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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
DATED AS OF JUNE 23, 1998
BETWEEN
THE MAXIM GROUP, INC., A DELAWARE CORPORATION,
CMAX ACQUISITION, INC., A GEORGIA CORPORATION,
▇▇▇▇ INDUSTRIES, INC., A GEORGIA CORPORATION,
AND
▇▇▇▇ CARPET SHOWPLACE, INC., A GEORGIA CORPORATION
** The Registrant agrees to furnish supplementally to the Commission a
copy of any omitted schedule or exhibit upon request.**
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made as of the
23rd day of June, 1998 by and among The Maxim Group, Inc., a Delaware
corporation ("Parent"), CMAX Acquisition, Inc., a Georgia corporation (the
"Subsidiary"), ▇▇▇▇ Industries, Inc., a Georgia corporation (the "Company"), and
▇▇▇▇ Carpet Showplace, Inc., a Georgia corporation and a wholly-owned subsidiary
of the Company ("Target1").
RECITALS:
A. The parties intend to effect a merger of the Subsidiary, a
wholly-owned subsidiary of Maxim Retail Group, Inc., a Georgia corporation which
is a wholly-owned subsidiary of Parent ("Maxim Retail"), with and into Target1
in accordance with this Agreement and the Georgia Business Corporation Code (the
"Merger"). Upon consummation of the Merger, the Subsidiary will cease to exist,
and Target1 will continue to exist as the surviving corporation of the Merger
and Target1 will thereafter be a wholly-owned subsidiary of Maxim Retail.
Target1, as the surviving corporation of the Merger, is sometimes hereinafter
referred to as the "Surviving Corporation."
B. The capitalization of Target1 consists of 1,000 shares of voting
common stock, $0.01 par value per share, of which 1,000 shares are issued and
outstanding (the "Target1 Common Stock").
C. It is intended that the Merger will be a qualified stock purchase
within the meaning of Section 338 of the Internal Revenue Code of 1986, as
amended (the "Code"), and will not qualify as a tax-free reorganization under
the Code.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the parties agree
as follows:
ARTICLE I
The Merger
SECTION 1.1 The Merger. At the Effective Time (as defined in Section
1.3), the Subsidiary shall be merged with and into Target1 in accordance with
the applicable provisions of the Georgia Business Corporation Code, and the
separate existence of the Subsidiary shall thereupon cease. Subject to the terms
and conditions hereof, the parties hereto shall take all reasonable action
necessary in accordance with applicable law and their respective charters and
bylaws to cause the Merger to be consummated on the Closing Date.
SECTION 1.2 Closing. Unless this Agreement shall have been terminated
in accordance with Article IX hereof, the consummation of the Merger (the
"Closing" and the date thereof the "Closing Date") will take place at the
offices of ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP, 1230 Peachtree
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Street, N.E., Suite ▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, two (2) business
days following the satisfaction of the conditions to close set forth in Article
VIII of this Agreement, or such other date as Parent and Company shall mutually
agree.
SECTION 1.3 Effective Time of the Merger. The Merger shall become
effective at the time the properly executed Articles of Merger under the Georgia
Business Corporation Code are duly filed with the Secretary of State of the
State of Georgia. The Articles of Merger shall be filed on the Closing Date in
the form attached hereto as Exhibit A. When used in this Agreement, the term
"Effective Time" shall mean the date and time at which such action is completed.
SECTION 1.4 Effect of Merger. The Merger shall have the effects set
forth in the applicable sections of the Georgia Business Corporation Code.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises of
Target1 and the Subsidiary shall vest in the Surviving Corporation, and all
debts, liabilities and duties of Target1 and Subsidiary shall become the debts,
liabilities and duties of the Surviving Corporation.
ARTICLE II
Certificate of Incorporation and
Bylaws of the Surviving Corporation
SECTION 2.1 Articles of Incorporation. The Articles of Incorporation of
the Subsidiary as in effect immediately prior to the Effective Time shall be the
Articles of Incorporation of the Surviving Corporation until thereafter altered,
amended or repealed in accordance with the Georgia Business Corporation Code and
such Articles of Incorporation.
SECTION 2.2 Bylaws. The Bylaws of the Subsidiary as in effect
immediately prior to the Effective Time shall be the Bylaws of the Surviving
Corporation until thereafter altered, amended or repealed in accordance with the
Georgia Business Corporation Code, such Articles of Incorporation and such
Bylaws.
SECTION 2.3 Directors and Officers. The Board of Directors of
Subsidiary immediately prior to the Effective Time shall be the initial Board of
Directors of the Surviving Corporation, each member to hold office in accordance
with the Articles of Incorporation and Bylaws of the Surviving Corporation, and
the officers of Subsidiary immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed and qualified.
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ARTICLE III
Effect on Capital Stock; Merger Consideration
SECTION 3.1 Conversion of Securities. As of the Effective Time, by
virtue of the Merger and without any action on the part of any record holder
thereof:
(a) Conversion of Capital Stock of the Subsidiary. Each share of
capital stock of the Subsidiary that is issued and outstanding immediately prior
to the Effective Time shall be converted into and exchanged for one (1) share of
the $.001 par value common stock of the Surviving Corporation, and each
certificate evidencing ownership of any such shares shall evidence ownership of
the same number of shares of common stock of the Surviving Corporation.
(b) Conversion of Shares of Target1 Common Stock. The shares of Target1
Common Stock issued and outstanding immediately prior to the Effective Time
shall be converted automatically into the right to receive the Merger
Consideration described in Section 3.2 below.
SECTION 3.2 Merger Consideration. (a) The aggregate consideration to be
paid by Parent in respect of the shares of Target1 Common Stock to be converted
as of the Effective Time shall be (i) 3,150,000 shares of the common stock,
$0.001 par value, of Parent (the "Parent Common Stock") plus (ii) $25,000,000.00
in cash (the "Cash Portion") plus (iii) an amount equal to $18,048,000.00 to be
paid in accordance with the terms of a Subordinated Promissory Note (the
"Note"), substantially in the form of Exhibit B (the "Note Portion"), subject to
adjustment as described in paragraph (b) below (the Parent Common Stock, the
Cash Portion and the Note Portion, as adjusted, are collectively referred to
herein as the "Merger Consideration"). The Merger Consideration described in
this paragraph (a) shall be paid by Parent on the Closing Date but shall be
subject to adjustment as described in paragraph (b) below.
(b) Post-closing Adjustment. (i) The Merger Consideration paid at
Closing has been determined based on the Company's estimate of the net book
value of the consolidated assets and liabilities of Target1, Target 2, Target 3
and Target4 related to the retail stores listed on Schedule 6.13 as set forth on
Schedule 4.3 hereto (the "Opening Balance Sheet").
(ii) As soon as practicable after the Closing Date and in any event
within sixty (60) days thereafter, the Company shall cause ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP,
the independent public accountants of the Company, to prepare a post-closing
report which shall set forth the actual net book value of the consolidated
assets and liabilities of Target1, Target2, Target3 and Target4 contained in the
Opening Balance Sheet, in substantially the same form as the Opening Balance
Sheet (the "Post-Closing Report"); provided, however, that the net book value of
goodwill shall be valued for all purposes under this Agreement at the value
reflected in the Opening Balance Sheet. Such Post-Closing Report shall be
prepared in accordance with generally accepted accounting principles
consistently applied by the Company ("GAAP") (for the purposes of this
paragraph, said Post-Closing Report shall not be deemed to have been prepared in
accordance with GAAP if an adjustment thereto otherwise indicated by GAAP is not
made on the basis that the amounts involved are not material
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to the Post-Closing Report taken as a whole, unless any single such adjustment
involves less than Two Thousand Five Hundred Dollars ($2,500) and all such
adjustments in the aggregate involve less than Two Thousand Five Hundred Dollars
($2,500). Parent and its representatives may participate in the preparation of
the Post-Closing Report. The Post-Closing Report shall be submitted to each of
Parent and the Company for their approval, which shall not be unreasonably
withheld, within 20 days following submission by the accountants. Parent and the
Company shall each bear one-half of the costs incurred in connection with the
preparation of the Post-Closing Report and each of Parent and Company shall bear
their respective expenses incurred in connection with their review of the
Post-Closing Report.
(iii) In the event that either or both of the Company and Parent shall
object to the Post-Closing Report within the twenty (20) day period following
submission thereof, Parent and the Company shall submit such dispute to
independent accountants selected by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP ("Independent
Accountants"). Parent and the Company shall use their best efforts to cause the
Independent Accountants to resolve any and all disputes regarding the
Post-Closing Report as soon as is practicable, but in no event more than thirty
(30) days following submission of such dispute to the Independent Accountants.
The resolution of such dispute and the Post-Closing Report prepared by the
Independent Accountants shall be binding upon the parties hereto, absent fraud
or arithmetic error. The cost of such resolution and preparation shall be shared
equally by the Company, on the one hand, and by Parent, on the other hand.
(iv) Within five (5) business days after the preparation and approval
of the Post-Closing Report pursuant to this Section 3.2, in the event that the
Post-Closing Report shall establish a net book value for any of the items
reflected in the Opening Balance Sheet (other than goodwill) of more or less
than set forth in the Opening Balance Sheet (the "Adjustment"), and such
Adjustment exceeds $250,000.00 in the aggregate, (X) the principal amount owing
under the Note shall be increased or decreased, without further action by the
parties, by an amount equal to (1) the Adjustment plus or minus (2) an amount
equal to the interest actually paid or payable on the Adjustment during the
period from the Closing Date to and including the date the Post-Closing Report
is approved (the "Adjustment Amount"), and (Y) in the event the amount of any
negative Adjustment is greater than the principal amount of the Note, the
Company shall pay to Parent in cash the difference between the Adjustment Amount
and the principal amount of the Note and the Note shall be canceled and be of no
further force or effect. The parties hereby agree that in the event the
principal amount of the Note is increased or decreased pursuant to this Section
3.2, the Note shall be surrendered by the Company to the Parent and a
replacement note, substantially in the same form as the Note, shall be executed
and delivered in lieu thereof.
SECTION 3.3 No Further Ownership Rights in Target1 Common Stock. The
Merger Consideration delivered upon the surrender for exchange of shares of
Target1 Common Stock in accordance with the terms hereof shall be deemed to have
been delivered in full satisfaction of all rights pertaining to such shares, and
there shall be no further registration of transfers on the records of Target1 of
shares which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, certificates are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this Article
III. Until surrendered and exchanged in
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accordance with this Section, each certificate of Target1 Common Stock shall,
after the Effective Time, represent solely the right to receive the Merger
Consideration in respect of the shares of Target1 Common Stock evidenced by such
certificate and shall have no other rights. No interest shall accrue or be
payable on any Merger Consideration (other than pursuant to the payment terms of
the Note Portion).
SECTION 3.4 Closing of Target1 Transfer Books. At the Effective Time,
the stock transfer books of Target1 shall be closed, and no transfer of Target1
Common Stock shall thereafter be made.
SECTION 3.5 Taking of Necessary Action; Further Action. Each of Parent,
the Subsidiary, the Company and Target1 will take all such reasonable and lawful
action as may be necessary or appropriate in order to effectuate the Merger in
accordance with this Agreement as promptly as practicable. If, at any time after
the Effective Time, any such further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of Target1 and the Subsidiary, the officers and directors
of Target1 and the Subsidiary immediately prior to the Effective Time are fully
authorized in the name of their respective corporations or otherwise to take,
and will take, all such lawful and necessary action.
ARTICLE IV
Representations and Warranties of the Company and Target1
As an inducement to Parent and the Subsidiary to enter into this
Agreement and to consummate the transactions contemplated hereby, and with the
knowledge that Parent and the Subsidiary shall rely thereon, the Company and
Target1, jointly and severally, make the following representations and
warranties to Parent and the Subsidiary, each of which is true and correct on
the date hereof, shall be unaffected by any investigation heretofore or
hereafter made by Parent or the Subsidiary, or any knowledge of Parent or the
Subsidiary. Information set forth in the Schedules attached hereto specifically
refers to the article and section of this Agreement to which such information is
responsive, and such information shall not be deemed to have been disclosed with
respect to any other article or section of this Agreement or for any other
purpose unless so cross-referenced. Language contained in a Schedule which
purports to vary, change or alter the language of the representations and
warranties contained in this Agreement shall be disregarded and be of no force
or effect. As used in this Agreement, "Knowledge" of the Company shall mean the
actual knowledge of the individuals set forth on Schedule 4.0; provided,
however, that, solely for the purposes of Section 4.11, "Knowledge" of the
Company shall mean and include the knowledge of all of the employees of the
Company or any Target at an employment level of store manager or above.
SECTION 4.1 Corporate.
(a) Organization. Each of the Company, Target1 and each affiliate of
Target1 involved in the retail industry, C&S Textile, Inc. ("Target2"), ▇▇▇▇
Retail Properties, Inc. ("Target3"), and
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▇▇▇▇ Installation Services, Inc. ("Target4") (Target 1, Target 2, Target3, and
Target4 are sometimes individually and collectively referred to herein as
"Target" and Target2, Target3 and Target4 are sometimes collectively referred to
herein as "Target Subs"), is a corporation duly organized, validly existing and
in good standing under the laws of the respective jurisdiction set forth next to
such entity's name on Schedule 4.1(a).
(b) Corporate Power. Each Target has all requisite corporate power and
authority to own, operate and lease its properties and to carry on its business
as and where such is now being conducted.
(c) Qualification. No Target is qualified or otherwise authorized to do
business as a foreign corporation in any jurisdiction other than the
jurisdictions identified on Schedule 4.1(c), which jurisdictions are, except as
noted on Schedule 4.1(c), the only jurisdictions in which such qualification or
authorization is required by law, except for jurisdictions with respect to which
the failure to qualify would not have a material adverse effect on the business
and assets of a Target as of the Effective Time ("Material Adverse Effect").
(d) Authorization; Validity. The execution and delivery of this
Agreement and the other agreements, instruments and documents referenced herein
(such other agreements, instruments and documents sometimes referred to herein
as the "Ancillary Instruments") to be executed and delivered by the Company or a
Target and full performance thereunder, have been duly authorized by the Board
of Directors of the Company and the Board of Directors and the shareholder of
Target1, and no other or further corporate act on the part of either the Company
or Target1 is necessary therefor. This Agreement has been duly and validly
executed and delivered by each of the Company and Target1 and is, and, when
executed and delivered, the Ancillary Instruments to be executed and delivered
by the Company or Target1 pursuant hereto will be, the legal, valid and binding
obligation of such entity, enforceable against such entity in accordance with
their respective terms, except as may be limited by bankruptcy, insolvency,
reorganization or other laws affecting creditors' rights generally, and by
general equitable principles.
(e) Capitalization of Target. (i) The authorized capital stock of
Target1 consists of 1,000 shares of Target1 Common Stock, of which 1,000 shares
of Target1 Common Stock are issued and outstanding, and none of which is held in
treasury. There are no (i) securities convertible into or exchangeable for any
of the capital stock or other securities of Target1, (ii) options, warrants or
other rights to purchase or subscribe to capital stock or other securities of
Target1 or securities which are convertible into or exchangeable for capital
stock or other securities of Target1 or (iii) contracts, commitments,
agreements, understandings or arrangements of any kind relating to the issuance,
sale or transfer of any capital stock or other equity securities of Target1, any
such convertible or exchangeable securities or any such options, warrants or
other rights. All of the issued and outstanding shares of Target1 Common Stock
are validly issued, fully paid and nonassessable, and all such shares are owned
free and clear of all security interests, liens, claims, pledges or other
similar matters ("Liens"), agreements, limitations in voting rights,
limitations, equities, claims or obligations to other persons of any nature,
kind or character and free and clear
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of all restrictions on transfer, except for those imposed by the Securities Act
of 1933, as amended (the "Securities Act") and all applicable state securities
laws.
(ii) The authorized capital stock of Target2 consists of 100,000
shares of $.01 par value common stock, of which 3,720 shares of such common
stock are issued and outstanding, and none of which is held in treasury. There
are no (i) securities convertible into or exchangeable for any of the capital
stock or other securities of Target2, (ii) options, warrants or other rights to
purchase or subscribe to capital stock or other securities of Target2, or (iii)
contracts, commitments, agreements, understandings or arrangements of any kind
relating to the issuance, sale or transfer of any capital stock or other equity
securities of Target2, any such convertible or exchangeable securities or any
such options, warrants or other rights. All of the issued and outstanding shares
of such common stock are validly issued, fully paid and nonassessable, and all
such shares are owned, or on the Closing Date will be owned, by Target1 free and
clear of all Liens, agreements, limitations in voting rights, equities, claims
or obligations to other persons of any nature, kind or character and free and
clear of all restrictions on transfer, except for those imposed by the
Securities Act and all applicable state securities laws.
(iii) The authorized capital stock of Target3 consists of 1,000 shares
of $.01 par value common stock, of which 1,000 shares of such common stock are
issued and outstanding, and none of which is held in treasury. There are no (i)
securities convertible into or exchangeable for any of the capital stock or
other securities of Target3, (ii) options, warrants or other rights to purchase
or subscribe to capital stock or other securities of Target3, or (iii)
contracts, commitments, agreements, understandings or arrangements of any kind
relating to the issuance, sale or transfer of any capital stock or other equity
securities of Target3, any such convertible or exchangeable securities or any
such options, warrants or other rights. All of the issued and outstanding shares
of such common stock are validly issued, fully paid and nonassessable, and all
such shares are owned, or on the Closing Date will be owned, by Target1 free and
clear of all Liens, agreements, limitations in voting rights, equities, claims
or obligations to other persons of any nature, kind or character and free and
clear of all restrictions on transfer, except for those imposed by the
Securities Act and all applicable state securities laws.
(iv) The authorized capital stock of Target4 consists of 1,000 shares
of $.01 par value common stock, of which 100 shares of such common stock are
issued and outstanding, and none of which is held in treasury. There are no (i)
securities convertible into or exchangeable for any of the capital stock or
other securities of Target4, (ii) options, warrants or other rights to purchase
or subscribe to capital stock or other securities of Target4, or (iii)
contracts, commitments, agreements, understandings or arrangements of any kind
relating to the issuance, sale or transfer of any capital stock or other equity
securities of Target4, any such convertible or exchangeable securities or any
such options, warrants or other rights. All of the issued and outstanding shares
of such common stock are validly issued, fully paid and nonassessable, and all
such shares are owned, or on the Closing Date will be owned, by Target1 free and
clear of all Liens, agreements, limitations in voting rights, equities, claims
or obligations to other persons of any nature, kind or character and free and
clear of all restrictions on transfer, except for those imposed by the
Securities Act and all applicable state securities laws.
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(f) Subsidiaries. Schedule 4.1(f) sets forth the name, jurisdiction of
incorporation, capitalization, ownership and officers and directors of each
corporation in which any Target has a direct or indirect equity interest (as
used in this Section 4.1(f), each a "Subsidiary" or collectively, the
"Subsidiaries") and the states in which each Subsidiary is qualified or licensed
to do business as a foreign corporation. Except as listed in Schedule 4.1(f) or
contemplated by Section 6.13, no Target owns, directly or indirectly, any
capital stock, or other equity securities of any corporation or has any direct
or indirect equity or other ownership interest in any entity or business.
SECTION 4.2 No Violation. Except as set forth on Schedule 4.2, neither
the execution and delivery of this Agreement or the Ancillary Instruments nor
the consummation by the Company or any Target of the transactions contemplated
hereby and thereby (a) will violate any statute or law or any rule, regulation,
order, writ, injunction or decree of any court or governmental authority, (b)
will require any material authorization, consent, approval, exemption or other
action by or notice to any court, administrative or governmental agency,
instrumentality, commission, authority, board or body (including, but not
limited to, under any "plant-closing" or similar law) or (c) subject to
obtaining the consents referred to in Schedule 4.2 or such other consents as are
actually obtained and delivered at Closing, will violate or conflict with, or
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, or will result in the termination of, or
accelerate the performance required by, or result in the creation of any Lien
upon any of the assets of any Target, any term or provision of the articles or
certificate of incorporation or bylaws of the Company or any Target or of any
contract, lease, or agreement of any kind or character to which any Target is a
party, or by which any Target or any of its assets may be subject, bound or
affected, except for violations, defaults, terminations, accelerations or
creations of Liens which would not have a Material Adverse Effect.
SECTION 4.3 Financial Statements. Included as Schedule 4.3 is a true
and complete copy of the Opening Balance Sheet with respect to the retail
locations referenced in Schedule 6.13 and a detailed compilation of revenue by
retail location (for the locations set forth in Schedule 6.13) for the six (6)
month period ending on the date of execution of this Agreement (the Opening
Balance Sheet and such financial information are sometimes referred to
collectively herein as the "Financial Statements"). The Opening Balance Sheet
has been prepared on a pro forma basis and all the Financial Statements are
complete and accurate, have been prepared in accordance with GAAP and the books
and records of Company and Target. The Opening Balance Sheet fairly presents, in
accordance with GAAP, the financial position of Target on a consolidated basis
as of the date indicated after giving effect to (i) the transfer of certain
assets and liabilities from and to Target, as further described in Section 6.13,
and (ii) the transfer of the capital stock of any Target Sub to Target1 prior to
Closing. During the period from the date of the execution of this Agreement
through and including the Effective Time, Company shall provide on-going
financial information regarding the revenues of the store locations referenced
in Schedule 6.13, which financial information shall be prepared in accordance
with GAAP and the books and records of Company and Target and shall be deemed to
be included in the term "Financial Statements" as such term is used herein.
