MERGER AGREEMENT
by and among
DOLLAR TREE STORES, INC.
DOLLAR TREE WEST, INC.
and
STEP AHEAD INVESTMENTS, INC.
As of July 22, 1998
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TABLE OF CONTENTS
ARTICLE 1
THE MERGER................................................................2
1.1 Surviving Corporation............................................2
1.2 Articles of Incorporation........................................2
1.3 Bylaws...........................................................2
1.4 Directors and Officers...........................................2
1.5 Effective Time...................................................2
1.6 Other Effects of the Merger......................................2
1.7 Tax-Free Reorganization..........................................2
1.8 Registration Statement...........................................2
ARTICLE 2
CONVERSION OF SHARES......................................................3
2.1 Conversion or Cancellation of Shares; Escrow. ...................3
(a) Exchange Ratio...............................................3
(b) Escrows of Shares............................................3
(c) Stock Splits, etc............................................4
(d) Stock of Sub.................................................4
(e) Company Stock Options........................................4
2.2 Fractional Shares................................................5
2.3 Procedures Relating to Company Shares............................6
(a) Exchange of Certificates.....................................6
(b) Cash Payments................................................7
(c) Lost, mislaid, stolen or destroyed certificates..............7
(d) No stock transfers...........................................7
(e) Unclaimed Merger Consideration...............................7
(f) Dissenting shares............................................7
2.4 Post-Closing Adjustment..........................................8
ARTICLE 3
CLOSING...................................................................8
3.1 The Closing......................................................8
ARTICLE 4
COMPANY REPRESENTATIONS AND WARRANTIES ...................................8
4.1 Corporate Organization; Authorization............................9
4.2 No Violation....................................................10
4.3 Enforceability..................................................10
4.4 Capitalization..................................................10
4.5 Subsidiaries; Affiliates; Conflict of Interest..................11
4.6 Investments in Others...........................................12
4.7 Financial Statements............................................12
4.8 Unreported and Contingent Liabilities...........................13
4.9 Absence of Certain Changes......................................13
4.10 Estimates; Certain Sales........................................14
4.11 Licenses and Permits............................................14
4.12 Litigation......................................................14
4.13 Inventory.......................................................15
4.14 Real Property...................................................15
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4.15 Environmental Matters...........................................16
4.16 Compliance With Laws Generally..................................18
4.17 Employee Benefit Plans..........................................18
4.18 Intellectual Property...........................................21
4.19 Tax Matters.....................................................22
4.20 No Broker Involved; Deal Expenses...............................23
4.21 Contracts.......................................................23
4.22 Officers and Employees..........................................25
4.23 Labor Relations.................................................25
4.24 Insurance.......................................................27
4.25 Title to Property and Related Matters...........................27
4.26 Accounts and Notes Receivable...................................27
4.27 Nondisclosed Payments...........................................27
4.28 [Not Used]......................................................28
4.29 Business Practices..............................................28
4.30 [Not Used]......................................................28
4.31 Securities Matters..............................................28
4.32 Pooling.........................................................29
4.33 Reorganization under Section 368 of the Code....................29
4.34 Full Disclosure.................................................29
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB.........................30
5.1 Corporate Organization..........................................30
5.2 Authorization and Approval of Agreement.........................30
5.3 Ability to Carry Out Agreement..................................30
(a) Capital Stock...........................................31
(b) Operations of Subsidiaries..............................31
5.4 Investment Representation.......................................31
5.5 No Broker Involved..............................................31
5.6 Parent Common Stock.............................................31
5.7 Parent SEC Reports..............................................32
(a) Absence of Certain Changes or Events....................32
5.8 Material Misstatements or Omissions.............................32
5.9 Full Disclosure.................................................33
ARTICLE 6
PRE-CLOSING COVENANTS....................................................33
6.1 Conduct of Business.............................................33
6.2 Public Announcements............................................35
6.3 Supplements to Schedules........................................36
6.4 Pooling of Interests Accounting.................................36
6.5 The Nasdaq Additional Shares Listing Application................36
6.6 Antitrust Filing................................................36
6.7 No Solicitation of Transactions.................................36
6.8 Shareholder Approval............................................38
6.9 Dissenters' Rights Notices......................................38
6.10 Shareholder Representative......................................38
6.11 Agreements with Respect to Affiliates...........................39
6.12 Access to Information...........................................39
6.13 Legal Requirements..............................................39
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6.14 Third Party Consents............................................40
6.15 FIRPTA..........................................................40
6.16 Notification of Certain Matters.................................40
6.17 Third Party Consents and Waivers................................40
6.18 Best Efforts and Further Assurances.............................40
ARTICLE 7
POST-CLOSING COVENANTS...................................................41
7.1 Post-Closing Audit..............................................41
ARTICLE 8
SURVIVAL AND INDEMNIFICATION ............................................42
8.1 Indemnification Obligations of the Shareholders.................42
8.2 Indemnification Obligations of Parent...........................42
8.3 Limitations on Indemnification..................................43
8.4 Indemnification Procedure.......................................44
8.5 Survival; Claims Period.........................................45
8.6 Recovery........................................................46
8.7 Exclusive Remedy................................................46
8.8 Indemnification Before Closing Date.............................46
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND SUB....................46
9.1 Conditions Precedent............................................46
9.1.1 Representations, Warranties and Covenants...................47
(a) Legal Actions...............................................47
(b) Consents....................................................47
(c) Deliveries..................................................47
(e) Antitrust Filing............................................48
(f) Pooling Letters.............................................48
(g) Listing of Parent Common Stock..............................48
(h) Escrow Agreement............................................48
(i) Non-Competition Agreements..................................48
(j) [Not Used]..................................................48
(k) Related Party Debt..........................................48
(l) Dissenting Shares...........................................49
(m) Shareholder Approval........................................49
(n) Corporate Documents.........................................49
(o) Registration Statement......................................49
(p) Termination of Certain Agreements...........................49
9.2 Waiver..........................................................49
ARTICLE 10
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY.......................49
10.1 Conditions Precedent............................................49
(a) Representations, Warranties and Covenants...................50
(b) Legal Actions...............................................50
(c) Deliveries..................................................50
(d) Antitrust Filing............................................50
(e) Listing of Parent Common Stock..............................50
(f) Registration Statement......................................50
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(g) Shareholder Approval........................................51
10.2 Waiver..........................................................51
ARTICLE 11
TERMINATION..............................................................51
11.1 Termination.....................................................51
11.2 Specific Performance and Other Remedies.........................52
11.3 Effect of Termination...........................................52
11.4 Termination Fee; Lock-Up Option.................................52
ARTICLE 12
EXPENSES.................................................................53
12.1 Deal Expenses...................................................53
12.2 Payment on Closing..............................................53
12.3 Proxy Expenses..................................................53
ARTICLE 13
MISCELLANEOUS............................................................53
13.1 Cooperation Following the Closing...............................53
13.2 Benefits and Burdens: Assignment................................54
13.3 Amendment.......................................................54
13.4 Notices.........................................................54
13.5 Entire Agreement................................................55
13.6 Headings........................................................55
13.7 Construction....................................................56
13.8 Incorporation of Exhibits and Schedules.........................56
13.9 Counterparts....................................................56
13.10 Governing Law...................................................56
13.11 Enforcement; Jurisdiction; Waiver of Jury Trial.................56
13.12 Severability....................................................57
13.13 Time............................................................57
13.14 Knowledge.......................................................57
13.15 Statutes........................................................57
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DEFINED TERMS
The following is a list of the defined terms used in this Agreement:
TERMS SECTION
1995 Financial Statements . . . . . . ............................Section 4.7(a)
1996 Financial Statements.........................................Section 4.7(a)
1997 Financial Statements.........................................Section 4.7(a)
98 Cents Clearance Centers.......................................Section 4.18(a)
