or sell any shares of its capital stock.
Section 3.3 Authority Relative to this Agreement.
(a) The Company has all necessary corporate power and authority to
execute and deliver this Agreement and, except for the approval of this
Agreement by the shareholders of the Company, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the Company Board upon the recommendation of the Special Committee
and no other corporate proceedings on the part of the Company or on the part of
the shareholders of the Company are necessary to authorize this Agreement or to
consummate the
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transactions so contemplated, other than the approval of this Agreement by
two-thirds of the issued and outstanding Common Shares of the Company. This
Agreement has been duly and validly executed and delivered by the Company, and
this Agreement constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms.
(b) Except as set forth in Section 3.3 of the Disclosure Schedule, the
execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated by this Agreement and compliance with the provisions
of this Agreement will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of consent, termination, purchase, cancellation or acceleration of
any obligation or to loss of any property, rights or benefits under, result in
the imposition of any additional obligation under, or result in the creation of
any Lien (as defined herein) upon any of the properties or assets of the Company
or any of its Subsidiaries under or require the consent from, or the giving of
notice to, a third party pursuant to (i) the organizational documents of the
Company or any of its Subsidiaries, (ii) any contract, instrument, permit,
concession, franchise, license, loan or credit agreement, note, bond, mortgage,
indenture, lease or other property agreement, partnership or joint venture
agreement or other legally binding agreement or obligation, whether oral or
written (a "Contract"), applicable to the Company or any of its Subsidiaries or
their respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following paragraph, any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to the
Company or any of its Subsidiaries or their respective properties or assets,
other than, in the case of clauses (ii) and (iii), any such conflicts,
violations or defaults that would not, individually or in the aggregate, have a
Material Adverse Effect on the Company, or those rights that if exercised, Liens
that if imposed, consents that if not obtained or notices that if not given
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company. For purposes of this Agreement, "Lien" shall mean, with respect to
any asset, any imperfection of title, lien, lease, pledge, encumbrance,
mortgage, claim, option, voting trust, preemptive right, attachment,
encroachment or other charge or security interest in or on such asset.
(c) Other than in connection with, or in compliance with, the
provisions of the BCL with respect to the transactions contemplated hereby, the
Securities Exchange Act of 1934 (the "Exchange Act"), the securities laws of the
various states and the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), no authorization, consent or approval of, or filing
with, any Governmental Entity (as hereinafter defined) is necessary for the
consummation by the Company of the transactions contemplated by this Agreement
other than authorizations, consents and approvals the failure to obtain, or
filings the failure to make, which would not, in the aggregate, have a Material
Adverse Effect on the Company. As used in this Agreement, the term "Governmental
Entity" means any government or subdivision thereof, domestic, foreign or
supranational or any administrative, governmental or regulatory authority,
agency, commission, tribunal or body, domestic, foreign or supranational.
Section 3.4 SEC Reports and Financial Statements.
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(a) The Company has filed all forms, reports and documents ("SEC
Reports") with the SEC required to be filed by it pursuant to the federal
securities laws and the SEC rules and regulations thereunder. Copies of all such
SEC Reports have been made available to HK by the Company. None of such SEC
Reports (as of their respective filing dates) contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited and
unaudited consolidated financial statements of the Company included in the SEC
Reports have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis (except as otherwise stated in such
financial statements, including the related notes) and fairly present the
financial position of the Company and its consolidated Subsidiaries as of the
dates thereof and the results of their operations and changes in cash flow for
the periods then ended, subject, in the case of the unaudited financial
statements, to year-end audit adjustments. Except as set forth in the SEC
Reports and except as disclosed in Section 3.4(a) of the Disclosure Schedule, at
the date of the most recent audited financial statements of the Company included
in the SEC Reports, neither the Company nor any of its Subsidiaries had, and
since such date neither the Company nor any of such Subsidiaries has incurred,
any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) which, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect with respect to the
Company except liabilities incurred in the ordinary and usual course of business
and consistent with past practice and liabilities incurred in connection with
the transactions contemplated by this Agreement.
(b) All accounts receivable of the Company (the "Accounts Receivable")
represent or will represent valid obligations arising from services actually
performed in the ordinary course of business and are subject to no valid
counterclaims or setoffs. Unless paid prior to the Closing Date, the Accounts
Receivable are or will be as of the Closing Date current and collectible net of
reserves. Subject to such reserves, each of the Accounts Receivable either has
been or will be collected in full, without any set-off, within 120 days after
the day on which it first becomes due and payable. Except as disclosed in
Section 3.4(b) of the Disclosure Schedule, since December 31, 1998, there have
been no material returns, allowances or charge-backs.
(c) All inventory of the Company consists or will consist of raw
materials and supplies, manufactured and purchased parts, goods, goods in
process, and finished goods, which is in all material respects merchantable and
fit for the purpose for which it was procured and manufactured, and no material
amount of which is obsolete, damaged, or defective.
Section 3.5 Compliance with Applicable Laws. Except as set forth on Section
3.5 of the Disclosure Schedule, (i) the Company and its Subsidiaries possess all
permits, licenses, certifications and other governmental or regulatory
authorizations and approvals necessary to enable the Company and its
Subsidiaries to carry on their business as presently conducted or as proposed to
be conducted, except for such failures to have such permits, licenses,
certifications or regulatory authorizations or approvals that would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Company, and all such permits are valid, and in full force
-9-
and effect and there exists no default thereunder and (ii) the operations of the
Company and its Subsidiaries have been conducted in compliance with all laws,
ordinances, regulations, judgments and decrees of any Governmental Entity
applicable to the Company or such Subsidiary or by which it may be bound, except
for possible violations which would not, individually or in the aggregate, have
a Material Adverse Effect on the Company.
Section 3.6 Litigation. Except as set forth on Section 3.6 of the
Disclosure Schedule, there is no suit, claim, action, proceeding or
investigation pending or, to the knowledge of the Company, threatened, at law or
in equity, or before any Governmental Entity, against the Company or any of its
Subsidiaries, individually or in the aggregate, which would have a Material
Adverse Effect on the Company and its Subsidiaries taken as a whole or could
prevent or materially delay the consummation of the transactions contemplated by
this Agreement. Except as disclosed in the SEC Reports filed prior to the date
of this Agreement, neither the Company nor any of its Subsidiaries is subject to
any outstanding order, writ, injunction or decree which, individually or in the
aggregate, would have a Material Adverse Effect on the Company or could prevent
or materially delay the consummation of the transactions contemplated hereby.
Section 3.7 Information. None of the information supplied by the Company in
writing specifically for inclusion or incorporation by reference in (i) the
Proxy Statement (as defined in Section 5.12 below) or (ii) any other document to
be filed with the SEC or any other Governmental Entity in connection with the
transactions contemplated by this Agreement (the "Other Filings") will, at the
respective times filed with the SEC or other Governmental Entity and, in
addition, in the case of the Proxy Statement, at the date it or any amendment or
supplement is mailed to shareholders, at the time of the Special Meeting (as
defined in Section 5.12 below) and at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading; provided
that the representations and warranties in this Section 3.7 do not apply to
information supplied by HK to the Company for inclusion in the Proxy Statement
or the Other Filings.
Section 3.8 Employee Benefit Plans.
(a) Section 3.8(a) of the Disclosure Schedule includes a true and
complete list of all material employee benefit plans and programs providing
benefits to any employee or former employee of the Company and its Subsidiaries
sponsored or maintained by the Company, any of its Subsidiaries or any ERISA
Affiliate (as defined below) or to which the Company or any of its Subsidiaries
contributes, is obligated to contribute or with respect to which there exists
any liability ("Plans"). Without limiting the generality of the foregoing, the
term "Plans" includes all employee welfare benefit plans within the meaning of
Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended,
and the regulations thereunder ("ERISA"), and all employee pension benefit plans
within the meaning of Section 3(2) of ERISA.
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(b) With respect to each Plan, the Company has made available to HK a
true, correct and complete copy of: (i) all plan documents, benefit schedules,
trust agreements, and insurance contracts and other funding vehicles; (ii) the
most recent Annual Report (Form 5500 Series) and accompanying schedule, if any;
(iii) the current summary plan description, if any; (iv) the most recent annual
financial report, if any; (v) the most recent actuarial report, if any; and (vi)
the most recent determination letter from the United States Internal Revenue
Service (the "IRS"), if any.
(c) The Company and each of its Subsidiaries has complied, and is now
in compliance, in all material respects with all provisions of ERISA, the
Internal Revenue Code of 1986, as amended, including the Treasury Regulations
thereunder (the "Code") and all laws and regulations applicable to the Plans.
With respect to each Plan that is intended to be a "qualified plan" within the
meaning of Section 401(a) of the Code ("Qualified Plans"), (i) such Plan is a
Qualified Plan within the meaning of Section 401(a) of the Code, (ii) except to
the extent that such Qualified Plans are within an applicable remedial amendment
period, each such Plan has been amended on a timely basis to comply with
applicable laws and has received a favorable determination letter on such Plan,
as amended.
(d) All contributions required to be made to any Plan by applicable
law or regulation or by any plan document or other contractual undertaking, and
all premiums due or payable with respect to insurance policies funding any Plan,
for any period through the date hereof have been timely made or paid in full or,
to the extent not required to be made or paid on or before the date hereof, have
been fully reflected in the financial statements of the Company included in the
SEC Reports to the extent required under generally accepted accounting
principles.
(e) Except as set forth on Section 3.8(e) of the Disclosure Schedule,
no Plan is subject to Title IV or Section 302 of ERISA or Section 412 or 4971 of
the Code. Without limiting the generality of the foregoing, no Plan is a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA (a
"Multiemployer Plan") or a plan that has two or more contributing sponsors at
least two of whom are not under common control, within the meaning of Section
4063 of ERISA and which is subject to Title IV of ERISA (a "Multiple Employer
Plan").
(f) Except as set forth on Section 3.8(f) of the Disclosure Schedule,
there does not now exist, nor do any circumstances exist that could result in,
any material unfunded liability under (i) Title IV of ERISA, (ii) Section 302 of
ERISA, (iii) Sections 412 and 4971 of the Code, (iv) the continuation coverage
requirements of section 601 et seq. of ERISA and Section 4980B of the Code, or
(v) other applicable laws or regulations that would be a liability of the
Company or any of its Subsidiaries following the Effective Time. Without
limiting the generality of the foregoing, none of the Company, its Subsidiaries
nor any ERISA Affiliate of the Company or any of its Subsidiaries has engaged in
any transaction described in Section 4069 or Section 4204 or 4212 of ERISA. An
"ERISA Affiliate" means any entity, trade or business that is, or during the
relevant period was, a member of a group described in Section 414(b), (c), (m)
or (o) of the Code or Section 4001(b)(1) of ERISA that includes the Company or
any of its Subsidiaries, or that is a
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member of the same "controlled group" as the Company or any of its Subsidiaries,
pursuant to Section 4001(a)(14) of ERISA.
Section 3.9 Taxes.
(a) The Company and each of its Subsidiaries has timely filed all
federal, state, local and foreign income Tax Returns (as hereinafter defined)
required to be filed by it in all jurisdictions in which it is required to do
so, and all other material Tax Returns required to be filed by it, each such Tax
Return has been prepared in compliance with all applicable laws and regulations,
and such Tax Returns are true and complete in all material respects, and the
Company and each of its Subsidiaries has paid or caused to be paid all material
Taxes (as hereinafter defined) required to be paid in respect of the periods
covered by such returns and has made adequate provision in the Company's
financial statements including the SEC Reports for payment of all material Taxes
that have not been paid, whether or not shown as due and payable on any Tax
Return in respect of all taxable periods or portions thereof ending on or before
the Closing Date. All Tax Returns for the Company in respect of all years not
barred by the statute of limitations have heretofore been made available by the
Company to HK and are listed in Section 3.9 of the Disclosure Schedule. There
are no outstanding agreements, waivers or requests for waivers extending the
statutory period of limitation applicable to any Tax Return of the Company or
any of its Subsidiaries. There are no liens for Taxes (other than for current
Taxes not yet due and payable) upon the assets of the Company or any of its
Subsidiaries. HK will not be required to deduct and withhold any amount pursuant
to Code ss. 1445(a) upon consummation of the Merger. Except as set forth on
Section 3.9 of the Disclosure Schedule, neither the Company nor any of its
Subsidiaries (i) has been a member of an Affiliated Group (except for the group
of which the Company is the common parent), or filed or been included in a
combined, consolidated or unitary income Tax Return (other than one filed by the
Company), (ii) is a party to or has any liability pursuant to a Tax sharing or
Tax indemnity agreement or any other agreement of a similar nature that remains
in effect or (iii) has any liability for the Taxes of any person (other than any
of the Company or its Subsidiaries) under Treas. Reg. ss. 1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise. Except as set forth in Section 3.9 of the
Disclosure Schedule, (A) except to the Knowledge of the Company, no claim has
ever been made by a taxing authority in a jurisdiction where the Company or any
of its Subsidiaries does not file Tax Returns that such person is or may be
subject to taxation by such jurisdiction; (B) no deficiency or proposed
adjustment which has not been settled or otherwise resolved for any amount of
Tax has been proposed, asserted or assessed by any taxing authority against the
Company or any of its Subsidiaries; (C) there is no action, suit, taxing
authority proceeding or audit now in progress, pending, or, to the Company's
Knowledge, threatened against or with respect to the Company or any of its
Subsidiaries with respect to any income Taxes; and (D) none of the property
owned or used by the Company or any of its Subsidiaries is subject to a lease,
other than a "true" lease for federal income tax purposes. None of the Company
or its Subsidiaries will be required to include any item of income in, or
exclude any item of deduction from, taxable income for any taxable period (or
portion thereof) ending after the Closing Date as a result of any (w) change in
method of accounting for a taxable period ending on or prior to the Closing Date
under Code ss. 481(c) (or any corresponding or similar provision of state, local
or foreign income Tax law); (x) "closing agreement" as described in Code ss.
7121 (or any
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corresponding or similar provision of state, local or foreign income Tax law);
(y) deferred intercompany gain or any excess loss account described in Treasury
Regulations under Code ss. 1502 (or any corresponding or similar provision of
state, local or foreign income Tax law); or (z) installment sale made prior to
the Closing Date. None of the Company or its Subsidiaries is a party to any
agreement, contract, arrangement or plan that has resulted or would result,
separately or in the aggregate, in the payment of any "excess parachute payment"
within the meaning of Code ss. 280G (or any corresponding provision of state,
local or foreign income Tax law).
(b) For purposes of this Agreement, the term "Affiliated Group" means
an affiliated group as defined in Code ss.1504 (or any analogous combined,
consolidated or unitary group defined under state, local or foreign income Tax
law) of which the Company or any of its Subsidiaries is or has been a member.
For purposes of this Agreement, the term "Code" means the Internal Revenue Code
of 1986, as amended. For purposes of this Agreement, the term "Taxes" means all
taxes, charges, fees, levies or other assessments, including, without
limitation, income, gross receipts, excise, property, sales, transfer, license,
payroll, withholding, capital stock and franchise taxes, imposed by the United
States or any state, local or foreign government or subdivision or agency
thereof, including any interest, penalties or additions thereto. For purposes of
this Agreement, the term "Tax Return" means returns, declarations, reports,
claims for refund, information returns or other documents (including any related
or supporting schedules, statements or information) filed or required to be
filed in connection with the determination, assessment or collection of Taxes of
any party or the administration of any laws, regulations or administrative
requirements relating to any Taxes.
Section 3.10 Environmental Matters.
Except as set forth on Section 3.10 of the Disclosure Schedule, to the
Knowledge of the Company:
(a) with respect to the Business, the Company and its Subsidiaries
have complied and are in compliance with all Environmental and Safety
Requirements;
(b) without limiting the generality of the foregoing, the Company and
its Subsidiaries have obtained and complied with, and are in compliance with,
all permits, licenses and other authorizations that may be required pursuant to
Environmental and Safety Requirements for the occupation of their facilities and
the operation of the Business and all such permits, licenses and authorizations
may be relied upon for the lawful operation of the Business and such facilities
on and after the Closing without transfer, reissuance or other governmental
action;
(c) neither the Company nor any Subsidiary has received any written or
oral notice, report or other information regarding any actual or alleged
violation of Environmental and Safety Requirements, or any liabilities or
potential liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise), including any investigatory, remedial or corrective obligations,
relating to the Business or its past or current facilities and arising under
Environmental and Safety Requirements;
-13-
(d) none of the following exists at any property or facility owned or
operated by the Company or any Subsidiary in connection with the Business: (i)
underground storage tanks; (ii) asbestos-containing material in any form or
condition; (iii) materials or equipment containing polychlorinated biphenyls; or
(iv) landfills, surface impoundments, or disposal areas;
(e) with respect to the Business, neither the Company nor any
Subsidiary has treated, stored, disposed of, arranged for or permitted the
disposal of, transported, handled, or released any substance, including without
limitation any hazardous substance, or owned or operated any property or
facility (and no such property or facility is contaminated by any such
substance) in a manner that has given or would give rise to liabilities,
including any liability for response costs, corrective action costs, personal
injury, property damage, natural resources damages or attorney fees, or any
investigative, corrective or remedial obligations, pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA") or the Solid Waste Disposal Act, as amended ("SWDA") or any other
Environmental and Safety Requirements;
(f) no facts, events or conditions relating to the past or present
facilities, properties or operations of the Company, any Subsidiary, or any of
their respective affiliates or predecessors the Business will prevent, hinder or
limit continued compliance by the Business with Environmental and Safety
Requirements, give rise to any investigatory, remedial or corrective obligations
pursuant to Environmental and Safety Requirements, or give rise to any other
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise)
pursuant to Environmental and Safety Requirements, including without limitation
any relating to onsite or offsite releases or threatened releases of hazardous
materials, substances or wastes, personal injury, property damage or natural
resources damage;
(g) neither this Agreement nor the consummation of the transaction
that is the subject of this Agreement will result in any obligations for site
investigation or cleanup, or notification to or consent of government agencies
or third parties, pursuant to any of the so-called "transaction-triggered" or
"responsible property transfer" Environmental and Safety Requirements;
(h) with respect to the Business, neither the Company nor any
Subsidiary has, either expressly or by operation of law, assumed or undertaken
any liability, including without limitation any obligation for corrective or
remedial action, of any other person relating to Environmental and Safety
Requirements; and
(i) for purposes of this Agreement, "Environmental and Safety
Requirements" shall mean all federal, state, local and foreign statutes,
regulations, ordinances and similar provisions having the force or effect of
law, all judicial and administrative orders and determinations, all contractual
obligations and all common law concerning public health and safety, worker
health and safety, and pollution or protection of the environment, including
without limitation all those relating to the presence, use, production,
generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
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release, control, or cleanup of any hazardous materials, substances or wastes,
chemical substances or mixtures, pesticides, pollutants, contaminants, toxic
chemicals, petroleum products or byproducts, asbestos, polychlorinated
biphenyls, noise or radiation, as such of the foregoing are enacted or in
effect, prior to, on, or after the Closing Date.