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SECTION 4.4 Tax Matters.
(a) Definitions. For purposes of this Agreement:
(i) "Tax" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes
under Code ss.59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration,
value added, alternative or add-on minimum, estimated, or other tax of
any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not.
(ii) "Tax Return" means any return, declaration, report, claim
for refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any
amendment thereof.
(b) Provision For Taxes. The tax liability on the Financial Statements
is sufficient for the payment of all Taxes for which the Target will be liable
at the date of such Financial Statements and for all years and periods prior
thereto. Since the date of such Financial Statements, no Target has incurred any
Taxes other than Taxes incurred in the ordinary course of business consistent in
type and amount with past practices. There are no material Liens on any asset of
any Target that arose in connection with any failure or alleged failure to pay
any Tax.
(c) Tax Returns Filed. Except as set forth on Schedule 4.4(c), all Tax
Returns required to be filed by or on behalf of each Target as of the date of
this Agreement have been timely filed (or if filed late all applicable penalties
and interest have been paid) and when filed were true and correct in all
material respects, and the Taxes shown as due thereon were paid or adequately
accrued. Each Target has duly withheld and paid all Taxes required to be
withheld and paid in connection with any amount paid or owed to its employees,
contractors, creditors or other third parties. No claim has been made in the
prior twenty-four (24) months by an authority in a jurisdiction where any Target
does not file Tax Returns that such Target is or may be subject to taxation by
that jurisdiction.
(d) Tax Audits. Except as set forth on Schedule 4.4(d), no state income
Tax Returns of any Target are under audit by any state taxing authorities, and
neither the Company nor any Target has received from the tax authorities of any
state, county, local or other jurisdiction any notice of underpayment of taxes
or other deficiency which has not been paid nor any objection to any return or
report filed by any Target except for notices and objections incurred in the
ordinary course of business. Except as set forth on Schedule 4.4(d), no Target
has waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to any tax assessment deficiency.
(e) Consolidated Group. At the Closing, no Target will have any
liability under any Tax allocation or sharing agreement. No Target (i) has been
a member of an affiliated group of corporations filing a consolidated federal
income Tax Return (other than a group the common parent of which was the
Company) and (ii) has any liability for the Taxes of any person other than such
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Target under Reg. ss. 1.1502-6 (or any similar provision of state, local, or
foreign law), as a transferee or successor, by contract, or otherwise.
(f) Other Tax Matters. No Target has ever made any payments or been a
party to an agreement (including this Agreement) that under any circumstances
could obligate it to make payments that will not be deductible because of
Section 280G of the Code. No Target is a "United States real property holding
company" within the meaning of Section 897 of the Code.
SECTION 4.5 Accounts Receivable. All accounts receivable of each Target
reflected on the Financial Statements, and those arising since the date thereof,
represent arm's length sales actually made in the ordinary course of business;
and, to the Knowledge of the Company, are subject to no material counterclaim or
set off; and, to the Knowledge of the Company, no material dispute exists which
is not appropriately reserved in the reserve for doubtful accounts in the
Financial Statements.
SECTION 4.6 Inventory. All inventory of each Target reflected on the
Financial Statements consists in all material respects of a quality and quantity
useable and saleable in the ordinary course of business (subject to normal
defects, deficiencies, returns, allowances and similar items in the ordinary
course of such Target's business) and is accurately valued in accordance with
GAAP at the lower of cost (on a FIFO basis) or market. Except as set forth on
Schedule 4.6, all inventory of each Target purchased since the date of the
Financial Statements consists of a quality and quantity useable and saleable in
the ordinary course of its business, subject to the foregoing limitations. All
inventory of each Target is located on premises owned or leased by such Target
or in independent warehouses or in transit.
SECTION 4.7 Absence of Certain Changes. Except as and to the extent set
forth in Schedule 4.7 and as described in Section 6.13, since the date of the
Opening Balance Sheet there has been no:
(a) Material adverse change in the financial condition, assets,
liabilities, business, prospects or operations of any Target or its business;
(b) Loss or damage to, or destruction of, any assets of any Target in
excess of $250,000.00, whether covered by insurance or not, affecting the
business or properties (owned or leased) of such Target;
(c) Increase in the compensation, salaries or wages payable or to
become payable to any employee or agent of any Target (including, but not
limited to, any increase or change pursuant to any bonus, pension, profit
sharing, retirement or other plan or commitment), other than changes in the
ordinary course of business not exceeding five percent (5%) in the aggregate and
consistent with past practices, or any bonus or other employee benefit granted,
made or accrued;
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(d) Any acquisition by any Target of any capital stock of itself or any
Affiliate (as defined in Rule 12b-2 of the regulations promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of such
Target;
(e) Labor dispute or disturbance, other than routine grievances and
issues which would not have a Material Adverse Effect;
(f) Commitment or transaction by any Target (including, but not limited
to, any borrowing or capital expenditure) involving more than $250,000.00 or
other than in the ordinary course of business consistent with past practice;
(g) Sale, lease or other transfer or disposition of any material
properties or assets of any Target, except for sales of inventory in the
ordinary course of business and sales or disposition of other assets for their
fair market value in the ordinary course of business;
(h) Indebtedness for borrowed money incurred, involving more than
$50,000 singularly or $250,000 in the aggregate, or assumed or guaranteed by or
secured by any assets of any Target;
(i) Lien made on or affecting any of the assets of any Target, other
than Liens incurred in the ordinary course of business, none of which would have
a Material Adverse Effect;
(j) Entering into, amendment, extension or termination by any Target of
any contract or lease, or any waiver of material rights thereunder involving
more than $250,000, or other than in the ordinary course of business, except as
disclosed on Schedule 4.7(j);
(k) Grant of credit to any customer or distributor of any Target on
terms or in amounts more favorable than those which have been extended to such
customer or distributor in the past, any other change in the terms of any credit
heretofore extended, or any other change of the policies or practices of such
Target and the granting of credit, except for grants or changes in the ordinary
course of business, none of which would have a Material Adverse Effect;
(l) Other events, occurrences, incidents, actions, failures to act,
transactions or conditions not in the ordinary course of business of any Target
which would have a Material Adverse Effect.
SECTION 4.8 Absence of Undisclosed Liabilities. Except as and to the
extent specifically disclosed and reserved against in the Financial Statements
or disclosed in Schedule 4.8, to the Knowledge of the Company, no Target has any
material liabilities, commitments or obligations (secured or unsecured, and
whether accrued, absolute, contingent, direct, indirect or otherwise) (other
than commercial liabilities and obligations incurred since the date of the
Financial Statements in the ordinary course of business and consistent with past
practice), which under GAAP would be required to be set forth in or reserved on
the Financial Statements, and is not so set forth or reserved.
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SECTION 4.9 No Litigation. Except as set forth in Schedule 4.9, and
except for individual claims incurred in the ordinary course of business of less
than $50,000.00, there is no action, suit, arbitration proceeding, investigation
or inquiry, pending before any court, arbitrator or federal, state, foreign,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality or, to the Knowledge of Company, threatened, against any Target
or its directors (in such capacity), business or assets, nor does the Company or
any Target know, or have grounds to know, of any basis for any such proceedings,
investigations or inquiries. Except as set forth in Schedule 4.9, no Target is
subject to any material judgment, order, writ or injunction of any court,
arbitrator or federal, state, foreign, municipal or other governmental
department, commission, board, bureau, agency or instrumentality.
SECTION 4.10 Compliance With Laws.
(a) Compliance. Except as set forth on Schedule 4.10(a), to the
Knowledge of the Company, each Target is in compliance with all laws, statutes,
rules, regulations, ordinances and other pronouncements having the effect of a
law of the United States, any foreign country or any domestic or foreign state,
county, city or other political subdivision (collectively, "Laws") with respect
to the operation of its business, including, but not limited to, those
applicable to discrimination in employment, the Americans with Disabilities Act,
occupational safety and health, trade practices, competition and pricing,
product warranties, zoning, building and sanitation, employment, retirement and
labor relations, product advertising and the Environmental Laws (as defined in
Section 4.10(c)), except for noncompliance which would not have a Material
Adverse Effect. To the Knowledge of the Company, the Real Property (as defined
in Section 4.11(c)) is unconditionally zoned a classification that allows its
current use, such zoning is not being challenged by legal process and no change
or modification thereof is being sought by any person or entity, including, but
not limited to, any governmental or quasi-governmental authorities. Except as
set forth in Schedule 4.10(a), neither the executive officers of any Target nor,
to the Knowledge of the Company, the Company have received notice of any
violation or alleged violation, or past or continuing violation, of any Laws,
which notice is currently outstanding, except for notices incurred in the
ordinary course of business, none of which would have a Material Adverse Effect.
Without limiting the generality of the foregoing:
(i) To the Knowledge of the Company, the operation of the
business of each Target as now conducted does not, nor does any
condition existing at any of the facilities in which such business is
conducted (collectively, the "Facilities"), in any manner constitute a
breach or violation of any lease or other agreement governing the use
of such Facilities, or a nuisance or other tortious interference with
the rights of any person or persons in such a manner as to give rise to
or constitute the grounds for a suit, action, claim or demand by any
such person or persons seeking compensation or damages or seeking to
restrain, enjoin or otherwise prohibit any aspect of the conduct of
such businesses or the manner in which they are now conducted, except
to the extent such breach or violation or nuisance or tortious
interference would not result in a Material Adverse Effect.
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(ii) Except as set forth on Schedule 4.9, each Target has
made all required material payments to its unemployment compensation
reserve accounts with the appropriate governmental departments of the
states where it is required to maintain such accounts, and each of such
accounts has a balance required by law.
(iii) Each Target has delivered to Parent copies of all
reports of such Target for the past year required under the federal
Occupational Safety and Health Act of 1970, as amended. The
deficiencies, if any, noted on such reports have been corrected, except
deficiencies which would not have a Material Adverse Effect.
(b) Licenses and Permits. Except as set forth on Schedule 4.10(b), to
the Knowledge of the Company, each Target has all licenses, permits, approvals,
authorizations and consents of all governmental and regulatory authorities and
all certification organizations required of it in connection with the operation
of its business (as presently conducted), and operation of the Facilities,
except where the failure to obtain the same would not have a Material Adverse
Effect.
(c) Environmental Matters. The applicable Laws relating to pollution or
protection of the environment, including, but not limited to, Laws relating to
emissions, discharges, generation, storage, releases or threatened releases
("Releases") of pollutants, contaminants, asbestos, lead-based paints, chemicals
or industrial, toxic, hazardous or petroleum or petroleum-based substances or
wastes ("Hazardous Materials") into the environment (including, but not limited
to, ambient air, surface water, ground water, land surface or subsurface strata)
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Materials
including, without limitation, the Clean Water Act, the Clean Air Act, the
Resource Conservation and Recovery Act, the Toxic Substances Control Act and the
Comprehensive Environmental Response Compensation Liability Act ("CERCLA"), as
amended, and their state and local counterparts are herein collectively referred
to as the "Environmental Laws". Except as set forth on Schedule 4.10(c) and
Schedule 4.9, no Target or, to the Knowledge of the Company, any of its
predecessors in title, or any other person, has ever used the Real Property for
the processing, handling, manufacturing, generating, treating, storing, or
disposing of any Hazardous Materials, nor, to the Knowledge of Company, has the
Real Property been used as a landfill or as a dump for garbage, refuse or
Hazardous Materials. Without limiting the generality of the foregoing provisions
of this Section 4.10, to the Knowledge of the Company, except as disclosed in
reports referenced in Section 4.10(c), each Target is in full compliance with
all limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in the
Environmental Laws or contained in any regulations, code, Plan, order, decree,
judgment, injunction, notice or demand letter issued, entered, promulgated or
approved thereunder, except where noncompliance would not individually or
collectively have a Material Adverse Effect. Except as specifically described in
Schedule 4.10(c) and Schedule 4.9, there is no civil, criminal or administrative
action, suit, demand, notice or demand letter, claim, hearing, notice of
violation, investigation or proceeding pending, or, to the Knowledge of the
Company, threatened, against any Target relating in any way to the Environmental
Laws or any regulation, code, Plan, order, decree, judgment, injunction, notice
or demand letter issued, entered, promulgated or approved thereunder.
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SECTION 4.11 Title to and Condition of Properties.
(a) Title. Each Target has good title to all of its assets, businesses
and properties, and with respect to real property leased by such Target,
leasehold estates or lessee's interests, including, but not limited to, all such
properties (tangible and intangible) reflected in the Financial Statements,
except for inventory and other assets disposed of in the ordinary course of
business since the date of such Financial Statements, free and clear of all
Liens, except (i) those described on Schedule 4.11(a), (ii) Liens for Taxes not
yet due or which are being contested in good faith by appropriate proceedings
(and which have been sufficiently accrued or reserved against in the Financial
Statements), (iii) municipal and zoning ordinances and easements and other
matters of record, none of which, to the Knowledge of Company, materially
interfere with the use of the property as currently utilized, and (iv) other
Liens incurred in the ordinary course of business, none of which would have a
Material Adverse Effect. Except as set forth in Schedule 4.11(a), none of the
assets, business or properties of any Target are subject to any restrictions
with respect to the transferability thereof and title thereto will not be
affected in any way by the transactions contemplated hereby.
(b) Condition. Except as set forth on Schedule 4.11(b), to the
Knowledge of the Company, all property and assets owned or utilized by each
Target are in operating condition and repair, free from any defects (except such
minor defects as do not interfere with the use thereof in the conduct of the
normal operations of the business of such Target), have been maintained
consistent with the standards generally followed in the industry, except for
conditions, repairs and failures to maintain which would not have a Material
Adverse Effect.
(c) Real Property. Schedule 4.11(c) sets forth all real property owned
by each Target (the "Real Property"). To the Knowledge of the Company, all of
the Real Property has permanent rights of access to dedicated public highways
and is serviced by public utilities, or utilities that are available to the Real
Property by valid, appurtenant easements. The Company has no notice or Knowledge
of any (i) governmental agency or court order requiring repair, alteration, or
correction of any existing condition affecting any Real Property or the systems
or improvements thereat which would have a Material Adverse Effect, or (ii)
underground storage tanks affecting any Real Property.
(d) No Condemnation or Expropriation. Except as set forth on Schedule
4.9, neither the whole nor any material portion of the Real Property or any
other material assets of any Target is subject to any governmental decree or
order to be sold or is being condemned, expropriated or otherwise taken by any
public authority with or without payment of compensation therefor, nor to the
Knowledge of the Company, has any such condemnation, expropriation or taking
been proposed.
SECTION 4.12 Insurance. No Target maintains separate policies of
insurance with respect to the business and properties of such Target.
SECTION 4.13 Contracts and Commitments.
(a) Real Property Leases. Except as set forth in Schedule 4.11(c), no
Target has any lease of real property ("Real Property Leases").
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(b) Personal Property Leases. Except as set forth in Schedule 4.13(b),
no Target has any lease of personal property involving consideration or other
expenditure in excess of $250,000.
(c) Purchase Commitments. No Target has purchase commitments for
inventory items or supplies that, together with amounts on hand, constitute in
excess of three (3) months normal usage, other than minor amounts of certain
inventory with a value of less than $250,000 in the aggregate.
(d) Sales Commitments. Except as set forth on Schedule 4.13(d), no
Target has sales contracts or commitments to customers or distributors which
aggregate in excess of $250,000 to any one customer or distributor (or group of
affiliated customers or distributors) except those terminable without material
liability. No Target has sales contracts or commitments except those made in the
ordinary course of business, at arm's length, and no such contracts or
commitments are for a sales price which reasonably could be expected to result
in a loss to such Target.
(e) Contracts With Certain Persons. Except as set forth on Schedule
4.13(e) and except for agreements entered into in the ordinary course of
business or involving amounts less than $50,000, no Target has any agreement,
understanding, contract or commitment (written or oral) with any employee,
agent, consultant, distributor or dealer that is not cancelable by such Target
on notice of not longer than sixty (60) days without liability, penalty or
premium of any nature or kind whatsoever.
(f) Power of Attorney. No Target has given any power of attorney which
is currently in effect, to any person, firm or corporation for any purpose
whatsoever, except for any powers of attorney related solely to tax matters.
(g) Collective Bargaining Agreements. No Target is a party to any
collective bargaining agreements with any unions, guilds, shop committees or
other collective bargaining groups.
(h) Loan Agreements. Except as set forth in Schedule 4.13(h), no Target
or any portion of any Target's assets is obligated under any loan agreement,
promissory note, letter of credit, or other evidence of indebtedness as a
signatory, guarantor or otherwise which is secured by or constitutes a Lien upon
all or any portion of its assets.
(i) Guarantees. Except as set forth in Schedule 4.11(c) and Schedule
4.13(h), no Target has guaranteed the payment or performance of any person, firm
or corporation, agreed to indemnify any person or act as a surety, or otherwise
agreed to be contingently or secondarily liable for the obligations of any
person.
(j) Burdensome or Restrictive Agreements. To the Knowledge of the
Company, no Target is a party to or bound by any agreement, deed, lease or other
instrument which is so burdensome as to have a Material Adverse Effect. Without
limiting the generality of the foregoing, other than the Franchise Agreements,
which are described on Schedule 4.24(b), no Target is a party
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to or bound by any agreement requiring such Target to assign any interest in any
trade secret or proprietary information or prohibiting or restricting such
Target from competing in its business or geographical area or soliciting
customers or otherwise restricting it from carrying on its business anywhere in
the world.
(k) Other Material Contracts. No Target has any lease, contract or
commitment of any nature involving consideration or other expenditure in excess
of $250,000, or which is otherwise individually material to its business, except
as explicitly described in Schedule 4.11(c), Schedule 4.13(k) or in any other
Schedule to this Section 4.13.
(l) No Default. Except as set forth on Schedule 4.13(l), no Target is
in default under any lease, contract or commitment, nor has any event or
omission occurred which through the passage of time or the giving of notice, or
both, would constitute a default thereunder or cause the acceleration of any
obligations of such Target thereunder, result in the creation of any Lien on any
of the assets owned, used or occupied by such Target or give rise to an
automatic termination, or the right of discretionary termination thereof, except
for defaults, events, omissions or similar occurrences which would not have a
Material Adverse Effect. To the Knowledge of the Company, no third party is in
default under any lease, contract or commitment to which any Target is a party,
nor has any event or omission occurred which, through the passage of time or the
giving of notice, or both, would constitute a default thereunder or give rise to
an automatic termination, or the right of discretionary termination, thereof.
SECTION 4.14 Labor Matters. Except as set forth in Schedule 4.14,
within the last two (2) years, no Target has experienced any labor disputes,
union organization attempts or any work stoppage due to labor disagreements.
Except to the extent set forth in Schedule 4.14, (a) there is no unfair labor
practice charge or complaint against any Target pending or overtly threatened;
(b) there is no labor strike, dispute, request for representation, slowdown or
stoppage actually pending or overtly threatened against any Target nor any
secondary boycott with respect to products of such Target sold in its business;
(c) to the Knowledge of the Company, no question concerning representation has
been raised or is threatened respecting the employees of any Target; or (d) no
grievance which would have a Material Adverse Effect is pending.
SECTION 4.15 Employee Benefit Plans.
(a) Disclosure. Schedule 4.15(a) sets forth all pension, thrift,
savings, profit sharing, retirement, incentive bonus or other bonus, medical,
dental, life, accident insurance, benefit, employee welfare, disability, group
insurance, stock purchase, stock option, stock appreciation, stock bonus,
executive or deferred compensation, hospitalization, cafeteria, flexible
spending account and other similar fringe or employee benefit plans, programs
and arrangements, and any employment or consulting contracts, "golden
parachutes," collective bargaining agreements, severance agreements or plans,
vacation and sick leave plans, programs, arrangements and policies, including,
but not limited to, all "employee benefit plans" (as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), all
employee manuals and all written or binding oral statements of policies,
practices or understandings relating to
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employment, which are provided to, for the benefit of, or relate to, any persons
employed by any Target. The items described in the foregoing sentence are
hereinafter sometimes referred to collectively as "Employee Plans/Agreements,"
and each individually as an "Employee Plan/Agreement." Parent has had access to
true and correct copies of all the Employee Plans/Agreements, including all
amendments thereto, and the most recent determination letters received from the
Internal Revenue Service with respect to any Employee Plans/Agreements intended
to be qualified under Section 401(a) of the Internal Revenue Code, have
heretofore been provided by the Company to Parent. No Employee Plan/Agreement is
a "multiemployer Plan" (as defined in Sections 3(37) or 4001(a)(3) of ERISA),
and no Target has ever contributed or been obligated to contribute to any such
multiemployer Plan. No Employee Plan/Agreement is subject to Title IV of ERISA
and no Target is obligated to contribute to such a Plan.