Affiliate............................................................Section 4.5
Affiliate Agreement.................................................Section 6.11
Agreement...............................................................Recitals
Agreement of Merger..................................................Section 1.5
Alternative Transaction........................................Section 6.7(a)(i)
Antitrust Filing.....................................................Section 6.6
Assumed Option ................................................Section 2.1(e)(i)
Average Closing Price.............................................Section 2.2(b)
Benefit Plans....................................................Section 4.17(a)
California Code ........................................................Recitals
CERCLA...........................................................Section 4.15(b)
Certificate/s.....................................................Section 2.3(a)
Claims Period........................................................Section 8.5
Closing..............................................................Section 3.1
Closing Balance Sheet.............................................Section 7.1(a)
Closing Date.........................................................Section 3.1
Closing Equity....................................................Section 7.1(b)
COBRA............................................................Section 4.17(d)
Code ...................................................................Recitals
Company.................................................................Recitals
Company Ancillary Agreements......................................Section 4.1(a)
Company Common Stock.................................................Section 2.1
Company Contracts...................................................Section 4.21
Company Preferred Stock..............................................Section 2.1
Company Shareholders Meeting......................................Section 6.8(a)
Company Shares.......................................................Section 2.1
Confidentiality Agreement .......................................Section 6.12(b)
Confidential Information ........................................Section 6.12(b)
Control..............................................................Section 4.5
Debtors' Rights .....................................................Section 4.3
Deal Expenses.......................................................Section 12.1
Deficit Amount.......................................................Section 2.4
Determination Date................................................Section 7.1(a)
Disclosure Schedule....................................................Article 4
Dissenting Shares.................................................Section 2.3(f)
Dividend Account .................................................Section 8.3(a)
Effective Time.......................................................Section 1.5
Employees........................................................Section 4.17(b)
Environmental Laws...............................................Section 4.15(a)
ERISA............................................................Section 4.17(a)
Escrow Agent .....................................................Section 9.1(i)
Escrow Agreement..................................................Section 9.1(i)
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Escrow Shares.....................................................Section 2.1(b)
Exchange Act.........................................................Section 5.3
Exchange Ratio....................................................Section 2.1(a)
Exercise Price...................................................Section 11.4(b)
Financial Statements..............................................Section 4.7(a)
Financial Statement Date..........................................Section 4.7(a)
Fully Diluted Company Shares......................................Section 2.1(a)
GAAP..............................................................Section 4.7(a)
GAAS..............................................................Section 7.1(b)
HSR Act..............................................................Section 5.3
Indemnified Party.................................................Section 8.4(b)
Intellectual Property............................................Section 4.18(a)
Interim Balance Sheet.............................................Section 4.7(b)
Interim Financial Statements......................................Section 4.7(b)
Inventory...........................................................Section 4.13
KPMG..............................................................Section 2.1(b)
Laws ...............................................................Section 4.16
Leased Real Property.............................................Section 4.14(a)
Letter of Transmittal ............................................Section 2.3(a)
Lock-Up Option...................................................Section 11.4(b)
Material adverse change...........................................Section 4.l(b)
Material adverse effect ..........................................Section 4.1(b)
Merger..................................................................Recitals
Merger Consideration..............................................Section 2.1(a)
Merger Transactions ..............................................Section 6.8(a)
Multiemployer Plan...............................................Section 4.17(h)
Nasdaq............................................................Section 2.2(b)
NLRB.............................................................Section 4.23(a)
Non-Competition Agreements........................................Section 9.1(j)
OSHA.............................................................Section 4.23(b)
Option ........................................................Section 2.1(e)(i)
Parent..................................................................Recitals
Parent Ancillary Agreements..........................................Section 5.2
Parent Basket Amount..............................................Section 8.3(b)
Parent Common Stock..................................................Section 1.8
Parent Indemnified Parties...........................................Section 8.1
Parent Losses........................................................Section 8.1
Parent Maximum Indemnity..........................................Section 8.3(b)
Parent SEC Reports...................................................Section 5.9
Permitted Encumbrances..............................................Section 4.14
Pooling Affiliate...................................................Section 6.11
Pooling of interests................................................Section 4.32
Price.............................................................Section 2.1(b)
Principal Shareholder................................................Section 4.5
Proceeding..........................................................Section 4.12
Product Safety Laws.................................................Section 4.13
Proxy Statement......................................................Section 1.8
Qualified Retirement Plan........................................Section 4.17(j)
Registration Statement...............................................Section 1.8
Related Party Obligations............................................Section 4.5
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Representatives .................................................Section 6.12(a)
Restricted Stock .................................................Section 4.4(a)
SEC..................................................................Section 1.8
Securities Act.......................................................Section 1.8
Shareholder Basket Amount.........................................Section 8.3(a)
Shareholder Indemnification Parties..................................Section 8.2
Shareholder Losses...................................................Section 8.2
Shareholder Maximum Indemnity.....................................Section 8.3(a)
Shareholder Representative.......................................Section 6.10(a)
Shareholders............................................................Recitals
Special Escrow Shares.............................................Section 2.1(b)
Statement of Closing Equity.......................................Section 7.1(b)
Stock Option Plan.................................................Section 2.1(e)
Sub.....................................................................Recitals
Surviving Corporation................................................Section 1.1
Target Amount........................................................Section 2.4
Tax..............................................................Section 4.19(a)
Tax Certificates ...................................................Section 6.20
Tax Return.......................................................Section 4.19(b)
Termination Date....................................................Section 11.1
Termination Fee..................................................Section 11.4(a)
Third Party.......................................................Section 6.7(d)
Third Party Complainant ..........................................Section 8.4(a)
WARN Act ...........................................................Section 5.12
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EXHIBITS
Exhibit A Agreement of Merger
Exhibit B [NOT USED]
Exhibit C Voting Agreement
Exhibit D Affiliate Agreement
Exhibit E Opinion of Counsel for the Company
Exhibit F Escrow Agreement
Exhibit G Non-Competition Agreement
Exhibit H Opinion of Counsel for Parent and Sub
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MERGER AGREEMENT
THIS MERGER AGREEMENT, dated as of July 22, 1998 ("Agreement"), by and
among DOLLAR TREE STORES, INC., a Virginia corporation ("Parent"), DOLLAR TREE
WEST , INC., a California corporation and a wholly owned subsidiary of Parent
("Sub"), and STEP AHEAD INVESTMENTS, INC., a California corporation ("Company").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Parent, Sub and the
Company parties have each determined that it is in the best interests of their
respective shareholders for the Sub to merge with and into Company upon the
terms and subject to the conditions set forth herein ("Merger");
WHEREAS, the parties intend for the Merger to be accounted for under
the pooling-of-interests method and qualify as a "reorganization" within the
meaning of Section 368 of the Internal Revenue Code of 1986, as amended
("Code");
WHEREAS, the parties have determined that the Merger and the other
transactions contemplated hereby are consistent with, and in furtherance of,
their respective business strategies and goals;
WHEREAS, the Board of Directors of Sub and Parent has approved this
Agreement, the Merger, and the transactions contemplated hereby in accordance
with applicable law and the Articles of Incorporation and By-laws of Parent and
Sub; and
WHEREAS, the Board of Directors of the Company has (i) approved this
Agreement, the Merger, and the transactions contemplated hereby in accordance
with the requirements of the General Corporation Law of California (the
"California Code") and the Articles of Incorporation and the By-laws of the
Company, (ii) found this Agreement, the Merger, and the transactions
contemplated hereby to be fair to the Company's shareholders ("Shareholders"),
and (iii) directed this Agreement and the Merger to be submitted to, and
recommended approval by, the Shareholders.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements set forth herein, the parties hereto agree as follows:
ARTICLE 1
THE MERGER
1.1 Surviving Corporation. Subject to the provisions of this Agreement
and applicable law, at the Effective Time (as hereinafter defined), Sub shall be
merged with and into the Company, and the separate corporate existence of Sub
shall cease. The Company shall be the surviving corporation in the Merger
(hereinafter sometimes called the "Surviving Corporation") and shall continue
its corporate existence under the laws of the State of California.