Section 3.11 Absence of Certain Changes. Except as set forth in Section
3.11 of the Disclosure Schedule, or except as disclosed in the SEC Reports, from
March 31, 1999, through the date of this Agreement the Company and its
Subsidiaries (a) have conducted its Business only in the ordinary course
consistent with past practice and (b) have not:
(i) incurred any indebtedness for borrowed money, except borrowings
from banks (or other financial institutions) necessary to meet ordinary
course working capital requirements and to finance ordinary course capital
expenditures;
(ii) mortgaged, pledged or subjected to any Lien, any asset or related
group of assets having a net book value in excess of $50,000;
(iii) sold, leased, assigned or transferred any tangible asset or
related group of assets having a net book value in excess of $50,000 except
for the sale of inventory and obsolete or used machinery and equipment in
the ordinary course of business consistent with past practice;
(iv) sold, purchased, leased, assigned or transferred any interest in
real estate having a net book value in excess of $50,000;
(v) sold, licensed, assigned or transferred any patents, trademarks,
trade names, copyrights, trade secrets or other intangible assets having a
fair market value in excess of $50,000 individually or in the aggregate;
(vi) waived or relinquished any right or claim or related group of
rights or claims except any such item which the Company believes has a fair
value of less than $50,000 individually or in the aggregate;
(vii) (a) issued or sold any of its Common Shares or other equity
securities or any warrants, options or other rights to acquire its Common
Shares or other securities of the Company, or (b) purchased or redeemed or
agreed to purchase or redeem any Common Shares or other equity securities;
(viii) made or entered into a binding commitment for any capital
expenditures or related group of capital expenditures in excess of
$100,000;
(ix) modified or amended in any material manner or terminated any
Material Contract (as defined in Section 3.14 below);
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(x) granted any increase in the base compensation of, or made any
other material change in the employment terms for, any of its directors,
officers, and employees other than normal periodic increases or changes
reflecting or based upon changed responsibilities or duties made in the
ordinary course of business consistent with past practice or changes made
pursuant to any collective bargaining agreements or existing contracts;
(xi) adopted, modified, or terminated any bonus, profit-sharing,
incentive, severance or other plan or contract for the benefit of any of
its directors, officers, and employees, other than for changes which do not
materially increase the aggregate cost of such plan or contract or which
are required by law or a collective bargaining agreement;
(xii) declared or paid any dividend or other distribution with
respect to the Common Shares;
(xiii) issued any notes, bonds or other debt securities or any capital
stock or other equity securities or any securities convertible,
exchangeable or exercisable into any capital stock or other equity
securities;
(xiv) discharged or satisfied any Lien or paid any obligation or
liability in excess of $100,000, other than obligations and liabilities
paid in the ordinary course of business;
(xv) suffered any extraordinary losses or waived any rights valued
in excess of $100,000, whether or not in the ordinary course of business or
consistent with past practice;
(xvi) delayed or postponed the payment of any accounts or commissions
payable or any other liability or obligations or agreed or negotiated with
any party to extend the payment date of any accounts or commissions payable
or accelerated the collection of any notes, accounts or commissions
receivable, other than in the ordinary course of business;
(xvii) suffered any damage, destruction or casualty loss exceeding in
the aggregate $50,000 whether or not covered by insurance;
(xviii) made any loans or advances to, investments in, or guarantees
for the benefit of, any Person or taken steps to incorporate any
Subsidiary;
(xix) made any change in any method of accounting or accounting
policies, other than those required by GAAP;
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(xx) entered into any other transaction, other than in the ordinary
course of business, or entered into any material transactions, whether or
not in the ordinary course of business;
(xxi) entered into or agreed to enter into any new or amended
contract with any labor unions representing employees of the Company;
(xxii) made any payments for political contributions or made any
bribes, kickback payments or other illegal payments of cash or other
consideration, including, without limitation, payments to customers or
employees of customers for purposes of doing business with such customers;
(xxiii) committed or agreed, whether orally or in writing, to do any
of the foregoing; and
(xxiv) been notified that any of its licenses or private label
programs have been terminated, canceled or repudiated.
Section 3.12 Brokers. Except as set forth on Section 3.12 of the Disclosure
Schedule and except for the engagement of the Investment Banker (as defined in
Section 3.13 hereof), none of the Company, any of its Subsidiaries, or any of
their respective officers, directors or employees has employed any broker or
finder or incurred any liability for any brokerage fees, commissions or finder's
fees in connection with the transactions contemplated by this Agreement.
Section 3.13 Opinion of Investment Banker. The Special Committee has
received the opinion of CIBC World Markets Corp. (the "Investment Banker") to
the effect that, as of the date hereof, the consideration to be received by the
holders of Non-Affiliated Shares pursuant to the Merger is fair to such holders
from a financial point of view.
Section 3.14 Material Contracts.
(a) Except as set forth on Section 3.14(a) of the Disclosure
Schedule, neither the Company nor any of its Subsidiaries is a party to any:
(i) collective bargaining agreement or contract with any labor
union;
(ii) bonus, pension, profit sharing, retirement, severance or
other form of deferred compensation plan;
(iii) stock purchase, stock option, stock appreciation or
similar plan;
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(iv) contract for the employment of any officer, individual
employee or other person on a full-time or consulting basis involving an annual
compensation commitment by the Company or a Subsidiary in excess of $75,000;
(v) agreement or indenture relating to the borrowing of money
or to mortgaging, pledging or otherwise placing a Lien (other than a Permitted
Lien (as defined herein)) on any material portion of the Company's assets;
(vi) guaranty of any obligation for borrowed money;
(vii) lease, sublease or agreement under which it is lessee of
or sublesee of, or holds or operates any personal property owned by any other
party, for which the annual rental exceeds $50,000;
(viii) contract or group of related contracts with the same party
for the purchase of inventories, supplies or services, under which the
undelivered balance of such inventories, supplies or services has a selling
price in excess of $50,000 (other than purchase orders for inventory in the
ordinary course of business);
(ix) contract or group of related contracts with the same party
for the sale of products or services under which the undelivered balance of such
products or services has a sales price in excess of $50,000;
(x) agreement pertaining to Intellectual Property (as
hereinafter defined) including license agreements or similar arrangements;
(xi) contract which prohibits or materially limits the Company
or any of its Subsidiaries in any material respect from freely engaging in
business in the United States or anywhere else in the world;
(xii) contract under which the Company has advanced, loaned or
invested or agreed to advance loan or invest monies to or in any other Person;
(xiii) lease, sublease or agreement under which the Company is
lessor or sublessor of or permits any third party to hold or operate any
property, real or personal, owned, leased or controlled by the Company involving
annual consideration in excess of $50,000;
(xiv) agreement or contract or group of related agreements or
contracts with the same party or group of affiliated parties the performance of
which involves consideration in excess of $75,000 annually;
(xv) warranty agreement with respect to its services rendered
or products sold or leased;
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(xvi) agreement under which it has granted any Person any
registration rights (including, without limitation, demand and piggyback
registration rights);
(xvii) management, sales representative, sales, distribution or
franchise agreement;
(xviii) outstanding power of attorney or other agency agreement;
(xix) nondisclosure or confidentiality agreement;
(xx) contract relating to the marketing, advertising or
promotion of its services or products;
(xxi) agreement with a term of more than six (6) months which is
not terminable by the Company upon 30 days notice without penalty;
(xxii) contract, agreement or other arrangement with any officer,
director, stockholder, employee or Affiliate or any Affiliate of any officer,
director, stockholder or employee, or any individual related by blood, marriage
or adoption to any such Person or any entity in which any such Person or
individual owns a beneficial interest;
(xxiii) contract or agreement with any entity or the
stockholder(s) of any entity with which the Company has a management agreement,
services and support agreement, or other similar agreement or arrangement;
(xxiv) contract or agreement that is not on arm's-length terms;
(xxv) contract or agreement that by its terms may be terminated
upon the consummation of the Merger or the other transactions contemplated
hereby; or
(xxvi) any other agreement which is material to its operations
and business prospects or involves a consideration in excess of $50,000
annually.
All such contracts and agreements, "Material Contracts."
(b) Except as set forth on Schedule 3.14(b) of the Disclosure
Schedule, all of the Material Contracts are valid, legal, binding and
enforceable in accordance with their respective terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other laws (whether statutory, regulatory or
decisional), now or hereafter in effect, relating to or affecting the rights of
creditors generally or by equitable principles, and shall be in full force and
effect without penalty in accordance with their terms upon consummation of the
transactions contemplated hereby. Except as set forth on Schedule 3.14(b) of the
Disclosure Schedule, the Company has performed all material obligations required
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to be performed by it under each Material Contract and is not in material
default under or in material breach of nor in receipt of any claim of default or
breach under any Material Contract; no event has occurred which with the passage
of time or the giving of notice or both would result in a material default,
breach or event of noncompliance by the Company under any Material Contract; the
Company has no present expectation or intention of not fully performing all such
obligations; the Company has no Knowledge of any breach or anticipated breach by
the other parties to any Material Contract; and the Company is not a party to
any materially adverse or illegal contract or commitment.
(c) To the Knowledge of the Company, except as specifically disclosed
in Section 3.14(c) of the Disclosure Schedule, since December 31, 1998, none of
the Company's customers, suppliers, licensors, outside service providers or
sources of referral has indicated that it will stop or materially decrease the
rate of business done with or referred to the Company.
(d) Except as set forth on the Section 3.14(d) of the Disclosure
Schedule, the Company is not obligated to (i) purchase any property or services
at a price greater than the prevailing market price, (ii) sell any property or
services at a price less than the prevailing market price, (iii) pay rentals or
royalties at a rate greater than the prevailing market price or (iv) act as
lessor or licensor at a rate less than the prevailing market price.
(e) The Company has provided or made available to HK (i) true and
complete copies of all written Material Contracts, or (ii) with respect to such
Material Contracts that have not been reduced to writing, a written description
thereof, each of which is listed on Section 3.16 of the Disclosure Schedule. For
purposes of this Agreement, "Permitted Liens" shall mean (i) Liens for Taxes
(other than those pursuant to Section 412 of the Code) or governmental
assessments, charges or claims, the payment of which is not yet due, or for
Taxes, the validity of which are being contested in good faith by appropriate
proceedings; (ii) statutory Liens incurred in the ordinary course of business
for sums not yet due or being contested in good faith; (iii) Liens relating to
deposits made in the ordinary course of business; and (iv) Liens which do not
individually or in the aggregate materially interfere with or materially impair
the conduct of the Business, or the value, marketability, use or ownership of
the assets to which such Liens attach.
Section 3.15 Board Recommendation. The Company Board, upon the
recommendation of the Special Committee, at a meeting duly called and held, has
(a) determined that this Agreement and the transactions contemplated hereby,
taken together, are advisable and in the best interests of the Company and the
holders of Non-Affiliated Shares, and (b) subject to the other provisions
hereof, resolved to recommend that the holders of the Common Shares approve this
Agreement and the transactions contemplated hereby, including the Merger.
Section 3.16 Required Company Vote. The Company Shareholder Approval, being
the affirmative vote of two-thirds of the Common Shares, is the only vote of the
holders of any class or series of the Company's securities necessary to approve
this Agreement, the Merger and the other transactions contemplated hereby,
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Section 3.17 Intellectual Property.
(a) Section 3.17 of the Disclosure Schedule contains a complete and
accurate list of all (i) patented or registered Intellectual Property owned or
used by the Company or any Subsidiary, (ii) pending patent applications and
applications for registration of other Intellectual Property filed by or on
behalf of the Company or any Subsidiary, (iii) material unregistered trade
names, corporate names, Internet domain names or other material unregistered
Intellectual Property owned or used by the Company or any Subsidiary, (iv)
material unregistered trademarks, service marks, copyrights and mask works owned
or used by the Company or any Subsidiary, (v) all computer software owned and/or
used by the Company or any of its Subsidiaries (other than mass-marketed
software with a license fee of less than $5,000) that is material to the
Business, and (vi) all licenses, sublicenses, or similar agreements or
arrangements pertaining to Intellectual Property to which the Company or any of
its Subsidiaries is a party, either as licensee or licensor.
(b) Except as set forth on Section 3.17 of the Disclosure Schedule,
(i) the Company or one of its Subsidiaries owns all right, title and interest
to, or has a valid and enforceable license to use free and clear of all Liens or
other encumbrances or restrictions, all Intellectual Property necessary for the
operation of the Business; (ii) no claim by any other Person contesting the
validity, enforceability, use or ownership of any of the Intellectual Property
owned or used by the Company or any of its Subsidiaries (the "Company
Intellectual Property"), is currently pending or to the Knowledge of the
Company, is threatened, and to the Knowledge of the Company and its
Subsidiaries, there are no grounds for the same; (iii) the Company Intellectual
Property comprises all of the Intellectual Property necessary for the operation
of the Business; (iv) neither the Company nor any of its Subsidiaries have
received any notices of, nor has Knowledge of any facts which indicate a
likelihood of, any infringement or misappropriation by, or conflict with, any
third Person with respect to the Company Intellectual Property (including,
without limitation, any demand or request that the Company or its Subsidiaries
license any rights from a third Person); (v) to the Knowledge of the Company,
neither the Company nor its Subsidiaries have infringed, misappropriated, or
otherwise conflicted with any Intellectual Property or other rights of any third
Persons; (vi) to the Knowledge of the Company, no loss or expiration of any of
the Company Intellectual Property is threatened; (vii) the transactions
contemplated by this Agreement will have no Material Adverse Effect on the
right, title and interest in and to the Company Intellectual Property; and
(viii) the Company and its Subsidiaries have taken all reasonably necessary
action to maintain and protect the Company Intellectual Property.
Section 3.18 Related Party Transactions. Except as set forth in Section
3.18 of the Disclosure Schedule hereto, to the Knowledge of the Company, no
director, officer, partner, "affiliate" or "associate" (as such terms are
defined in Rule 12b-2 under the Exchange Act) of the Company or any of its
Subsidiaries (i) has borrowed any monies from or has outstanding any
indebtedness or other similar obligations to the Company or any of its
Subsidiaries; (ii) owns any direct or indirect interest of any kind in, or is a
director, officer, employee, partner, affiliate or associate of, or consultant
or lender to, or borrower from, or has the right to participate in the
management, operations or profits of, any person or entity which is (1) a
competitor, supplier,
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customer, distributor, lessor, tenant, creditor or debtor of the Company or any
of its Subsidiaries, (2) engaged in a business related to the Business, (3)
participating in any transaction to which the Company or any of its Subsidiaries
is a party or (iii) otherwise a party to any contract, arrangement or
understanding with the Company or any of its Subsidiaries.
Section 3.19 State Takeover Statutes. The Company Board has taken such
action so that no state takeover statute or similar statute or regulation of the
State of New York applies to this Agreement, the Merger, or any of the other
transactions contemplated hereby. Except as set forth in Section 3.19 of the
Disclosure Schedule, neither the Company nor any of its Subsidiaries has any
rights plan, preferred stock or similar arrangement which have any of the
aforementioned consequences in respect of the transactions contemplated hereby.
Section 3.20 Labor Relations and Employment.