(b) Prohibited Transactions. There have been no "prohibited
transactions" within the meaning of Section 406 or 407 of ERISA or Section 4975
of the Code for which a statutory or administrative exemption does not exist
with respect to any Employee Plan/Agreement, and no event or omission has
occurred in connection with which any Target or any of its respective assets or
any Employee Plan/Agreement, directly or indirectly, could be subject to any
liability under ERISA or the Code, except for events or omissions which would
not have a Material Adverse Effect.
(c) Payments and Compliance. With respect to each Employee
Plan/Agreement, (i) all payments due from any Target to date have been made and
(ii) all amounts properly accrued to date as liabilities of any Target which
have not been paid have been properly recorded on the books of such Target.
(d) Post-Retirement Benefits. With respect to each Employee
Plan/Agreement which provides welfare benefits of the type described in Section
3(1) of ERISA: (i) no such Employee Plan/Agreement provides medical or death
benefits with respect to current or former employees, directors or consultants
of any Target beyond their termination of employment, other than coverage
mandated by Sections 601-608 of ERISA and 4980B(f) of the Code; (ii) each such
Employee Plan/Agreement has been administered in material compliance with
Sections 601-608 of ERISA and 4980B(f) of the Code; and (iii) no such Employee
Plan/Agreement has reserves, assets, surpluses or prepaid premiums.
(e) No Triggering of Obligations. The consummation of the transactions
contemplated by this Agreement will not (i) entitle any current or former
employee of any Target to severance pay, unemployment compensation or any other
payment, except as expressly provided in this Agreement, (ii) accelerate the
time of payment or vesting, or increase the amount of compensation due to any
such employee or former employee or (iii) result in any prohibited transaction
described in Section 406 of ERISA or Section 4975 of the Code for which an
exemption is not available.
(f) Future Commitments. No Target has announced a Plan or a legally
binding commitment to create any additional Employee Plans/Agreements or to
amend or modify any existing Employee Plan/Agreement. The Company or a Target
has expressly reserved in itself the
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right to amend, modify or terminate any Employee Plan/Agreement. No Employee
Plan/Agreement requires a Target to continue to employ any employee, director or
consultant.
SECTION 4.16 Employment Compensation. Schedule 4.16 contains a true and
correct list of all employees to whom any Target is paying compensation,
including bonuses and incentives, at an annual rate in excess of $100,000 for
services rendered or otherwise, and, in the case of salaried employees, such
list identifies the current annual rate of compensation for each employee and in
the case of hourly or commission employees identifies certain reasonable ranges
of rates and the number of employees falling within each such range.
SECTION 4.17 Trade Rights.
(a) Schedule 4.17 lists all Trade Rights (as defined in Section
4.17(e)) of the type described in clauses (i), (ii), (iii) and (iv) and, to the
extent practicable, clause (v) of Section 4.17(e) in which any Target now has
any interest, specifying whether such Trade Rights are owned, controlled, used
or held (under license or otherwise) by such Target, and also indicating which
of such Trade Rights are registered.
(b) All material Trade Rights shown as registered in Schedule 4.17 have
been properly registered, all pending registrations and applications have been
properly made and filed and all annuity, maintenance, renewal and other fees
relating to registrations or applications are current.
(c) To the Knowledge of the Company, to conduct its business as such is
currently being conducted or proposed to be conducted, no Target requires any
Trade Rights that it does not already have. To the Knowledge of the Company, no
Target is infringing or has infringed any Trade Rights of another in the
operation of its business, nor, to the Knowledge of the Company, is any other
person infringing the Trade Rights of any Target, except where such infringement
would not have a Material Adverse Effect. Except as set forth on Schedule 4.17,
no Target has granted any license or made any assignment of any Trade Rights
listed on Schedule 4.17, nor does any Target pay any royalties or other
consideration for the right to use any Trade Rights of others, except in the
ordinary course of business, which are individually or collectively not
material. There are no inquiries, investigations, or claims or litigation,
challenging or threatening to challenge the right, title and interest of any
Target with respect to its continued use and right to preclude others from using
any Trade Rights of such Target. To the Knowledge of the Company, all material
Trade Rights of each Target are enforceable and in good standing, and there are
no equitable or statutory defenses to enforcement based on any act or omission
of such Target.
(d) To the Knowledge of the Company, each Target has used commercially
prudent efforts to protect the Trade Rights owned or used by it, including (to
the extent appropriate), but not limited to, causing employees and others to
whom such Trade Rights are revealed to execute reasonable confidentiality and
non-competition agreements, which are in full force and effect.
(e) As used herein, the term "Trade Rights" shall mean and include: (i)
all United States, state and foreign trademark rights, business identifiers,
trade dress, service marks, trade names and
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brand names, including all claims for infringement, and all registrations
thereof and applications therefor and all goodwill associated with the foregoing
accruing from the dates of first use thereof; (ii) all United States and foreign
copyrights, copyright registrations and copyright applications, including all
claims for infringement, and all other rights associated with the foregoing and
the underlying works of authorship; (iii) all United States and foreign patents
and patent applications, including all claims for infringement and all
international proprietary rights associated therewith; (iv) all contracts or
agreements granting any right, title, license or privilege under the
intellectual property rights of any third party; and (v) all inventions, mask
works and mask work registrations, know-how, discoveries, improvements, designs,
trade secrets, shop and royalty rights, and all other similar types of
intellectual property.
SECTION 4.18 Major Suppliers. Schedule 4.18 contains a list of the nine
(9) largest suppliers to Target for the most recent fiscal year (determined on
the basis of the total dollar amount of purchases). The Company has no Knowledge
of any facts indicating, or any other reason to believe, that any of the
suppliers listed on Schedule 4.18 will not continue to be suppliers to Target
after the Closing and will not continue to supply Target with substantially the
same quantity and quality of goods at competitive prices.
SECTION 4.19 Product Warranty and Product Liability. Schedule 4.19
contains a copy of each Target's standard warranty or warranties (including
standard extended warranties) for sales of Products (as hereinafter defined),
and, except as stated therein, there are no warranties, commitments or
obligations with respect to the return, repair or replacement of Products.
Schedule 4.19 sets forth (a) the actual monthly cost to Target of performing
warranty obligations for the customers of its business for each month from
January 1, 1998 to April 30, 1998, and (b) a listing of extended warranty
contracts under which each Target is currently obligated. To the Knowledge of
the Company, the Products have been designed and manufactured so as to meet and
comply with all governmental standards and specifications currently in effect or
proposed, and such Products have received all governmental approvals necessary
to allow their sale and use. As used in this Section 4.19, the term "Products"
means any and all products currently, or during the past twelve (12) months,
sold by any Target, or by any predecessor of any Target, under any brand name or
▇▇▇▇ under which products are or have been sold by any Target.
SECTION 4.20 Bank Accounts. Schedule 4.20 sets forth the names and
locations of all banks, trust companies, savings and loan associations and other
financial institutions at which any Target will maintain as of the Closing Date
a safe deposit box, lock box or checking, savings, custodial or other account of
any nature, the type and number of each such account and the signatories
therefor.
SECTION 4.21 Affiliates' Relationships to Target.
(a) Contracts With Affiliates. All leases, contracts, agreements or
other arrangements between any Target and any affiliate are described on
Schedule 4.21(a).
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(b) No Adverse Interests. Except as set forth on Schedule 4.21(b), no
affiliate has any direct or indirect interest in (i) any entity which does
business with or is competitive with any Target, or (ii) any property, asset or
right which is used by any Target.
(c) Obligations. All obligations of any affiliate to any Target, and
all obligations of any Target to any affiliate are listed on Schedule 4.21 (c).
SECTION 4.22 Assets Necessary to Business. Except as set forth on
Schedule 4.22, each Target at the Closing will have title to the assets and
properties (including all property and assets, tangible and intangible, and all
leases, licenses and other agreements), which have been used to operate the
consumer retail business conducted by such Target as of the Effective Time at
the stores identified on Schedule 6.13.
SECTION 4.23 Securities Law Matters. The Company is acquiring the
Parent Common Stock for investment for the Company's own account, not on behalf
of others. The financial condition of the Company is currently adequate to bear
the substantial economic risk of an investment in Parent Common Stock. The
Company has sufficient knowledge and experience in investment and business
matters to understand the economic risk of such an investment and the risk
involved in a commercial enterprise such as Parent. The Company has received and
carefully read (i) Parent's Offering Memorandum dated October 9, 1997, (ii)
Parent's Annual Report on Form 10-K for the fiscal year ended January 31, 1998
and (iii) Parent's Quarterly Reports on Form 10-Q filed with the Securities and
Exchange Commission since January 31, 1998. The Company has had an opportunity
to ask questions of, and receive answers from, officers of Parent concerning
Parent and the Parent Common Stock and to obtain any additional information
which the Company has reasonably requested. The Company is an "accredited
investor" within the meaning of Regulation D under the Securities Act.
SECTION 4.24 Franchisee Operations.
(a) Form Franchise Document. No Target offers or sells, or during the
past twelve (12) months has offered or sold, franchises or licenses for the
operation of any of its floor covering business.
(b) Franchisees. Schedule 4.24(b) is a true and complete list of all
existing franchisees ("Franchisees"), and their respective owners and/or
managers with which any Target has a franchise agreement as of the date of this
Agreement (collectively, the "Franchise Agreements") and a representative
Franchise Agreement for Carpetland USA Franchisees has been furnished to Parent.
Schedule 4.24(b) also identifies each Franchisee that (i) has received any
outstanding notices of financial default under such Franchise Agreement; (ii)
has received a notice of termination due to the Franchisee's operation of the
Franchised Business in a manner reflecting gross mismanagement; (iii) to the
Knowledge of the Company, is in any other material default under its Franchise
Agreement; or (iv) is, to the Knowledge of the Company, the subject of a case
under the bankruptcy code or any other bankruptcy, insolvency, receivership or
similar case or proceeding under state or
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federal law. No Target is a party to any franchise or license agreement under
which such Target acts as franchisor or licensor, except with respect to the
Franchisees.
(c) Franchise Advertising. Except pursuant to the Franchise Agreements,
there are no agreements or written arrangements between any advertising agency
and any Target which pertains directly or indirectly to the providing of
advertising and promotional services such advertising agency to such Target or
any Franchisee.
(d) Hold Agreements. Schedule 4.24(d) contains a description of certain
protected territories allocated to Franchisees pursuant to the Franchise
Agreements.
(e) Options. Schedule 4.24(e) describes any right of first refusal,
option or other arrangement with any Target for the acquisition of additional
Franchised Businesses or expansion of a Franchisee's territory.
(f) Sales Representations. Schedule 4.24(f) is a true and complete list
of all written or oral agreements (and with respect to oral agreements a
description thereof) with independent sales representatives, contractors or
agents with respect to the sale or development of Franchised Businesses by any
Target, retainers or consultants and all territorial development, broker's and
master franchise agreements or any other agreements or arrangements under which
any Target has authorized any person to sell or promote franchises or licenses
on behalf of such Target or agreed to rebate or share amounts receivable under
any Franchise Agreement and indicating which of such agreements are in default
and may be terminated by such Target by notice to the other party. Each Target
has delivered to Parent true, correct and complete copies of all written
agreements described in Schedule 4.24(f). Each Target has delivered to Parent
true, correct and complete copies of all written correspondence and memoranda
evidencing such oral agreements described in Schedule 4.24(f). The payments
payable to all parties to each such oral agreement are set forth on such
Schedules.
(g) Franchise Agreements.
(i) Except as disclosed in Schedule 4.24(g), to the Knowledge
of the Company, each Franchise Agreement complies, and the offer and
sale thereof complied at the time such offer and sale was made, in all
material respects with all federal and state laws (and rules or
regulations thereunder) and all orders, consents or decrees from any
federal or state administrative or regulatory agency, except to the
extent noncompliance would not have Material Adverse Effect; each
Franchise Agreement represents the legal, valid and binding obligation
of the Franchisee thereunder, subject to any Franchisee's bankruptcy,
insolvency, receivership or similar proceeding under state or federal
law and is enforceable against such Franchisee in accordance with its
terms, except to the extent noncompliance would not have a Material
Adverse Effect;
(ii) Except as listed or described in Schedule 4.24(g), (A) no
right of rescission, set-off, counterclaim or defense has been asserted
or, to the Knowledge of the Company, is
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threatened or exists, with respect to any Franchise Agreement, (B) no
notices of default have been issued by any Target with respect to any
Franchise Agreement for defaults which have not been cured and (C) no
Target has waived any default by a Franchisee which would adversely
affect any Franchise Agreement;
(iii) To the Knowledge of the Company, no franchisee
organization exists which holds itself out as a representative of the
Franchisees;
(iv) Except as listed or described in Schedule 4.24(g), to
the Knowledge of the Company, no Franchisee's protected territory is
shared in whole or in part with any other Franchisee;
(v) Except as set forth in Schedule 4.24(g), each Target's
franchise operation manual, if any, has been in the past and currently
is consistent in all material respects with the respective offering
circulars or disclosure documents such Target used to offer and sell
franchises and business opportunities.
(h) [Intentionally Reserved]
(i) Complaints by Franchisees. Except as set forth in Schedule
4.24(i), to the Company's Knowledge, no Franchisee has alleged to any Target
that such Target has acted improperly regarding (i) disparate treatment among
such Franchisees in violation of any Law or (ii) providing prospective
franchisees with inaccurate or incorrect earnings claims or earnings claims that
violated any Law.
(j) Commissions or Rebates. Except as set forth in Schedule
4.24(j), there is nothing that would preclude any Target subsequent to the date
of this Agreement from receiving rebates, commissions or other payments from
suppliers selling products to Franchisees based upon Franchisees' purchases of
such products.
SECTION 4.25 No Brokers or Finders. No Target nor any of its directors,
officers, shareholders, employees or agents has retained, employed or used any
broker or finder in connection with the transactions provided for herein or in
connection with the negotiation thereof.
SECTION 4.26 Governmental Approvals and Filings. Except for filings
with the Internal Revenue Service, the Securities Exchange Commission and as
otherwise specifically contemplated by this Agreement, no consent, approval or
action of, filing with or notice to any governmental or regulatory authority on
the part of the Company or any Target is required in connection with the
execution, delivery and performance of this Agreement or any of the Ancillary
Instruments to which the Company or any Target is a party or the consummation of
the transactions contemplated hereby or thereby.
SECTION 4.27 Books and Records. The minute books and other similar
records of each Target will be made available to Parent and the Subsidiary prior
to Closing and such books and
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records contain a true and complete record, in all material respects, of all
action taken at all meetings and by all written consents in lieu of meetings of
the stockholders, the boards of directors and committees of the boards of
directors of such Target. The stock transfer ledgers and other similar records
of each Target will be made available to Parent and the Subsidiary prior to
Closing and such stock transfer ledgers and similar records accurately reflect
all record transfers prior to the execution of this Agreement in the capital
stock of such Target. No Target has any of its books and records recorded,
stored, maintained, operated or otherwise wholly or partly dependent upon or
held by any means (including any electronic, mechanical or photographic process,
whether computerized or not) which (including all means of access thereto and
therefrom) are not under the exclusive ownership and direct control of such
Target. The Company hereby agrees that following Closing it will provide access
to Parent and its representatives during normal business hours to any books and
records held or controlled by the Company related to any Target and shall use
its best efforts to assist Parent with any transitional support reasonably
requested by Parent related to such books and records.
SECTION 4.28 Disclosure. To the Knowledge of the Company, no
representation or warranty by the Company or any Target in this Agreement, nor
any statement, certificate, schedule or exhibit hereto furnished or to be
furnished by or on behalf of the Company or any Target pursuant to this
Agreement, nor any document or certificate delivered to Parent or the Subsidiary
pursuant to this Agreement or in connection with transactions contemplated
hereby, contains or shall contain any untrue statement of material fact or omits
or shall omit a material fact necessary to make the statements contained therein
not misleading. All statements and information contained in any certificate,
instrument, schedule or document delivered by or on behalf of the Company or any
Target shall be deemed representations and warranties such entity.
ARTICLE V
Representations and Warranties of Parent and the Subsidiary
As an inducement to the Company and Target1 to enter into this
Agreement and to consummate the transactions contemplated hereby, and, with the
knowledge that the Company and Target1 shall rely thereon, Parent and the
Subsidiary, jointly and severally, make the following representations and
warranties to the Company and Target1, each of which is true and correct on the
date hereof, shall be unaffected by any investigation heretofore or hereafter
made by the Company and Target1, or any knowledge of the Company and Target1.
SECTION 5.1 Corporate.
(a) Organization. Parent and the Subsidiary are corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware and Georgia, respectively.
(b) Corporate Power. Parent and the Subsidiary have all requisite
corporate power and authority to own, operate and lease their respective
properties and to carry on their respective business as and where such is now
being conducted.
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(c) Qualification. Each of Parent and Subsidiary is qualified or
otherwise authorized to do business in each jurisdiction where such
qualification is required by law, except for jurisdictions with respect to which
the failure to so qualify would not have a material adverse effect on the
business and assets of either of Parent or Subsidiary (a "Parent Material
Adverse Effect").
(d) Authorization; Validity. The execution and delivery of this
Agreement and the Ancillary Instruments to be executed and delivered by Parent
and/or the Subsidiary and full performance hereunder and thereunder have been
duly authorized by the Board of Directors and the sole shareholder of the
Subsidiary. Except for the approval of the Board of Directors of Parent as
contemplated herein, no other corporate act or proceeding on the part of Parent
or the Subsidiary is necessary to authorize this Agreement or the Ancillary
Instruments to be executed and delivered by Parent and/or the Subsidiary
pursuant hereto or the consummation of the transactions contemplated hereby and
thereby. This Agreement has been duly and validly executed and delivered by
Parent and Subsidiary and is, and when executed and delivered the Ancillary
Instruments to be executed and delivered by Parent or Subsidiary hereunder will
be, the legal, valid and binding obligations of Parent or the Subsidiary, as the
case may be, enforceable against Subsidiary or Parent, as the case may be, in
accordance with their respective terms, except as such may be limited by
bankruptcy, insolvency, reorganization or other laws affecting creditors' rights
generally and by general equitable principles.
SECTION 5.2 No Violation. Neither the execution and delivery of this
Agreement or the Ancillary Instruments nor the consummation by Parent and
Subsidiary of the transactions contemplated hereby and thereby (a) will violate
any statute or law or any rule, regulation, order, writ, injunction or decree of
any court or governmental authority, (b) will require any material
authorization, consent, approval, exemption, or other action by or notice to any
court, administrative or governmental agency, instrumentality, commission,
authority, board or body, (c) will violate or conflict with, or constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, or will result in the termination of, or accelerate
the performance required by, any term or provision of the articles or
certificate of incorporation or bylaws of Parent or Subsidiary or of any
contract, lease, commitment, understanding, arrangement, agreement, or
restriction of any kind or character to which either Parent or Subsidiary is a
party, or by which Parent or Subsidiary may be subject, bound or affected.
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SECTION 5.3 Exchange Act Reports; Financial Statements.
(a) Exchange Act Reports. Since February 1, 1995, Parent has timely
filed all reports and other documents required to be filed by it with the United
States Securities and Exchange Commission (the "SEC") under each of the
Securities Act and the Exchange Act and the respective rules and regulations
thereunder, including but not limited to proxy statements and reports on Form
10-K, Form 10-Q and Form 8-K (collectively, the "Parent SEC Reports"). As of the
respective dates they were filed with the SEC, the Parent SEC Reports, including
all documents incorporated by reference into such reports, complied in all
material respects with the rules and regulations of the SEC and did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(b) Parent Financial Statements. The financial statements (the "Parent
Financial Statements") of Parent included in the Parent SEC Reports, as of the
dates thereof and for the periods covered thereby, present fairly, in all
material respects, the financial position, results of operations, and cash flows
of Parent (subject, in the case of unaudited statements, to normal recurring
year-end audit adjustments which were not and are not expected, individually or
in the aggregate, to have a Parent Material Adverse Effect). Any supporting
schedules included in the Parent SEC Reports present fairly, in all material
respects, the information required to be stated therein. Such Parent Financial
Statements and supporting schedules were prepared: (A) in accordance with the
requirements of Regulation S-X promulgated by the SEC; and (B) except as
otherwise noted in the Parent SEC Reports, in conformity with GAAP. Other than
as disclosed by the Parent Financial Statements included in the Parent SEC
Reports, Parent does not have any liabilities, commitments or obligations of any
nature whatsoever, whether accrued, contingent or otherwise that would be
required to be reflected on, or reserved against in, a balance sheet or in notes
thereto, prepared in accordance with GAAP, other than liabilities, commitments
or obligations incurred since January 31, 1998, in the ordinary course of
business that would not, individually or in the aggregate, have a Parent
Material Adverse Effect.