1.2 Articles of Incorporation. The Articles of Incorporation and name
of Sub shall be the Articles of Incorporation and name of the Surviving
Corporation.
1
1.3 Bylaws. The Bylaws of Sub shall be the Bylaws of the Surviving
Corporation.
1.4 Directors and Officers. The directors and officers of the Surviving
Corporation shall be the directors and officers of Sub.
1.5 Effective Time. Upon satisfaction or waiver of the conditions set
forth in Articles 9 and 10 hereof, and if this Agreement shall not have been
terminated in accordance with Article 11 hereof, the parties hereto shall cause
the Agreement of Merger substantially in the form attached as Exhibit A
("Agreement of Merger") to be properly executed and filed on the Closing Date
(as hereinafter defined) with the Secretary of State of California. The Merger
shall become effective as of the time of filing of a properly executed Agreement
of Merger or at such later date and time as is specified in the Agreement of
Merger. The date and time when the Merger becomes effective is herein referred
to as the "Effective Time."
1.6 Other Effects of the Merger. The Merger shall have all further
effects as specified in the applicable provisions of the California Code.
1.7 Tax-Free Reorganization. The Merger is intended to constitute a
reorganization within the meaning of Section 368(a) of the Code, and this
Agreement is intended to constitute a plan of reorganization within the meaning
of the regulations promulgated under Section 368(a) of the Code.
1.8 Registration Statement. The shares of voting common stock, par
value $.01 per share, of Parent ("Parent Common Stock") to be issued in the
Merger pursuant to Article 2 will be registered under the Securities Act of 1933
(the "Securities Act") pursuant to a registration statement of the Parent on
Form S-4 (the "Registration Statement"). Company and Parent shall, as promptly
as commercially reasonable after the execution of the Agreement, prepare a
definitive proxy statement for the Company (the "Proxy Statement") and Parent
shall prepare and file with the Securities and Exchange Commission ("SEC") the
Registration Statement, in which the Proxy Statement will be included as a
prospectus. Each of Parent and the Company shall use its commercially reasonable
efforts to respond to the comments of the SEC and to cause the Registration
Statement to be declared effective. Company shall cause the Proxy Statement to
be mailed to its Shareholders as promptly as practicable after the Registration
Statement is declared effective under the Securities Act. Parent shall also take
any action (other than qualifying to do business in any jurisdiction in which it
is not now so qualified or to file a general consent to service of process)
required to be taken under any applicable state securities laws in connection
with the issuance of Parent Common Stock in the Merger, and Company shall
furnish all information concerning Company and the Shareholders as may be
reasonably requested in connection with any such action. Parent and the Company
shall each provide the other parties to this Agreement any information for
inclusion in the Registration Statement or Proxy Statement which may be required
under applicable law or which is reasonably requested by such other party and
shall each cause the Registration Statement to comply in all material respects
with the Securities Act and the regulations thereunder. The Company shall
deliver to its officers, directors and the beneficial owners of 5% or more of
its capital stock
2
questionnaires prepared by Parent relating to the Registration Statement and
Proxy Statement furnished by Parent and shall use its best efforts to have such
questionnaires completed, executed by such persons and returned to Parent.
Parent and the Company shall promptly notify the other of the receipt of the
comments of the SEC and of any request from the SEC for amendments or
supplements to the Registration Statement or for additional information, and
will promptly supply the other with copies of all correspondence between it or
its representatives, on the one hand, and the SEC or members of its staff, on
the other hand, with respect to the Registration Statement. If at any time prior
to the Effective Time any event should occur which is required by applicable law
to be set forth in an amendment of, or a supplement to, the Registration
Statement, the party with knowledge of such event will promptly inform the other
parties to this Agreement. In such case, Parent and the Company will, upon
learning of such event, promptly prepare such amendment or supplement and shall
file such amendment or supplement with the SEC. If at any time prior to the
Effective Time any information relating to Company or Parent, or any of their
respective affiliates, officers or directors, should be discovered by Company or
Parent which should be set forth in an amendment or supplement to any of the
Registration Statement or the Proxy Statement, so that any of such documents
would not include any misstatement of a material fact or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, the party which
discovers such information shall promptly notify the other party hereto and an
appropriate amendment or supplement describing such information shall, to the
extent required by law, be promptly filed with the SEC and/or be disseminated to
the Shareholders. The Company will notify Parent at least 24 hours prior to the
mailing of the Proxy Statement, or any amendment or supplement thereto, to the
Shareholders.
ARTICLE 2
CONVERSION OF SHARES
2.1 Conversion or Cancellation of Shares; Escrow.
Subject to the provisions of this Article 2, at the Effective Time, by
virtue of the Merger and without any further action by the holders thereof, the
shares of capital stock of the Company outstanding immediately prior to the
Effective Time ("Company Shares," which term shall refer to the Company's common
stock ("Company Common Stock") and the Company's preferred stock ("Company
Preferred Stock") without distinction) shall be canceled and extinguished and
automatically converted into shares of Parent Common Stock, as follows:
(a) Exchange Ratio. Other than Dissenting Shares (as defined in
Section 2.3(f)), each Company Share issued and outstanding immediately prior to
the Effective Time shall be converted, subject to Sections 2.1(c) and 2.2, into
that number of shares of Parent Common Stock as is determined by multiplying
such Company Share by a ratio equal to (i) Merger Consideration divided by (ii)
the Fully Diluted Company Shares (such ratio shall be referred to herein as the
"Exchange Ratio"). The "Merger Consideration" shall be calculated as follows:
3
(x) If the Average Closing Price (as defined in Section 2.2(b)) is
between $36 3/8ths and $44 7/16ths per share, inclusive, then the Merger
Consideration will be 2,025,000 shares of Parent Common Stock.
(y) If the Average Closing Price is above $44 7/16ths per share, then
the Merger Consideration will be the number of shares of Parent Common
Stock equal to the product of 2,025,000 multiplied by a fraction, the
numerator of which is 44 7/16ths and the denominator of which is the
Average Closing Price; provided, however, the Merger Consideration shall
not be less than 1,936,547 shares of Parent Common Stock.
(z) If the Average Closing Price is below $36 3/8ths per share, then
the Merger Consideration will be the number of shares of Parent Common
Stock equal to the product of 2,025,000 multiplied by a fraction, the
numerator of which is $36 3/8ths and the denominator of which is the
Average Closing Price; provided, however, if the Average Closing Price is
below $34-11/32, Parent shall have an option to terminate this Agreement
and the terms of Section 11.1(k) shall apply.