(a) Except as set forth on Section 3.20(a) of the Disclosure Schedule,
(i) there is no labor strike, dispute, slowdown, stoppage or lockout pending,
or, to the Knowledge of the Company, threatened against the Company or any of
its Subsidiaries, and during the past three years there has not been any such
action; (ii) to the Knowledge of the Company, no union claims to represent the
employees of the Company or any of its Subsidiaries; (iii) neither the Company
nor any of its Subsidiaries is a party to or bound by any collective bargaining
or similar agreement with any labor organization, or work rules or practices
agreed to with any labor organization or employee association applicable to
employees of the Company or any of its Subsidiaries; (iv) none of the employees
of the Company or any of its Subsidiaries is represented by any labor
organization and the Company does not have any Knowledge of any current union
organizing activities among the employees of the Company or any of its
Subsidiaries, nor does any question concerning representation exist concerning
such employees; (v) the Company and its Subsidiaries are, and have at all times
been, in material compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages, hours of work
and occupational safety and health, and are not engaged in any unfair labor
practices as defined in the National Labor Relations Act; (vi) there is no
unfair labor practice charge or complaint against the Company or any of its
Subsidiaries pending or, to the Knowledge of the Company, threatened before the
National Labor Relations Board or any similar state or foreign agency; (vii)
there is no grievance arising out of any collective bargaining agreement or
other grievance procedure; (viii) no charges with respect to or relating to the
Company or any of its Subsidiaries are pending before the Equal Employment
Opportunity Commission or any other agency responsible for the prevention of
unlawful employment practices; (ix) neither the Company nor any of its
Subsidiaries has received notice of the intent of any federal, state, local or
foreign agency responsible for the enforcement of labor or employment laws to
conduct an investigation with respect to or relating to the Company or any of
its Subsidiaries and no such investigation is in progress; and (x) there are no
complaints, lawsuits or other proceedings pending or to the Knowledge of the
Company threatened in any forum by or on behalf of any present or former
employee of the Company or any of its Subsidiaries alleging breach of any
express or implied contract of employment, any law or regulation governing
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employment or the termination thereof or other discriminatory, wrongful or
tortious conduct in connection with the employment relationship.
(b) Since the enactment of the Worker Adjustment and Retraining
Notification ("WARN") Act, there has not been (i) a "plant closing" (as defined
in the WARN Act) affecting any site of employment or one or more facilities or
operating units within any site of employment or facility of the Company or any
of its Subsidiaries; or (ii) a "mass layoff" (as defined in the WARN Act)
affecting any site of employment or facility of the Company or any of its
Subsidiaries; nor has the Company or any of its Subsidiaries engaged in layoffs
or employment terminations sufficient in number to trigger application of any
similar state or local law. Except as set forth in Section 3.20(b) of the
Disclosure Schedule, to the best Knowledge of the Company, none of the employees
of the Company or any of its Subsidiaries has suffered an "employment loss" (as
defined in the WARN Act) since three months prior to the date of this Agreement.
(c) Except as set forth on Section 3.20(c) of the Disclosure Schedule,
there are no employment, consulting, severance or indemnification arrangements
or agreements or understandings between the Company, on the one hand, and any
directors, officers or other employees of the Company.
Section 3.21 Year 2000. To the Knowledge of the Company, none of the
computer software, computer firmware, computer hardware (whether general or
special purpose) or other similar or related items of automated, computerized or
software systems that are used or relied on by the Company or by any of the
Subsidiaries in the conduct of their respective businesses will malfunction,
cease to function, generate incorrect data or produce incorrect results having a
Material Adverse Effect when processing, providing or receiving (i) date-related
data from, into and between the twentieth and twenty-first centuries or (ii)
data-related data in connection with any valid date in the twentieth and
twenty-first centuries.
Section 3.22 Real Estate.
(a) Owned Properties. Section 3.22 of the Disclosure Schedule sets
forth a list of all owned real property (the "Owned Real Property") used by the
Company in the operation of the Business. With respect to each such parcel of
Owned Real Property: (i) such parcel is free and clear of all encumbrances
(except for Permitted Liens); (ii) except as disclosed in Section 3.22 of the
Disclosure Schedule, there are no leases, subleases, licenses, concessions, or
other agreements, written or oral, granting to any person the right of use or
occupancy of any portion of such parcel; and (iii) there are no outstanding
actions or rights of first refusal to purchase such parcel.
(b) Leased Properties. Section 3.22 of the Disclosure Schedule sets
forth a list of all of the leases and subleases ("Leases") and each leased and
subleased parcel of real property in which the Company has a leasehold or
subleasehold interest or to which the Company is a party either as landlord or
sublandlord (the "Leased Real Property"). Each of the Leases are in full force
and effect, and the Company holds a valid and existing leasehold or subleasehold
interest or
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Landlord or Sublandlord interest as applicable, under each of the Leases
described in Section 3.22 of the Disclosure Schedule. The Company has delivered
to HK true, correct, complete and accurate copies of each of the Leases. With
respect to each Lease set forth on Section 3.22 of the Disclosure Schedule: (i)
the Lease is legal, valid, binding, enforceable and in full force and effect;
(ii) to the Knowledge of the Company the Lease will continue to be legal, valid,
binding, enforceable and in full force and effect on identical terms following
the Closing; (iii) neither the Company, nor, to the Knowledge of the Company,
any other party to the Lease, is in breach or default, and no event has occurred
which, with notice or lapse of time, would constitute such a breach or default
by the Company or permit termination, modification or acceleration under the
Lease by any other party thereto; (iv) the Company has not, and, to the
Knowledge of the Company, no third party has repudiated any provision of the
Lease; (v) there are no disputes, oral agreements, or forbearance programs in
effect as to the Lease; (vi) the Lease has not been modified in any respect,
except to the extent that such modifications are disclosed by the documents
delivered to HK; (vii) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust or encumbered any interest in the Lease (except for
Permitted Liens); and (viii) the Lease is fully assignable to HK without the
necessity of any consent or the Company shall obtain all necessary consents
prior to the Closing.
(c) Real Property Disclosure. Except as disclosed on Section 3.22 of
the Disclosure Schedule, there is no Real Property leased or owned by the
Company that is used in the Business. The Owned Real Property and Leased Real
Property are referred to collectively herein as the "Real Property."
(d) No Proceedings. There are no proceedings in eminent domain or
other similar proceedings pending or, to the Knowledge of the Company,
threatened, affecting any portion of the Real Property (except for Permitted
Liens). There exists no writ, injunction, decree, order or judgment outstanding,
nor any litigation, pending or to the Knowledge of the Company, threatened,
relating to the ownership, lease, use, occupancy or operation by any person of
the Real Property (except for Permitted Liens).
(e) Current Use. The current use of the Real Property does not violate
in any material respect any instrument of record or agreement affecting such
Real Property. There is no violation of any covenant, condition, restriction,
easement, agreement or order of any governmental authority having jurisdiction
over any of the Real Property that affects such real property or the use or
occupancy thereof (except for Permitted Liens). No damage or destruction has
occurred with respect to any of the Real Property that, individually or in the
aggregate, has had or resulted in, or is reasonably likely to have or result in,
a Material Adverse Effect on the Company.
(f) Condition and Operation of Improvements. All buildings and other
improvements included within the Real Property (the "Improvements") are in good
condition and repair and adequate to operate such facilities as currently used,
and, to the Company's Knowledge, there are no facts or conditions affecting any
of the Improvements which would, individually or in the aggregate, interfere in
any significant respect with the current use, occupancy or operation thereof
which interference would, individually or in the aggregate, reasonably be
expected to have
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a Material Adverse Effect on the Company. No Improvement or portion thereof is
dependent for its access, operation or utility on any land, building or other
improvement not included in the Real Property.
(g) Permits. All required or appropriate certificates of occupancy,
permits, licenses, franchises, approvals and authorizations (collectively, the
"Real Property Permits") of all governmental authorities having jurisdiction
over the Real Property, the absence of which could have a Material Adverse
Effect on the Company, have been issued to the Company to enable the Real
Property to be lawfully occupied and used for all of the purposes for which it
is currently occupied and used have been lawfully issued and are, as of the date
hereof, in full force and effect. The Company has delivered complete and correct
copies of the Real Property Permits to HK. The Company has not received or been
informed by a third party of the receipt by it of any notice which could have a
Material Adverse Effect on the Company from any governmental authority having
jurisdiction over the Real Property threatening a suspension, revocation,
modification or cancellation of any Real Property Permit and, to the best
Knowledge of the Company, there is no basis for the issuance of any such notice
or the taking of any such action.
Section 3.23 International Trade Laws and Regulations. Except as disclosed
on Section 3.23 of the Disclosure Schedule:
(a) The Company and each of its Subsidiaries has, to the best of its
Knowledge, complied and is in compliance with all International Trade Laws and
Regulations applicable in connection with the conduct of their respective
businesses (including as the same relates to recordkeeping requirements), except
for possible violations which would not, individually or in the aggregate, have
a Material Adverse Effect on the Company.
(b) Neither the Company nor any of its Subsidiaries is or has been the
subject of any civil or criminal investigation, litigation, audit, penalty,
proceeding or assessment, liquidated damages proceeding or claim, forfeiture or
forfeiture action, claim for additional customs duties or fees, denial orders,
suspension of export privileges, governmental sanctions, or any other action,
proceeding or claim by any foreign, federal, state or local governmental agency
involving or otherwise relating to any alleged or actual violation of
International Trade Laws and Regulations or relating to any alleged or actual
underpayment of customs duties, fees, taxes or other amounts owed pursuant to
any International Trade Laws and Regulations and, to the Knowledge of the
Company and its Subsidiaries, there is no basis for any of the foregoing, except
for possible proceedings, claims or actions which would not, individually or in
the aggregate, have a Material Adverse Effect on the Company.
(c) Neither the Company nor any of its Subsidiaries has, to its
Knowledge, made or provided any false statement or omission to any agency of any
federal, state or local government, purchaser of products or services, or
foreign government or foreign agency, in connection with the exportation of
merchandise (including with respect to export licenses, exceptions and other
export authorizations and any filings required for or related to exportation of
any item), the importation of
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merchandise (including the valuation or classification of imported merchandise,
the duty treatment of imported merchandise, the eligibility of imported
merchandise for favorable duty rates or other special treatment,
country-of-origin marking, NAFTA Certificates or other statements or
certificates concerning origin, quota or visa rights) or other approvals
required by a foreign government or agency or any other requirement relating to
any International Trade Laws and Regulations, except for possible statements or
omissions which would not, individually or in the aggregate, have a Material
Adverse Effect on the Company.
(d) Neither the Company nor any of its Subsidiaries has made any
payment, offer, gift, promise to give, or authorized or otherwise to its
Knowledge participated in, assisted or facilitated any payment or gift that is
prohibited by the United States Foreign Corrupt Practices Act.
(e) Neither the Company nor any of its Subsidiaries has to its
Knowledge engaged in or otherwise participated in, assisted or facilitated any
transaction that is prohibited by any applicable embargo or related trade
restriction imposed by the United States Office of Foreign Assets Control or any
other agency of the United States government.
(f) Set forth on Section 3.23 of the Disclosure Schedule is a list of
each foreign jurisdiction to which the Company or any of its Subsidiaries
exports any products, equipment, services or technology, each foreign
jurisdiction from which the Company or any of its Subsidiaries imports any
products, equipment, services or technology and each foreign jurisdiction to
which the Company's or any of its Subsidiaries' products, equipment, services or
technology (or products of such technology) are reexported. The Company and each
of its Subsidiaries has complied and is in compliance with all International
Trade Laws and Regulations applicable in connection with the conduct of their
respective businesses (including as the same relates to recordkeeping
requirements), except for possible violations which would not, individually or
in the aggregate, have a Material Adverse Effect on the Company.
(g) To the Knowledge of the Company and its Subsidiaries, each of its
suppliers is in compliance with all applicable International Trade Laws and
Regulations (including, but not limited to, any quota regulations administered
by the United States Customs Service and any child labor-related International
Trade Laws and Regulations), except for possible violations which would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
The Company's business relationships with its suppliers hold the Company
harmless, and may be canceled by the Company without penalty or forfeiture, in
the event that its suppliers violate any such applicable International Trade
Laws and Regulations.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF HK
HK represents and warrants to the Company as follows:
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Section 4.1 Organization and Qualification. HK is a corporation duly
organized, validly existing and in good standing under the laws of its state or
jurisdiction of incorporation and is in good standing as a foreign corporation
in each other jurisdiction where the properties owned, leased or operated, or
the business conducted, by it require such qualification and where failure to be
in good standing or to so qualify would have a Material Adverse Effect on HK.
The term "Material Adverse Effect on HK", as used in this Agreement, means (i)
any effect, event, occurrence, change or state of facts that is, or when
aggregated with other effects, events, occurrences, changes or states of facts
is, or is reasonably likely to be materially adverse to the assets, liabilities,
business, property, condition (financial or otherwise), or operations or
prospects of HK or (ii) the ability of HK to perform its obligations under this
Agreement. HK has no Subsidiaries. HK is controlled, directly or indirectly, by
affiliates of H.I.G. Capital, LLC ("HIG").
Section 4.2 Authority Relative to this Agreement.
(a) HK 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 of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of HK and no other corporate proceedings on the part of HK
are necessary to authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and delivered by
HK and, assuming this Agreement constitutes a valid and binding obligation of
the Company, this Agreement constitutes a valid and binding agreement of HK,
enforceable against HK in accordance with its terms.
(b) Other than in connection with, or in compliance with, the
provisions of the BCL with respect to the transactions contemplated hereby, the
Exchange Act, the securities laws of the various states and the HSR Act, no
authorization, consent or approval of, or filing with, any Governmental Entity
is necessary for the consummation by HK of the transactions contemplated by this
Agreement other than authorizations, consents and approvals the failure to
obtain, or filings the failure to make, which would not, in the aggregate, have
a Material Adverse Effect on HK.
Section 4.3 No Violation. Neither the execution or delivery of this
Agreement by HK nor the consummation by HK of the transactions contemplated
hereby will (i) constitute a breach or violation of any provision of the
Certificate of Incorporation, as amended, or Bylaws of HK, (ii) constitute a
breach, violation or default (or any event which, with notice or lapse of time
or both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in the creation of any Lien
upon any of the properties or assets of HK under, any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument to which
HK is a party or by which it or any of its properties or assets are bound or
(iii) any judgment, order, decree, statute, law, ordinances, rule or regulation
applicable to HK or its properties or assets other than, with respect to clauses
(ii) and (iii), breaches, violations, defaults, terminations, accelerations or
creation of Liens which, in the aggregate would not have a Material Adverse
Effect on HK.
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Section 4.4 Information. None of the information supplied by HK in writing
(other than projections of future financial performance) specifically for
inclusion or incorporation by reference in (i) the Proxy Statement or (ii) the
Other Filings will, at the respective times filed with the SEC or other
Governmental Entity and, in addition, in the case of the Proxy Statement, at the
date it or any amendment or supplement is mailed to shareholders, at the time of
the Special Meeting and at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. Notwithstanding the
foregoing, no representation is made by HK with respect to statements made in
any of the foregoing documents based upon information supplied by the Company.
Section 4.5 Financing. True and complete copies of commitment letters from
Bankers Trust Company and its affiliates and from Bankers Trust Corporation and
its affiliates, which provide for financing in amounts sufficient to consummate
the transactions contemplated hereby as contemplated by Section 6.2(e), are
attached hereto as Exhibit A.
Section 4.6 Beneficial Ownership of Shares. As of the date hereof, HK does
not "beneficially own" (as defined in Rule 13d-3 under the Exchange Act) more
than 1% of the outstanding shares of Common Shares or any securities convertible
into, or exchangeable for, Common Shares. HK will not buy additional Common
Shares between the date of this Agreement and the Closing.
Section 4.7 Brokers. Except as set forth on Schedule 4.7 of the Disclosure
Schedule, no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
HK, that is or will be payable by the Company or any of its Subsidiaries. No fee
is due to any such person if the transactions contemplated hereby are not
consummated.
Section 4.8 Formation of HK; No Prior Activities. HK was formed solely for
the purpose of engaging in the transactions contemplated by this Agreement. As
of the date hereof and the Effective Time, except for (a) obligations or
liabilities incurred in connection with its incorporation or organization and
the transactions contemplated by this Agreement, and (b) this Agreement and any
other agreements or arrangements contemplated by this Agreement or in
furtherance of the transactions contemplated hereby, HK has not incurred,
directly or indirectly, through any subsidiary or affiliate, any obligations or
liabilities, owned any assets or engaged in any business activities of any type
or kind whatsoever or entered into any agreements or arrangements with any
Person.
Section 4.9 Litigation. There is no suit, claim, action, proceeding or
investigation pending or, to the Knowledge of HK, threatened, at law or in
equity, or before any Governmental Entity, against HK, which could prevent or
materially delay the consummation of the transactions contemplated by this
Agreement.
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Section 4.10 Confidentiality. Neither HK nor any affiliate or associate of
HK has breached in any material respect the Confidentiality Agreement (as
defined in Section 5.2).