SECTION 5.4 Absence of Material Adverse Changes. Except as disclosed
in the Parent SEC Reports, since January 31, 1998, Parent has conducted its
businesses only in the ordinary and usual course and in a manner consistent with
past practices, and (a) there has not been any occurrence that would result in a
Parent Material Adverse Effect, and (b) there has not been any event that would
reasonably be expected to prevent or materially delay the performance of
Parent's or Subsidiary's material obligations pursuant to this Agreement and the
consummation of the Merger by Parent or Subsidiary.
SECTION 5.5 Compliance with Laws.
(a) Compliance. Each of Parent and Subsidiary is in compliance with all
Laws, including but not limited to those applicable to discrimination in
employment, the Americans with Disabilities Act, occupational safety and health,
trade practices, competition and pricing, product warranties, zoning, building
and sanitation, employment, retirement and labor relations, product advertising
and
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the Environmental Laws, except for noncompliance which would not have a Parent
Material Adverse Effect.
(b) Licenses and Permits. Parent and Subsidiary have all licenses,
permits, approvals, authorizations, and consents of all governmental and
regulatory authorities and all certification organizations required to be held
by each of them, except where failure to obtain such licenses and permits would
not have a Parent Material Adverse Effect. All such licenses, permits,
approvals, authorizations and consents are in full force and effect and will not
be affected or made subject to loss, limitation, or any obligation to reapply as
a result of the transactions contemplated hereby. Parent and Subsidiary are and
have been in compliance with all such permits and licenses, approvals,
authorizations and consents applicable to each of them, except for noncompliance
which would not have a Parent Material Adverse Effect.
SECTION 5.6 No Litigation. Except as set forth in the Parent SEC
Reports, there is no material action, suit, arbitration proceeding,
investigation, or inquiry, pending before any court, arbitrator or federal,
state, foreign, municipal or other governmental department, commission, board,
bureau, agency or instrumentality or threatened against Parent or Subsidiary or
their respective directors (in such capacity), business or assets, nor does
Parent or Subsidiary know, or have grounds to know, of any basis for such
proceedings, investigations or inquiries.
SECTION 5.7 Capital Stock. The authorized capital stock of Parent
consists of 25,000,000 shares of Common Stock, .001 par value per share, of
which 16,079,677 shares were issued and outstanding as of June 22, 1998. The
authorized capital stock of Subsidiary consists of one hundred (100) shares of
Common Stock, .001 par value per share, of which ten (10) shares are issued and
outstanding. The shares of Parent Common Stock, as Merger Consideration pursuant
to this Agreement, when issued, (a) will be duly authorized and validly issued
in accordance with the Delaware General Corporation Law and the certificate of
incorporation and by-laws of Parent and (b) will be fully paid and
nonassessable. None of the shares of Parent Common Stock to be issued as Merger
Consideration pursuant to this Agreement will, when issued, be issued in breach
or violation of any applicable statutory or contractual preemptive rights or any
contractual rights of any kind (including any rights of first offer or refusal)
of any person or entity or the rules and regulations of the Securities Act or
any blue sky laws.
SECTION 5.8 Opinion of Financial Advisor. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ has
delivered to the Board of Directors of Parent its oral opinion to the effect
that the Merger Consideration to be paid to the Company is fair to the
shareholders of Parent from a financial point of view.
SECTION 5.9 No Brokers or Finders. Neither Parent nor the Subsidiary
nor any of their respective directors, officers, shareholders, employees or
agents has retained, employed or used any broker or finder in connection with
the transaction provided for herein or in connection with the negotiation
thereof.
SECTION 5.10 Disclosure. No representation or warranty by Parent or the
Subsidiary in this Agreement, nor any statement, certificate, schedule or
exhibit hereto furnished or to be furnished
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by or on behalf of Parent or the Subsidiary pursuant to this Agreement, nor any
document or certificate delivered to the Company or Target1 pursuant to this
Agreement or in connection with transactions contemplated hereby, contains or
shall contain any untrue statement of material fact or omits or shall omit a
material fact necessary to make the statements contained therein not misleading.
All statements or information contained in any certificate, instrument, schedule
or document by or on behalf of Parent or Subsidiary shall be deemed
representations and warranties of Parent and Subsidiary.
ARTICLE VI
Covenants
SECTION 6.1 Access to Information and Records. During the period prior
to the Effective Time, the Company and each Target shall give Parent and the
Subsidiary, and their counsel, accountants and other representatives (a) access
during normal business hours to all of the properties, books, records, contracts
and documents of each Target for the purpose of such inspection, investigation
and testing of the business of each Target as Parent and the Subsidiary deem
appropriate (and the Company and each Target shall furnish or cause to be
furnished to the Subsidiary or Parent and their representatives all information
with respect to the business of each Target as Parent or the Subsidiary may
request); (b) access to employees, agents and representatives for the purposes
of such meetings and communications as Parent or the Subsidiary reasonably
desires; and (c) access to vendors, customers, manufacturers of machinery and
equipment of each Target, and others having business dealings with it.
SECTION 6.2 Conduct of Business Pending the Merger. From the date
hereof until the Effective Time, except as contemplated in Section 6.13 and
except as otherwise approved in writing by Parent, the Company and each Target
covenant and agree as follows:
(a) No Changes. Each Target will carry on the its business diligently
and in the same manner as heretofore and will not make or institute any changes
in its methods of purchase, sale, management, accounting or operation.
(b) Maintain Organization. Each Target will use its best efforts to
maintain, preserve, renew and keep in favor and effect its existence, rights and
franchises and will use its best efforts to preserve its business organization
intact, to keep available to it the present officers and employees, and to
preserve its present relationships with suppliers and customers and others
having business relationships with it.
(c) No Breach. The Company will not intentionally do or omit any act,
or permit any omission to act, which Company is aware or reasonably should be
aware will be likely to cause a breach of any material contract, commitment or
obligation, or any breach of any representation, warranty, covenant or agreement
made by the Company or any Target herein or made pursuant hereto which will have
a Material Adverse Effect.
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(d) No Distributions, Other Actions. Except as otherwise contemplated
by this Agreement, the Company will not do or omit any act, or permit any
omission to act, which would have required disclosure pursuant to Schedule 4.7
had it occurred after the date of the Financial Statements and prior to the date
of this Agreement.
(e) No Material Contracts. No Target will enter into any contract or
commitment or make any purchase of materials, inventory or supplies and no sale
of assets (real, personal, or mixed, tangible or intangible) will be made,
except contracts, commitments, purchases or sales which (i) are (A) contracts or
commitments for the purchase of, and purchases of, materials, inventory and
supplies made in the ordinary course of business and consistent with past
practice, (B) contracts or commitments for the sale of, and sales of, product or
inventory in the ordinary course of business and consistent with past practice,
or (C) other contracts, commitments, purchases or sales in the ordinary course
of business and consistent with past practice, (ii) are otherwise contemplated
by this Agreement, or (iii) are not material to the business of such Target
(individually or in the aggregate).
(f) Maintenance of Insurance. The Company shall maintain all of the
insurance in effect as of the date hereof with respect to each Target.
(g) Maintenance of Property. Each Target shall use, operate, maintain
and repair all of its property in a normal business manner consistent with past
practice.
(h) Interim Financials. Each Target will provide Parent and the
Subsidiary with interim monthly financial statements and other management
reports as and when they are available.
(i) Purchase of Parent Common Stock. Neither the Company, any Target
nor any of their respective subsidiaries or affiliates will, directly or
indirectly, purchase any shares of Parent Common Stock prior to the Closing.
(j) No Solicitation; Transaction Moratorium.
(i) From and after the date of this Agreement until the Effective
Time, neither the Company nor any Target shall authorize or permit any
officer, director, employee, affiliate, investment banker, financial
advisor, attorney, accountant or other agent or representative (each, a
"Representative") retained by or acting for or on behalf of such entity
to, directly or indirectly, (A) initiate, solicit or cooperate with the
submission of any inquiries, proposals or offers by any person, entity
or group (other than Parent, the Subsidiary or their Representatives)
(a "Potential Acquiror") relating to any Acquisition Proposal (as
hereinafter defined) or (B) participate in any discussions or
negotiations with, or disclose any non-public information concerning
any Target, to afford any access to the properties, book or records of
the Company (with respect to any Target) or any Target or otherwise
assist facilitate or cooperate with, or enter into any agreement or
understanding with any Potential Acquiror; provided, however, that the
Company may engage in discussions or negotiations with a Potential
Acquiror, and following receipt of an Acquisition Proposal, the Company
may disclose to the Company's shareholders such
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discussions or negotiations or otherwise make disclosure to its
shareholders concerning the Acquisition Proposal, but, in each case,
only to the extent that the Board of Directors of the Company shall
conclude in good faith on the basis of written advice from counsel that
such action is necessary or appropriate in order for such Board of
Directors to act in a manner which is consistent with its fiduciary
obligations under applicable law. The Company will immediately cease
and cause to be terminated any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any
Acquisition Transaction. As used in this Section 6.2(j), "Acquisition
Proposal" means any proposal relating to any purchase of stock or
assets, merger, consolidation or other business combination involving
any Target, whether for cash, securities or any other consideration (or
combination thereof) other than pursuant to the transactions
contemplated by this Agreement.
(ii) If at any time the Company or any Representative of the
Company provides a Significant Response (as defined below) to any
inquiry or solicitation by a Potential Acquiror, the Company shall
immediately deliver to Parent a written notice advising Parent of the
fact that such Significant Response has been given. As a consequence of
the delivery of such notice all duties and obligations of Parent
hereunder shall be suspended during the Transaction Moratorium Period.
As used herein, "Transaction Moratorium Period" means a period
beginning on the date of such notice and ending on the date of Parent's
receipt of a written notice signed by the Chairman or the President of
the Company certifying that all discussions and contacts between the
Company and its Representatives, on one hand, and the Potential
Acquiror to whom the Company had provided a Significant Response and
any Representatives or Affiliates thereof, on the other, have ended and
are not expected to resume. In the event that a Transaction Moratorium
Period continues for a period in excess of thirty (30) days, Parent
may, at any time prior to its receipt of a notice terminating such
Transaction Moratorium Period, terminate this Agreement. If the Company
delivers a notice of Significant Response, each of the dates set forth
herein as relating to or affecting a date by which Parent is required
to perform duties and obligations hereunder shall in each case be
extended on a day-for-day basis for each day in any Transaction
Moratorium Period. As used herein, "Significant Response" means any
action by the Company or any Representative of the Company in response
to an inquiry, solicitation or request for documents or other
information received by the Company from a Potential Acquiror other
than participation by the Company in a preliminary discussion or
discussions with such Potential Acquiror or any Representative thereof
and shall include, without limitation, (i) any action by the Company or
any of its Representatives to provide a Potential Acquiror information
regarding any Target other than publicly available information, (ii)
any execution by the Company and a Potential Acquiror of a
confidentiality agreement relating to information about any Target and
(iii) any participation by the Company or any Representative of the
Company in substantive discussions regarding the terms and conditions
of an Acquisition Proposal or regarding a term sheet or similar
document relating to an Acquisition Proposal.
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SECTION 6.3 Consents. (a) Each Target and the Company shall, prior to
Closing, obtain, at their sole cost and expense, all material consents necessary
for the consummation by the Company and each Target of the transactions
contemplated hereby.
(b) The Parent and the Subsidiary shall, prior to Closing, obtain, at
their sole cost and expense, all consents necessary for the consummation by the
Parent and the Subsidiary of the transactions contemplated hereby.
(c) Notwithstanding Section 6.3(a) and (b), the parties agree that to
the extent consents are required but are not obtained with respect to any Real
Property Lease, the Company will indemnify Parent as provided in Section 7.2(b)
below.
SECTION 6.4 Other Action. Each of the Company, each Target, the Parent
and the Subsidiary shall use their reasonable efforts to cause the fulfillment
at the earliest practicable date of all of the conditions to consummate the
transactions contemplated in this Agreement.
SECTION 6.5 Real Property Matters. Prior to the Effective Time, the
Company and each Target shall grant access to each of each Target's files with
respect to Real Property or Real Property Leases, including without limitation
all existing environmental reports, title insurance policies, surveys, consents,
estoppels, certificates of occupancy, and similar documents.
SECTION 6.6 Release of Liens and Repayment of Loans. Prior to or
simultaneously with the Effective Time, the Company and each Target shall cause
all Liens for borrowed money not reflected on the Financial Statements to be
terminated and released.
SECTION 6.7 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇. As soon as possible and in any event
within seven (7) days after the execution of this Agreement, the parties shall
file or caused to be filed the notification in report form with respect to the
transactions contemplated by this Agreement under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
promulgated thereunder (the "HSR Act") and shall respond promptly to requests to
file such additional information and documentary materials as may be requested
pursuant to the HSR Act sufficiently in advance of the Closing Date to allow the
period specified by the HSR Act and any extensions thereof to expire prior to
the Closing Date. Parent shall pay any applicable filing fees with respect to
its filing and the Company shall pay any applicable filing fees with respect to
its filing, if any.
SECTION 6.8 Duty to Notify. From the date hereof until the Effective
Time, the Company and each Target shall have a continuing obligation to notify
Parent and the Subsidiary in writing with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this Agreement,
would have been required to be set forth or described in the Schedules, but no
such disclosure shall cure any breach of any representation or warranty which
was known by the Company or such Target to be inaccurate when made. Such
notification shall be made promptly if the matter to be disclosed is or could be
material to the business of any Target in any respect. Otherwise, notification
shall be provided on the last day of each calendar month and not later than
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three (3) days prior to the Closing Date. The delivery of any information
pursuant to this Section 6.8 shall not constitute a waiver by Parent or the
Subsidiary of its right to indemnification under Article VII. If any fact,
circumstance or development so disclosed requires any change in the Schedules,
or if any such fact, circumstance or development would require such a change
assuming the Schedules were dated as of the date of the occurrence, existence or
discovery of such fact, circumstance or development, then the Company and Target
shall promptly deliver to Parent and the Subsidiary a modification to the
Schedules specifying such change (the "Modified Schedules"). Notwithstanding the
delivery or acceptance of Modified Schedules, the Company and Target shall be
obligated to indemnify Parent and Subsidiary to the extent the schedules,
without modification, constitute a breach of any representation, warranty or
covenant of Company and Target, but Parent shall not be entitled to terminate
this Agreement as a result of such breach.
SECTION 6.9 Tax Matters.
(a) Tax Sharing Agreements. Any tax sharing agreement between the
Company and any Target shall be terminated as of the Effective Time and will
have no further effect for any taxable year (whether the current year, a future
year, or a past year).
(b) Taxes of Other Persons. The Company agrees to indemnify Parent from
and against any Loss Parent or the Surviving Corporation may suffer resulting
from, arising out of, relating to, in the nature of, or caused by any liability
of any Target for Taxes of any person other than such Target under Reg.
ss.1.1502-6 (or any similar provision of state, local or foreign law), as a
transferee or successor, by contract, or otherwise.
(c) Consolidated Federal Income Returns for Periods Through the
Effective Time. The Company will include the income of Target1 and Target Subs
(including any deferred income triggered into income by Reg. ss.1.1502-13 and
Reg. ss.1.1502-14 and any excess loss accounts taken into income under Reg.
ss.1.1502-19) on the consolidated federal income Tax Returns of the Company for
all periods through the Effective Time and pay any federal income Taxes
attributable to such income. Each Target will furnish Tax information to the
Company for inclusion in the Company's federal consolidated income Tax Return
for the period which includes the Effective Time in accordance with such
Target's past custom and practice. The Company will allow the Parent an
opportunity to review and comment upon such Tax Returns (including any amended
returns) to the extent that they relate to any Target. The Company will take no
position on such returns that relate to any Target that would adversely affect
such Target after the Effective Time. The income of each Target will be
apportioned to the period up to and including the Effective Time and the period
after the Effective Time by closing the books of such Target as of the Effective
Time.
(d) Tax Periods Ending on or Before the Effective Time. Parent shall
prepare or cause to be prepared and file or cause to be filed all Tax Returns
for each Target for all periods ending on or prior to the Effective Time which
are filed after the Effective Time (other than income Tax Returns with respect
to periods for which a consolidated, unitary or combined income Tax Return of
the Company will include the operations of such Target). Parent shall permit the
Company to review and comment on each such Tax Return described in the preceding
sentence prior to filing.
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The Company shall reimburse Parent for Taxes of each Target with respect to such
periods within fifteen (15) days after payment by Parent or a Target of such
Taxes to the extent such Taxes are not reflected in the reserve for Tax
liability (rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) shown on the face of the
Post-Closing Report.
(e) Tax Periods Beginning Before and Ending After the Effective Time.
Parent shall prepare or cause to be prepared and file or cause to be filed any
Tax Returns of each Target for Tax periods which begin before the Effective Time
and end after the Effective Time. The Company shall pay to Parent within fifteen
(15) days after the date on which Taxes are paid with respect to such periods an
amount equal to the portion of such Taxes which relates to the portion of such
taxable period ending on the Effective Time to the extent such Taxes are not
reflected in the reserve for Tax liability (rather than any reserve for deferred
Taxes established to reflect timing differences between book and Tax income)
shown on the face of the Post-Closing Report. For purposes of this Section, in
the case of any Taxes that are payable for a taxable period that includes (but
does not end on) the Effective Time, the portion of such Tax which relates to
the portion of such taxable period ending on the Effective Time shall (x) in the
case of any Taxes other than Taxes based upon or related to income or receipts,
be deemed to be the amount of such Tax for the entire taxable period multiplied
by a fraction the numerator of which is the number of days in the taxable period
ending on the Effective Time and the denominator of which is the number of days
in the entire taxable period, and (y) in the case of any Tax based upon or
related to income or receipts be deemed equal to the amount which would be
payable if the relevant taxable period ended on the Effective Time. All
determinations necessary to give effect to the foregoing allocations shall be
made in a manner consistent with prior practice of each Target.
(f) Cooperation on Tax Matters. Parent, each Target and the Company
shall cooperate fully, as and to the extent reasonably requested by the other
party, in connection with the filing of Tax Returns pursuant to this Section 6.9
and any audit, litigation or other proceeding with respect to Taxes. Such
cooperation shall include the retention and (upon the other party's request) the
provision of records and information which are reasonably relevant to any such
audit, litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and explanation of
any material provided hereunder. Each Target and the Company agree (i) to retain
all books and records with respect to Tax matters pertinent to each Target
relating to any taxable period beginning before the Effective Time until the
expiration of the statute of limitations (and, to the extent notified by Parent
or the Company, any extensions thereof) of the respective taxable periods, and
to abide by all record retention agreements entered into with any taxing
authority, and (ii) to give the other party reasonable written notice prior to
transferring, destroying or discarding any such books and records and, if the
other party so requests, each Target or the Company, as the case may be, shall
allow the other party to take possession of such books and records. Any refund
of Taxes received by Parent or any Target which relates to any Tax paid by the
Company or Target with respect to any taxable period or portion thereof ending
on or before the Effective Time shall promptly be paid to the Company, but only
to the extent such refund is not attributable to a carryback of any losses that
arose during a taxable period or portion thereof beginning after the Effective
Time.
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(g) Section 338(h)(10) Election. At the request of either the Company
or the Parent, the Company and the Parent will cooperate with each other in
making an election under Section 338(h)(10) of the Code (and any corresponding
elections under state, local, or foreign tax law) (collectively a "Section
338(h)(10) Election") with respect to the purchase and sale of the stock of
Target1 hereunder and the deemed sale of stock of any of the Target Subs. The
Company will pay any Tax attributable to the making of the Section 338(h)(10)
Election and will indemnify the Parent and Target 1 (as Surviving Corporation)
against any Loss arising out of any failure to pay such Tax. The Company will
also pay any state or local Tax (and indemnify the Parent and Target1 (as the
Surviving Corporation) against any Loss arising out of any failure to pay such
Tax) incurred if any state or local tax jurisdiction (i) does not recognize a
Section 338(h)(10) Election or (ii) does not apply its provisions corresponding
to a Section 338(h)(10) Election with respect to the purchase and sale of the
stock of Target1 hereunder and the deemed sale of stock of any of the Target
Subs.
(h) Allocation of Purchase Price. The parties hereto agree that the
Merger Consideration and the liabilities of Target (plus other relevant items)
will be allocated to the assets of Target for all purposes (including Tax and
financial accounting purposes) in a manner consistent with the fair market
values set forth in the Post-Closing Report. The Parent, Target1 (as the
Surviving Corporation) and the Company will file all Tax Returns (including
amended returns and claims for refund) and information reports in a manner
consistent with such values.
SECTION 6.10 Administrative Services Agreement. At the election of
Parent, in its sole discretion, the Company will enter into an Administrative
Services Agreement with Parent related to the provision of certain services
previously provided by the Company to each Target on terms based on
allocations/expenses for a period of no more than two (2) years and on such
other terms as are mutually agreeable to Parent and the Company.