"Fully Diluted Company Shares" shall be calculated by adding (i) the total
number of shares of Company Common Stock issued and outstanding immediately
prior to the Effective Time (including Dissenting Shares) plus (ii) the total
number of shares of Company Preferred Stock issued and outstanding immediately
prior to the Effective Time (including Dissenting Shares) plus (iii) the total
number of shares of Company Common or Preferred Stock subject to Options (as
defined in paragraph (e) below) outstanding immediately prior to the Effective
Time .
(b) Escrows of Shares. An aggregate of ten percent (10%) of the
shares of Parent Common Stock issuable with respect to Company Shares (exclusive
of Dissenting Shares) in the Merger (together with any dividends or
distributions accrued or made with respect to such shares of Parent Common Stock
after the Effective Time and any other securities or property which may be
issued after the Effective Time in exchange for such shares of Parent Common
Stock in any merger or recapitalization or similar transaction involving Parent,
the "Escrow Shares") shall be transferred and pledged when and as issued on a
pro rata basis to the Escrow Agent (as defined in "Escrow Agreement" attached as
Exhibit F) to secure the payment of any Deficit Amount pursuant to Section 2.4
hereof and the indemnification obligations of the Shareholders pursuant to this
Agreement, the Escrow Agreement and the Letter of Transmittal (as defined in
Section 2.3(a)) to be delivered by each Shareholder in connection with the
Merger.
ANYTHING IN THIS AGREEMENT OR THE ESCROW AGREEMENT TO THE CONTRARY
NOTWITHSTANDING, THE NUMBER OF ESCROW SHARES TRANSFERRABLE TO THE
ESCROW SHALL BE REDUCED, AND THE TIMING AND AMOUNT OF THE DISTRIBUTION
OF THE ESCROW SHARES FROM THE ESCROW SHALL BE ALLOCATED AND/OR
INCREASED, AS THE CASE MAY BE, TO THE EXTENT REQUIRED BY KPMG PEAT
MARWICK L.L.P. ("KPMG") AND PRICE WATERHOUSE COOPERS ("PRICE") TO
DELIVER THE POOLING LETTERS REFERRED TO IN SECTION 6.18.
(c) Stock Splits, etc. If after the date of the signing of this
Agreement but prior to the Effective Time, Parent should split or combine the
4
Parent Common Stock, or pay a stock dividend or other stock distribution in
Parent Common Stock, or otherwise change the Parent Common Stock into any other
securities, or make any other dividend or distribution on the Parent Common
Stock, then the Exchange Ratio and the number of shares of Parent Common Stock
constituting the aggregate consideration issuable in the Merger in respect of
Company Shares shall be appropriately adjusted to reflect such change.
(d) Stock of Sub. Each share of common stock, no par value, of Sub
issued and outstanding immediately prior to the Effective Time shall remain as
one issued and outstanding share of common stock, no par value, of the Surviving
Corporation as of and after the Effective Time.
(e) Company Stock Options. At the Effective Time, regardless of
whether a "change of control" shall have occurred as that term is defined in the
Step Ahead Investment, Inc. Long-Term Incentive Plan, as amended (the "Stock
Option Plan"):
(i) Each outstanding option to purchase Company Common Stock
(each, an "Option") issued pursuant to the Stock Option Plan whether vested or
unvested, shall not terminate or lapse on account of the Merger but instead
shall be assumed by Parent and shall constitute an option (an "Assumed Option")
(A) to acquire, on the same terms and conditions as were applicable under such
Option prior to the Effective Time, a number of shares of Parent Common Stock
(rounded to the nearest whole number) determined by multiplying the Exchange
Ratio by the number of Company Shares then subject to purchase pursuant to such
Option; and (B) at a per share exercise price for the shares of Parent Common
Stock issuable upon exercise of such Assumed Option equal to the quotient
determined by dividing the exercise price per share of Company Common Stock at
which such Option was exercisable immediately prior to the Effective Time by the
Exchange Ratio, rounded up or down to the nearest whole cent.
(ii) It is the intention of the parties that the Assumed
Options that qualified as incentive stock options as defined in Section 422 of
the Code immediately prior to the Effective Time would continue to so qualify on
and after the Effective Time; and that notwithstanding anything contained in any
provision of this Agreement, the exercise price, the number of shares of Parent
Common Stock purchasable and the terms and conditions applicable to any Assumed
Options shall be determined so as to comply with Sections 422 and 424 of the
Code and the regulations promulgated thereunder.
(iii) At or prior to the Effective Time, Company shall amend
its Stock Option Plan to provide that a "change-of-control" of Company will not
cause its unexercised Options to terminate, but no other amendments shall be
made except as provided herein.
(iv) any references in each such Assumed Option to the Company
shall be deemed to refer to Parent, where appropriate; and
(v) Parent shall file and maintain the effectiveness of a
registration statement or registration statements with respect to the shares of
Parent Common Stock subject to such Assumed Options for so long as such Assumed
5
Options remain outstanding. Parent and Company shall use reasonable efforts to
take such actions as are necessary for the conversion of the Assumed Options
pursuant to this Section 2.1(e), including the reservation, issuance and listing
of shares of Parent Common Stock as is necessary to effectuate the transactions
contemplated by this Section 2.1(e). At the Effective Time, Parent will prepare
and distribute to holders of Assumed Options a notice explaining the effect of
the conversion of such holder's Options into Assumed Options.
2.2 Fractional Shares.
(a) No scrip or fractional shares of Parent Common Stock shall be
issued in the Merger. For purposes of determining the number of shares of Parent
Common Stock to be issued to each Shareholder in the Merger, all the Company
Shares owned by such Shareholder shall be aggregated prior to applying the
Exchange Ratio. If, after such aggregation, any Shareholder is to receive a
fractional share, such Shareholder shall be entitled, after the later of (a) the
Effective Time or (b) the surrender of such Shareholder's Certificate(s) (as
defined below) that represent such Company Shares, to receive from Parent an
amount in cash in lieu of such fractional share, based on the Average Closing
Price (as defined below).
(b) For the purposes of this calculation, each share of Parent
Common Stock shall be valued at the arithmetic average of the closing price per
share of Parent Common Stock, as reported on the Nasdaq National Market System
(the "Nasdaq") for each of the five (5) consecutive trading days ending with the
trading day which occurs immediately prior to the date of the Company
Shareholders Meeting (as defined in Section 6.8) (the "Average Closing Price").
If Parent effects any stock split, stock combination, stock dividend or similar
transaction with respect to the outstanding shares of Parent Common Stock during
the five consecutive trading days during which the Average Closing Price is
determined, the dollar amounts in the preceding sentence shall be appropriately
adjusted to reflect such change.
2.3 Procedures Relating to Company Shares.
(a) Exchange of Certificates. On or prior to the Closing Date,
Parent shall make available to each record holder who, as of the Effective Time,
was a holder of an outstanding certificate or certificates which immediately
prior to the Effective Time represented Company Shares (the "Certificate" or
"Certificates"), a letter of transmittal and instructions in a form reasonably
acceptable to Parent and Company ("Letter of Transmittal") for use in effecting
the surrender of the Certificates for payment therefor and conversion thereof.
Delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to Parent and the form of
Letter of Transmittal shall so reflect. Upon surrender to Parent of a
Certificate, together with such Letter of Transmittal duly executed, the holder
of such Certificate shall be entitled to receive in exchange therefor (i) one or
more certificates as requested by the holder (properly issued, executed and
countersigned, as appropriate) representing that number of whole shares of fully
paid and nonassessable shares of Parent Common Stock to which such holder of
Company Shares shall have become entitled pursuant to the provisions of Section
6
2.1 hereof, (ii) as to any fractional share of Parent Common Stock, a check
representing the cash consideration to which such holder shall have become
entitled pursuant to Section 2.2 hereof, and (iii) any dividend or other
distribution to which such holder is entitled pursuant to Section 2.3(b) hereof,
and the Certificate so surrendered shall forthwith be canceled. No interest will
be paid or accrued on the cash payable upon the surrender of the Certificates.
If any portion of the consideration to be received pursuant to Sections 2.1, 2.2
and 2.3(b) upon exchange of a Certificate (whether a certificate representing
shares of Parent Common Stock or by check representing cash for a fractional
share) is to be issued or paid to a person other than the person in whose name
the Certificate surrendered in exchange therefor is registered, it shall be a
condition of such issuance and payment that the Certificate so surrendered shall
be properly endorsed or otherwise in proper form for transfer and that the
person requesting such exchange shall pay in advance any transfer or other taxes
required by reason of the issuance of a Certificate or a check representing cash
for a fractional share to such other person, or established to the satisfaction
of Parent that such tax has been paid or that such tax is not applicable. From
the Effective Time until surrender in accordance with the provisions of this
Section 2.3, each Certificate shall represent for all purposes only the right to
receive the consideration provided in Sections 2.1, 2.2 and 2.3(b). All payments
of respective shares of Parent Common Stock that are made upon surrender of
Certificates in accordance with the terms hereof shall be deemed to have been
made in full satisfaction of rights pertaining to the Company Shares evidenced
by such Certificates.
(b) Cash Payments. No dividends or other distributions with
respect to Parent Common Stock with a record date after the Effective Time shall
be paid to the holder of any unsurrendered Certificate with respect to the
shares of Parent Common Stock, and no cash payment in lieu of fractional shares
shall be paid to any such holder pursuant to Section 2.2, in each case until the
surrender of such Certificate in accordance with this Article 2. Following
surrender of any such Certificate, there shall be paid to the holder of the
certificate representing whole shares of Parent Common Stock issued in exchange
therefor, without interest, (i) at the time of such surrender, the amount of any
cash payable in lieu of a fractional share of Parent Common Stock to which such
holder is entitled pursuant to Section 2.2 and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of Parent Common Stock and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to such surrender and with a payment date
subsequent to such surrender payable with respect to such whole shares of Parent
Common Stock.
(c) Lost, mislaid, stolen or destroyed certificates. In the case
of any lost, mislaid, stolen or destroyed Certificate, the holder thereof may be
required, as a condition precedent to delivery to such holder of the
consideration described in Sections 2.1, 2.2 and 2.3(b) hereof, to deliver to
Parent a bond in such reasonable sum or a reasonably satisfactory indemnity
agreement as Parent may direct as indemnity against any claim that may be made
against Parent or the Surviving Corporation with respect to the Certificate
alleged to have been lost, mislaid, stolen or destroyed.
7
(d) No stock transfers. After the Effective Time, there shall be
no transfers on the stock transfer books of the Surviving Corporation of the
Company Shares that were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates are presented to the Surviving
Corporation for transfer, they shall be canceled and exchanged for the
consideration described in Sections 2.1, 2.2 and 2.3(b) hereof.
(e) Unclaimed Merger Consideration. Any shares of Parent Common
Stock or cash due former shareholders of the Company pursuant to Sections 2.1,
2.2 and 2.3(b) hereof that remain unclaimed by such former shareholders for six
(6) months after the Effective Time shall be held by Parent, and any former
holder of Company Shares who has not theretofore complied with Section 2.3(a)
shall thereafter look only to Parent for issuance of the number of shares of
Parent Common Stock and other consideration to which such holder has become
entitled pursuant to the provisions of Sections 2.1, 2.2 and 2.3(b) hereof;
provided, however, that neither Parent nor any party hereto shall be liable to a
former holder of Company Shares for any amount required to be paid to a public
official pursuant to any applicable abandoned property, escheat or similar law.
(f) Dissenting shares. To the extent that the availability of
appraisal rights are mandated under the California Code, Company Shares that
have not been voted for adoption of the Merger and with respect to which
appraisal rights have been properly demanded in accordance with the California
Code ("Dissenting Shares") shall not be converted pursuant to this Article 2 or
transferred to the Escrow Agent at or after the Effective Time unless and until
the holder of such shares becomes ineligible for such appraisal rights. If a
holder of Dissenting Shares becomes ineligible for appraisal, then, as of the
Effective Time or the occurrence of such event, whichever later occurs, such
holder's Dissenting Shares shall cease to be Dissenting Shares and shall be
converted pursuant to this Article 2 (subject to all of the rights and
obligations of the Shareholders hereunder). If any Shareholder asserts the right
to be paid for the fair value of such Company Shares as described above, the
Company shall immediately give Parent notice of such assertion and Parent shall
have the right to participate in all negotiations and proceedings with respect
to any such demands. The Company shall not, except with the prior written
consent of Parent, voluntarily make any payment with respect to, or settle or
offer to settle, any such demand for payment. Holders of Dissenting Shares shall
have those rights, but only those rights, of holders of "dissenting shares"
under Sections 1300 et seq. of the California Code, and payment for Dissenting
Shares shall only be made as required by the California Code.
2.4 Post-Closing Adjustment. If the Closing Equity as determined in
accordance with Section 7.1 is less than the Target Amount (as defined below),
then the excess of the Target Amount over the Closing Equity as defined in
Section 7.1(b) shall be referred to as the "Deficit Amount" and, within five (5)
business days of the date on which the final Statement of Closing Equity (as
defined in Section 7.1) is determined (or on such earlier date as may be set
forth in the Escrow Agreement), the Escrow Agent shall surrender to Parent, out
of the Escrow Shares, a number of shares of Parent Common Stock for cancellation
without consideration determined by dividing (i) the Deficit Amount by (ii) the
Average Closing Price. The "Target Amount" means (A) $7,500,000 if the
8
Determination Date (as defined in Section 7.1) is August 30, 1998, (B)
$7,500,000 if the Determination Date is September 27, 1998, (C) $7,700,000 if
the Determination Date is October 25, 1998, (D) $8,200,000 if the Determination
Date is November 29, 1998, or $9,600,000 if the Determination Date is December
27, 1998. The Deficit Amount shall be satisfied solely out of the Escrow Shares,
even if such Escrow Shares are insufficient to pay the Deficit Amount.
ARTICLE 3
CLOSING
3.1 The Closing. The closing ("Closing") will take place at 10:00 a.m.
California time on a date to be specified by the parties, at a mutually agreed
location, no later than the second business day after fulfillment of all the
conditions set forth in Article 9 which have not been waived by Parent, and all
the conditions set forth in Article 10 which have not been waived by the
Company. The date on which the Closing is held is referred to as the "Closing
Date".