ARTICLE 5
COVENANTS
Section 5.1 Conduct of Business of the Company. Except as contemplated by
this Agreement or as expressly agreed to in writing by HK, during the period
from the date of this Agreement to the Effective Time, the Company will, and
will cause each of its Subsidiaries to, conduct its operations according to its
ordinary and usual course of business and consistent with past practice and use
its and their respective commercially reasonable efforts to preserve intact
their current business organizations, keep available the services of their
current officers and employees and preserve their relationships with customers,
suppliers, licensors, licensees, advertisers, distributors and others having
business dealings with them and to preserve goodwill. Without limiting the
generality of the foregoing, and except as (x) otherwise expressly provided in
this Agreement, (y) required by law, or (z) set forth on Section 5.1 of the
Disclosure Schedule, prior to the Effective Time, the Company will not, and will
cause its Subsidiaries not to, without the consent of HK (which consent shall
not be unreasonably withheld):
(a) except with respect to annual bonuses made in the ordinary course
of business consistent with past practice, adopt or amend in any material
respect any bonus, profit sharing, compensation, severance, termination, stock
option, stock appreciation right, pension, retirement, employment or other
employee benefit agreement, trust, plan or other arrangement for the benefit or
welfare of any director, officer or employee of the Company or any of its
Subsidiaries or increase in any manner the compensation or fringe benefits of
any director, officer or employee of the Company or any of its Subsidiaries or
pay any benefit not required by any existing agreement or place any assets in
any trust for the benefit of any director, officer or employee of the Company or
any of its Subsidiaries (in each case, except with respect to employees and
directors in the ordinary course of business consistent with past practice);
(b) incur any indebtedness for borrowed money, other than indebtedness
under existing lines of credit drawn to fund working capital (defined as
accounts receivable plus inventory minus accounts payable) up to $3 million;
(c) expend funds for capital expenditures in excess of $50,000;
(d) sell, lease, license, mortgage or otherwise encumber or subject to
any Lien or otherwise dispose of any of its properties or assets other than
immaterial properties or assets (or immaterial portions of properties or
assets), except in the ordinary course of business consistent with past
practice;
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(e) (x) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock (except for dividends paid
by Subsidiaries to the Company with respect to capital stock), (y) split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock or (z) purchase, redeem or otherwise acquire any
shares of capital stock of the Company or any of its Subsidiaries or any other
securities thereof or any rights, warrants or options to acquire any such shares
or other securities;
(f) authorize for issuance, issue, deliver, sell or agree or commit to
issue, sell, grant or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or otherwise),
pledge, dispose of or otherwise encumber any shares of its capital stock or the
capital stock of any of its Subsidiaries, any other voting securities or any
securities convertible into, or any rights, warrants, calls, commitments or
options to acquire, any such shares, voting securities or convertible securities
or any other securities or equity equivalents (including without limitation
stock appreciation rights) (other than issuances upon exercise of Options or
pursuant to the Stock Plan);
(g) amend its Certificate of Incorporation, as amended, Bylaws or
equivalent organizational documents or alter through merger, liquidation,
reorganization, restructuring or in any other fashion the corporate structure or
ownership of any Subsidiary of the Company;
(h) make or agree to make any acquisition of assets which is material
to the Company and its Subsidiaries, taken as a whole, except for (x) purchases
of inventory in the ordinary course of business or (y) pursuant to purchase
orders entered into in the ordinary course of business which do not call for
payments in excess of $100,000 per annum;
(i) settle or compromise any shareholder derivative suits arising out
of the transactions contemplated hereby or any other litigation (whether or not
commenced prior to the date of this Agreement) or settle, pay or compromise any
claims not required to be paid;
(j) take any action which is not set forth on Section 3.11 of the
Disclosure Schedule, if taken after March 31, 1999, but prior to the date
hereof, that would have caused the representations and warranties contained in
Section 3.11 hereof to be untrue; or
(k) make or change any election, change an annual accounting period,
adopt or change any accounting method, file any amended Tax Return, enter into
any closing agreement, settle any Tax claim or assessment relating to the
Company or any Subsidiary, surrender any right to claim a refund of Taxes,
consent to any extension or
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waiver of the limitation period applicable to any Tax claim or assessment
relating to the Company or any Subsidiary, or take any other similar action, or
omit to take any action relating to the filing of any Tax Return or the payment
of any Tax, if such election, adoption, change, amendment, agreement,
settlement, surrender, consent or other action or omission would have the effect
of increasing the present or future Tax liability or decreasing any present or
future Tax asset of the Company, any Subsidiary, HK or any Affiliate of HK.
Section 5.2 Access to Information. From the date of this Agreement until
the Effective Time, the Company will, and will cause its Subsidiaries, and each
of their respective officers, directors, employees, agents or other
representatives (including, without limitation, any investment banker, attorney
or accountant retained by the Company or its Subsidiaries) (the "Company
Representatives") to, give HK and their respective officers, employees, agents
or other representatives (including, without limitation, any investment banker,
attorney or accountant retained by HK) (the "HK Representatives") and
representatives of financing sources identified by HK reasonable access, upon
reasonable notice and during normal business hours, to the offices and other
facilities and to the books and records of the Company and its Subsidiaries and
will cause the Company Representatives and the Company's Subsidiaries to furnish
HK and the HK Representatives and representatives of financing sources
identified by HK with such financial and operating data and such other
information with respect to the Business as HK and representatives of financing
sources identified by HK may from time to time reasonably request. HK agrees
that any information furnished by the Company pursuant to this Section 5.2 (or
otherwise in compliance with this Agreement) will be subject to the provisions
of the letter agreement dated March 3, 1999, between H.I.G. Capital, L.L.C. and
BDO ▇▇▇▇▇▇▇, LLP (the "Confidentiality Agreement").
Section 5.3 Efforts.
(a) Each of the Company and HK shall, and the Company shall cause each
of its Subsidiaries to, use commercially reasonable efforts to take all actions
and do all things necessary to consummate and make effective the transactions
contemplated by this Agreement (including the satisfaction, but not waiver, of
the closing conditions set forth in Article 5). In furtherance and not in
limitation of the foregoing, each of the Company and HK shall, and the Company
shall cause each of its Subsidiaries to, make all necessary filings with
Governmental Entities as promptly as practicable in order to facilitate prompt
consummation of the transactions contemplated by this Agreement. In addition,
each of HK and the Company will use its commercially reasonable efforts
(including, without limitation, payment of any required fees) and will cooperate
fully with each other to (i) comply as promptly as practicable with all
governmental requirements applicable to the transactions contemplated by this
Agreement, including the making of all filings necessary or proper under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including, but not limited to, the
Proxy Statement or other foreign filings and any amendments to any thereof and
(ii) obtain promptly all consents, waivers, approvals, authorizations or permits
of, or registrations or filings with or notifications to (any of the foregoing
being a "Consent"), any Governmental Entity necessary for the consummation of
the transactions contemplated by this Agreement (except for such Consents the
failure of which to obtain would not prevent or materially delay the
consummation of the Merger). Subject to the Confidentiality
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Agreement, HK and the Company shall furnish to one and other such necessary
information and reasonable assistance as HK or the Company may reasonably
request in connection with the foregoing.
(b) Without limiting Section 5.3(a) hereof, HK and the Company shall
each (i) promptly make or cause to be made the filings required of such party
under the HSR Act with respect to the Merger; (ii) use its best efforts to avoid
the entry of, or to have vacated or terminated, any decree, order, or judgment
that would restrain, prevent or delay the consummation of the Merger, including
without limitation defending through litigation on the merits any claim asserted
in any court by any third party; and (iii) take any and all steps which, in such
party's judgment, are commercially reasonable to avoid or eliminate each and
every impediment under any antitrust, competition, or trade regulation law that
may be asserted by any Governmental Entity with respect to the Merger so as to
enable consummation thereof to occur as soon as reasonably possible. Each party
hereto shall promptly notify the other parties of any communication to that
party from any Governmental Entity with respect to the transactions contemplated
by this Agreement and permit the other parties to review in advance any proposed
communication to any Governmental Entity. HK and the Company shall not (and
shall cause their respective affiliates and representatives not to) agree to
participate in any meeting with any Governmental Entity in respect of any
filings, investigation or other inquiry unless it consults with the other party
in advance and, to the extent permitted by such Governmental Entity, gives the
other party the opportunity to attend and participate thereat. Subject to the
Confidentiality Agreement, each of the parties hereto will coordinate and
cooperate fully with the other parties hereto in exchanging such information and
providing such assistance as such other parties may reasonably request in
connection with the foregoing and in seeking early termination of any applicable
waiting periods under the HSR Act or in connection with other Consents. Each of
the Company and HK agrees to respond promptly to and comply fully with any
request for additional information or documents under the HSR Act. Subject to
the Confidentiality Agreement, the Company will provide HK, and HK will provide
the Company, with copies of all correspondence, filings or communications (or
memoranda setting forth the substance thereof) between such party or any of its
representatives, on the one hand, and any Governmental Entity or members of its
staff, on the other hand, with respect to this Agreement and the transactions
contemplated hereby.
(c) The Company and HK each agree to provide, and to cause their
respective officers, employees and advisors to provide, and the Company agrees
to cause its Subsidiaries and their respective officers, employees and advisors
to provide, all commercially reasonable cooperation in connection with the
arrangement of any financing in respect of the transactions contemplated by this
Agreement, including, without limitation, (i) participation in meetings, due
diligence sessions and road shows, (ii) assisting the preparation of offering
memoranda, private placement memoranda, prospectuses and similar documents, and
(iii) the execution and delivery of any commitment letters, underwriting or
placement agreements, pledge and security documents, other definitive financing
documents, or other requested certificates or documents as may be reasonably
requested.
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Section 5.4 Public Announcements. The Company, on the one hand, and HK, on
the other hand, agree to consult promptly with each other prior to issuing any
press release or announcement or otherwise making any public statement with
respect to the Merger and the other transactions contemplated hereby, agree to
provide to the other party for review a copy of any such press release or
statement, and shall not issue any such press release or make any such public
statement prior to such consultation and review, unless required by applicable
law or any listing agreement with a securities exchange or the Nasdaq Stock
Market, Inc.
Section 5.5 Employee Benefit Arrangements.
(a) HK agrees that the Company will honor, and, from and after the
Effective Time, the Surviving Corporation will honor, in accordance with their
respective terms as in effect on the date hereof, the employment, severance and
bonus agreements and arrangements to which the Company is a party which are set
forth on Section 5.5 of the Disclosure Schedule.
(b) The Company agrees that for a period of one year following the
Effective Time, the Surviving Corporation shall continue the (i) compensation
(including bonus and incentive awards) programs and plans and (ii) employee
benefit and welfare plans, programs, contracts, agreements and policies
(including insurance and pension plans), fringe benefits and vacation policies
which are currently provided by the Company; provided that notwithstanding
anything in this Agreement to the contrary the Surviving Corporation shall not
be required to maintain any individual plan or program so long as the benefit
plan and agreements maintained by the Surviving Corporation are, in the
aggregate, not less favorable than those provided by the Company immediately
prior to the date of this Agreement; and, provided, further, that nothing in
this sentence shall be deemed to limit or otherwise affect the right of the
Surviving Corporation to terminate employment or change the place of work,
responsibilities, status or designation of any employee or group of employees as
the Surviving Corporation may determine in the exercise of its business judgment
and in compliance with applicable laws.
Section 5.6 Indemnification; Directors' and Officers' Insurance.
(a) The Company and, from and after the Effective Time, the Surviving
Corporation, shall indemnify, defend and hold harmless the present and former
officers, directors, employees and agents of the Company and its Subsidiaries
(the "Indemnified Parties") against all judgments, fines, losses, claims,
damages, costs or expenses (including reasonable attorneys' fees) or liabilities
arising out of or related to matters, actions or omissions or alleged actions or
omissions occurring at or prior to the Effective Time whether asserted or
claimed prior to or after the Effective Time (i) to the full extent permitted by
New York law or, if the protections afforded thereby to an Indemnified Person
are greater, (ii) to the same extent and on the same terms and conditions
(including with respect to advancement of expenses) provided for in the
Company's Certificate of Incorporation, as amended, and Bylaws and agreements in
effect at the date hereof (to the extent consistent with applicable law), which
provisions shall survive the Merger and continue in full force and effect after
the Effective Time. Without limiting the foregoing, (i) HK shall, and shall
cause the
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Surviving Corporation to, periodically advance expenses (including attorney's
fees) as incurred by an Indemnified Person with respect to the foregoing to the
full extent permitted under applicable law, and (ii) any determination required
to be made with respect to whether an Indemnified Party shall be entitled to
indemnification shall, if requested by such Indemnified Party, be made by
independent legal counsel selected by the Surviving Corporation and reasonably
satisfactory to such Indemnified Party.
(b) HK agrees that the Company, and, from and after the Effective
Time, the Surviving Corporation, shall cause to be maintained in effect for not
less than six years from the Effective Time the policies of the directors' and
officers' liability insurance maintained by the Company and in effect as of
September 1, 1999; provided that the Surviving Corporation may substitute
therefor other policies of at least the same coverage amounts and which contain
terms and conditions not less advantageous to the beneficiaries of the current
policies and, provided further, that such substitution shall not result in any
gaps or lapses in coverage with respect to matters occurring on or prior to the
Effective Time; and provided further, that the Surviving Corporation shall not
be required to pay an annual premium in excess of 200% of the last annual
premium paid by the Company prior to the date hereof and if the Surviving
Corporation is unable to obtain the insurance required by this Section 5.6(b) it
shall obtain as much comparable insurance as possible for an annual premium
equal to such maximum amount.
(c) This Section 5.6 shall survive the consummation of the Merger at
the Effective Time, is intended to benefit the Company, the Surviving
Corporation and the Indemnified Parties, shall be binding on all successors and
assigns of HK and the Surviving Corporation, and shall be enforceable by the
Indemnified Parties.
Section 5.7 Notification of Certain Matters. HK and the Company shall
promptly notify each other of (i) the occurrence or non-occurrence of any fact
or event which would be reasonably likely (A) to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate in any material
respect at any time from the date hereof to the Effective Time or (B) to cause
any covenant, condition or agreement under this Agreement not to be complied
with or satisfied and (ii) any failure of the Company, or HK, as the case may
be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that no such
notification shall affect the representations or warranties of any party or the
conditions to the obligations of any party hereunder. Each of the Company and HK
shall give prompt notice to the other parties hereof of any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement.
Section 5.8 State Takeover Laws. The Company shall, upon the request of HK,
take all reasonable steps to assist in any challenge by HK to the validity or
applicability to the transactions contemplated by this Agreement, including the
Merger, of any state takeover law.
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Section 5.9 No Solicitation.
(a) The parties acknowledge and agree that prior to October 15, 1999,
the Company and its affiliates and the Company Representatives shall be
permitted to take the actions proscribed in clauses (b)(i) through (v) below.
(b) From and after October 15, 1999 until the termination of this
Agreement, the Company and its affiliates shall not, and shall instruct the
Company Representatives not to:
(i) directly or indirectly solicit, initiate, or encourage
(including by way of furnishing nonpublic information or assistance),
or take any other action to facilitate, any inquiries or proposals
from any person that constitute, or may reasonably be expected to lead
to, an acquisition, purchase, merger, consolidation, share exchange,
recapitalization, business combination or other similar transaction
involving any material portion of the assets or any securities of, any
merger, consolidation or business combination with, or any public
announcement of a proposal, plan, or intention to do any of the
foregoing by, the Company or any of its Subsidiaries (such
transactions being referred to herein as "Acquisition Proposals");
(ii) enter into, maintain, or continue discussions or
negotiations with any person in furtherance of such inquiries or to
obtain an Acquisition Proposal;
(iii) agree to or endorse any Acquisition Proposal;
(iv) enter into any agreement, arrangement or understanding
requiring it to abandon, terminate or fail to consummate the Merger or
any other transaction contemplated by this Agreement, or
(v) authorize or permit the Company Representatives to take
any such action;
provided, however, that prior to the approval of the Merger by
the shareholders of the Company nothing in this Agreement shall prohibit the
Company Board or the Special Committee from (A) furnishing information to, and
engaging in discussions or negotiations with, any person or entity that makes an
unsolicited written, bona fide proposal to acquire the Company and/or its
Subsidiaries pursuant to a merger, consolidation, share exchange, tender offer,
recapitalization, business combination or other similar transaction, or any
transaction involving the sale of a material portion of the assets of the
Company, but only to the extent that the Company Board or the Special Committee
determines in good faith, after consulting with independent legal counsel (which
may be the Company's regularly engaged outside legal counsel), that it has a
fiduciary obligation to furnish such information or engage in such discussions
or negotiations with such person or entity (any such proposal meeting such
criteria, a "Superior Proposal"), provided,
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that prior to taking such action, the Company notifies HK of its intentions and
obtains an executed confidentiality agreement from the appropriate parties
substantially similar to the Confidentiality Agreement, (B) failing to make or
withdrawing or modifying its recommendation referred to in Section 5.12 hereof
if the Company Board or the Special Committee, after consultation with
independent legal counsel (who may be the Company's regularly engaged outside
legal counsel), determines in good faith that it has a fiduciary obligation to
do so, provided that HK is given two days' prior written notice of its
intentions to do so, and (C) disclosing to the Company's shareholders a position
contemplated by Rules 14d-9 and 14e-2 promulgated under the Exchange Act with
respect to any tender offer, or taking any other legally required action, or any
action required by the rules or regulations of any self-regulating securities
exchange, market or other body (including, without limitation, the making of
public disclosure as may be necessary or advisable under applicable securities
laws); and, provided further, that notwithstanding anything to the contrary in
this Agreement, the Company Board's or the Special Committee's exercise of its
rights under clause (A), (B) or (C) above shall not constitute a breach by the
Company of this Agreement.
(c) The Company will promptly notify HK of the receipt of any Formal
Acquisition Proposal, the terms and conditions of such proposal and the identity
of the person making it. The Company also will promptly notify HK of any change
to or modification of such Formal Acquisition Proposal and the terms and
conditions thereof.
(d) To the extent that, as of October 15, 1999, the Company, any of
its affiliates or any Company Representative is engaged in discussions or
negotiations with any person or entity (other than HK) with respect to any
proposal that does not at such time constitute a Superior Proposal as defined in
(b) above, the Company shall, and shall cause its affiliates and the Company
Representatives to, cease any and all activities, discussions or negotiations as
of such date. Nothing in this Section 5.9(d) is intended to prevent, deter, or
prohibit the Company Board or the Special Committee from taking any action
permitted by Section 5.9(b) above and the taking of any such action shall not
constitute a breach of this provision.