SECTION 6.11 California and Pennsylvania Leases. The Company hereby
agrees to close all retail stores doing business as "▇▇▇▇ Carpet Showplace"
within ninety (90) days of the Effective Time and to pay all costs and expenses
incurred in connection with such store closings. On the request of Parent, the
Company agrees to assign the lease or sublease the premises related to such
stores to such franchisees of Parent as Parent may request, on such terms and
conditions as may be negotiated between the Company and such franchisees of
Parent.
SECTION 6.12 Retirement Plans. (a) The parties agree that prior to the
Closing, the Company will transfer sponsorship of all tax-qualified retirement
plans maintained by any Target (the "Plans") to another member of the same
controlled group of corporations as the Company and that the Surviving
Corporation is not assuming sponsorship of the Plans in connection with the
Merger. The Company further agrees to amend the Plans to provide that, in
connection with the Merger, the employees of any Target who are employed by the
Surviving Corporation or an affiliate of the Surviving Corporation immediately
after closing (the "Affected Employees") will be entitled to receive lump sum
distributions for so long as permitted pursuant to Section 401(k)(10) of the
Code.
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(b) The Company will cause the Affected Employees to become 100% vested
in all of their accounts under the Plans even if they have not completed five
full years of vesting service under the Plans. The parties agree that the funds
necessary to distribute 100% of the Affected Employees' accounts under the Plans
will come solely from the Affected Employees' accounts in the Plan and shall not
require any contribution by the Surviving Corporation to the Company or the
Plans.
(c) Parent and Subsidiary agree that, as to the Affected Employees who
elect a "direct rollover" of "eligible rollover distributions" (within the
meaning of such terms under the Code) to the extent consisting of cash and/or
Plans loans that are not in default but are in compliance with the requirements
of Code Section 72(p), the Surviving Corporation will accept such rollovers to
the tax-qualified defined contribution plan of the Surviving Corporation or an
affiliate of the Surviving Corporation, in which such Affected Employees are, or
will be after any applicable waiting period, eligible to participate; provided,
however, that Parent may require reasonable evidence that the distributing plan
is qualified under Section 401(a) of the Code as a condition precedent to
accepting any such rollover.
SECTION 6.13 Obtaining Title to Retail Assets. From the date hereof
until the Effective Time, the Company and Target shall take all such actions as
may be necessary (including, without limitation, transferring assets of a Target
to other entities or merging entities with and into a Target) to cause Target to
have ownership of only the retail stores (and store-based related assets) set
forth on Schedule 6.13. The parties acknowledge and agree that the Financial
Statements are not an accurate reflection of the historical performance of
Target taken as a whole inasmuch as Target has closed numerous stores during the
periods covered by the Financial Statements, and any financial information
relating from such closed stores has been intentionally omitted from the
Financial Statements.
SECTION 6.14 ▇▇▇▇ Name. Parent hereby agrees to change the name of any
Target Sub whose name contains the word "▇▇▇▇" and thereby to delete such word,
within thirty (30) days of the Effective Time.
SECTION 6.15. Collection of Accounts Receivable. From and after the
Closing Date, Parent shall cause Target to use, and Target shall use,
commercially reasonable efforts to collect all the accounts receivable of the
Target as of the Effective Date as reflected in the final Post-Closing Report
(the "Accounts Receivable"); provided, however, that Target may elect, but shall
have no obligation, to retain third parties or institute litigation to collect
the same. Within thirty (30) days after the expiration of the first anniversary
of the Effective Date, Parent shall cause Target to prepare, and Target shall
prepare and deliver to Company a report which lists (i) the Accounts Receivable
which remain uncollected as of the first anniversary of the Effective Date, (ii)
provides a summary of the expenses, if any, reasonably incurred with respect to
the collection of the Accounts Receivable, and (iii) sets forth a calculation of
the "Collected A/R Amount" (which is defined as the sum of the Accounts
Receivable collected less the reasonable collection expenses incurred), and the
shortfall, if any, between the sum of the Accounts Receivable (net of the
reserves for doubtful accounts indicated on the final Post-Closing Balance
Sheet) and the Collected A/R Amount . Within
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ten (10) days after said report is delivered to Company, Company shall pay to
Parent (or the applicable Target, at Parent's request), any shortfall indicated
on such report. As to all Accounts Receivable or portions of Accounts Receivable
which remain uncollected as of the first anniversary of the Effective Date,
following receipt by Parent (or Target as the case may be) from Company of any
payment due Parent (or Target as the case may be) with respect to such
uncollected Accounts Receivable, Target shall execute, and Parent shall cause
Target to execute, upon request, such documents of reassignment or other
consents or authorizations as are necessary or convenient to transfer the
uncollected Accounts Receivable which existed as of the Effective Time or
portions thereof to the Company and to facilitate the enforcement of the
reassigned obligations by Company in its own name and right.
ARTICLE VII
Survival of Representations and Warranties; Indemnification
SECTION 7.1 Survival of Representations and Warranties. All of the
representations and warranties contained in this Agreement shall survive the
Closing for a period of three (3) years following the Closing Date, except (i)
for the representations and warranties of the Company and the Target relating to
tax matters, matters relating to the Target Common Stock, including, without
limitation, title thereto, or ERISA matters which shall survive for ninety (90)
days after the lapse of the applicable statute of limitation with respect to
such matter and indefinitely in the case of matters related to the Target Common
Stock, and (ii) that any representations or warranties that would otherwise
terminate pursuant to the terms of this Section 7.1 will continue to survive if
a notice of claim shall have been timely given under this Article VII on or
prior to such termination date, until the related claim for indemnification has
been satisfied or otherwise resolved in accordance with this Article VII.
SECTION 7.2 Indemnity Agreement of the Company. Subject to the terms
and conditions of Section 7.7 below, the Company shall defend, indemnify and
hold harmless Parent, the Subsidiary, the Surviving Corporation, each Target and
each of their respective successors and permitted assigns (and their respective
directors, officers, employees, agents and affiliates) from and against any and
all direct or indirect requests, demands, claims, payments, defenses,
obligations, recoveries, deficiencies, fines, penalties, interest, assessments,
actions, liens, causes of action, suits, proceedings, judgments, losses, damages
(including punitive, exemplary or consequential damages, and including, but not
limited to, lost income and profits and interruptions of business), liabilities,
costs and expenses of any kind or nature (including, but not limited to,
interest, penalties and reasonable attorneys' fees and expenses, attorneys' fees
and expenses necessary to enforce their rights to indemnification hereunder, and
consultants' fees and other costs of defending or investigating any claim
hereunder, whether or not resulting in any liability), and interest on any
amount payable as a result of the foregoing, whether accrued, absolute,
contingent, known, unknown, or otherwise (collectively, the "Losses"),
including, without limitation, any event of any kind or nature whatsoever which
diminishes the value of a Target as measured immediately prior to the occurrence
of such event as of the Effective Time or thereafter asserted against, imposed
upon
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or incurred by Parent, the Subsidiary, the Surviving Corporation, a Target or
any of their respective successors or permitted assigns or any of their
respective directors, officers, employees, agents or affiliates based upon,
awarded or asserted against in respect of:
(a) (i) any breach of any representation or warranty or nonfulfillment
of any covenant or agreement on the part of the Company or a Target contained in
this Agreement, or (ii) any misrepresentation in or omission from or
nonfulfillment of any covenant on the part of the Company or a Target contained
in any other agreement, certificate or other instrument furnished or to be
furnished to Parent or the Subsidiary by the Company or a Target pursuant to
this Agreement; provided, however, that for purposes of this provision any
qualification of such representations and warranties by reference to the
"materiality" of matters stated therein or words of similar effect, shall be
disregarded in determining any breach thereof; or
(b) The failure of the Company or the Target to obtain, prior to the
Effective Time, all consents, approvals and waivers of lessors, landlords,
suppliers and other third parties as may be necessary to permit the transactions
contemplated by this Agreement; or
(c) Any period or periods of operation of the Company or any Target or
any of their respective affiliates ending prior to the Effective Time and which
involve any claims against Parent, Subsidiary, Surviving Corporation, a Target
or any of their respective affiliates or any of their respective assets or
properties relating to actions or inactions of a Target or Company or any
predecessor in interest or any of their respective affiliates or any officers,
directors, employees, representatives, contractors or agents of Company or a
Target or any predecessor in interest or any one or more of their respective
affiliates prior to the Effective Time, or the operation of the business of the
Company, a Target or any of their respective affiliates prior to the Effective
Time unless but only to the extent such liability is reflected on the final
Post-Closing Report; including, without limitation, Losses with respect to: (i)
a breach by the Company or a Target or any predecessor in interest or any
affiliate at or prior to the Effective Time, or as a consequence of the Closing,
of any provision of any contract or agreement to which a Target or any
predecessor in interest is a party or which binds a Target or any of its assets
or properties; (ii) any violation of any laws (federal, state, local or
otherwise) by the Company or a Target or any predecessor in interest or any
affiliate prior to the Effective Time; (iii) any litigation pending or
threatened against the Company, a Target, a predecessor in interest or any of
their respective affiliates at or prior to the Effective Time whether or not
disclosed to Parent at or prior to Closing; (iv) the actual or alleged
negligence or wilful misconduct of the Company, a Target, a predecessor in
interest or any of their respective affiliates or any of their respective
officers, directors, employees, representatives, contractors or agents,
resulting in any actual or alleged damage or injury (including death), provided
such negligence or misconduct occurred or was alleged to have occurred prior to
the Effective Time; (v) claims under the workers' compensation laws of any state
or other jurisdiction that relate to activities occurring prior to the Effective
Time; (vi) claims by or on behalf of present or former employees including
claims in respect of severance pay or benefits or termination pay or benefits
and similar obligations relating to the termination of any employee's employment
or the refusal to hire such individual in each case prior to the Effective Time;
(vii) any product or service warranty claim, product liability claim or other
claim respecting the products or services sold prior to the Effective Time;
(viii) any
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liabilities, obligations or accrued or contingent benefits under any "employee
welfare benefit plan" or "employee pension benefit plan", as such terms are
defined by ERISA, maintained by Company, a Target, a predecessor in interest or
any of their respective affiliates prior to the Effective Time including any
health, dental, major medical, hospitalization, or other similar plan or
benefit, including severance rights and benefits provided by the Company, a
Target or a predecessor in interest or any one or more of their respective
affiliates to any of their respective employees; (ix) for costs incurred,
whether or not then due, for utilities services rendered or furnished to
Company, a Target or a predecessor in interest or any respective affiliate,
including without limitation all water, gas and sewage treatment services in
each case prior to the Effective Time; (x) obligations owed to Company or its
affiliates or their respective officers, directors, employees, representatives,
contractors or agents prior to the Effective Time or as a consequence of the
Closing; (xi) accounts payable incurred or accrued prior to the Effective Time
(except for those reflected in the final Post-Closing Report); (xii) any Taxes
resulting from or in any way connected with operations prior to the Effective
Time including any Taxes resulting from or in any way connected with the
transactions contemplated by this Agreement (but excluding Taxes reflected in
the final Post-Closing Report); or (xiii) any asset or property that was
disposed of by the Company or a Target prior to the Effective Time, specifically
including, without limitation, stores that were closed prior to the Effective
Time and their related lease obligations; or
(d) without limiting the generality of any of the aforementioned
matters: any Hazardous Materials existing at or prior to the Effective Time on,
in, under or affecting, or originating from, all or any portion of a Target's or
any predecessor's in interest present or former assets or properties or any
surrounding areas or any other property now or previously used, owned by or
under the control of a Target or any predecessors in interest that results in
actual liability on the part of the Surviving Corporation or its successors or
assigns, regardless of whether or not presently known or caused by or within the
control of a Target, Company or any affiliate or any predecessors in interest;
the violation of or noncompliance with any Environmental Laws or common laws
relating to or affecting a Target or any predecessors in interest or its present
or former business or assets or properties that results in liability on the part
of the Surviving Corporation or its successors or assigns, whether or not
presently known or caused by or within the control of a Target, the Company or
any affiliate or any predecessors in interest to the extent the violation or
noncompliance relates to acts or events occurring at or prior to the Effective
Time or state of affairs or circumstances existing at or prior to the Effective
Time, or the assertion by Company of any defense of its obligations hereunder
whether any of such matters arise before or after the Closing. The parties
hereto expressly agree that indemnification hereunder shall include, without
limitation: (A) the costs of removal of any and all Hazardous Materials from all
or any portion of any of the Surviving Corporation's or a Target's or any
predecessor's in interest current or former assets or properties or any
surrounding areas or properties or assets used in connection with its or their
respective businesses or any properties contaminated with Hazardous Materials or
emissions originating from any of the foregoing properties, (B) additional costs
required to take prudent precautions to protect against the discharge, spillage,
emission, leakage, seepage or Release of Hazardous Materials on, in, under or
affecting the Surviving Corporation's or a Target's or any predecessor's in
interest current or former assets or properties or any assets or properties used
in connection with its or their respective businesses, or any properties
contaminated with Hazardous Materials or emissions
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originating from any of the foregoing properties, or into the air, any body of
water, any other public domain or any surrounding areas, (C) costs incurred to
comply with or prevent violations or further violations of the Environmental
Laws in connection with all or any portion of the Surviving Corporation's or a
Target's or any predecessor's in interest current or former business or assets
or properties or any surrounding areas or properties or assets used in
connection with its or their respective businesses or any properties
contaminated with Hazardous Materials or emissions originating from any of the
foregoing properties, and (D) all fines, penalties, and assessments, whether
civil or criminal, arising out of the violation of any permit, condition or
Environmental Law at or affecting the current or former businesses or assets or
properties of the Surviving Corporation, a Target or any predecessors in
interest or surrounding areas or properties or assets used in connection with
its or their respective businesses or any properties contaminated with Hazardous
Materials or emissions originating from any of the foregoing properties; or
(e) The failure of Company to comply with Section 6.15 (entitled
"Collection of Accounts Receivable").
SECTION 7.3 Indemnity Agreement of Parent and the Subsidiary. Subject
to the terms and conditions of Section 7.7 below, Parent and the Subsidiary,
jointly and severally, shall defend, indemnify and hold harmless the Company and
its successors and permitted assigns (and each of its directors, officers,
employees, agents and affiliates) from and against any and all Losses after the
Closing Date or thereafter asserted against, imposed upon or incurred by the
Company or their successors or permitted assigns or any of the Company's
directors, officers, employees, agents or affiliates based upon, awarded or
asserted against in respect of:
(a) any breach of any representation and warranty or non-fulfillment of
any covenant or agreement on the part of Parent or the Subsidiary contained in
this Agreement, or any misrepresentation in or omission from or non-fulfillment
of any covenant on the part of Parent or the Subsidiary contained in any other
agreement, certificate or other instrument furnished or to be furnished to the
Company by Parent or the Subsidiary pursuant to this Agreement; or
(b) any liability reflected in the final Post-Closing Report, but only
to the extent so reflected; or
(c) any period or periods of operation of any Target occurring after
the Effective Time which involve any claims against Company or any of its
affiliates or any of their respective assets or properties relating to actions
or inactions of a Target or any officers, directors, employees, representatives,
contractors or agents of a Target occurring after the Effective Time (including,
without limitation, Losses Company or any of its affiliates incurs as a surety
or guarantor as consequence or result of a breach by a Target, after the
Effective Time, of any provision of any contract or agreement to which a Target
or any successor or assign is a party or which binds a Target or any of its
assets or properties), unless and to the extent such matter is the subject of a
valid claim under Section 7.2 (or would be a valid claim but for the application
of Section 7.1 or 7.7).
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SECTION 7.4 Third Party Claims.
(a) If any of Parent, the Subsidiary, the Surviving Corporation, the
Company or a Target becomes aware of or receives notice of any third party claim
or the commencement of any third party action or proceeding with respect to
which another party (the "Indemnitor") is obligated to provide indemnification
pursuant to Article VII hereof, the party entitled to indemnification (the
"Indemnitee") shall promptly give the Indemnitor notice thereof. Such notice
shall not be a condition precedent to any liability of the Indemnitor under the
provisions for indemnification contained in this Agreement, unless (and only to
the extent that) failure to give such notice materially prejudices the rights of
the Indemnitor with respect to such claims, actions, or proceedings. The
Indemnitor may compromise or defend, at the Indemnitor's own expense, and by the
Indemnitor's own counsel, any such matter involving the asserted liability of
the Indemnitee; provided, however, that no compromise or settlement thereof may
be effected by the Indemnitor without the Indemnitee's consent (which shall in
any event not be unreasonably withheld) unless (i) there is no finding or
admission of any violation of law by the Indemnitee or any violation of the
rights of any person by the Indemnitee and no effect on any other claims that
may be made against the Indemnitee, and (ii) the sole relief provided is
monetary damages that are paid in full by the Indemnitor. If the Indemnitor
elects not to compromise or defend such matter, then the Indemnitee, at the
Indemnitor's expense and by the Indemnitee's own counsel, may defend such matter
and may compromise or settle such matter or consent to the entry of a judgment
with respect to such matter, on behalf of and for the account and risk of the
Indemnitor, and the Indemnitor shall thereafter have no right to challenge the
Indemnitee's defense, compromise, settlement or consent to judgment therein. In
any event, the Indemnitee, the Indemnitor and the Indemnitor's counsel (and, if
applicable, the Indemnitee's counsel) shall cooperate in the compromise of, or
the defense against, any such asserted liability. If the Indemnitor chooses to
defend any claim, the Indemnitee shall make available to the Indemnitor any
books, records, or other documents within its control that are reasonably
necessary or appropriate for such defense. The foregoing indemnity procedures
with respect to third party claims shall not be construed as a limitation on any
party's right to seek indemnification under Sections 7.2 and 7.3 for matters
other than third party initiated claims or demands.
(b) Anything in this Section 7.4 to the contrary notwithstanding, (i)
if there is a reasonable probability that a claim may materially and adversely
affect the Indemnitor other than as a result of money damages or other money
payments, the Indemnitee shall have the right to defend, compromise or settle
such claim at the Indemnitor's cost and expense, and (ii) the Indemnitor shall
not, without the written consent of the Indemnitee, settle or compromise any
claim or consent to the entry of any judgment which does not include as an
unconditional term thereof the giving by the claimant or the plaintiff to the
Indemnitee of a release from all liability in respect of such claim.
SECTION 7.5 Payment. Subject to the terms and conditions of Section 7.7
below, the Indemnitor shall promptly pay the Indemnitee any amount due under
this Article VII, which payment may be accomplished in whole or in part, at the
sole option of the Indemnitor, by the Indemnitee setting off any amount owed to
any Indemnitor by the Indemnitee. Upon judgment, determination, settlement or
compromise of any third party claim, the Indemnitor shall pay promptly
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on behalf of the Indemnitee, and/or to the Indemnitee in reimbursement of any
amount theretofore required to be paid by it, the amount so determined by
judgment, determination, settlement or compromise and all other claims of the
Indemnitee with respect thereto, unless in the case of a judgment an appeal is
made from the judgment. If the Indemnitor desires to appeal from an adverse
judgment, then the Indemnitor shall post and pay the cost of the security or
bond to stay execution of the judgment pending appeal. Upon the payment in full
by the Indemnitor of such amounts, the Indemnitor shall succeed to the rights of
such Indemnitee, to the extent not waived in settlement, against the third party
who made such third party claim.
SECTION 7.6 No Waiver. The closing of the transactions contemplated by
this Agreement shall not constitute a waiver by any party of its rights to
indemnification hereunder, regardless of whether the party seeking
indemnification has knowledge of the breach, violation or failure of condition
constituting the basis of the claim for indemnification at or before the
Closing, and regardless of whether such breach, violation or failure is deemed
to be "material" for purposes of Section 9.1.
SECTION 7.7 Limitations on Right of Indemnification.
(a) No Indemnitee shall have any right to indemnification under this
Article VII unless and until the aggregate amount of any and all such
indemnification claims made by Indemnitor exceeds $250,000, in the aggregate
(the "Basket"), and shall only be applicable to the extent that Losses, in the
aggregate, exceed the Basket; provided, however, the Basket shall not apply and
the Indemnitee shall be entitled to reimbursement with respect to the first
dollar of Losses with respect to breaches of the representations, warranties,
covenants and agreements set forth in Sections 4.1, 6.6, 6.12 and 6.15 of this
Agreement or indemnification claims arising out of Section 7.2(b) or 7.2(e).
(b) Notwithstanding Section 7.7(a) and without regard to the Basket,
with respect to any claim arising from a breach of Section 4.11 of this
Agreement, the Indemnitee shall be entitled to indemnification with respect to
any store and to the extent the Losses incurred with respect to such store
exceed $25,000.00 in the aggregate.
(c) The aggregate liability of the Company and the Target pursuant to
Article VII of this Agreement shall not exceed $50,000,000; provided, however,
that the provisions of this Section 7.7(c) shall not apply to breaches of the
representations and warranties set forth in Sections 4.1 and 6.6 of this
Agreement, or for matters arising out of the intentional acts of the Company or
the Target or for breaches of the covenants and agreements set forth herein or
in any Ancillary Instrument or indemnification claims arising out of Section
7.2(b), all of which are without limitation as to the amount of liability.