ARTICLE 4
COMPANY REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to Parent that as of the date of
this Agreement and as of the Closing Date and subject to the exceptions noted in
this Article and contained in the disclosure schedule delivered by the Company
to Parent concurrently, identified as the "Disclosure Schedule," and forming
part of this Agreement:
4.1 Corporate Organization; Authorization.
(a) As of the Closing Date, the Company will have all requisite
power and authority to execute and deliver this Agreement and all agreements,
documents and instruments executed and delivered by the Company in connection
with the transactions contemplated by this Agreement (the "Company Ancillary
Agreements") and to fully perform its obligations hereunder and thereunder, and
the execution and delivery of this Agreement and the Company Ancillary
Agreements by the Company and the Company's performance of the transactions
contemplated herein and therein will have been duly authorized by all requisite
corporate and shareholder action. As of the date of this Agreement, (i) the
Company has the corporate power and authority to execute and deliver this
Agreement and the Company Ancillary Agreements contemplated to be executed on
the date of this Agreement, and (ii) subject only to those obligations and
transactions contemplated hereby and thereby which require shareholder approval,
the obligations and transactions contemplated hereby and thereby have been
authorized by all requisite corporate action. The Board of Directors of Company
has, as of the date of this Agreement, determined unanimously that this
Agreement and the Merger is fair to, and in the best interests of, the Company
and its Shareholders, and has resolved to recommend that the Shareholders of the
Company approve this Agreement. Company has received an opinion from ▇▇▇▇▇
▇▇▇▇▇▇▇ Inc. to the effect that as of the date hereof, the consideration to be
received by Company shareholders in the Merger is fair from a financial point of
view and will deliver to Parent a copy of such written opinion.
9
(b) The Company is a corporation validly existing and in good
standing under the laws of the State of California and has all requisite
corporate power and authority to own, operate and lease its property and to
carry on its business as now being conducted. The Company is qualified to
conduct business as a foreign corporation in each jurisdiction in which the
ownership or leasing of its properties or the conduct of its business requires
such qualification except where the failure to be so qualified would not have a
material adverse effect. A "material adverse change" or "material adverse
effect" means, when used in connection with Parent or Company, any change,
effect, event, occurrence or state of facts that is, or would reasonably be
expected to be, individually or in the aggregate, materially adverse to the
business, operations (including sales, comparable store sales, gross profit
margin, or material classification of expenses), facilities (including retail
stores or distribution facilities), assets, condition (financial or otherwise),
properties, or prospects of such party and its subsidiaries taken as a whole.
(c) The Company has previously delivered to Parent a true,
correct, and complete copy of its Articles of Incorporation, By-laws and all
amendments to the foregoing. The minute books of Company made available to
counsel for Parent are the only minute books of Company and contain a reasonably
accurate summary of all material actions and decisions occurring during all
meetings of directors (or committees thereof) and the shareholders or actions by
written consent since the time of incorporation of Company.
4.2 No Violation. Except as described in Section 4.2 of the Disclosure
Schedule, neither the execution and delivery of this Agreement or any of the
Company Ancillary Agreements by the Company nor the consummation of the
transactions contemplated hereby or thereby by the Company shall (i) violate any
provision of the Company's Articles of Incorporation or By-laws, (ii) violate
any order, arbitration award, judgment, or decree to which the Company is a
party or is bound or to which any property of the Company is subject or is bound
other than an order, award, judgment or decree the violation of which would not
cause a material adverse effect, (iii) violate or result in a breach of or
constitute a default (or would result in or constitute such a breach or default
with notice or lapse of time or both) under any provision of any Company
Contract (as defined in Section 4.21), (iv) require the consent of any other
party to any of the items described in this subsection or (v) require the
consent or approval of any governmental body, agency or authority, other than
(A) the Antitrust Filing (as defined in Section 6.6), (B) the filing with the
SEC of the Registration Statement including the Proxy Statement by Parent and
such reports under Section 13 of the Exchange Act and such reports, consents and
filings under state securities laws as may be required in connection with this
Agreement and the transactions contemplated hereby, (C) the filing of the
Agreement of Merger with the California Secretary of State and appropriate
documents with the relevant authorities of other states in which the Company is
qualified to do business and (D) such other consents or approvals which, if not
granted or obtained, would not cause a material adverse effect.
4.3 Enforceability. As of the Closing Date, the Company will have duly
executed and delivered this Agreement and all Company Ancillary Agreements. As
of the date of this Agreement, the Company has duly executed and delivered this
10
Agreement and each of the Company Ancillary Agreements contemplated to be
executed on the date of this Agreement, and, assuming the due authorization,
execution and delivery of this Agreement and such Company Ancillary Agreements
by the parties thereto other than the Company, this Agreement and each of such
Company Ancillary Agreements constitutes a valid and binding agreement,
enforceable against the Company in accordance with its terms, except as
enforceability may be limited by laws of general application relating to
bankruptcy, reorganization, moratorium, insolvency and debtors' relief and
similar laws effecting the enforcement of creditors' rights, and by general
principles of equity ("Debtors' Rights").
4.4 Capitalization.
(a) The authorized capital stock of the Company and the issued and
outstanding shares of capital stock are set forth in Section 4.4(a) of the
Disclosure Schedule. The Company has outstanding 1,261,290 shares of Company
Common Stock (11,290 of which are Restricted Stock) and 221,700 shares of
Company Preferred Stock. Each share of the Company Preferred Stock is
convertible into one share of Company Common Stock. Section 4.4(a) of the
Disclosure Schedule also sets forth a true and complete list of all of the
shareholders of the Company as of the date of this Agreement (including the
holders of Restricted Stock), the number of shares of capital stock (including
Restricted Stock) (listed separately for each class) owned by each of them, the
date such shares were transferred to the shareholders, and each such
shareholder's state of residence. Section 4.4(a) also sets forth a description
of all shares of outstanding capital stock of the Company which are governed by
vesting arrangements or other restrictions as to ownership and/or transfer
(other than pursuant to the Securities Act or the blue sky laws of any
jurisdiction) ("Restricted Stock"), the extent to which such Restricted Stock
has vested, and the terms of vesting of any unvested shares of Restricted Stock.
Except as described in Section 4.4(a) of the Disclosure Schedule, all of the
Company's issued and outstanding shares of capital stock have been duly
authorized and validly issued, are fully paid and nonassessable, are not subject
to preemptive rights, and have been issued in compliance with all applicable
federal and state securities laws.
(b) The Company has granted as of the date of this Agreement
outstanding options to purchase 296,592 shares of capital stock, all of which
options have been granted pursuant to the Stock Option Plan. Section 4.4 (b) of
the Disclosure Schedule lists each outstanding option to acquire shares of
Company capital stock granted by the Company or by a Principal Shareholder
(specifying whether they were issued by the Company or a Principal Shareholder),
the name of the holder of such option, the date on which such options were
granted, the state of residence of the optionee, the number of shares as to
which such option will have vested on the date hereof, the exercise price of
such option and the expiration date of such option. Except as described in
Section 4.4(b) of the Disclosure Schedule, all Options have been issued in
accordance with the Stock Option Plan and all applicable securities laws,
including pursuant to valid permits thereunder or exemptions therefrom. The
Company Stock Option Plan and all amendments thereto have been approved by all
requisite Company shareholder action. No stock appreciation rights or other
derivative stock rights of the Company are currently outstanding.