Section 5.10 Interim Liabilities. The Surviving Corporation will pay,
consistent with past practice, all liabilities, including all accounts payable
and other expenses, which arise in the ordinary course of business prior to the
Closing Date.
Section 5.11 Reports. The Company shall provide HK with monthly financial
statements, broken out by business segment (including management reports which
are prepared in the ordinary course of business and related thereto), no later
than the fifth business day following the end of each calendar month following
the date of this Agreement until the Effective Date.
Section 5.12 Shareholders' Meeting.
(a) The Company, acting through the Company Board, shall, in
accordance with applicable law:
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(i) subject to the fiduciary duties of the Company Board,
duly call, give notice of, convene and hold a special meeting of its
shareholders (the "Special Meeting") as soon as practicable following
the execution of this Agreement for the purpose of considering and
taking action upon this Agreement;
(ii) prepare and file with the SEC a preliminary proxy
statement relating to this Agreement, and use its reasonable efforts
(A) to obtain and furnish the information required to be included by
the SEC in a definitive proxy statement (the "Proxy Statement") and,
after consultation with HK, to respond promptly to any comments made
by the SEC with respect to the preliminary proxy statement and cause
the Proxy Statement to be mailed to its shareholders and (B) subject
to the fiduciary duties of the Company Board, to obtain the necessary
approvals of the Merger and this Agreement by its shareholders; and
(iii) subject to the fiduciary duties of the Company Board,
include in the Proxy Statement the recommendation of the Company Board
that shareholders of the Company vote in favor of the approval of this
Agreement.
(b) The Company covenants that the Proxy Statement will comply in all
material respects with the provisions of applicable federal securities laws and,
on the date filed with the SEC and on the date first published, sent or given to
the Company's shareholders, shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading, except that no
representation is made by the Company with respect to information supplied by HK
in writing for inclusion in the Proxy Statement. Each of the Company, on the one
hand, and HK, on the other hand, agree promptly to correct any information
provided by either of them for use in the Proxy Statement if and to the extent
that it shall have become false or misleading, and the Company further agrees to
take all steps necessary to cause the Proxy Statement as so corrected to be
filed with the SEC and to be disseminated to the holders of Shares, in each
case, as and to the extent required by applicable federal securities laws.
Section 5.13 Letters of Accountants. The Company shall use its commercially
reasonable efforts to cause to be delivered to HK from the Company's independent
accountants a letter dated within two business days prior to the Effective Time
stating that the Merger may be recorded for financial accounting purposes as a
recapitalization if the Merger is consummated in accordance with this Agreement.
Section 5.14 Conveyance Taxes. HK and the Company shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value-added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees or any similar taxes which become payable by the
Company or any of its Subsidiaries in connection with the transactions
contemplated by this Agreement that are required or permitted to be filed on or
before the Effective Time.
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Section 5.15 Delisting. Each of the parties agrees to cooperate with each
other in taking, or causing to be taken, all actions necessary to delist the
Common Shares from NASDAQ and to terminate registration under the Exchange Act,
provided that such delisting and termination shall not be effective until after
the Effective Time of the Merger.
ARTICLE 6
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 6.1 Conditions. The respective obligations of HK and the Company to
consummate the Merger are subject to the satisfaction, at or before the
Effective Time, of each of the following conditions:
(a) Shareholder Approval. The Company Shareholder Approval shall have
been obtained.
(b) Illegality. There shall not have been any United States federal or
state statute, rule or regulation enacted or promulgated after the date of this
Agreement that would result in the imposition of material limitations on the
ability of HK effectively to acquire or hold the business of the Company and its
Subsidiaries taken as a whole.
(c) HSR Act. Any waiting period (and any extension thereof) under the
HSR Act applicable to the Merger shall have expired or been terminated.
Section 6.2 Conditions to Obligations of HK. The obligations of HK to
effect the Merger are further subject to the following conditions:
(a) Representations and Warranties. The representations and warranties
of the Company set forth in this Agreement shall be true and correct as of the
date of this Agreement and as of the Closing Date as though made on and as of
the Closing Date in all respects (except where the failure to be true and
correct does not have a Material Adverse Effect on the Company), other than
representations and warranties of the Company that relate to a specific date
which shall be true and correct in all respects as of such date. HK shall have
received a certificate signed on behalf of the Company by the chief executive
officer and the chief financial officer of the Company to the effect set forth
in this paragraph.
(b) Performance of Obligations of the Company. The Company shall have
performed the obligations required to be performed by it under this Agreement
prior to the Closing in all material respects.
(c) Consents, etc. HK shall have received evidence, in form and
substance reasonably satisfactory to it, that all licenses, permits, consents,
approvals, authorizations,
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qualifications and orders of Governmental Entities and other third parties set
forth in Section 3.3 of the Disclosure Schedule and identified with an asterisk
shall have been obtained.
(d) No Injunction. No court of competent jurisdiction in the United
States or other United States Governmental Entity shall have issued any order,
decree or ruling or taken any other action restraining, enjoining or otherwise
(i) prohibiting the consummation of the Merger or any of the other transactions
contemplated by this Agreement, (ii) prohibiting or limiting the ownership or
operation by the Company or any of its Subsidiaries of any material portion of
the business or assets of the Company or any of its Subsidiaries, or to dispose
of or hold separate any material portion of the business or assets of the
Company or any of its Subsidiaries, as a result of the Merger or any of the
other transactions contemplated by this Agreement or (iii) imposing limitations
on the ability of HK (or any shareholder of HK), to acquire or hold, or exercise
full rights of ownership of, any Common Shares, including, without limitation,
the right to vote Common Shares on all matters properly presented to the
shareholders of the Company.
(e) Financing. HK shall have received proceeds of financing on the
terms and conditions and in the amounts described in the commitment letters
(each, a "Commitment Letter") attached hereto as Exhibit A; provided, however,
that if the failure to receive such financing is caused by HK's breach in any
material respect of any representation, warranty, covenant or agreement made by
HK and solely within the control of HK in any Commitment Letter, then in such
event HK's obligation to consummate the Merger shall not be subject to the
satisfaction of this condition.
(f) No Material Adverse Effect. There shall not after the execution
hereof have occurred a Material Adverse Effect on the Company, provided that (i)
no event relating to the disclosures made by the Company to, or the discussions
had by the Company with, HIG, HK or any of their respective affiliates prior to
the date hereof with respect to matters disclosed by the Company in its press
releases dated July 1, 1999 and August 12, 1999 and (ii) no suit, claim, action,
or proceeding disclosed on Schedule 3.6 hereto(or any suit or action alleging
facts or stating claims of a similar nature or that could otherwise be
reasonably expected to arise out of or in connection with the negotiation and
consummation of this transaction) shall constitute a Material Adverse Effect on
the Company.
(g) Options. Upon payment of the Option Consideration pursuant to
Section 2.02 hereof, all Options pursuant to any existing Option Plans shall
have been canceled and there shall be not other plans, programs or arrangements
which obligate the Company or the Surviving Corporation to issue any equity
securities or any securities with equity-like features.
(h) Directors. All existing directors of the Company shall have
tendered resignations from the Board which shall be effective as of the
Effective Time.
(i) Opinion of the Company's Counsel. HK shall have received from
Proskauer Rose LLP, counsel for the Company, an opinion in form and substance
satisfactory to HK,
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addressed to HK, dated as of the Closing Date, and HK's lenders shall have been
allowed to rely thereon.
Section 6.3 Conditions to Obligation of the Company. The obligation of the
Company to effect the Merger is further subject to the following conditions:
(a) Representations and Warranties. The representations and warranties
of HK set forth in this Agreement shall be true and correct in all material
respects (except for representations and warranties which are qualified by
"materiality," "Material Adverse Effect," or terms of similar import or effect,
in which case such representations and warranties shall be true and correct in
all respects), in each case as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date, other than
representations and warranties of HK that relate to a specific date which shall
be true and correct in all respects as of such date. The Company shall have
received certificates signed on behalf of HK by the President or a Vice
President of HK to the effect set forth in this paragraph.
(b) Performance of Obligations of HK. HK shall have performed the
obligations required to be performed by it under this Agreement in all material
respects.
(c) Opinion of HK's Counsel. The Company shall have received from
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, counsel for HK, an opinion in form and substance satisfactory
to the Company, addressed to the Company, dated as of the Closing Date.
(d) Payment of Notes. At the Closing, the Surviving Corporation shall
have paid in full the four-year 5.7% promissory notes in an aggregate principal
amount of approximately $5.57 million, issued to certain shareholders in
connection with the termination of the Company's S Corporation status.
(e) No Injunction. No court of competent jurisdiction in the United
States or other United States Governmental Entity shall have issued any order,
decree or ruling or taken any other action restraining, enjoining or otherwise
(i) prohibiting the consummation of the Merger or any of the other transactions
contemplated by this Agreement, (ii) prohibiting or limiting the ownership or
operation by the Company or any of its Subsidiaries of any material portion of
the business or assets of the Company or any of its Subsidiaries, or to dispose
of or hold separate any material portion of the business or assets of the
Company or any of its Subsidiaries, as a result of the Merger or any of the
other transactions contemplated by this Agreement or (iii) imposing limitations
on the ability of HK (or any shareholder of HK), to acquire or hold, or exercise
full rights of ownership of, any Common Shares, including, without limitation,
the right to vote Common Shares on all matters properly presented to the
shareholders of the Company.
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ARTICLE 7
TERMINATION; AMENDMENTS; WAIVER
Section 7.1 Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time,
notwithstanding approval thereof by the shareholders of the Company:
(a) by the mutual written consent of HK and the Company, by action of
their respective Boards of Directors;
(b) by HK or the Company if the Merger shall not have been consummated
on or before February 15, 2000; provided, however, that neither HK nor the
Company may terminate this Agreement pursuant to this Section 7.1(b) if such
party shall have materially breached this Agreement;
(c) by HK or the Company if any court of competent jurisdiction in the
United States or other United States Governmental Entity has issued an order,
decree or ruling or taken any other action restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other action shall have
become final and nonappealable; provided, however, that the party seeking to
terminate this Agreement shall have used its commercially reasonable efforts to
remove or lift such order, decree, ruling or other action;
(d) by the Company if, prior to the Effective Time, any person has
made a bona fide Formal Acquisition Proposal (defined in Section 8.9(a) below),
or has commenced a tender or exchange offer for the Common Shares, and the
Company Board or Special Committee determines in good faith that its fiduciary
duties require it to accept such proposal; provided, however, that,
notwithstanding anything in this Agreement to the contrary, the termination of
this Agreement by the Company in compliance with this Section 7.1(d) shall not
be deemed to violate any other obligations of the Company under this Agreement,
and, provided further, that the Company shall have notified HK of its intent to
terminate at least two business days prior to the effective date of such
termination;
(e) by HK, if the Company Board shall have (i) failed to recommend to
the shareholders of the Company that they give the Company Shareholder Approval,
(ii) withdrawn or modified in a manner adverse to HK its approval or
recommendation of this Agreement or the Merger, (iii) approved or recommended an
Acquisition Proposal or (iv) resolved to effect any of the foregoing;
(f) by either HK or the Company, if the Company Shareholder Approval
shall not have been obtained by reason of the failure to obtain the required
vote upon a vote held at a duly held meeting of shareholders or at any
adjournment thereof; or
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(g) by either HK or the Company, if the other party shall be in
material breach of this Agreement, and such breach shall not have been cured
within 20 days of receipt of written notice from the non-breaching party of such
breach.
Section 7.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 7.1 hereof, this Agreement shall forthwith become
void and have no effect, without any liability on the part of any party or its
directors, officers or shareholders, except that the terms and conditions of the
Confidentiality Agreement with respect to matters addressed by the last sentence
of Section 5.2 hereof and the provisions of this Section 7.2 and Section 7.3 of
this Agreement shall survive any such termination. Nothing contained in this
Section 7.2 shall relieve any party from liability for any breach of any
covenant of this Agreement or any breach of warranty or misrepresentation.
Section 7.3 Fees and Expenses.
(a) Subject to (b) below, in the event that this Agreement is
terminated pursuant to Section 7.1(g) or is terminated pursuant to Section
7.1(b) based at least in part upon a material breach of this Agreement by one of
the parties hereto (while the other party is not in material breach) and such
breach has not been previously waived by the non-breaching party, the breaching
party shall promptly reimburse the non-breaching party for all reasonable
out-of-pocket expenses and fees (including, without limitation, fees payable to
all banks, investment banking firms and other financial institutions, and their
respective agents and counsel, and all fees of counsel, accountants, financial
printers, experts and consultants to HK and its affiliates, collectively
referred to as "Costs"), whether incurred prior to, on or after the date hereof
(but prior to the date this Agreement is terminated), in connection with the
Merger and the consummation of all transactions contemplated by this Agreement,
and the financing thereof.
(b) In the event that this Agreement is terminated pursuant to Section
7.1(d) hereof, or by HK pursuant to Section 7.1(b) hereof based upon a material
breach of this Agreement by the Company, or by HK pursuant to Sections 7.1(e) or
7.1(g) hereof and prior to such termination HK has not materially breached this
Agreement, the Company will, within three business days of such termination, pay
to HK in cash by wire transfer in immediately available funds to an account
designated by HK a payment in an amount equal to $4 million (the "Termination
Fee"), and no amount will be owed to HK pursuant to clause (a) above.
(c) The prevailing party in any legal action undertaken to enforce
this Agreement or any provision hereof shall be entitled to recover from the
other party the costs and expenses (including attorneys' and expert witness
fees) incurred in connection with such action.
(d) Except as otherwise specifically provided for herein, whether or
not the Merger is consummated, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated by this Agreement shall be
paid by the party incurring such expenses.
-42-
Section 7.4 Amendment. This Agreement may be amended by the Company and HK
at any time before or after any approval of this Agreement by the shareholders
of the Company but, after any such approval, no amendment shall be made which
decreases the Merger Consideration or which adversely affects the rights of the
Company's shareholders hereunder without the approval of such shareholders. This
Agreement may not be amended except by an instrument in writing signed on behalf
of all the parties.
Section 7.5 Extension; Waiver. At any time prior to the Effective Time, HK,
on the one hand, and the Company, on the other hand, may but shall not be
obligated to (i) extend the time for the performance of any of the obligations
or other acts of the other, (ii) waive any inaccuracies in the representations
and warranties contained herein of the other or in any document, certificate or
writing delivered pursuant hereto by the other or (iii) waive compliance by the
other with any of the agreements or conditions. Any agreement on the part of any
party to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
ARTICLE 8
MISCELLANEOUS
Section 8.1 Non-Survival of Representations and Warranties. The
representations and warranties made in this Agreement shall not survive beyond
the Effective Time.
Section 8.2 Entire Agreement; Assignment.
(a) This Agreement (including the documents and the instruments
referred to herein) and the Confidentiality Agreement constitute the entire
agreement and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof and
thereof.
(b) Neither this Agreement nor any of the rights, interests or
obligations hereunder will be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
party (except that HK may assign its rights, interest and obligations to any
affiliate or Subsidiary of HK without the consent of the Company, provided that
no such assignment shall relieve HK of any liability for any breach by such
assignee). 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.
Section 8.3 Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, each of which shall remain in full force and
effect.
-43-
Section 8.4 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by overnight courier or telecopier to the
respective parties as follows:
If to HK: HK Merger Corp.
c/o H.I.G. Capital, LLC
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. Learner, P.C.
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Company: Happy Kids Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: Proskauer Rose LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above;
provided that notice of any change of address shall be effective only upon
receipt thereof.
Section 8.5 Governing Law; Exclusive Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof. HK and the Company each hereby submit to the
exclusive jurisdiction of the United States District Court for the Southern
District of New York and the Supreme Court of the State of New York, County of
New York, for the purpose of all legal proceedings arising out of or relating to
this Agreement or the
-44-
transactions contemplated hereby. HK and the Company each irrevocably waive, to
the fullest extent permitted by law, any objection which either of them may now
or hereafter have to the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought in such a court has
been brought in an inconvenient forum.
Section 8.6 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
Section 8.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
Section 8.8 Parties in Interest. Except with respect to Sections 2.2, 5.5
and 5.6 hereof (which are intended to be for the benefit of the persons
identified therein, and may be enforced by such persons), this Agreement shall
be binding upon and inure solely to the benefit of each party hereto, and
nothing in this Agreement, express or implied, is intended to confer upon any
other person any rights or remedies of any nature whatsoever under or by reason
of this Agreement.
Section 8.9 Certain Definitions. As used in this Agreement:
(a) "Formal Acquisition Proposal" means a formal written proposal from
any person for the purpose of arranging an acquisition, purchase, merger,
consolidation, share exchange, recapitalization, business combination or other
similar transaction involving all or substantially all of the assets of the
Company or a majority of the outstanding Common Shares or all or substantially
all of the Common Shares held by the public shareholders or any merger,
consolidation or business combination with the Company.