(d) Notwithstanding anything contained in this Article VII to the
contrary, as between an Indemnitor and an Indemnitee, the Losses for which a
party is indemnified shall exclude such Indemnitee's consequential damages (but
such exclusion shall not extend to the consequential damages claimed by any
third party under any third party claim that is subject to indemnification
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under this Article VII), except such consequential damage exclusion shall be
limited to only fifty percent (50%) of the consequential damages that arises out
of the failure to obtain any required consent to the transactions contemplated
by the Agreement under the Real Estate Leases.
ARTICLE VIII
Closing Conditions
SECTION 8.1 Conditions Precedent to Obligations of Parent and the
Subsidiary. The obligations of Parent and the Subsidiary to proceed with the
transactions contemplated hereunder to be consummated at the Closing are
subject, at the option of Parent or the Subsidiary, to the fulfillment of each
and all of the following conditions at or prior to the Closing Date:
(a) All documents and agreements required hereunder to be delivered to
Parent or the Subsidiary at or before the Closing shall have been delivered, and
all covenants, agreements and obligations required by the terms of this
Agreement to be performed by the Company and each Target at or before the
Closing shall have been performed in all material respects when due, and a
certificate of the Company and Target dated the Closing Date, to the foregoing
effects shall have been delivered to Parent of the Subsidiary at the Closing.
(b) There shall have been delivered to Parent and the Subsidiary at the
Closing a certified copy of the resolutions duly adopted by the board of
directors of the Company and Target1 and the shareholder of Target1 authorizing
and approving the execution and delivery by the Company and Target1 of this
Agreement, and the consummation by the Company or Target1 of the transactions
contemplated hereby.
(c) All material consents, approvals or waivers of third parties
required to be obtained by the Company or any Target for the consummation by the
Company or such Target of the transactions contemplated by this Agreement shall
have been duly obtained (with satisfactory written evidence thereof, in
recordable form where necessary, to be furnished to Parent and the Subsidiary at
the Closing).
(d) No litigation to enjoin or restrain the consummation of the
transactions contemplated hereby, nor governmental or administrative
investigation of the affairs of any Target which could reasonably result in a
Material Adverse Effect shall have been instituted and be continuing.
(e) There shall have been delivered to Parent and the Subsidiary the
signed opinion of Powell, Goldstein, ▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, counsel to the Company
and Target, dated the Closing Date, in form and substance reasonably acceptable
to Parent.
(f) Any and all permits and approvals from any governmental or
regulatory body required for the lawful consummation of the Merger shall have
been obtained.
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(g) The Company and each Target shall have delivered all such certified
resolutions, certificates, documents or instruments with respect to such
entity's corporate existence and authority as counsel to Parent and the
Subsidiary may have reasonably requested prior to the Closing Date.
(h) Parent and the Company shall have entered into a Shareholders'
Agreement in substantially the form of Exhibit C attached hereto (the
"Shareholders' Agreement").
(i) The applicable waiting period under the HSR Act shall have expired
or have been terminated.
(j) All material actions and proceedings required hereunder shall have
been taken and all material documents and other papers required to be delivered
by the Company and Target hereunder or in connection with the consummation of
the transactions contemplated hereby and all other related matters shall have
been delivered.
SECTION 8.2 Conditions Precedent to Obligations of the Company and
Target. The obligations of the Company and Target to proceed with the
transactions to be consummated hereunder at the Closing, shall be subject, at
the option of the Company and Target to the fulfillment of each and all of the
following conditions at or prior to the Closing Date:
(a) All documents and agreements required hereunder to be delivered to
the Company and Target at or before the Closing shall have been delivered, and
all covenants, agreements and obligations by the terms of this Agreement to be
performed by Parent and the Subsidiary at or before the Closing shall have been
performed in all material respects when due, and a certificate of Parent and the
Subsidiary, dated the Closing Date, to the foregoing effects shall have been
delivered to the Company and Target at the Closing.
(b) There shall have been delivered to the Company and Target a
certified copy of resolutions duly adopted by the respective boards of directors
of Parent and the Subsidiary and the shareholder of Subsidiary authorizing and
approving the execution and delivery of this Agreement by Parent and the
Subsidiary and authorizing Parent and the Subsidiary to consummate the
transactions contemplated hereby.
(c) There shall have been delivered to the Company and Target the
signed opinion of ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP, counsel to Parent and the
Subsidiary, dated the Closing Date, in form and substance reasonably acceptable
to the Company and Target.
(d) No litigation to enjoin or restrain the consummation of the
transactions contemplated hereby, nor governmental or administrative
investigation of the affairs of Parent and the Subsidiary which could reasonably
result in a Parent Material Adverse Effect shall have been instituted and be
continuing.
(e) The applicable waiting period under the HSR Act shall have expired
or been terminated.
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(f) Parent and the Company shall have entered into the Shareholders'
Agreement.
(g) All material actions and proceedings required hereunder shall have
been taken and all material documents and other papers required to be delivered
by the Subsidiary or Parent hereunder or in connection with the consummation of
the transactions contemplated hereby and all other related matters, shall have
been delivered.
ARTICLE IX
Termination
SECTION 9.1 Termination. This Agreement may be terminated prior to the
Closing as follows:
(a) at the election of the Company or Target, if any one or more of the
conditions to its obligation to close shall have become incapable of fulfillment
prior to the Closing Date;
(b) at the election of Parent or the Subsidiary, if any one or more of
the conditions to its obligation to close shall have become incapable of
fulfillment prior to the Closing Date;
(c) at the election of Parent, the Subsidiary, the Company or Target,
if any legal proceeding is commenced by any governmental or regulatory body
directed against the consummation of the closing and either Parent, the
Subsidiary, the Company or Target, as the case may be, reasonably and in good
▇▇▇▇▇ ▇▇▇▇▇ it impractical or inadvisable to proceed in view of such legal
proceeding thereof;
(d) at any time on or prior to the Closing Date, by mutual written
consent of the parties hereto;
(e) at any time by Parent, the Subsidiary, the Company or Target if the
transactions contemplated herein are not closed by December 31, 1998 and the
party so terminating is not then in breach or default of any covenant or
agreement contained herein.
SECTION 9.2 Survival. If this Agreement is terminated pursuant to
Section 9.1, this Agreement shall become void and of no further force and
effect, except for the provisions of Section 10.1 (relating to the obligation of
the Company and the Target to keep certain information confidential), Section
10.3 (relating to expenses) and Section 10.4 (relating to indemnification of
brokerage commissions and finder's fees), and none of the parties hereto shall
have any liability in respect of such termination except that any party shall be
liable to the extent that failure to satisfy the conditions of Section 8.1 or
8.2 results from the violation or breach of any of the representations,
warranties, covenants or agreements of such party under this Agreement.
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ARTICLE X
Miscellaneous
SECTION 10.1 Confidentiality. As a condition to each party hereto
furnishing to any other party hereto or to their Representatives financial and
other information that has not heretofore been made generally available on a
nonconfidential basis, each party hereto agrees to treat such information
furnished to it (both orally and in writing) before or after the date hereof by
or on behalf of the other party or its Representatives and all notes, analyses,
compilations, studies, interpretations and other material prepared by it or its
Representatives containing or based in whole or in part on any such information
furnished by or on behalf of the other party or any of its Representatives
(collectively, the "Evaluation Material"), as follows:
(a) Each party hereto recognizes and acknowledges the competitive value
and confidential nature of the Evaluation Material and the damage that could
result to the other party if information contained herein is disclosed to any
third party.
(b) Each party hereto agrees that the Evaluation Material will be used
solely for the purpose of evaluating the transaction contemplated hereby. Each
party hereto agrees that it will not disclose any of the Evaluation Material to
any third party without the prior written consent of the other party hereto;
provided, however, that any such information may be disclosed to its
Representatives who need to know such information for the purpose of evaluating
the transaction contemplated herein and who agree to keep such information
confidential and to be bound by the provisions of this Section 10.1 to the same
extent as if they were parties hereto.
(c) In the event that a party hereto or its Representatives are
requested in any proceeding to disclose any Evaluation Material, it will give
the other party hereto prompt notice of such request so that the other party
hereto make seek an appropriate protective order. If, in the absence of a
protective order, the party or its Representatives are nonetheless compelled by
law to disclose such Evaluation Material, it or its Representatives, as the case
may be, may disclose such information in such proceeding without liability
hereunder; provided, however, that it gives the other party hereto written
notice of the information to be disclosed as far in advance of its disclosure as
is practicable and, upon the request of the other party and at its expense, use
its best efforts to obtain assurances that confidential treatment will be
accorded to such information.
(d) In the event that the transaction contemplated by this Agreement is
not consummated, each party will promptly redeliver to the other party all
copies of all Evaluation Material furnished to it or its Representatives and
will destroy all analyses, compilations, studies and other material based in
whole or in part on such material prepared by or on behalf of such party.
(e) Each party and its Representatives shall have no obligation
hereunder with respect to any information in the Evaluation Material furnished
by the other party or its Representatives
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to the extent that such information (a) has been made public other than by the
acts of the recipient party or acts of its Representatives in violation of this
Agreement or (b) becomes available to the recipient party on a nonconfidential
basis from a source that is entitled to disclose it on a nonconfidential basis.
(f) Each party hereto agrees that money damages would not be a
sufficient remedy for any breach of the agreements set forth in this Section
10.1(a) by it or its Representatives, and that, in addition to all other
remedies, the other party hereto shall be entitled to specific performance and
injunctive or other equitable relief as a remedy for any such breach, and each
party hereto further agrees to waive, and to use its best efforts to cause its
Representatives to waive, any requirements for the securing or posting of any
bond in connection with such remedy. Each party hereto agrees to be responsible
for any breach of its agreement set forth in this Section 10.1 by any of its
Representatives.
SECTION 10.2 Gender. All pronouns and any variations thereof refer to
the masculine, feminine or neuter, singular or plural, as the identity of the
person or persons may require.
SECTION 10.3 Expenses. Except as otherwise specifically provided
herein, Parent and the Subsidiary shall pay their own expenses, including the
fees and disbursements of its counsel in connection with the negotiation,
preparation and execution of this Agreement and the consummation of the
transactions contemplated hereby. Likewise, except as otherwise specifically
provided herein, the Company shall pay the expenses of the Company and each
Target, including the fees and disbursements of their counsel in connection with
the negotiation, preparation and execution of this Agreement, and the
consummation of the transactions contemplated hereby.
SECTION 10.4 Brokerage Commissions and Finder's Fees. The Company and
each Target, on the one hand, and Parent and the Subsidiary, on the other hand,
agree to hold the other harmless from and against all brokerage commissions or
finder's fees in connection with the transactions contemplated by this
Agreement, and will defend, indemnify and hold the other parties harmless from
and against any and all claims for finder's fees or brokerage or other
commissions which may at any time be asserted against any of such other parties
founded upon a claim which is inconsistent with the aforesaid representation and
warranty of the indemnifying party, together with any and all losses, damages,
costs and expenses (including reasonable attorneys' fees) relating to such
claims or arising therefrom or incurred by the indemnified party in connection
with the enforcement of this indemnification provisions.
SECTION 10.5 ENTIRE AGREEMENT; AMENDMENT. THIS AGREEMENT, INCLUDING
ALL SCHEDULES AND EXHIBITS ANNEXED HERETO, CONSTITUTES THE ENTIRE AGREEMENT OF
THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF. THERE ARE NO ORAL
AGREEMENTS, UNDERSTANDINGS, PROMISES, REPRESENTATIONS OR WARRANTIES BETWEEN THE
PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER OF THIS AGREEMENT. ALL PRIOR
NEGOTIATIONS AND UNDERSTANDING, IF ANY (INCLUDING WITHOUT LIMITATION
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ANY CONFIDENTIALITY AGREEMENT PREVIOUSLY EXECUTED BY THE PARTIES HERETO),
BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER OF THIS AGREEMENT
HAVE BEEN SUPERSEDED BY THIS AGREEMENT. THIS AGREEMENT MAY NOT BE MODIFIED,
AMENDED OR TERMINATED EXCEPT BY A WRITTEN INSTRUMENT SPECIFICALLY REFERRING TO
THIS AGREEMENT SIGNED BY THE PARTY TO BE SO BOUND BY SUCH MODIFICATION,
AMENDMENT OR TERMINATION.
SECTION 10.6 Waivers and Consents. All waivers and consents given
hereunder shall be in writing. No waiver by any party hereto of any breach or
anticipated breach of any provision hereof by any other party shall be deemed a
waiver of any other contemporaneous, preceding or succeeding breach or
anticipated breach, whether or not similar, on the part of the same or any other
party.
SECTION 10.7 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been given only if and when
personally delivered, or three (3) business days after mailing, postage prepaid,
by certified mail, return receipt requested or when delivered (and receipted
for) by an overnight delivery service, or when first sent by telex, telecopier
or other means of instantaneous communication provided such communication is
promptly confirmed by personal delivery, mail or an overnight delivery service
as provided above, addressed in each case as follows:
(a) If to the Company or Target to
▇▇▇▇ Industries, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chairman
With a copy in like manner to
▇▇▇▇ Industries, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: General Counsel
and
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Powell, Goldstein, ▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(b) If to Parent, the Subsidiary or the Surviving Corporation to:
The Maxim Group, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇. ▇. ▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy in like manner to:
▇▇▇▇▇, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, ▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇)▇▇▇-▇▇▇▇
The parties hereto may change their respective address(es) for the giving of
notices and communications to them or to it, as the case may be, and/or copies
thereof, by written notice to the other parties in conformity with the
foregoing.
SECTION 10.8 Rights of Third Parties. All conditions of the obligations
of the parties hereto, and all undertakings herein, are solely and exclusively
for the benefit of the parties hereto and their successors and assigns, and no
other person or entity shall have standing to require satisfaction of such
conditions or to enforce such undertakings in accordance with their terms, or be
entitled to assume that any party hereto will refuse to consummate the purchase
and sale contemplated hereby in the absence of strict compliance with any or all
thereof, and no other person or entity shall, under any circumstances, be deemed
a beneficiary of such conditions or undertakings, any or all of which may be
freely waived in whole or in part, by mutual consent of the parties hereto at
any time, if in their sole discretion they deem it desirable to do so.
SECTION 10.9 Headings. The Article and Section headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
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49
SECTION 10.10 Governing Law. The interpretation and construction of
this Agreement, and all matters relating hereto, shall be governed by the
internal laws of the State of Georgia.
SECTION 10.11 Arbitration.
(a) Any dispute, controversy or claim arising out of or relating to
this Agreement or any contract or agreement entered into pursuant hereto or the
performance by the parties of its or their terms shall be settled by binding
arbitration held in Atlanta, Georgia in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect, except
as specifically otherwise provided in this Section 10.11. The interpretation and
enforceability of this Section 10.11 shall be governed exclusively by the
Federal Arbitration Act, 9 U.S.C. ▇▇.▇▇. 1-16.
(b) If the matter in controversy (exclusive of attorney fees and
expenses) shall appear, as at the time of the demand for arbitration, to exceed
$100,000, then the panel to be appointed shall consist of three neutral
arbitrators; otherwise, one neutral arbitrator.
(c) The arbitrator(s) shall allow such discovery as the arbitrator(s)
determine appropriate under the circumstances and shall resolve the dispute as
expeditiously as practicable, and if reasonably practicable, within one hundred
twenty (120) days after the selection of the arbitrator(s). The arbitrator(s)
shall give the parties written notice of the decision, with the reasons therefor
set out, and shall have thirty (30) days thereafter to reconsider and modify
such decision if any party so requests within ten (10) days after the decision.
Thereafter, the decision of the arbitrator(s) shall be final, binding, and
nonappealable with respect to all persons, including (without limitation)
persons who have failed or refused to participate in the arbitration process.
(d) The arbitrator(s) shall have authority to award relief under legal
or equitable principles, including interim or preliminary relief, and to
allocate responsibility for the costs of the arbitration and to award recovery
of attorneys fees and expenses in such manner as is determined to be appropriate
by the arbitrator(s).
(e) Judgment upon the award rendered by the arbitrator(s) may be
entered in any court having in personam and subject matter jurisdiction.
(f) All proceedings under this Section 10.11, and all evidence given or
discovered pursuant hereto, shall be maintained in confidence by all parties.
(g) The fact that the dispute resolution procedures specified in this
Section 10.11 shall have been or may be invoked shall not excuse any party from
performing its obligations under this Agreement and during the pendency of any
such procedure all parties shall continue to perform their respective
obligations in good faith, subject to any rights to terminate this Agreement
that may be available to any party and to the right of set off provided herein.
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(h) All applicable statutes of limitation shall be tolled while the
procedures specified in this Section 10.11 are pending. The parties will take
such action, if any, required to effectuate such tolling.
SECTION 10.12 Parties in Interest. This Agreement may not be
transferred, assigned, pledged or hypothecated by any party hereto, other than
by operation of law or with the written consent of the other parties hereto.
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective heirs, executors, administrators, successors
and permitted assigns.
SECTION 10.13 Counterparts. This Agreement may be executed in two or
more counterparts, all of which taken together shall constitute one instrument.
SECTION 10.14 Time of the Essence. Time shall be of the essence with
respect to the performance of any obligation or duty hereunder.
SECTION 10.15 Severability. In case any provision in this Agreement
shall be held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired thereby.
SECTION 10.16 Interpretation. Should any provisions of this Agreement
require judicial or arbitral interpretation, it is agreed that the court or
arbitrator interpreting or construing the same shall not apply a presumption
that the terms of any such provision shall be more strictly construed against
one party or the other by reason of the rule of construction that a document is
to be construed most strictly against the party who itself or through its agent
prepared the same, it being agreed that the agents of all parties hereto have
participated in the preparation of this Agreement.
[Signatures on following page]
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IN WITNESS WHEREOF, the parties have executed this Agreement, under
seal, as of the date first above written.
THE MAXIM GROUP, INC.
By: /s/ ▇.▇. ▇▇▇▇▇▇
----------------------------
Title: President
Attest: /s/ ▇▇▇▇ ▇▇▇▇▇▇ [CORPORATE SEAL]
--------------------------------
Title: Secretary
CMAX ACQUISITION, INC.
By: /s/ ▇.▇. ▇▇▇▇▇▇
----------------------------
Title: President
Attest: /s/ ▇▇▇▇ ▇▇▇▇▇▇ [CORPORATE SEAL]
--------------------------------
Title: Secretary
▇▇▇▇ INDUSTRIES, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
----------------------------
Title: Chairman and CEO
Attest: /s/ ▇.▇. ▇▇▇▇▇▇▇▇ [CORPORATE SEAL]
--------------------------------
Title: Secretary
▇▇▇▇ CARPET SHOWPLACE, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇
----------------------------
Title: Managing Director
Attest: /s/ ▇.▇. ▇▇▇▇▇▇▇▇ [CORPORATE SEAL]
--------------------------------
Title: Secretary
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EXHIBIT "A"
FORM OF ARTICLES OF MERGER
See Attached.
53
CERTIFICATE OF MERGER
of
CMAX ACQUISITION, INC., a Georgia corporation
with and into
▇▇▇▇ CARPET SHOWPLACE, INC., a Georgia corporation
The undersigned, a duly authorized officer of ▇▇▇▇ Carpet Showplace,
Inc., a Georgia corporation, the surviving corporation of the merger of CMAX
Acquisition, Inc. with and into ▇▇▇▇ Carpet Showplace, Inc. (the "Merger"),
pursuant to Section 14-2-1105 of the Georgia Business Corporation Code, as
amended, hereby executes this Certificate of Merger.
I.
The names of the corporations which are parties to the Merger are ▇▇▇▇
Carpet Showplace, a corporation organized under the laws of Georgia ("SCS"), and
CMAX Acquisition, Inc., a corporation organized under the laws of Georgia
("CMAX"). CMAX shall be merged with and into SCS, which will be the surviving
corporation (hereinafter the "Surviving Corporation").
II.
Upon the effectiveness of the Merger, the Articles of Incorporation of
the Surviving Corporation shall be the same as the Articles of Incorporation of
the Surviving Corporation as they exist as of the date of filing of this
Certificate of Merger except that the name of the Surviving Corporation shall be
changed to "CarpetMAX Retail Stores, Inc."
III.
The executed Agreement and Plan of Merger, dated as of June 23, 1998,
by and among the Surviving Corporation, CMAX, and the other parties thereto (the
"Agreement and Plan of Merger"), is on file at the principal place of business
of the Surviving Corporation, the address of which is ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇.
IV.
A copy of the Agreement and Plan of Merger will be furnished by the
Surviving Corporation, on request and without cost, to any shareholder of either
corporation that is a party to the Merger.
V.
The Merger was duly approved by the shareholders of each of the
constituent corporations in the Merger, as required by the Georgia Business
Corporation Code.
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54
VI.
The request for publication of a notice of filing of this Certificate
of Merger and payment therefor will be made as required by Section
14-2-1105.1(b) of the Georgia Business Corporation Code, as amended.