11
(c) Except as set forth in Section 4.4(a) and (b) of the
Disclosure Schedule, there are no warrants, options, agreements, calls, rights
(including preemptive rights), convertible or exchangeable securities or other
commitments pursuant to which the Company or any Principal Shareholder is or may
become obligated to grant, issue, extend, accelerate vesting, sell, purchase,
retire or redeem any options or shares of its capital stock. There is no right
of first refusal, co-sale right, right of participation, right of first offer
demand, registration rights, option (other than as described in Section 4.4(b)),
restriction on transfer (other than with respect to the Restricted Stock and
pursuant to applicable securities laws), phantom stock, stock appreciation right
or other agreement or understanding applicable to the Company or its capital
stock. Neither the Company nor any Affiliate is a party or subject to any
agreement or understanding, and to the Company's knowledge, there is no
agreement or understanding between or among any persons that affects or relates
to the voting or giving of written consent with respect to any outstanding
security of the Company, other than the transactions contemplated by this
Agreement.
4.5 Subsidiaries; Affiliates; Conflict of Interest. The Company has no
subsidiaries. The term "Affiliate" with respect to any person means any person
or entity which controls such person, which that person controls, or which is
under common control with that person. In addition, with respect to the Company,
the term "Affiliate" also includes the Principal Shareholders and the spouse of
a Principal Shareholder, siblings and lineal descendants or ancestors of
Principal Shareholders, a trust for the benefit of any of the foregoing, and any
corporation, partnership, joint venture or other entity which any of the
Principal Shareholders, any spouse, sibling or lineal descendant or ancestor of
a Principal Shareholder, or a trust for the benefit of any of them, controls.
For purposes of the preceding sentences, the term "control" means the power,
direct or indirect, to direct or cause the direction of the management and
policies of a person or entity through voting securities, contract or otherwise.
The term "Principal Shareholder" means ▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇ and any trusts for
the benefit of them or their family members. Except as set forth in Section 4.5
of the Disclosure Schedule, no Affiliate of the Company has any direct or
indirect interest in: (i) any contract, arrangement or understanding with, or
relating to, the business or operations of the Company; (ii) any loan,
arrangement, understanding, agreement or contract for or relating to
indebtedness of the Company; (iii) any property (real, personal or mixed),
tangible or intangible, used or currently intended to be used in, the business
or operations of the Company, or (iv) any creditor, competitor, supplier,
customer, or lessor of the Company. Following the Closing, the Company will not
have any obligations of any kind to any Shareholder or any Affiliate of a
Shareholder except for (i) accrued salary for the pay period commencing
immediately prior to the Closing Date and (ii) the obligations set forth at
Section 4.5 of the Disclosure Schedule and obligations under this Agreement
(collectively, the "Related Party Obligations").
4.6 Investments in Others. The Company does not have any investment in
or advance or loan to or guarantee of, or any commitment to make any investment
in, advance or loan to or guarantee of, any person, except as set forth in the
Interim Balance Sheet (as defined below).
12
4.7 Financial Statements.
(a) The Company's audited balance sheets as of January 25, 1998
and January 26, 1997, and the related audited statements of income,
shareholders' equity and cash flow for the periods ending January 25, 1998 (the
"Financial Statement Date"), January 26, 1997, and January 28, 1996 are provided
in Section 4.7(a) of the Disclosure Schedule and are referred to collectively as
the "Financial Statements" and individually as the "1997 Financial Statements,"
"1996 Financial Statements"and "1995 Financial Statements," respectively. The
Financial Statements (i) present fairly, in all material respects, the financial
position, results of operations and cash flows, as the case may be, of the
Company as of the dates and periods thereof, (ii) were prepared in accordance
with generally accepted accounting principles ("GAAP"), and (iii) reflect the
consistent application of such accounting principles throughout the periods and
as of the dates involved except as disclosed in the notes to the Financial
Statements.
(b) The unaudited balance sheet of the Company as of June 28,
1998, (the "Interim Balance Sheet"), and the related statements of income for
the period from January 26, 1998 through June 28, 1998 provided in Section
4.7(b) of the Disclosure Schedule, are referred to herein as the "Interim
Financial Statements." The Interim Financial Statements (i) present fairly, in
all material respects, the financial position, and results of operations and
cash flows, as the case may be, of the Company, and (ii) were prepared in
conformity with GAAP and reflect the consistent application of such accounting
principles throughout the periods and dates involved, subject to normal and
customary year-end closing adjustments, the lack of footnotes and other
presentation items.
(c) Section 4.7(c) of the Disclosure Schedule presents a schedule
of all valuation accounts reflected in the 1997 Financial Statements and Interim
Balance Sheet, including any accounts for markdowns, shrink, currency exchange,
bad debts, general inventory reserves, allowance for accounts receivable,
allowance for notes receivable, income tax reserves and depreciation reserves.
4.8 Unreported and Contingent Liabilities. Except (i) as set forth or
disclosed in the 1997 Financial Statements and the Interim Financial Statements,
or (ii) liabilities incurred in the ordinary course of business consistent with
past practice, or (iii) liabilities fully insured against (subject to reasonable
deductibles) by third party insurance, the Company has no liabilities or
obligations, whether accrued, absolute, fixed, contingent or otherwise.
4.9 Absence of Certain Changes. Since January 28, 1998, the business of
the Company has been conducted only in the ordinary course consistent with past
practices, and except as set forth at Section 4.9 of the Disclosure Schedule,
there has not been (a) a material adverse change with respect to the Company;
(b) any damage, destruction, casualty or other similar occurrence or event
(whether or not insured against), which either individually or in the aggregate
has had or would reasonably be expected to have a material adverse effect on the
Company; (c) any mortgage or pledge of or encumbrance attached to any of the
properties or assets of the Company not in the ordinary course of business; (d)
any incurrence or creation of any liability, commitment, guarantee or obligation
in
13
excess of $75,000 by the Company, except in the ordinary course of business, and
capital expenditures or contracts and commitments for capital expenditures made
or entered into in the ordinary course of business; (e) any sale, transfer or
other disposition by the Company of any of its assets in excess of $150,000 in
the aggregate, except for inventory sold by the Company in the ordinary course
of business; (f) [NOT USED]; (g) any labor trouble or claim of wrongful
discharge (except for such claims as would not be expected to result in a
material adverse effect on the Company) or other unlawful labor practice or
action; (h) any change in accounting methods or practices (including any change
in depreciation or amortization policies or rates) by Company; (i) any material
revaluation by Company of any of its assets; (j) any declaration, setting aside
or payment of a dividend or other distribution with respect to the capital stock
of Company, or direct or indirect redemption, purchase or other acquisition by
Company of any of its capital stock; (k) any increase in the salary or other
compensation payable or to become payable to any of its officers, directors,
employees or advisors, or the declaration, payment or commitment or obligation
of any kind for the payment of a bonus or other additional salary or
compensation to any such person except for increases, payments or commitments in
the ordinary course of business and consistent with past practices; (l) any
amendment or termination of any material contract, agreement or license to which
Company is a party or by which it is bound; (m) any loan by Company to any
person or entity, except for advances to employees for travel and business
expenses in the ordinary course of business, consistent with past practices; (n)
any waiver or release of any material right or claim of Company, including any
write-off or other compromise of any account receivable of Company other than in
the ordinary course of business and consistent with past practices; (o) [NOT
USED]; or (p) any issuance or sale by Company or any of its Affiliates of any of
the shares of capital stock of the Company, or securities exchangeable,
convertible or exercisable therefor except for option grants disclosed in
Section 4.4(b) of the Disclosure Statement and issuances of capital stock upon
exercises of options granted prior to the date hereof.