(b) Other than with respect to the term "ERISA Affiliate," the term
"affiliate", as applied to any person, shall mean any other person directly or
indirectly controlling, controlled by, or under common control with, that
person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling," "controlled by" and "under common
control with"), as applied to any person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that person, whether through the ownership of voting securities, by
contract or otherwise;
(c) "Business" shall mean the businesses of the Company and its
Subsidiaries as currently conducted;
(d) "Intellectual Property" means (i) all patents, patent applications
and patent disclosures and all inventions (whether or not patentable and whether
or not reduced to practice, including but not limited to any reissues,
continuations, continuations-in-part, divisions, revisions, extensions or
reexaminations thereof); (ii) all trademarks, service marks, trade names,
-45-
trade dress, logos, slogans, corporate names and Internet domain names and Web
sites, and all the goodwill associated with each of the foregoing; (iii) all
mask works and registrations and applications for registry thereof; (iv) all
registered and unregistered statutory and common law copyrights; (v) all
registrations, applications and renewals for any of the foregoing; (vi) all
trade secrets, confidential information, ideas, formulae, compositions,
know-how, manufacturing and production processes and techniques, research
information, drawings, specifications, designs, plans, improvements, proposals,
technical and computer data, documentation and software, financial business and
marketing plans, customer and supplier lists and related information and
marketing materials and all other proprietary rights; and (vii) all other
intellectual property rights;
(e) "International Trade Laws and Regulations" means all federal,
state, local and foreign statutes, executive orders, proclamations, regulations,
rules, directives, decrees, ordinances and similar provisions having the force
or effect of law and all judicial and administrative orders, rulings,
determinations and common law concerning the importation of merchandise, the
export or reexport of products, services and technology, the terms and conduct
of international transactions, making or receiving international payments and
the authorization to hold an ownership interest in a business located in a
country other than the United States, including the Tariff Act of 1930 as
amended and other laws administered by the United States Customs Service,
regulations issued or enforced by the United States Customs Service, the Export
Administration Act of 1979 as amended, the Export Administration Regulations,
the International Emergency Economic Powers Act, the Arms Export Control Act,
the International Traffic in Arms Regulations, any other export controls
administered by an agency of the United States government, Executive Orders of
the President regarding embargoes and restrictions on trade with designated
countries and Persons, the embargoes and restrictions administered by the United
States Office of Foreign Assets Control, the Foreign Corrupt Practices Act, the
antiboycott regulations administered by the United States Department of
Commerce, the antiboycott regulations administered by the United States
Department of the Treasury, legislation and regulations of the United States and
other countries implementing the North American Free Trade Agreement (NAFTA),
antidumping and countervailing duty laws and regulations, laws and regulations
by other countries concerning the ability of U.S. Persons to own businesses and
conduct business in those countries, restrictions by other countries on holding
foreign currency and repatriating funds and other laws and regulations adopted
by the governments or agencies of other countries relating to the same subject
matter as the United States statutes and regulations described above.
(f) the term "Person" or "person" shall include individuals,
corporations, partnerships, trusts, other entities and groups (which term shall
include a "group" as such term is defined in Section 13(d)(3) of the Exchange
Act); and
(g) "Knowledge of the Company" or words of similar import means the
actual knowledge of the following members of the Company's senior management:
▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇.
-46-
Section 8.10 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their 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 this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
[SIGNATURE PAGE FOLLOWS]
-47-
IN WITNESS WHEREOF, each of the parties has caused this Agreement and
Plan of Merger to be executed on its behalf by its respective officer thereunto
duly authorized, all as of the day and year first above written.
HAPPY KIDS INC.
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇
By: -------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇
Title: President
HK MERGER CORP.
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
By: ----------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: President
Schedule I
----------
Rollover Schedule
-----------------
Holder of Record Pre-Closing Shares Non-Rollover Shares Rollover Shares
----------------- -------------------- --------------------- -----------------
▇▇▇▇ ▇. ▇▇▇▇▇ 3,293,750 2,921,727 372,023
▇▇▇▇ ▇. ▇▇▇▇▇ 3,293,750 2,921,727 372,023
▇▇▇▇▇ ▇▇▇▇ 1,162,500 1,031,198 131,302
Total 7,750,000 6,874,652 875,348
EXHIBIT A
BANKERS TRUST COMPANY
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
September 13, 1999
H.I.G. Capital LLC
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇
re Commitment Letter
Gentlemen:
You have advised Bankers Trust Company ("BTCo") that H.I.G. Capital LLC
("HIG") is considering a recapitalization transaction (the "Acquisition") of
Happy Kids Inc. (the "Company") pursuant to which HIG, certain management
shareholders of the Company and other investors reasonably acceptable to us
(collectively, the "Equity Investors") would own 100% (on a fully diluted basis)
of the equity of the Company. We understand that (i) the purchase price for the
equity of the Company will be $81,100,000 and (ii) concurrently with the
consummation of the Acquisition, the Company will refinance $14,200,000 of its
existing debt (the "Refinancing" and, together with the Acquisition and the
incurrence of the financings described below, the "Transaction"). We also
understand that the Acquisition will be structured as a one-step merger
transaction pursuant to which a company newly formed by the Equity Investors
would merge with and into the Company, with the Company being the surviving
corporation.
BTCo understands that the aggregate funds needed to effect the
Acquisition and the Refinancing will be $95,300,000 and that the fees and
expenses incurred in connection with the Transaction will be approximately
$5,500,000. BTCo further understands that the funding required to effect the
Acquisition and the Refinancing, to pay fees and expenses owing in connection
with the Transaction and to provide working capital to the Company and its
subsidiaries shall be provided solely as follows: (i) a cash equity contribution
(the "Equity Financing") from the Equity Investors in the amount of $26,575,000
(of which up to $6,275,000 may be in the form of roll-over equity retained by
certain existing management shareholders of the Company (the "Equity
Rollover")), (ii) the issuance by the Company of subordinated notes
(the "Subordinated Notes") generating gross cash proceeds of $10,000,000 and
(iii) the incurrence by the Company of the Senior Secured Financing as defined
and described below.
BTCo understands that the senior bank financing (the "Senior Secured
Financing") required by the Company to effect the foregoing transactions will
consist of (i) a $60,000,000 term loan facility (the "Term Loan Facility") and
(ii) a $50,000,000 revolving credit facility (the "Revolving Credit Facility"
and, together with the Term Loan Facility, the "Credit Facilities"), it being
understood that approximately $10,500,000 of the Revolving Credit Facility may
be utilized to effect the Acquisition and the Refinancing and to pay any fees
and expenses owing in connection with the Transaction. A summary of certain of
the terms and conditions of the Credit Facilities is set forth on Exhibit A
hereto (the "Term Sheet").
BTCo is pleased to confirm that (i) it commits to provide, on the terms
and conditions set forth herein and in the Term Sheet, all of the Senior Secured
Financing, (ii) it will act as sole Administrative Agent for a syndicate of
financial institutions (the "Lenders") party to the Senior Secured Financing and
(iii) Deutsche Bank Securities Inc. ("DBSI"), an affiliate of BTCo, will act as
sole Lead Arranger and sole Book Manager for the Senior Secured Financing. You
agree that no other agents, co-agents or arrangers will be appointed, no other
titles will be awarded and no compensation (other than that expressly
contemplated by the Term Sheet and the Fee Letter referred to below) will be
paid in connection with the Senior Secured Financing unless you and we shall so
agree.
BTCo reserves the right, prior to or after execution of the definitive
credit documentation for the Senior Secured Financing, to syndicate all or part
of its commitment for the Senior Secured Financing to one or more Lenders
pursuant to a syndication to be managed by BTCo. BTCo shall commence syndication
efforts promptly after your acceptance of this letter and you agree to actively
assist BTCo in achieving a syndication that is satisfactory to BTCo. Such
syndication will be accomplished by a variety of means, including direct contact
during the syndication between senior management and advisors of HIG, the
Company and the proposed syndicate members. To assist BTCo in its syndication
efforts, you hereby agree, both before and after the closing of the Senior
Secured Financing, (i) to provide and cause your advisors to provide BTCo and
the other syndicate members upon request with all information reasonably deemed
necessary by BTCo to complete syndication, including but not limited to
information and evaluations prepared by HIG and the Company or by your or their
respective advisors relating to the Transaction and the other transactions
contemplated hereby, (ii) to assist BTCo upon request in the preparation of an
Information Memorandum to be used in connection with the syndication of the
Senior Secured Financing and (iii) to make available officers of each of HIG and
the Company from time to time and to attend and make presentations regarding the
business and prospects of the Company and its subsidiaries at a meeting or
meetings of Lenders or prospective Lenders.
If BTCo discovers information not previously known to it which BTCo
reasonably believes is materially negative information with respect to the
Transaction or the condition (financial or otherwise), business, operations,
assets, liabilities or prospects of the Company or any of its subsidiaries, BTCo
may, in its sole discretion, suggest alternative
-2-
financing amounts or structures that assure adequate protection for it or
decline to provide or participate in the proposed financing.
You hereby agree to pay all reasonable costs and expenses of BTCo and
its affiliates (including the reasonable fees and expenses of White & Case LLP
and other counsel to BTCo and BTCo's and its affiliates' out-of-pocket expenses)
arising in connection with the preparation, execution and delivery of this
letter and the definitive financing arrangements (and BTCo's and its affiliates'
due diligence and syndication efforts in connection herewith), whether or not
the Transaction is consummated, the Senior Secured Financing is made available
or definitive credit documents are executed. In addition, you hereby agree to
indemnify and hold harmless each of the Lenders (including in any event BTCo)
and each director, officer, employee, agent and affiliate thereof (each of the
foregoing entities an "indemnified person") in connection with any losses,
claims, damages, liabilities or other expenses to which such indemnified persons
may become subject, insofar as such losses, claims, damages, liabilities (or
actions or other proceedings commenced or threatened in respect thereof) or
other expenses arise out of or in any way relate to or result from the
Transaction or this letter or the extension of the Senior Secured Financing
contemplated by this letter, or in any way arise from any use or intended use of
this letter or the proceeds of the Senior Secured Financing contemplated by this
letter, and you agree to reimburse each indemnified person for any legal or
other expenses incurred in connection with investigating, defending or
participating in any such loss, claim, damage, liability or action or other
proceeding (whether or not such indemnified person is a party to any action or
proceeding out of which such expenses arise), provided that you shall have no
obligation to indemnify any indemnified person for any loss, claim, damage,
expense or liability to the extent that same resulted primarily from the gross
negligence or willful misconduct of such indemnified person (as determined by a
court of competent jurisdiction in a final and non-appealable decision). This
letter is furnished for your benefit only and may not be relied upon by any
other person or entity. Neither BTCo nor any of its affiliates shall be
responsible or liable to you or any other person or entity for any consequential
damages which may be alleged as a result of this letter or BTCo's failure to
provide the Senior Secured Financing. You also hereby agree to pay to BTCo the
fees set forth in the separate fee letter (the "Fee Letter") dated the date
hereof with respect to the Senior Secured Financing, with such fees to be
payable in accordance with the terms of the Fee Letter.
BTCo reserves the right to employ the services of its affiliates,
including DBSI, in providing the services contemplated by this letter and to
allocate, in whole or in part, to such affiliates certain fees payable to BTCo
in such manner as BTCo and its affiliates may agree in their sole discretion.
You acknowledge that BTCo may share with any of its affiliates, and such
affiliates may share with BTCo, any information relating to the Transaction or
HIG, the Company and their respective subsidiaries and affiliates, including any
information as to the creditworthiness of any such entities. BTCo agrees to
treat, and cause any such affiliate to treat, all non-public information
provided to it by you with respect to the Transaction and the Company and
identified as confidential, as confidential information in accordance with
customary banking industry practices.
-3-
The provisions of the immediately preceding two paragraphs shall
survive any termination of this letter.
No amendment, waiver or modification of any provision of this letter,
the Term Sheet or the Fee Letter shall be effective unless the same shall be in
writing and signed by each of the parties hereto.
BTCo shall have the right to review and approve all public
announcements and filings relating to the Transaction which refer to it, any of
its affiliates or any other Lender before they are made (such approval not to be
unreasonably withheld).
Except as and to the extent required by law, you are not authorized to
show or circulate this letter to any other person or entity (other than (i) your
legal and financial advisors in connection with your evaluation hereof and (ii)
the Company and its legal and financial advisors in connection with their
evaluation of your proposal for the Transaction), provided that after you have
accepted this letter as provided in the immediately succeeding paragraph you may
disclose a copy of this letter and the Term Sheet (but not the Fee Letter) as,
and to the extent, required in any public filing made in connection with the
Transaction (but otherwise subject to the immediately preceding paragraph). If
this letter is not accepted by you as provided in the immediately succeeding
paragraph, you are to immediately return this letter (and any copies hereof) to
the undersigned. This letter may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which
counterparts shall be an original, but all of which shall together constitute
one and the same instrument.
If you are in agreement with the foregoing, please sign and return to
BTCo the enclosed copy of this letter, together with a copy of the Fee Letter.
This offer shall terminate at 5:30 P.M., New York time, on September 17, 1999
unless a signed copy of this letter, together with a signed copy of the Fee
Letter, have been delivered to BTCo (including by way of facsimile transmission)
by such time.
* * *
-4-
THIS LETTER AND THE FEE LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, AND ANY RIGHT TO TRIAL BY
JURY WITH RESPECT TO ANY CLAIM, ACTION, SUIT OR PROCEEDING ARISING OUT OF OR
CONTEMPLATED BY THIS LETTER AND/OR THE FEE LETTER IS HEREBY WAIVED. YOU HEREBY
SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK STATE
COURTS LOCATED IN THE CITY OF NEW YORK IN CONNECTION WITH ANY DISPUTE RELATED TO
THIS LETTER AND/OR THE FEE LETTER OR ANY MATTERS CONTEMPLATED HEREBY OR THEREBY.
Very truly yours,
BANKERS TRUST COMPANY
By /s/ ▇▇▇▇ ▇▇▇▇▇
--------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇
Title: Managing Director
Agreed to and Accepted this
_____ day of __________, 1999:
H.I.G. CAPITAL LLC
By /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
--------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: President
Exhibit A
---------
SUMMARY OF CERTAIN TERMS AND CONDITIONS OF THE
----------------------------------------------
CREDIT FACILITIES1
------------------
I. Description of the Credit Facilities
------------------------------------
A. Term Loan Facility
------------------
Amount: $60,000,000 term loan facility (the "Term Loan
Facility").
Maturity: The final maturity date for the Term Loan Facility
shall be five years from the date of initial
borrowing under the Senior Secured Financing (the
"Closing Date"). The loans under the Term Loan
Facility (the "Term Loans") shall amortize in equal
quarterly installments in aggregate annual amounts as
follows:
Amortization
------------
Loan Year Amount
--------- ------
1 $0
2 $6,000,000
3 $9,000,000
4 $15,000,000
5 $30,000,000
-----------
Total $60,000,000
===========
Use of Proceeds: The Term Loans shall be utilized solely to (x)
finance the Acquisition and the Refinancing and (y)
pay the fees and expenses incurred in connection with
the Transaction.
Availability: Term Loans may only be incurred on the Closing Date.
No amount of the Term Loans once repaid may be
reborrowed.
----------
1 Unless otherwise defined herein, capitalized terms used herein and defined
in the Commitment Letter to which this Term Sheet is attached (the
"Commitment Letter") are used herein as therein defined.
Exhibit A
Page 2
B. Revolving Credit Facility
-------------------------
Amount: $50,000,000 revolving credit facility (the "Revolving
Credit Facility") with a $30,000,000 sublimit for
standby and commercial letters of credit (the
"Letters of Credit") to support obligations of the
Borrower (as defined below) and its subsidiaries
satisfactory to the Agent (as defined below).
Maturity: The date occurring five years from the Closing Date,
with all loans made pursuant to the Revolving Credit
Facility (the "Revolving Loans" and, together with
the Term Loans, the "Loans") to be repaid as a bullet
on such date and all Letters of Credit to terminate
by such date.
Use of Proceeds: The Revolving Loans shall be utilized for the working
capital and general corporate purposes of the
Borrower and its subsidiaries, it being understood
(i) that approximately $10,500,000 of Revolving Loans
may be used for the same purposes as the Term Loans
and (ii) no part of the Revolving Credit Facility
shall be used to finance acquisitions.
Availability: Revolving Loans may be borrowed, repaid and
reborrowed on or after the Closing Date and prior to
the maturity of the Revolving Credit Facility. The
Borrower's utilization under the entire Revolving
Credit Facility for both Revolving Loans and Letters
of Credit will be subject to a borrowing base ( the
"Borrowing Base") equal to the sum of (I) 85% of
Eligible Receivables and (II) 50 % of Eligible
Inventory (in each case, to be defined in a manner
satisfactory to the Agent).
II. Terms Applicable to all of the Credit Facilities
------------------------------------------------
Borrower: The Company (the "Borrower").
Administrative
Agent: BTCo (the "Agent").
Lead Arranger and
Book Manager: DBSI.
Lenders: A syndicate of lenders agented by BTCo and arranged
by DBSI (the "Lenders").
Guaranties: All amounts and obligations under the Senior Secured
Financing shall be unconditionally guaranteed (the
"Guaranty") by each of the direct
Exhibit A
Page 3
and indirect subsidiaries of the Borrower (the
"Guarantors"), subject to customary exceptions for
transactions of this type.
Security: All amounts owing by the Borrower and the Guarantors
under the Senior Secured Financing will be secured by
(i) a first priority perfected pledge of (x) all
notes owned by the Borrower and the Guarantors and
(y) all capital stock and other equity interests
owned by the Borrower and the Guarantors and (ii) a
first priority perfected security interest in all
other assets owned by the Borrower and the
Guarantors, including, without limitation,
receivables, securities, inventory, equipment, real
estate, leasehold interests, cash, contracts,
contract rights, licenses, patents, copyrights,
trademarks and other general intangibles, subject to
customary exceptions for transactions of this type.