IN WITNESS WHEREOF, ▇▇▇▇ Carpet Showplace, Inc. has caused this
Certificate of Merger to be executed in its name by its duly authorized officer
on the _____ day of June, 1998.
▇▇▇▇ CARPET SHOWPLACE, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
A-2
55
EXHIBIT "B"
FORM OF PROMISSORY NOTE
See Attached.
56
SUBORDINATED PROMISSORY NOTE
$______________ ____________, ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
FOR VALUE RECEIVED, THE MAXIM GROUP, INC., a Georgia corporation
("Payor"), promises to pay to the order of ▇▇▇▇ INDUSTRIES, INC, a Georgia
corporation ("Payee"), at its address at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇, or such other place as the Payee may from time to time designate in
writing, in lawful money of the United States of America, the principal sum of
__________________________________ DOLLARS ($______________), or so much thereof
as is outstanding from time to time, together with interest on so much thereof
as is from time to time outstanding and unpaid, at the rate paid by Payor under
that certain Amended and Restated Credit Agreement by and among Payor and
certain of its subsidiaries, as borrowers, the parties which are referred to
therein as lenders, and First Union National Bank, as administrative agent,
dated __________, 1998, as the same may be modified, amended or refinanced from
time to time (the "Credit Agreement"), said principal and all accrued but unpaid
interest being due and payable as set forth below.
Commencing _________________, 1998, and continuing on the first (1st)
day of each and every consecutive month thereafter, interest hereunder shall be
due and payable until such time as the principal balance of this Note shall have
been paid in full.
The principal balance of this Note shall be due and payable on
__________, 1999. Payor may prepay this Note in whole or in part at any time
without penalty or premium. Each prepayment of this Note shall be applied first
to unpaid interest accrued through the date of the prepayment and then to
principal.
Time is of the essence with respect to all of Payor's obligations and
agreements under this Note. The failure of Payor to pay any payment when due,
shall entitle Payee to declare the then remaining outstanding balance of this
Note to be, and the same shall thereupon become, immediately due and payable,
and Payee may proceed to collect such amounts forthwith, plus all costs of
collection, including reasonable attorneys' fees if collected by and through an
attorney. It is further agreed that failure of Payee to exercise this option or
indulgence granted from time to time shall in no event be considered a waiver of
such option or estop Payee from exercising such option.
Notwithstanding anything contained in this Note to the contrary, the
Payee does hereby subordinate any and all rights to performance and payment
hereunder by the Payor pursuant to the terms of this Note in favor of any and
all indebtedness of the Payor under the Credit Agreement or any other similar
agreement entered into by Payor with any lender or lenders which replaces the
credit facility evidenced by the Credit Agreement as Payor's senior secured
credit facility, or any liens, mortgages, deeds to secure debt or other
instruments, certificates or agreements related to any such senior secured
credit facility, whether now existing or hereafter arising (the "Liabilities").
Payor hereby agrees to promptly execute and deliver any and all
B-1
57
subordination agreements and other instruments, documents or certificates
reasonably requested by any such lender to further evidence the agreement to
subordinate described above. Except as may be otherwise provided in this Note,
the Payee hereby agrees that, in the event of a default under the Credit
Agreement or any replacement senior secured credit facility, entitling the
lender to accelerate the principal balance thereof, it will not ask for, demand,
▇▇▇ for or receive, and the Payor will not pay any amounts due hereunder unless
and until all Liabilities have been paid and satisfied in full and all financing
arrangements between the Payor and such lender or lenders have been terminated
in writing by such lender or lenders, and any such payments received by the
Payee shall be held in trust for such lender or lenders and delivered thereto
promptly upon demand.
In no contingency or event whatsoever shall the amount paid or agreed to
be paid to Payee for the use of money advanced hereunder exceed the highest
lawful rate permissible under any law which a court of competent jurisdiction
may deem applicable hereto; and, in the event any such payment is inadvertently
paid by Payor or inadvertently received by Payee, such excess sum shall be, at
Payor's option, returned to Payor forthwith or credited as a payment of
principal, but shall not be applied to the payment of interest. It is the intent
hereof that Payor not pay or contract to pay, and that Payee not receive or
contract to receive, directly or indirectly in any manner whatsoever, interest
in excess of that which may be paid by Payor under applicable law.
PAYOR, FOR ITSELF AND ITS SUCCESSORS AND ASSIGNS, AND ALL OTHER PERSONS
LIABLE FOR THE PAYMENT OF THIS NOTE, WAIVES PRESENTMENT FOR PAYMENT, DEMAND,
PROTEST, AND NOTICE OF DISHONOR, PROTEST, AND NONPAYMENT, AND CONSENTS TO ANY
AND ALL RENEWALS, EXTENSIONS OR MODIFICATIONS THAT MIGHT BE MADE BY PAYEE AS TO
THE TIME OF PAYMENT OF THIS NOTE FROM TIME TO TIME, AND FURTHER AGREES THAT THE
SECURITY, IF ANY, FOR THIS NOTE OR ANY PORTION THEREOF MAY FROM TIME TO TIME BE
MODIFIED OR RELEASED IN WHOLE OR IN PART WITHOUT AFFECTING THE LIABILITY OF ANY
PARTY LIABLE FOR THE PAYMENT OF THIS NOTE.
This Note has been delivered in Atlanta, Georgia and shall be governed
by the laws of the State of Georgia (excluding conflict of laws provisions).
IN WITNESS WHEREOF, Payor has executed this Note under seal as of the
date first above written.
THE MAXIM GROUP, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
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EXHIBIT "C"
FORM OF SHAREHOLDER'S AGREEMENT
See Attached.
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SHAREHOLDER'S AGREEMENT
This Agreement is made and entered into this ____ day of _______, 1998,
by and between THE MAXIM GROUP, INC., a Delaware corporation (hereinafter called
the "Company"), and ▇▇▇▇ INDUSTRIES, INC., a Georgia corporation (hereinafter
called the "Shareholder").
WHEREAS, concurrently with the execution of this Agreement, the Company
has issued to Shareholder an aggregate of 3,150,000 shares of the Common Stock
of the Company (hereinafter "Issued Shares") in connection with that certain
Agreement and Plan of Merger ("Purchase Agreement") dated June 23, 1998 by and
among the Company, CMAX Acquisition, Inc., the Shareholder and ▇▇▇▇ Carpet
Showplace, Inc.; and
WHEREAS, it is a condition to the consummation of the transactions
contemplated by the Purchase Agreement that the parties hereto execute and
deliver this Agreement; and
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties agree as follows:
1. Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"Affiliate" means, with respect to any Person, any Person that,
directly or indirectly, controls, is controlled by or is under common control
with the Person in question. In addition to the foregoing, with respect to the
Shareholder, "Affiliate" shall mean ▇▇▇▇▇▇ ▇. ▇▇▇▇, his lineal descendants, and
their immediate family members, trusts primarily for the benefit of such
individuals and Persons controlled, directly or indirectly, by such individuals
and/or trust.
"Commission" shall mean the United States Securities and
Exchange Commission and any successor federal agency having similar powers and
responsibility for administering the Securities Act.
"Common Stock" shall mean the $.001 par value Common Stock of
the Company.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended (or any similar successor statute) and the rules and regulations
thereunder, all as the same shall be in effect at the time.
"Holder" shall mean the Shareholder and/or any Affiliate thereof
to whom any of the Issued Shares shall have been transferred during the term of
this Agreement.
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"Person" means an individual or a corporation, partnership,
limited liability company or partnership, trust, incorporated or unincorporated
association, joint venture, joint stock company, government (or an agency or
political subdivision thereof) or other entity of any kind.
"Registrable Securities" shall mean the Issued Shares.
Registrable Securities will cease to be Registrable Securities when (i) a
Registration Statement covering such Registrable Securities has been declared
effective under the Securities Act by the Commission and such Registrable
Securities have been disposed of pursuant to such effective Registration
Statement, (ii) such securities shall have been sold pursuant to Rule 144 (or
any successor provision) under the Securities Act and in compliance with the
requirements of paragraphs (c) (e), (f) and (g) of Rule 144 (notwithstanding the
provisions of paragraph (k) of such Rule), or (iii) the Registrable Securities
are sold or distributed by a Person not entitled to the registration rights
granted by this Agreement.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and this Agreement, and the declaration or
ordering of the effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the
Company in complying with Section 4 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company (including any fees incurred by Company counsel for
advice rendered to any seller of Registrable Securities), blue sky fees and
expenses, fees of the National Association of Securities Dealers, Inc. and
accountants' expenses, including without limitation, any special audits or
"comfort" letters incident to or required by any such registration, and any fees
and disbursements of underwriters customarily paid by issuers or sellers of
securities, but excluding underwriting discounts and commissions.
"Registration Statement" means a registration statement filed
pursuant to the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Voting Securities" shall mean the shares of Common Stock and
any other securities of the Company entitled to vote generally in the election
of directors.
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2. Transfer of Shares.
(a) Restrictions on Transfer. Shareholder agrees that it
will not, without the prior written consent of the Company, directly or
indirectly, offer, sell, exchange, pledge, hypothecate, encumber,
transfer, assign or otherwise dispose of (collectively, a "transfer")
any Issued Shares for a period of ninety (90) days after the date
hereof.
(b) Endorsement on Certificates, etc.
(i) Upon the execution of this Agreement, in addition
to any other legend which the Company may deem advisable under the
Securities Act and certain state securities laws, all certificates
representing the Issued Shares shall be endorsed as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO THE PROVISIONS OF A SHAREHOLDER'S AGREEMENT
DATED AS OF __________ 1998, BETWEEN THE COMPANY AND
THE REGISTERED HOLDER OF THIS CERTIFICATE AND, IN
ACCORDANCE WITH SUCH AGREEMENT, MAY NOT BE TRANSFERRED
OR SOLD FOR A PERIOD OF 90 DAYS FROM THE DATE OF SUCH
AGREEMENT. A COPY OF THE ABOVE REFERENCED AGREEMENT IS
ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND
MAY NOT BE SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT, OR AN EXEMPTION FROM
REGISTRATION UNDER SAID ACT AS EVIDENCED BY AN OPINION
OF COUNSEL THAT REGISTRATION IS NOT REQUIRED.
(ii) Upon the expiration of the ninety (90) day period
referred to above, the holder of any certificate shall be entitled to
receive from the Company, without expense, upon delivery to the Company
of the existing certificate representing such shares of Common Stock, a
new certificate not bearing the first restrictive legend set forth in
clause (i) of this Section 2(b). The second legend set forth in clause
(i) of this Section 2(b) shall be removed from a particular certificate
representing shares of Common Stock when such security (A) shall have
been sold to the public pursuant to an effective registration statement,
(B) shall have been sold in compliance with the provisions of Rule 144
under the Securities Act or (C) becomes eligible for sale to the public
pursuant to Rule 144(k) under the Securities Act.
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(c) Improper Transfer. Any attempt to transfer or encumber any
shares of Common Stock other than in accordance with the terms of this
Agreement shall be null and void and neither the Company nor any
transfer agent of such securities shall give any effect to such
attempted transfer or encumbrance in its stock records.
3. Standstill. The Shareholder hereby agrees that, for a period of one
year from the date hereof, without the prior written consent of the Company, the
Shareholder will not, and the Shareholder will use its reasonable best efforts
to cause each of its Affiliates not to, directly or indirectly:
(i) acquire, publicly announce an intention to
acquire, offer or propose to acquire, or agree to acquire (except, in
any case, by way of stock dividends or other distributions or offerings
made available to holders of any Common Stock generally), directly or
indirectly, whether by purchase, tender or exchange offer, through the
acquisition of control of another Person, by joining a partnership,
limited partnership, syndicate or other "group" (within the meaning of
Section 13(d)(3) of the Exchange Act) or otherwise, any equity
securities of the Company; provided, however, that the Shareholder
and/or any of its Affiliates may acquire additional shares of Common
Stock in open market or privately-negotiated transactions as long as
the Shareholder and its Affiliates, collectively, shall not, as a
result of such purchase or purchases, beneficially own in excess of 25%
of the outstanding shares of Common Stock;
(ii) make, or in any way participate, directly or
indirectly, in any "solicitation" (as such term is used in the proxy
rules of the Commission as in effect on the date hereof) of proxies or
consents (whether or not relating to the election or removal of
directors), seek to advise, encourage or influence any Person with
respect to the voting of any Voting Securities, initiate, propose or
otherwise "solicit" (as such term is used in the proxy rules of the
Commission as in effect on the date hereof) stockholders of the Company
for the approval of stockholder proposals made pursuant to Rule 14a-8 of
the Exchange Act, or induce or attempt to induce any other Person to
initiate any such stockholder proposal;
(iii) seek, propose, or make any public statement
(whether written or oral) with respect to, any merger, consolidation,
business combination, tender or exchange offer, sale or purchase of
assets, sale or purchase of securities (except as and to the extent
specifically permitted hereby), dissolution, liquidation, restructuring,
recapitalization or similar transactions of or involving the Company or
any of its Affiliates or solicit or encourage any other Person to make
any such public statement or proposal;
(iv) form, join or in any way participate in a "group"
(within the meaning of Section 13(d)(3) of the Exchange Act) with
respect to any Voting Securities, other than
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groups consisting solely of directors of the Company, other parties
hereto and their respective Affiliates;
(v) deposit any Voting Securities in any voting
trust or subject any Voting Securities to any arrangement or agreement
with respect to the voting of any Voting Securities;
(vi) execute any written consent with respect to the
Company or its Voting Securities;
(vii) otherwise act, alone or in concert with others,
to control or seek to control or influence or seek to influence the
management, Board of Directors or policies of the Company;
(viii) seek, alone or in concert with others,
representation on the Board of Directors of the Company or seek the
removal of any member of the Board of Directors;
(ix) make any publicly disclosed proposal or enter
into any discussion regarding any of the foregoing;
(x) publicly make any proposal, statement or
inquiry, or publicly disclose any intention, plan or arrangement
(whether written or oral) inconsistent with the foregoing, or publicly
make or disclose any request to amend, waive or terminate any provision
of this Agreement or the Certificate of Incorporation or By-laws of the
Company; or
(xi) enter into any arrangements, understandings or
agreements (whether written or oral) with, or advise, finance or assist,
any other Person in connection with any of the foregoing, or make any
investment in or enter into any arrangement with, any other Person that
engages, or offers or proposes to engage, in any of the foregoing.
4. Registration under Securities Act.
4.1 Shelf Registration.
(a) Effective Registration. The Company shall file,
as soon as practicable following the date of this Agreement (but not
later than 30 days thereafter), a "shelf" registration statement (the
"Shelf Registration") covering the securities then constituting
Registrable Securities on any appropriate form pursuant to Rule 415
under the Securities Act so as to permit the continuous or delayed
offering of the Registrable Securities by the Holders. The Company
shall cause the Shelf Registration to be declared effective on or prior
to the 90th day after the date of this Agreement and to keep such
registration statement continuously effective until the earlier to
occur of (i) all Registrable Securities included therein have been sold
or (ii) the later to occur of (x) two (2) years after the date
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of this Agreement or (y) such time as the Shareholder is not an
"affiliate" of the Company within the meaning of Rule 144 under the
Securities Act.
(b) Shelf "Draw-Downs." If any holder of Registrable
Securities effects, pursuant to the Shelf Registration, an underwritten
public offering of all or a part of its Registrable Securities (a shelf
"draw-down") and wishes the Company to perform, in connection with such
shelf "draw-down," any procedures specified in Section 4.3 hereof, such
holder shall deliver to the Company, at least ten (10) business days
before such "draw-down" is to be made, a written notice describing in
reasonable detail its proposed offering and requesting the performance
of such procedures pursuant to this Section 4.1 and Section 4.3. The
Company shall be required to perform such procedures in advance of a
particular shelf "draw-down" only if such holder shall have requested
such performance as provided above. In addition, the Company shall be
required to perform such additional procedures (other than those
required under the securities laws) in connection with a particular
shelf "draw-down" only if one or more holders shall have notified the
Company pursuant to this Section 4.1(b) of their intention to offer to
the public Registrable Securities with an aggregate market value (on the
date the written notice referred to above is delivered) of at least
$10,000,000 pursuant to such "draw-down."
The Company shall have the right to sell shares of Common Stock
in an underwritten registered offering conducted simultaneously with any
such shelf "draw-down" on a primary basis; provided that in the event
the managing underwriter of such underwritten offering shall have
advised the Company and the Holders that, in its judgment, the
distribution of all or a specified portion of the shares requested to be
so included concurrently with the securities being distributed by such
underwriters will adversely affect the distribution of such securities
by such underwriters, then the Holders may require, by written notice to
the Company, that the distribution of all or a specified portion of such
shares proposed to be sold by the Company be excluded from such
distribution.
The Company shall not be obligated to effect more than two (2)
such shelf "draw-downs." In addition, the Company shall not be obligated
to effect any shelf "draw-down" within (i) 60 days after the effective
date of a previous offering of Common Stock registered under the
Securities Act or (ii) 270 days after the completion of a previously
requested shelf "draw-down." The Company may postpone for up to 75 days
the filing or the effectiveness of any such requested shelf "draw-down"
if the Company's Board of Directors determines in its reasonable good
faith judgment that such shelf "draw-down" would reasonably be expected
to have a material adverse effect on any proposal or plan by the Company
or any of its subsidiaries to engage in any acquisition (other than in
the ordinary course of business) or any merger, consolidation, tender
offer, reorganization or similar transaction.
(c) Registration Statement Form. The registration made pursuant
to this Section 4.1 shall be effected by the filing of a registration
statement on any form which the Company is eligible to use, such form to
be selected by the Company, after consultation
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with counsel and after notice of such selection of such form is
delivered to the holders of all Registrable Securities electing to
participate in such registration; but in no event shall the Company be
required to maintain the effectiveness of such registration beyond the
period specified in Section 4.1(a).
(d) Expenses. Except as otherwise prohibited by applicable law,
the Company will pay all Registration Expenses in connection with (i)
the registration of Registrable Securities pursuant to Section 4.1(a)
and (ii) one (1) shelf "draw-down" pursuant to Section 4.1(b).
4.2 Incidental Registration.
(a) Right to Include Registrable Securities. If, at any
time after the date of this Agreement, the Company proposes to register
any of its equity securities under the Securities Act, whether for sale
for its own account or for the account of any other person, on a form
and in a manner which would permit registration of Registrable
Securities for sale to the public under the Securities Act, so long as
any holder of Registrable Securities cannot sell all of such Registrable
Securities pursuant to Rule 144 under the Securities Act, the Company
will each such time give prompt written notice to such holder(s) of
Registrable Securities of its intention to do so, describing such
securities and specifying the form and manner and the other relevant
facts involved in such proposed registration, and upon the written
request of any such holder delivered to the Company within ten (10)
business days after the giving of any such notice (which request shall
specify the Registrable Securities intended to be disposed of by such
holder and the intended method or methods of disposition thereof), the
Company will use its reasonable best efforts to effect the registration
under the Securities Act of all Registrable Securities which the Company
has been so requested to register by the holders of Registrable
Securities (hereinafter "Requesting Holder"), to the extent requisite to
permit the disposition of the Registrable Securities in accordance with
the intended methods thereof as specified by the holders of a majority
of the Registrable Securities so to be registered, provided that:
(i) if, at any time after giving such written notice
of its intention to register any of its securities and prior
to the effective date of the registration statement filed in
connection with such registration, the Company shall determine
for any reason not to register such securities, the Company
may, at its election, give written notice of such
determination to each Requesting Holder and thereupon shall be
relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from
its obligation to pay the Registration Expenses in connection
therewith as provided in subdivision (b) of this Section 4.2);
(ii) if (A) the registration so proposed by the
Company involves an underwritten offering of the securities so
being registered, whether or not for sale for the account of
the Company, to be distributed by or through one (1) or more
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underwriters of recognized standing under underwriting terms
appropriate for such a transaction, (B) the Company proposes
that the securities to be registered in such underwritten
offering will not include all of the Registrable Securities
requested to be so included, and (C) the managing underwriter
of such underwritten offering shall advise the Company and the
Requesting Holders in writing that, in its judgment, the
distribution of all or a specified portion of the Registrable
Securities requested to be so included concurrently with the
securities being distributed by such underwriters will
adversely affect the distribution of such securities by such
underwriters, then the Company may require, by written notice
to each such holder, that the distribution of all or a
specified portion of such Registrable Securities be excluded
from such distribution (in case of an exclusion of a portion
of such Registrable Securities, such portion to be allocated
among such holders in proportion to the respective numbers of
shares of Registrable Securities owned by such holders)
provided that, the number of shares of Registrable Securities
included shall be reduced pro rata with any securities being
offered for the account of any Person other than the Company
(other than pursuant to the "demand" registration rights of
such Person);
(iii) the Company shall not be obligated to effect any
registration of Registrable Securities under this Section 4.2
incidental to the registration of any of its securities in
connection with mergers, acquisitions, exchange offers,
dividend reinvestment plans or stock option or other employee
benefit plans or incidental to the registration of any
non-equity securities not convertible into equity securities;
(iv) the Company shall not be required to include any
Registrable Securities in any registration statement pursuant
to this Section 4.2 if the Requesting Holders can at the time
of the request sell the securities requested to be so included
in the registration statement pursuant to Rule 144 under the
Securities Act; and
(v) the Company may, but shall not be obligated to,
effect any registrations pursuant to this Section 4.2.