Interest Rates: At the Borrower's option, Loans may be maintained
from time to time as (x) Base Rate Loans, which shall
bear interest at the Base Rate (as defined below) in
effect from time to time plus the Applicable Margin
(as defined below) or (y) Reserve Adjusted Eurodollar
Loans, which shall bear interest at the Eurodollar
Rate (as determined by the Agent, and adjusted for
maximum reserves) for the respective interest period
plus the Applicable Margin, provided that, (A) except
as provided in succeeding clause (B), no Reserve
-------- Adjusted Eurodollar Loans may be incurred
prior to the earlier of (i) the 90th day following
the Closing Date and (ii) that date upon which BTCo
determines in its sole discretion that the primary
syndication of the Senior Secured Financing has been
completed and (B) prior to the earlier date set forth
in clause (A) above, the Borrower may select an
interest period of one week so long as (i) all
outstanding Reserve Adjusted Eurodollar Loans are
subject to the same interest period and (ii) the
selection of such an interest period will not
interfere with the Agent's closing of the primary
syndication of the Senior Secured Financing as
determined by the Agent in its sole discretion.
"Base Rate" shall mean the higher of (x) the rate
that BTCo announces from time to time as its prime
lending rate and (y) 1/2 of 1% in excess of the
overnight federal funds rate.
"Applicable Margin" shall mean (i) in the case of
Base Rate Loans, 2.25% per annum, and (ii) in the
case of Reserve Adjusted Eurodollar Loans, 3.25% per
annum, subject to quarterly pricing stepdowns to be
agreed based upon leverage ratios to be agreed upon.
Interest periods of 1, 2, 3 and 6 months shall be
available in the case of Reserve Adjusted Eurodollar
Loans, provided that an interest period of
Exhibit A
Page 4
one week shall be available as and to the extent
provided in the third proceeding paragraph.
The Credit Facilities shall include customary
protective provisions for such matters as defaulting
banks, capital adequacy, increased costs, funding
losses, illegality and withholding taxes.
Interest in respect of Base Rate Loans shall be
payable quarterly in arrears on the last business day
of each quarter. Interest in respect of Reserve
Adjusted Eurodollar Loans shall be payable in arrears
at the end of the applicable interest period and
every three months in the case of interest periods in
excess of three months. Interest will also be payable
at the time of repayment of Loans and at maturity.
All interest, commitment commission and other fee
calculations shall be based on a 360-day year and
actual days elapsed.
Overdue principal and, to the extent permitted by
law, overdue interest and all other overdue amounts
shall bear interest at a rate per annum equal to the
greater of (i) the rate which is 2% in excess of the
rate otherwise applicable to the Base Rate Loans from
time to time and (ii) the rate which is 2% in excess
of the rate then borne by such borrowings. Such
interest shall be payable on demand.
Commitment Fees: 1/2 of 1% per annum of the unutilized commitments
under the Senior Secured Financing, as in effect from
time to time, commencing on the Closing Date to and
including the termination of the Senior Secured
Financing, payable quarterly in arrears and upon the
termination of the Senior Secured Financing.
Letter of
Credit Fees: The Applicable Margin as in effect from time to time
for Revolving Loans maintained as Reserve Adjusted
Eurodollar Loans to be shared proportionately by the
Lenders in accordance with their participation in the
respective Letter of Credit, and a facing fee of 1/8
of 1% per annum (but not less than $500 per --- -----
annum per Letter of Credit) to be paid to the issuer
of the Letter of Credit for its own account, in each
case calculated on the aggregate stated amount of all
Letters of Credit for the stated duration thereof. In
addition, the issuer of a Letter of Credit will be
paid its customary administrative charges in
connection with each Letter of Credit issued by it.
Voluntary Prepayments
and Commitment
Reductions: Permitted in whole or in part with prior notice but
without premium or penalty, provided that Reserve
Adjusted Eurodollar Loans that are
Exhibit A
Page 5
prepaid on any day other than the last day of an
interest period applicable thereto shall be
accompanied by customary breakage costs. Voluntary
prepayments of Term Loans shall be applied to reduce
the then remaining scheduled amortizations of the
Term Loans on a pro rata basis.
Mandatory Prepayments
and Commitment
Reductions: Mandatory repayments of Term Loans (and after all
Term Loans have been repaid, mandatory reductions to
the commitments under the Revolving Credit Facility
except with respect to clause (iv) below) shall be
required in an amount equal to (i) 100% of the net
cash proceeds from any issuance or incurrence of
funded debt by the Borrower or any of its
subsidiaries, subject to customary exceptions to be
agreed upon, (ii) 100% of the net cash proceeds from
equity issuances and capital contributions, subject
to customary exceptions to be agreed upon, (iii) 100%
of the net sale proceeds from asset sales by the
Borrower or any of its subsidiaries, subject to
customary exceptions to be agreed upon, (iv) 75% of
annual excess cash flow (to be defined to the
satisfaction of BTCo) and (v) 100% of insurance and
condemnation proceeds, with certain reinvestment
rights to be agreed upon. Mandatory repayments of the
Term Loans shall be applied to reduce the then
remaining scheduled amortizations of the Term Loans
on pro rata basis.
In addition, (x) Revolving Loans shall be required to
be prepaid (and Letters of Credit cash
collateralized) if at any time the aggregate
principal amount thereof exceeds either the total
Revolving Credit Facility commitments or the
Borrowing Base, in each case with such prepayment
(and/or cash collateralization) to be in an amount
equal to such excess and (y) unless the Required
Lenders otherwise agree, all Loans shall be required
to be repaid in full and all commitments in respect
of the Credit Facilities shall terminate upon the
occurrence of a "change of control" of the Borrower
(to be defined to the satisfaction of BTCo).
Assignments and
Participations: The Borrower may not assign its rights or obligations
under the Credit Facilities without the prior written
consent of the Lenders. Any Lender may assign, and
may sell participations in, its rights and
obligations under the Credit Facilities, subject (x)
in the case of participations, to customary
restrictions on the voting rights of the participants
and (y) in the case of assignments, to such
limitations as may be established by BTCo, including
the consent of the Agent and, so long as no default
or event of default exists under the Credit
Facilities, the consent of the
Exhibit A
Page 6
Borrower (each of which consents shall not be
unreasonably withheld or delayed). The Credit
Facilities shall provide for a mechanism which will
allow each assignee to become a direct signatory to
the Credit Facilities and will relieve the assigning
Lender of its obligations with respect to the
assigned portion of its commitment.
Documentation: The Lenders' commitments will be subject to the
negotiation, execution and delivery of definitive
financing agreements (and related security
documentation, guaranties, etc.) consistent with the
terms of this letter, in each case prepared by White
& Case LLP, counsel to the Agent, and satisfactory to
the Agent and the Required Lenders (including without
limitation as to the terms, conditions,
representations, covenants and events of default
contained therein). All documentation shall be
governed by New York law (except security
documentation that the Agent determines should be
governed by local law).
Commitment
Termination: The commitment of BTCo under the Commitment Letter
shall terminate on December 15, 1999 (or earlier in
the event that HIG has terminated the agreement with
respect to the Acquisition) unless a definitive
credit agreement for the Senior Secured Financing has
been executed and delivered, the Transaction has been
consummated and the Closing Date has occurred on or
prior to such date.
Conditions
Precedent: In addition to conditions precedent typical for these
types of facilities and any other conditions
appropriate in the context of the proposed
transaction, the following conditions, without
limitation, shall apply:
A. Conditions to the Initial Loans
-----------------------------------
(i) The structure and all terms of, and the
documentation for, the Transaction shall be
reasonably satisfactory in form and substance
to the Agent and the Required Lenders, and
such documentation shall be in full force and
effect. All conditions precedent to the
consummation of the Transaction as set forth
in the documentation relating thereto shall
have been satisfied (including the receipt of
waivers of the change of control provisions
in the Borrower's and its subsidiaries'
licensing agreements), and not waived except
with the consent of the Agent and the
Required Lenders, to the satisfaction of the
Agent and the Required Lenders. The
Transaction shall have been consummated in
accordance with the respective documentation
therefor and all applicable laws.
Exhibit A
Page 7
(ii) The Borrower shall have received gross cash
proceeds from the Equity Financing of
$26,575,000 (of which up to $6,275,000 may be
in the form of the Equity Rollover). All
terms and conditions (and the documentation)
of, or relating to, the Equity Financing
shall be reasonably satisfactory to the Agent
and the Required Lenders.
(iii) The Borrower shall have received gross cash
proceeds of $10,000,000 from the issuance of
a like principal amount of the Subordinated
Notes. The Subordinated Notes shall be
unsecured. All terms and conditions (and the
documentation) of, or relating to, the
Subordinated Notes (including, without
limitation, amortization, maturities,
interest rates, covenants, defaults,
remedies, mandatory prepayments, offer to
purchase, sinking fund provisions,
limitations on cash interest payable,
subordination provisions and other terms)
shall be reasonably satisfactory to the Agent
and the Required Lenders.
(iv) The Borrower shall have used all cash
proceeds received by it from the financings
described in clauses (ii) and (iii) above to
make payments owing in connection with the
Transaction before utilizing any proceeds of
Loans pursuant to the Senior Secured
Financing for such purpose.
(v) The corporate, capital and ownership
structure of the Borrower and its
subsidiaries shall be satisfactory to the
Agent and the Required Lenders.
(vi) All necessary governmental (domestic and
foreign) and third party approvals and/or
consents in connection with the Transaction
and the other transactions contemplated by
the Senior Secured Financing and otherwise
referred to herein shall have been obtained
and remain in effect, and all applicable
waiting periods shall have expired without
any action being taken by any competent
authority which restrains, prevents or
imposes materially adverse conditions upon,
the consummation of the Transaction or the
other transactions contemplated by the Senior
Secured Financing or otherwise referred to
herein. Additionally, there shall not exist
any judgment, order, injunction or other
restraint prohibiting or imposing materially
adverse conditions upon the Transaction or
the transactions contemplated by the Senior
Secured Financing.
(vii) The Lenders shall have a perfected first
priority security interest in all assets of
the Borrower and the Guarantors as required
Exhibit A
Page 8
above. The Guaranty shall have been executed
by the Guarantors as required above.
(viii) Nothing shall have occurred (and neither the
Agent nor any of the Lenders shall have
become aware of any facts or conditions not
previously known, whether as a result of
their due diligence investigations or
otherwise) which the Agent or the Required
Lenders shall determine has had, or could
reasonably be expected to have, a material
adverse effect on the rights or remedies of
the Lenders or the Agent, or on the ability
of the Borrower or any of its subsidiaries to
perform its respective obligations to the
Lenders or which has had, or could reasonably
be expected to have, a material adverse
effect on the Transaction or on the business,
operations, property, assets, liabilities,
condition (financial or otherwise) or
prospects of the Borrower or any of its
subsidiaries.
(ix) No litigation by any entity (private or
governmental) shall be pending or threatened
with respect to the Transaction or the Senior
Secured Financing or any documentation
executed in connection therewith which the
Agent or the Required Lenders in their sole
discretion determine to be material, or which
the Agent or the Required Lenders shall
determine could reasonably be expected to
have a material adverse effect on the
Transaction or on the business, operations,
property, assets, liabilities, condition
(financial or otherwise) or prospects of the
Borrower or any of its subsidiaries.
(x) The Lenders shall have received legal
opinions from counsel, and covering matters,
reasonably acceptable to the Agent and the
Required Lenders.
(xi) All Loans and other financing to the Borrower
shall be in full compliance with all
applicable requirements of the margin
regulations.
(xii) The Lenders shall have received a solvency
certificate from the chief financial officer
of the Borrower, in form and substance
reasonably acceptable to the Agent and the
Required Lenders, setting forth the
conclusions that, after giving effect to the
Transaction and the incurrence of all the
financings contemplated herein, each of the
Borrower on a stand-alone basis, and the
Borrower and its subsidiaries taken as a
whole, are not insolvent and will not be
rendered insolvent by the indebtedness
incurred in connection therewith, and will
not be
Exhibit A
Page 9
left with unreasonably small capital with
which to engage in their businesses and will
not have incurred debts beyond their ability
to pay such debts as they mature.
(xiii) There shall have been no material adverse
change to the syndication market for credit
facilities similar in nature to the Senior
Secured Financing contemplated herein and
there shall not have occurred and be
continuing a disruption of or an adverse
change in financial, banking, capital or loan
syndication markets that would have a
material adverse effect on the syndication of
the Senior Secured Financing, in each case as
determined by the Agent in its sole
discretion. HIG and the Borrower shall have
fully cooperated in the Agent's syndication
efforts, including without limitation by
promptly providing the Agent with all
information deemed necessary by the Agent to
successfully complete the syndication.
(xiv) The Agent and the Required Lenders shall be
satisfied with the management of the Borrower
and its subsidiaries and with their
employment and other compensation
arrangements.
(xv) The Agent shall have received, and shall be
satisfied with, an opening pro forma balance
sheet of, and projections for, the Borrower
and its subsidiaries, in each case after
giving effect to the Transaction.
(xvi) All costs, fees, expenses (including, without
limitation, legal fees and expenses) and
other compensation contemplated hereby
payable to the Lenders or the Agent shall
have been paid to the extent due.
(xvii) After giving effect to the Transaction and
the financings incurred in connection
therewith, the Borrower and its subsidiaries
shall have no outstanding indebtedness or
preferred stock other than (x) the Senior
Secured Financing, (y) the Subordinated Notes
and (z) such other indebtedness, if any, as
is reasonably acceptable to the Agent and the
Required Lenders.
(xviii) Neither the consummation of the Transaction,
nor the entering into of the Credit
Facilities shall conflict with, or give rise
to a default under, any material agreements
of the Borrower or any of its subsidiaries.
In addition, the Borrower's and its
subsidiaries' factoring arrangements with CIT
shall have been amended on a basis
satisfactory to the Agent to provide, inter
alia, (i) that CIT shall only have a lien on
the receivables
Exhibit A
Page 10
purchased by it and (ii) that the Lenders are
entitled to a first priority security
interest in all other assets of the Borrower
and its subsidiaries as provided herein.
B. Conditions To all Loans
---------------------------
Absence of default or event of default under the
Credit Facilities and continued accuracy of
representations and warranties in all material
respects.
Covenants: Those typical for these types of facilities and any
additional covenants appropriate in the context of
the proposed transaction. Although the covenants have
not yet been specifically determined, we anticipate
that the covenants shall in any event include:
(i) Restrictions on other indebtedness.
(ii) Restrictions against mergers, consolidations
and acquisitions, joint ventures,
partnerships and acquisitions and
dispositions of assets.
(iii) Restrictions on sale-leaseback transactions.
(iv) Restrictions on dividends and stock
purchases.
(v) Restrictions on voluntary prepayments of
other debt and amendments thereto.
(vi) Restrictions on transactions with affiliates
and formation of subsidiaries.
(vii) Restrictions on investments.
(viii) Absence of liens, with customary exceptions
to be negotiated.
(ix) Various financial covenants customary for a
transaction of this type (including, without
limitation, maximum total leverage, minimum
interest coverage, minimum fixed charge
coverage (including cash earn-out payments as
a fixed charge), minimum EBITDA and minimum
asset value ratio).
(x) Restrictions on capital expenditures.
(xi) Adequate insurance coverage.
(xii) ERISA covenants.
Exhibit A
Page 11
(xiii) The obtaining of interest rate protection in
amounts and for periods to be determined.
(xiv) Restrictions on material amendments of
organizational documents.
(xv) Maintenance of properties.
(xvi) Restrictions on changes in business.
Representations
and Warranties: The Credit Facilities and related documentation shall
contain representations and warranties typical for
these types of facilities, as well as any additional
ones appropriate in the context of the proposed
transaction.
Events of Default: Those typical for these types of facilities and any
additional ones appropriate in the context of the
proposed transaction, including, without limitation,
a default in the event of a change of control or
ownership of the Borrower.
Required Lenders: Majority
EXHIBIT A [Commitment Letter]
BANKERS TRUST CORPORATION
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
September 16, 1999
H.I.G. Capital LLC
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Re: Happy Kids Recapitalization Financing
-------------------------------------
Gentlemen:
We understand that you intend to consummate a recapitalization (the
"Recapitalization") of Happy Kids, Inc. (the "Company"), to be accomplished by
merger of a newly formed company ("Acquisition Corp.") owned by you and/or your
affiliates and other investors reasonably satisfactory to the Lender (the
"Equity Investors") with and into the Company, with the Company as the surviving
entity. We further understand that the cash requirements for the
Recapitalization, the refinancing of approximately $14.2 million of existing
debt of the Company and its subsidiaries (the "Refinancing") and related fees
and expenses will be approximately $100.8 million and will be provided solely
from (i) term loan facilities (the "Term Loan Facilities") of up to $60 million,
(ii) a revolving credit facility (the "Revolving Credit Facility" and, together
with the Term Loan Facilities, the "Bank Financing") of up to $50 million of
which it is estimated approximately $10.5 million will be drawn as of the
closing date of the Recapitalization (the "Closing Date"), (iii) a common equity
contribution to the Company of at least $26.575 million, $20.3 million of which
will be contributed in cash by the Equity Investors and up to $6.275 million of
which may be in the form of rollover equity of existing shareholders of the
Company (the "Equity Financing") and (iv) up to $10 million from the issuance of
senior subordinated debt of the Company. The Recapitalization, the Bank
Financing, the Equity Financing, the Refinancing and the issuance of senior
subordinated debt are herein collectively referred to as the "Transaction".
-2-
You have requested that Bankers Trust Corporation (the "Lender")
commit to provide to the Company funds in the amount of up to $10 million in the
form of a senior subordinated loan (or note issuance) to be made available as
described in Section 1 hereof (the "Senior Subordinated Financing").
Accordingly, subject to the terms and conditions set forth or
incorporated in this letter, the Lender agrees with you as follows:
Section 1. Senior Subordinated Financing. The Lender hereby commits,
subject to the terms and conditions hereof and in the Summary Term Sheet
attached hereto as Exhibit A (the "Term Sheet"), to provide to the Company a
senior subordinated loan (which at the option of the Lender may take the form of
senior subordinated notes) in the aggregate principal amount of up to $10
million. The proceeds of the Senior Subordinated Financing shall be used,
together with the proceeds of the Bank Financing and the Equity Financing,
solely to finance the Recapitalization, to consummate the Refinancing and to pay
fees and expenses incurred in connection with the Recapitalization. The
principal terms of the Senior Subordinated Financing are summarized in the Term
Sheet.
Unless the Lender's commitment hereunder shall have been terminated
pursuant to Section 6, the Lender or its affiliates shall have the exclusive
right to provide the Senior Subordinated Financing or other mezzanine financing
required in connection with the Transaction.
You hereby represent and covenant that based on your review and
analysis, to the best of your knowledge (a) all information other than
Projections (as defined below), which has been or is hereafter made available to
the Lender by you or your representatives, advisors or affiliates in connection
with the transactions contemplated hereby (the "Information") has been reviewed
and analyzed by you in connection with the performance of your own due diligence
and is, or in the case of Information made available after the date hereof will
be, complete and correct in all material respects and does not and will not
contain any untrue statement of a material fact or omit to state a material fact
known to you and necessary to make the statements contained therein, in the
light of the circumstances under which such statements were or are made, not
misleading and (b) all financial projections concerning the Company that have
been or are hereafter made available to the Lender by you or your
representatives, advisors or affiliates in connection with the transactions
contemplated hereby (the
-3-
"Projections") have been or, in the case of Projections made available after the
date hereof, will be prepared in good faith based upon reasonable assumptions
(it being understood that the Projections are subject to significant
uncertainties and contingencies, many of which are beyond your control and that
no assurance can be given that such Projections will be realized). You agree to
supplement the Information and the Projections from time to time until the
termination of the Lender's commitment hereunder so that the representation and
warranty made in the preceding sentence is correct as of such date. In arranging
and syndicating the Senior Subordinated Financing, the Lender will be using and
relying on the Information and the Projections without independent verification
thereof. The representations and covenants contained in this paragraph shall
remain effective until a definitive financing agreement is executed and
thereafter the disclosure representations contained herein shall be terminated
and of no further force and effect.
Section 2. Financing Documentation. The making of the Senior
Subordinated Financing will be governed by definitive loan (or an indenture or
note agreement in the case of a note financing) and related agreements and
documentation (collectively, the "Financing Documentation") in form and
substance reasonably satisfactory to the Lender. The Financing Documentation
shall be prepared by ▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, special counsel to the Lender. The
Financing Documentation shall contain such covenants, terms and conditions as
are consistent with this letter and the Term Sheet and such other covenants,
terms, conditions, representations, warranties, events of default and remedies
provisions as shall be satisfactory to the Lender and you and which are typical
for mezzanine financings.
Section 3. Conditions. The obligation of the Lender under Section 1 of
this letter to provide the Senior Subordinated Financing is subject to
fulfillment of the following conditions:
(a) Acquisition Agreement. The Company and Acquisition Corp. shall
have entered into a merger agreement or other acquisition agreement (the
"Acquisition Agreement") on terms and in form and substance reasonably
satisfactory to the Lender. The Acquisition Agreement shall not have been
amended in any material respect without the Lender's consent, which consent
shall not be unreasonably withheld. All conditions precedent to the
Recapitalization contained in the Acquisition Agreement shall have been
performed or complied with substantially on the terms set forth therein and
not waived without the Lender's consent, which consent
-4-
shall not be unreasonably withheld, and the Recapitalization shall have
been consummated simultaneously with the making of the Senior Subordinated
Financing.
(b) Financing Documentation. The Company and the Lender shall have
entered into the Financing Documentation relating to the Senior
Subordinated Financing and the transactions contemplated thereby, on terms
and in form and substance reasonably satisfactory to the Lender.
(c) Bank Financing. The Company shall have entered into definitive
documentation on terms and in form and substance reasonably satisfactory to
the Lender with respect to the Bank Financing (collectively with all
documents and instruments related thereto or delivered in connection
therewith, the "Bank Documents") with a commercial lender or lenders or a
syndicate of commercial lenders in form and substance reasonably
satisfactory to the Lender. The Bank Documents shall be in full force and
effect and the parties thereto shall be in compliance with all material
agreements thereunder.
(d) Equity Financing. On or prior to the Closing Date, the Company
shall have received cash proceeds of not less than $26.575 million from the
Equity Financing (up to $6.275 million of which may be in the form of
rollover equity). The terms of the Equity Financing shall be reasonably
satisfactory to the Lender.
(e) No Adverse Change or Development, Etc. (i) Nothing shall have
occurred since December 31, 1998 (and the Lender shall have become aware of
no facts or conditions not previously known to the Lender) which the Lender
shall, in its reasonable discretion, determine could have a material
adverse effect on the rights or remedies of the Lender, or on the ability
of the Company to perform its obligations to the Lender or which could have
a materially adverse effect on the business, property, assets, liabilities,
condition (financial or otherwise), results of operations or prospects of
the Company (a "Material Adverse Effect"); (ii) trading in securities
generally on the New York or American Stock Exchange shall not have been
suspended and minimum or maximum prices shall not have been established on
any such exchange; (iii) a banking moratorium shall not have been declared
by New York or United States authorities; and (iv) there shall not have
been (A) an outbreak or escalation of hostilities between the United States
and any foreign power,
-5-
or (B) an outbreak or escalation of any other insurrection or armed
conflict involving the United States or any other national or international
calamity or emergency, or (C) any material change in the general financial
markets of the United States which, in each case, in the reasonable
judgment of the Lender would have a material adverse effect on the ability
to syndicate loans or sell or place securities, as the case may be, such as
the Senior Subordinated Financing.
(f) Capital Structure. The pro forma consolidated capital structure
of the Company, after giving effect to the Recapitalization, shall be
consistent with the capital structure contemplated herein, and other than
the Senior Subordinated Financing, the Bank Financing and other
indebtedness reasonably satisfactory to the Lender, the Company, after
giving effect to, and upon consummation of, the Recapitalization, shall
have no outstanding indebtedness for money borrowed.
(g) Opinions. As of the Closing Date, the Lender shall have received
legal and other opinions (including all reports and certificates as to
solvency received by the lenders under the Bank Financing) from persons,
and covering matters, reasonably acceptable to the Lender.
(h) Litigation. There shall exist no action, suit, investigation,
litigation or proceeding pending or threatened in any court or before any
arbitrator or governmental or regulatory agency or authority that could
reasonably be expected to have a Material Adverse Effect.
Section 4. Indemnification and Contribution. You, together with
certain of your affiliates, agree to indemnify the Lender and its affiliates and
each person in control of the Lender and its affiliates and the respective
officers, directors, employees, agents and representatives of the Lender and its
affiliates and control persons, as provided in the Indemnity Letter dated the
date hereof (the "Indemnity Letter") and attached hereto.
Section 5. Expenses. In addition to any fees that may be payable to
the Lender hereunder and regardless of whether any of the transactions
contemplated by this letter are consummated, if this letter agreement is
terminated, the Senior Subordinated Financing is made available or the Financing
Documentation is executed and delivered, you hereby agree to reimburse the
Lender upon demand for all reasonable fees and dis-
-6-
bursements of legal counsel, including but not limited to the reasonable fees
and disbursements of ▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, the Lender's special counsel, and
all of the Lender's travel and other reasonable and documented out-of-pocket
expenses incurred in connection with the Transaction or otherwise arising out of
the Lender's commitment hereunder; provided that if Lender fails to fulfill its
obligations hereunder, no such fees or expenses shall be payable to the Lender.
Section 6. Termination. The Lender's commitment hereunder to provide
the Senior Subordinated Loan shall terminate, unless expressly agreed to by the
Lender in its sole discretion to be extended to another date, on the earlier of
(A) December 15, 1999 if the Senior Subordinated Financing has not been funded
(other than as a result of failure of the Lender to fulfill its obligations
hereunder), and (B) the termination of the Acquisition Agreement in accordance
with its terms. No such termination of such commitment shall affect your
obligations under Sections 4 and 5 hereof or this Section 6, which shall survive
any such termination.
Section 7. Assignment. This letter shall not be assignable by any
party hereto without the prior written consent of the other parties (other than,
in the case of the Lender, to an affiliate of the Lender, it being understood
that any such affiliate shall be subject to the restrictions set forth in this
Section 7); provided, however, that the Lender shall have the right, in its sole
discretion, to syndicate the Senior Subordinated Financing among banks or other
financial institutions pursuant to the Financing Documentation or otherwise and
to sell, transfer or assign all or any portion of, or interests or
participations in, the Senior Subordinated Financing and any notes issued in
connection therewith. You agree to use your reasonable best efforts, whether
prior to or after the funding date of the Senior Subordinated Financing, to
assist the Lender in syndicating the Senior Subordinated Financing or its
commitment with respect thereto, including, without limitation, in connection
with (x) the preparation of an information package regarding the Transaction,
including the Information and the Projections described in Section 1 hereof, and
(y) meetings and other communications with prospective Lenders, including making
senior management of the Company and other representatives of the Company
available (at mutually agreeable times) to participate in such meetings.
Section 8. Miscellaneous. THIS LETTER SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE PRINCIPLES GOVERNING
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CONFLICTS OF LAWS, AND ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM,
ACTION, SUIT OR PROCEEDING ARISING OUT OF OR CONTEMPLATED BY THIS COMMITMENT
LETTER IS HEREBY WAIVED. YOU HEREBY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF
THE FEDERAL AND NEW YORK STATE COURTS LOCATED IN THE CITY OF NEW YORK IN
CONNECTION WITH ANY DISPUTE RELATED TO THIS COMMITMENT LETTER OR ANY MATTERS
CONTEMPLATED HEREBY. This letter (including the provisions of the Indemnity
Letter and the Fee Letter dated the date hereof specifically incorporated
herein) embodies the entire agreement and understanding between you and the
Lender and supersedes all prior agreements and understandings relating to the
subject matter hereof. This letter may be executed in any number of
counterparts, each of which shall be an original, but all of which shall
constitute one instrument.
The Lender reserves the right to employ the services of its affiliates
in providing services contemplated by this letter and to allocate, in whole or
in part, to its affiliates certain fees payable to the Lender in such manner as
the Lender and its affiliates may agree in their discretion. You acknowledge
that the Lender may share with any of its affiliates, and such affiliates may
share with the Lender (in each case, subject to any confidentiality agreements
applicable thereto), any information related to you or your affiliates and the
Company (including information relating to creditworthiness) or the Transaction.
-8-
If you are in agreement with the foregoing, please sign and return to
the Lender to Bankers Trust Corporation at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇ the enclosed copy of this letter no later than 5:00 p.m., New York
time, on September 17, 1999, whereupon the undertakings of the parties shall
become effective to the extent and in the manner provided hereby. This offer
shall terminate if not so accepted by you on or prior to that time.
Very truly yours,
BANKERS TRUST CORPORATION
By: /s/ ▇.▇. ▇▇▇▇▇▇
------------------------------------
Name: ▇.▇. ▇▇▇▇▇▇
Title: Managing Director
Accepted and Agreed to as of
the date first above written:
H.I.G. CAPITAL LLC
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: President
EXHIBIT A
Summary Term Sheet1
Borrower: Happy Kids, Inc. (the "Borrower").
Guarantors: All obligations of the Borrower under the
Senior Subordinated Financing shall be
unconditionally guaranteed on a senior
subordinated basis by each of the Borrower's
subsidiaries that guarantees the Bank Financing
(the "Guarantors").
Lender: Bankers Trust Corporation.
Amount: $10 million senior subordinated loan or
note issuance (the "Senior Subordinated
Financing").
Maturity: The commitment shall automatically expire
on December 15, 1999 if no portion of the
Senior Subordinated Financing has been
funded (other than as a result of failure
of the Lender to fulfill its obligations
hereunder). Any outstanding amount under
the Senior Subordinated Financing will be
required to be repaid in full on the
earlier of (a) a change of control of the
Borrower (to be defined) or (b) nine years
from the Closing Date.
Commitment and As provided in the Fee Letter from
Funding Fees: the Lenders to you dated the date hereof
(the "Fee Letter").
Investor Fee: As provided in the Fee Letter.
----------------------------
1 Capitalized terms used herein and not defined herein shall have the
meanings provided in the commitment letter to which this summary term sheet
is attached.
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Use of Proceeds: To fund in part the Transaction and to pay
related fees and expenses.
Interest Rate: As provided in the Fee Letter.
Ranking: The obligations of the Borrower and the
Guarantors under the Senior Subordinated
Financing will be senior subordinated
obligations of the Borrower and the
Guarantors and will rank (i) junior in
right of payment to all senior
indebtedness of the Borrower or such
Guarantor, as the case may be, (ii) pari
passu with all other senior subordinated
indebtedness of the Borrower or such
Guarantor, as the case may be, and (iii)
senior to any subordinated indebtedness of
the Borrower or such Guarantor, as the
case may be.
Optional Redemption: As provided in the Fee Letter.
Mandatory Redemption: None.
Participation/Assign- The Lender may participate out or
ment or Syndication: sell or assign, or syndicate to other
lenders or financial institutions, the Senior
Subordinated Financing, in whole or in part, at
any time, subject to compliance with applicable
securities laws.
Covenants: The Financing Documentation will contain
customary affirmative and negative
covenants for mezzanine financings (with
customary carve-outs and exceptions),
including without limitation, restrictions
on the ability of the Borrower and its
Subsidiaries to incur additional
indebtedness and to incur indebtedness
which is subordinated to senior
indebtedness and senior to the Senior
Subordinated Financing, pay dividends and
make certain other restricted payments and
investments,
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impose restrictions on the ability of the
Borrower's subsidiaries to pay dividends or
make certain other payments to the Borrower,
create liens, enter into transactions with
affiliates, consummate certain asset sales, and
merge, consolidate or transfer all or
substantially all of their assets, and also
including a minimum interest coverage ratio
maintenance test.
Representations and Customary for transactions of this
Warranties: type.
Conditions Precedent: Customary for transactions of this type as
set forth in Section 3 of the commitment
letter.
Events of Default: Customary for transactions of this type,
including, without limitation, payment
defaults, covenant defaults, bankruptcy
and insolvency, judgments,
cross-acceleration of and failure to pay
at final maturity other indebtedness
aggregating $5 million or more and
foreclosure under the Bank Financing,
subject to, in certain cases, notice and
grace provisions.
Equity Participation: As provided in the Fee Letter.
Visitation Rights: The Lender will be entitled to board
visitation rights as are mutually agreed
upon.
Governing Law and Forum: The State of New York.
Indemnification and Customary for transactions of this
Expense Reimbursement: type.
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
October 4, 1999, by and between HK Merger Corp., a New York corporation ("HK")
and Happy Kids, Inc., a New York corporation (the "Company").
WHEREAS, HK and the Company are parties to that certain Agreement and Plan
of Merger (the "Merger Agreement"), dated as of September 17, 1999;
WHEREAS, HK and the Company desire to amend the Merger Agreement;
NOW, THEREFORE, Section 2.2 of the Merger Agreement is hereby deleted in
its entirety and restated as follows:
Options; Stock Plan. Immediately prior to the Effective Time, each
holder of a then-outstanding employee stock option to purchase Common
Shares (an "Option") granted under the Company's 1997 Stock Plan (the
"Stock Plan") will be entitled to receive in settlement of such Option a
cash payment (the "Option Consideration") from the Company equal to the
product of (i) the total number of Common Shares previously subject to such
Option, but only to the extent such Option is exercisable as of the Closing
Date (except for non-employee holders of an Option, in which case this
shall be the total number of Common Shares previously subject to such
Option whether or not such Option is fully exercisable as of the Closing
Date) and (ii) the excess of the Merger Consideration over the exercise
price per Common Share subject to such Option, subject to any required
withholding of taxes. The surrender of an Option to the Company in
exchange for the Option Consideration shall be deemed a release of any and
all rights the holder had of may have had in respect of such Option. After
the Effective Time, the Surviving Corporation will continue the Stock Plan.
The amounts payable pursuant to this Section 2.2 shall be paid as soon as
practicable following the Closing Date and shall be subject to and made net
of all applicable withholding taxes.
*****
IN WITNESS WHEREOF, each of the parties has caused this Amendment to
Agreement and Plan of Merger to be executed on its behalf by its respective
officer thereunto duly authorized, all as of the day and year first written
above.
HAPPY KIDS, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇
Title: President
HK MERGER CORP.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
----------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: President
2