No registrations of Registrable Securities effected under this Section 4.2 shall
relieve the Company of its obligation to effect registration of Registrable
Securities pursuant to Section 4.1.
(b) Expenses. Except as otherwise prohibited by applicable law, the
Company will pay all Registration Expenses in connection with each
registration of Registrable Securities requested pursuant to this Section
4.2.
4.3 Registration Procedures. If and whenever the Company is
required to effect the registration of any Registrable Securities under the
Securities Act as provided in Sections 4.1 and 4.2 or any "draw-down" pursuant
to Section 4.1, the Company will promptly:
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(a) cooperate with any underwriters for, and the holders of
such Registrable Securities, and will enter into a usual and customary
underwriting agreement with respect thereto and take all such other
reasonable actions as are necessary or advisable to permit, expedite and
facilitate the disposition of such Registrable Securities in the manner
contemplated by the related registration statement, and the Company will
provide to the holders of such Registrable Securities, any underwriter
participating in any distribution thereof pursuant to a registration
statement, and any attorney, accountant or other agent retained by any
holder of Registrable Securities or underwriter, reasonable access to
appropriate Company officers and employees to answer questions and to
supply financial and other information reasonably requested by any such
holders of Registrable Securities, underwriter, attorney, accountant or
agent in connection with such registration statement;
(b) prepare and file with the Commission a registration
statement with respect to such Registrable Securities and cause such
registration statement to become effective;
(c) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and, with respect to any "draw-down," to reflect the
method of disposition of the Registrable Securities pursuant to such
"draw-down," and to comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities and other
securities covered by such registration statement until the earlier of
such time as all of such Registrable Securities and such other securities
have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such
registration statement or, in the case of a registration pursuant to
Section 4.2 hereof, the expiration of sixty (60) days after such
registration statement becomes effective; and will furnish, upon request,
to each such seller prior to the filing thereof a copy of any amendment
or supplement to such registration statement or prospectus and shall not
file any such amendment or supplement to which any such seller shall have
reasonably objected on the grounds that such amendment or supplement does
not comply in all material respects with the requirements of the
Securities Act or of the rules or regulations thereunder;
(d) furnish to each seller of such Registrable Securities
and the underwriters (if any) such number of conformed copies of such
registration statement and of each such amendment and supplement thereto
(in each case including all exhibits), such number of copies of the
prospectus included in such registration statement (including each
preliminary prospectus and any summary prospectus), in conformity with
the requirements of the Securities Act, such documents, if any,
incorporated by reference in such registration statement or prospectus,
and such other documents, as such seller may reasonably request;
(e) promptly, upon written request, deliver to each seller
of Registrable Securities and the underwriters (if any), copies of all
correspondence between the Commission and (i) the Company, (ii) its
counsel, or (iii) its auditors, with respect to the registration
statement;
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(f) use its best efforts to register or qualify all
Registrable Securities and other securities covered by such registration
statement under such other securities or blue sky laws of the states of
the United States as each seller shall reasonably request, to keep such
registration or qualification in effect for so long as such registration
statement remains in effect, and do any and all other acts and things
which may be necessary or advisable to enable such seller to consummate
the disposition in such jurisdictions of the Registrable Securities
covered by such registration statement, except that the Company shall not
for any such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction wherein it would not but for the
requirements of this Subsection (f) be obligated to be so qualified, or
to subject itself to taxation in any such jurisdiction, or to consent to
general service of process in any such jurisdiction;
(g) immediately notify each seller of Registrable Securities
covered by such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act,
upon discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, which untrue statement or omission requires amendment of the
registration statement or supplementation of the prospectus, and at the
request of any such seller, prepare and furnish to such seller a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing; provided, however, that each holder of Registrable Securities
registered pursuant to such registration statement agrees that he will
not sell any Registrable Securities pursuant to such registration
statement during the time that the Company is preparing and filing with
the Commission a supplement to or an amendment of such prospectus or
registration statement;
(h) in the event of the issuance of any stop order
suspending the effectiveness of any registration statement or of any
order suspending or preventing the use of any prospectus or suspending
the qualification of any Registrable Securities for sale in any
jurisdiction, use its best efforts to obtain its withdrawal;
(i) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to
its securities holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve (12) months, but not
more than eighteen (18) months, beginning with the first month of the
first fiscal quarter after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act;
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(j) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of such
registration statement; and
(k) use its best efforts to list all Common Stock covered by
such registration statement on each securities exchange or securities
quotation system on which any of the Common Stock is then listed.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company such information regarding
such seller and the distribution of such securities as the Company may from time
to time reasonably request and as shall be required by law or by the Commission
in connection therewith.
4.4 Underwritten Offerings.
(a) Underwriting Agreement. If requested by the underwriters
for any "draw-down" of Registrable Securities on behalf of a holder or
holders of Registrable Securities pursuant to a registration under
Section 4.1, the Company will enter into an underwriting agreement
reasonably acceptable to the Company with such underwriters for such
offering, such agreement to contain such representations and warranties
by the Company and such other terms and provisions as are customarily
contained in underwriting agreements with respect to secondary
distributions, including, without limitation, provisions with respect to
opinions of Company's counsel, customary "comfort" letters from the
Company's independent auditors and indemnities to the effect and to the
extent provided in Section 4.6. The holders of Registrable Securities on
whose behalf Registrable Securities are to be distributed by such
underwriters shall be parties to the underwriting agreement between the
Company and such underwriters. Such holders of Registrable Securities
shall not be required by the Company to make any representations or
warranties to or agreements with the Company or the underwriters other
than reasonable representations, warranties or agreements (including
indemnity agreements customary in secondary offerings) regarding such
holder, such holder's Registrable Securities and such holder's intended
method or methods of disposition and any other representation required by
law.
(b) Incidental Underwritten Offerings. If the Company at any
time proposes to register any of its securities under the Securities Act
as contemplated by Section 4.2 and such securities are to be distributed
by or through one (1) or more underwriters, the Company will use its best
efforts, if requested by any holder or holders of Registrable Securities
who requests incidental registration of Registrable Securities in
connection therewith pursuant to Section 4.2, to arrange for such
underwriters to include the Registrable Securities to be offered and sold
by such holder among the securities to be distributed by or through such
underwriters, provided that, for purposes of this sentence, best efforts
shall not require the Company to reduce the amount or sale price of such
securities proposed by the Company to be distributed by or through such
underwriters. The holders of Registrable Securities to be distributed by
such underwriters shall be parties to the underwriting
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agreement between the Company and such underwriters. Such holders of
Registrable Securities shall not be required by the Company to make any
representations or warranties to or agreements with the Company or the
underwriters other than reasonable representations, warranties or
agreements (including indemnity agreements customary in secondary
offerings) regarding such holder, such holder's Registrable Securities
and such holder's intended method or methods of distribution and any
other representation required by law.
(c) Allocation of Over-Allotment Option. Whenever the
Company shall effect an underwritten offering of Registrable Securities
pursuant to a registration subject to Section 4.2 hereof, the securities
to be sold pursuant to the underwriter's exercise of an over-allotment
option (the "Over-Allotment Shares"), if any, shall be allocated as
follows: (i) in any such registration in which the number of Registrable
Securities requested to be registered has not been reduced based on the
advice of the managing underwriter of such offering, then the sellers of
Registrable Securities shall not be entitled to sell any Registrable
Securities as part of the Over-Allotment Shares, and (ii) in any such
registration in which the number of Registrable Securities requested to
be registered has been reduced pursuant to the provisions hereof based on
the advice of the managing underwriter of such offering, then the sellers
of Registrable Securities participating in such offering may sell that
number of Over-Allotment Shares equal to the total number of
Over-Allotment Shares multiplied by a fraction the numerator of which is
the number of total principal offering shares that constitute Registrable
Securities and the denominator of which is the total number of principal
offering shares, which shares shall be allocated on a pro rata basis
among the sellers of Registrable Securities participating in such
registration based upon the number of Registrable Securities originally
requested to be registered; provided, however, that the number of
Registrable Securities that constitute Over-Allotment Shares shall not
exceed the number of Registrable Securities requested to be registered
but which were not registered based on the advice of the managing
underwriter.
(d) Selection of Underwriters. Whenever an offering
pursuant to Section 4.1 is an underwritten offering, the holders of a
majority of the Registrable Securities included in such registration
shall have the right to select the managing underwriter(s) to administer
the offering, after consulting with the Company as to such selection and
subject to the approval of the Company, which approval will not be
unreasonably withheld. If the Company at any time proposes to register
any of its securities under the Securities Act for sale for its own
account and such securities are to be distributed by or through one (1)
or more underwriters, the selection of the managing underwriter(s) shall
be made by the Company and notice of the selection thereof delivered to
the holders of all Registrable Securities eligible to participate in such
registration.
(e) Holdback Agreements.
(i) If any registration pursuant to Section 4.2 shall
be in connection with an underwritten public offering, each holder
of Registrable Securities agrees by
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acquisition of such Registrable Securities that, so long as such
holder shall have the right to request that Registrable Securities
be included in such registration statement, if so required by the
managing underwriter, such holder shall not effect any public sale
or distribution of Registrable Securities (other than as part of
such underwritten public offering) for such period as the officers
and directors of the Company are required by the underwriter to
cease sales or distributions.
(ii) The Company agrees not to effect any public sale
or distribution of any of its equity securities or securities
convertible into or exchangeable or exercisable for any of such
securities during the seven (7) days prior to and during the ninety
(90) day period beginning on the date on which any underwritten
offering pursuant to Section 4.1 or 4.2 has commenced, except as
part of such underwritten offering and except pursuant to
registrations on Form S-8 or Form S-4 or any successor thereto.
4.5 Preparation; Reasonable Investigation.
(a) Seller Information. The Company may require each seller
of Registrable Securities as to which any registration is being effected
to furnish to the Company such information regarding the distribution of
such securities as the Company may from time to time reasonably request
in writing and as shall be required by law in connection therewith.
(b) Seller Diligence. In connection with the preparation and
filing of each registration statement registering Registrable Securities
under the Securities Act and any amendment or supplement to the
prospectus included therein, the Company will give the holders of
Registrable Securities on whose behalf such Registrable Securities are to
be so registered, the opportunity to review such registration statement,
each prospectus included therein or filed with the Commission and each
amendment thereof or supplement thereto, and, in the event such offering
of Registrable Securities is underwritten, will give each of them and the
underwriters and their counsel such access to its books and records and
such opportunities to discuss the business of the Company with its
officers and the independent public accountants who have certified its
financial statements as shall be reasonably necessary in the opinion of
such holders and such underwriters or their respective counsel, to
conduct a reasonable investigation within the meaning of the Securities
Act. To minimize disruption and expense to the Company during the course
of the registration process, sellers of Registrable Securities to be
covered by any such registration statement shall coordinate their
investigation and due diligence efforts hereunder and, to the extent
practicable, will act through a single set of counsel and a single set of
accountants.
4.6 Indemnification.
(a) Indemnification by the Company. In the event of any
registration of any securities of the Company under the Securities Act,
the Company will, and hereby does, indemnify and hold harmless in the
case of any registration statement filed pursuant to Section 4.1 or 4.2,
the seller of any Registrable Securities covered by such registration
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statement, and if such seller is a corporation, its directors, trustees
and officers, employees and agents, each other person who participates as
an underwriter in the offering or sale of such securities and each other
person, if any, who controls such seller or any such underwriter within
the meaning of the Securities Act against any losses, claims, damages,
liabilities or expenses, joint or several, to which such seller or any
such director, trustee, officer, employee or agent, participating or
controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions or proceedings in respect thereof) arise out of or
are based upon (x) any untrue statement or alleged untrue statement of
any material fact contained in any registration statement under which
such securities were registered under the Securities Act, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or
any amendment or supplement thereto, or any document incorporated by
reference therein, (y) any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (z) any violation by the Company of
any rule or regulation promulgated under the Securities Act or the
Exchange Act, or other federal or state securities law applicable to the
Company and relating to any action or inaction required of the Company in
connection with such registration, and the Company will reimburse such
seller, and each such director, trustee, officer, employee or agent,
participating person and controlling person for any legal or any other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding, provided
that the Company shall not be liable in any such case if and to the
extent that any such loss, claim, damage, liability or expense (or action
or proceeding in respect thereof) arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement
in reliance upon and in conformity with written information furnished to
the Company by the underwriters or by such seller or any such director,
trustee, officer, employee or agent, participating person or controlling
person specifically for use in the preparation thereof. Such indemnity
shall remain in full force and effect regardless of any investigation
made by or on behalf of such seller or any such director, trustee,
officer, employee or agent, participating person or controlling person
and shall survive the transfer of such securities by such seller.
(b) Indemnification by the Sellers. As a condition to
including any Registrable Securities in any registration statement filed
pursuant to Section 4.1 or 4.2, each seller of Registrable Securities
shall, severally and not jointly, indemnify and hold harmless the
Company, its directors and officers, employees and agents, and each other
person, if any, who controls the Company, against any losses, claims,
damages or liabilities, joint or several, to which the Company or any
such director or officer or any such person may become subject under the
Securities Act or any other statute or at common law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) any alleged untrue statement of any
material fact contained, on the effective date thereof, in any
registration statement under which Registrable Securities were registered
under the Securities Act, or in any preliminary prospectus or final
prospectus contained
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therein, or any amendment or supplement thereto, or (ii) any alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent that such alleged untrue statement
or alleged omission was contained in written information furnished to the
Company by such holder specifically for use therein, and shall reimburse
the Company or such director, officer or other person for any legal or
any other expenses reasonably incurred in connection with investigating
or defending any such loss, claim, damage, liability or action.
Notwithstanding the foregoing, the obligations of any seller of
Registrable Securities shall be limited to an amount equal to the
proceeds received by such seller from the sale of Registrable Securities
pursuant to the registration statement to which the losses, claims,
liabilities or damages relate.
(c) Notice of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or
proceeding involving a claim referred to in the preceding subsections of
this Section 4.6, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, give written notice
to the latter of the commencement of such action, provided that the
failure of any indemnified party to give notice as provided herein shall
not relieve the indemnifying party of its obligations under the preceding
subsections of this Section 4.6, except and to the extent that the
indemnifying party is prejudiced by such failure to give notice. In case
any such action is brought against an indemnified party, unless in such
indemnified party's reasonable judgment a conflict of interest between
such indemnified and indemnifying parties may exist in respect of such
claim, the indemnifying party shall be entitled to participate in and to
assume the defense thereof, jointly with any other indemnifying party
similarly notified, to the extent that it may wish, with counsel
reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so
selected, provided, however, that if the defendants in any such action
include both the indemnified party and the indemnifying party, and the
indemnified party shall have reasonably concluded that there may be
reasonable defenses available to it which are different from or
additional to those available to the indemnifying party, or if the
interests of the indemnified party reasonably may be deemed to conflict
with the interests of the indemnifying party, the indemnified party shall
have the right to select one (1) separate law firm as counsel and to
assume such legal defenses and otherwise to participate in the defense of
such action, with the expenses and fees of such separate counsel and
other expenses related to such participation to be reimbursed by the
indemnifying party as the same shall be incurred. No indemnifying party
shall, without the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to
such indemnified party of a release from all liability in respect to such
claim or litigation.
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(d) Contribution. In order to provide for just and equitable
contribution to joint liability under the Securities Act in any case in
which either (i) any seller of Registrable Securities exercising rights
under this Agreement, or any controlling person of any such holder, makes
a claim for indemnification pursuant to this Section 4.6, but it is
judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or
the denial of the last right of appeal) that such indemnification may not
be enforced in such case notwithstanding the fact that this Section 4.6
provides for indemnification in such case, or (ii) contribution under the
Securities Act may be required on the part of any such seller or any such
controlling person in circumstances for which indemnification is provided
under this Section 4.6, then, and in each such case, the Company and such
seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others)
(A) in such proportion so that such seller is responsible for the portion
represented by the percentage that the public offering price of its
Registrable Securities offered by the registration statement bears to the
public offering price of all securities offered by such registration
statement, or (B) if the allocation provided by clause (A) above is not
permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative proceeds but also the relative fault of
each of the contributing parties, on the one hand, and the party
receiving contribution, on the other hand, in connection with statements
or omissions that resulted in such losses, claims, damages, expenses or
liabilities, as well as any other relevant equitable consideration;
provided, however, that in any such case, (1) no such seller will be
required to contribute any amount in excess of the aggregate public
offering price of all such Registrable Securities offered by such seller
pursuant to such registration statement; and (2) no person or entity
guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any
person or entity who was not guilty of such fraudulent misrepresentation.
Relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by the Company, or by such seller, and the relative
intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid or payable by
an indemnified party as a result of the losses, claims, damages, expenses
or liabilities (or actions in respect thereof) referred to above in this
Subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by a party entitled to contribution in connection
with investigating or defending such action or claim. Any party entitled
to contribution will promptly after receipt of notice of commencement of
any action or proceeding against such party in respect of which a claim
for contribution may be made against another party or parties under this
Subsection (d), notify such party or parties from whom contribution may
be sought, but the omission so to notify such party or parties shall not
relieve the party or parties from whom contribution may be sought from
any obligation it or they may have hereunder or otherwise than under this
Subsection (d), to the extent that such party or parties were not
adversely affected by such omission. The contribution agreement set forth
above shall be in addition to any liabilities which any party may have at
common law or otherwise.
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(e) Other Indemnification. Indemnification similar to that
specified in the preceding subsections of this Section 4.6 (with
appropriate modifications) shall be given by the Company and each seller
of Registrable Securities with respect to any required registration or
other qualification of such Registrable Securities under any federal or
state law or regulation of governmental authority other than the
Securities Act.
(f) Indemnification Payments. The indemnification required by this
Section 4.6 shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
5. Rule 144. For so long as the Company shall have any class of its
equity securities registered under Section 12(b) or Section 12(g) of the
Exchange Act, the Company shall take such action as any holder of Registrable
Securities may reasonably request, all to the extent required from time to time
to enable such holder to sell shares of Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144 under the Securities Act, as such Rule may be amended from
time to time, or any similar rule or regulation hereafter adopted by the
Commission including, without limitation,
(a) filing with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(b) furnishing to any holder of Registrable Securities, upon request,
(i) a written statement by the Company that it has complied with the
reporting requirements of Rule 144 and the Exchange Act; (ii) a copy of
the most recent annual or quarterly report of the Company; and (iii) such
other information as may be reasonably required to permit sales of
Registrable Securities under Rule 144.
6. Amendments and Waivers. This Agreement may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the holder or
holders of a majority of the Issued Shares. Each holder of any Issued Shares at
the time shall be bound by any consent authorized by this Section 6.
7. Termination. This Agreement shall terminate on the earlier to occur
of:
(a) the date that the Company and the Shareholder mutually agree to
terminate this Agreement; or
(b) the twentieth anniversary of the date of this Agreement unless
earlier renewed by unanimous written agreement of the Company and the
Shareholder.
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8. Notices. Notices and other communications under this Agreement shall
be in writing and shall be deemed given when personally delivered, or, if by
U.S. mail, three (3) days after mailing, by Certified First Class Mail, postage
prepaid, return receipt requested, addressed
(a) to any holder of Issued Shares at the address shown on the stock
transfer books of the Company unless such holder has advised the Company
in writing of a different address as to which notices shall be sent under
this Agreement, and
(b) if to the Company at ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇,
to the attention of the President, or to such other address or to the
attention of such other officer, as the Company shall have furnished to
each holder of Issued Shares at the time outstanding.
9. Miscellaneous. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective successors and assigns of the
parties hereto. This Agreement may not be assigned without the approval of a
majority of the holders of the Issued Shares. This Agreement embodies the entire
agreement and understanding between the Company and the other parties hereto and
supersedes all prior agreements and understandings relating to the subject
matter hereof. This Agreement shall be construed and enforced in accordance with
and governed by the laws of the State of Georgia. The headings in this Agreement
are for purposes of reference only and shall not limit or otherwise affect the
meaning hereof. This Agreement may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall constitute
one (1) instrument.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
THE MAXIM GROUP, INC.
By:
--------------------------------
▇.▇. ▇▇▇▇▇▇, President and Chief
Executive Officer
Attest:
-------------------------------
H. ▇▇▇▇ ▇▇▇▇▇▇, Secretary
SHAREHOLDER
▇▇▇▇ INDUSTRIES, INC.
By:
--------------------------------
Name:
---------------------------
Title:
--------------------------
Attest:
-------------------------------
Name:
--------------------------
Title:
-------------------------
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