4.10 Certain Sales. The Company's sales and comparable store sales for
the period of June 29, 1998, to a date five days before the date hereof are set
forth in Section 4.10 of the Disclosure Schedule.
4.11 Licenses and Permits. The Company possesses all material licenses
or permits necessary to conduct its business as now operated. Such licenses and
permits are valid and in full force and effect. No action or claim is pending,
or, to the knowledge of the Company, threatened, to revoke or terminate any such
licenses or permits or declare any of them invalid in any respect and the
transactions contemplated by this Agreement will not result in the revocation or
termination of any such licenses or permits.
4.12 Litigation. Except as set forth at Section 4.12 of the Disclosure
Schedule, there is not pending against the Company, or to the knowledge of the
Company, threatened against the Company, any claim, action, suit, arbitration
proceeding, governmental proceeding or investigation ("Proceeding") (a)
demanding money damages in excess of $10,000 from the Company, or (b) demanding
a temporary restraining order, preliminary injunction or a permanent injunction
or order of specific performance against the Company. All pending Proceedings
relating to
14
or involving the Company (or any of its officers or directors as such) are
adequately provided for in the Interim Balance Sheet in accordance with GAAP.
The Company is not subject to any judgment, decree, injunction, rule or order of
any court, and the Company is not subject to any governmental restriction which
may be reasonably likely (i) to have a material adverse effect on the Company or
(ii) to cause a material limitation on Parent's ability to operate the business
of the Company after the Closing. There are no Proceedings pending under or
pursuant to any warranty, whether expressed or implied, on products sold by the
Company. Except for the two suits involving ▇▇▇▇ ▇▇▇▇▇▇ and California
Compensation Insurance Company, the Company believes that the Proceedings set
forth on Schedule 4.12 are fully covered by insurance subject to standard
deductibles. Anything herein to the contrary notwithstanding, Company agrees
that any uninsured losses under these two Proceedings in excess of any existing
reserve for these two Proceedings shall be treated as a breach of this Section
4.12 subject to indemnity under Section 8.1(a).
4.13 Inventory. All of the Company's Inventory (defined below)
reflected on the Interim Balance Sheet was purchased in the ordinary course of
business and is owned by the Company free and clear of all liens, security
interests and encumbrances, other than security interests securing debt to
unaffiliated third parties pursuant to existing credit agreements reflected on
the Interim Balance Sheet. The Inventory is maintained on the financial records
of the Company (including the Interim Financial Statements) using historical
valuation methods and practices consistent with those used in preparing the 1997
and 1996 Financial Statements. All items of Inventory are of good and
merchantable quality for sale in the ordinary course of business except to the
extent of adequate reserves reflected in the Interim Financial Statements. The
Company has no knowledge that such Inventory is not in conformity with all
applicable government requirements, (including the Consumer Product Safety Act,
Federal Hazardous Substances Act, Flammable Fabrics Act, Poison Prevention
Packaging Act, the laws administered by the Federal Food and Drug Administration
and other federal and state product safety and labeling laws, and the
regulations promulgated in connection therewith ("Product Safety Laws")).
"Inventory" shall mean all of the Company's inventory and merchandise whether
located in the stores, in a warehouse, or in transit to the stores, together
with the Company's packaging Inventory and displays. Since January 1, 1997, the
Company has not received written notice that any item of Inventory violates any
Product Safety Laws or infringes on the Intellectual Property (as defined in
Section 4.18) rights of any third party, or requesting a recall of any item of
Inventory.
4.14 Real Property. The Company does not own any real property. Section
4.14 of the Disclosure Schedule sets forth a true and correct list of all real
property currently leased by the Company (which together with all fixtures and
improvements thereon shall be referred to as the "Leased Real Property"),
categorized separately as follows: (i) all leases for retail stores of the
Company open on the date hereof; (ii) all leases for retail stores of the
Company that are not open as of the date hereof; (iii) a list of all leases for
retail stores of the Company under negotiation; and (iv) all other real property
leases of the Company, including the warehouse and office leases. The Company
has previously delivered to Parent correct and complete copies of all of the
leases and related amendments, modifications, subleases, and store, warehouse or
15
headquarters lease agreements, including all such documents related to the
Leased Real Property. The Company has a valid leasehold interest in the Leased
Real Property, free and clear of any mortgages, pledges, liens, security
interests or other encumbrances of any nature except for Permitted Encumbrances
as defined herein. The leases of the Leased Real Property are in full force and
effect. The Company has neither sent nor received written notice of any uncured
default under the leases of the Leased Real Property, and the Company is not in
breach of any material covenant, agreement or condition contained in any lease
of the Leased Real Property, nor has there occurred any event which with the
passage of time or the giving of notice or both would constitute such a breach
by the Company. The Company has paid in full or accrued all amounts due and
owing, and has satisfied in full or accrued all of its liabilities and
obligations, under the leases. The Company has not received any notice of any
pending claim by any landlord or other third party adverse to the possessory
rights of the Company under any leases. The Company has the right to use such
Leased Real Estate for the operations presently conducted. The Company is the
tenant under all of the leases except for the subleases to Food Express,
Grossmans, ▇▇▇▇▇▇ ▇▇▇ Distributors (related to a check cashing booth located in
two stores) and certain subleases related to vending machines. No portion of the
Leased Real Property, or any of the buildings and improvements located thereon,
violates in any material respect any law, rule, regulation, ordinance, or
statute, including those relating to zoning, building, land use, environmental,
health and safety, fire, air, sanitation and noise control. To the knowledge of
the Company, no pending or threatened condemnation or similar proceeding exists
with respect to the Leased Real Property. To the knowledge of the Company, the
improvements and fixtures located on the Leased Real Property are in good
condition and working order, subject to ordinary wear and tear. The Company is
in possession of all of the Leased Real Property and all improvements and
fixtures located thereon, and the Company has adequate rights of ingress and
egress with respect to such Leased Real Property and the improvements and
fixtures located thereon. As used in this Agreement, "Permitted Encumbrances"
shall mean:
(a) encumbrances on properties consisting of easements, rights of
way, zoning restrictions, restrictions on the use of real property and defects
and irregularities in the title thereto, landlord's or lessor's liens under
leases to which the Company is a party, and other minor liens or encumbrances
none of which interferes materially with the use of the property affected in the
ordinary conduct of the business of the Company;
(b) liens on properties to secure taxes, assessments and other
governmental charges or claims for labor, material or supplies in respect of
obligations not overdue;
(c) deposits or pledges made in connection with, or to secure
payment of, workmen's compensation, unemployment insurance, old age pensions or
other social security obligations;
(d) liens of carriers, warehousemen, mechanics and materialmen,
and other like liens on properties in respect of obligations not overdue.
16
4.15 Environmental Matters. Except as set forth at Section 4.15 of the
Disclosure Schedule:
(a) Since January 1, 1993, the Company has not been the subject of
any federal, state or local investigation, and since such time the Company has
not received any notice or claim, or entered into any negotiations or agreements
with any third party, relating to any liability or remedial action or potential
liability or remedial action under any Environmental Laws (as defined below).
There are no pending or, to the knowledge of the Company, threatened actions,
suits, claims or proceedings against or affecting the Company or any of its
properties, assets or operations in connection with any such Environmental Laws.
The Company and its properties, assets and operations are in compliance in all
material respects with all applicable federal, state, local and foreign laws,
rules and regulations, orders, decrees, judgments, permits and licenses relating
to public and worker health and safety and to the protection and clean-up of
natural environmental and activities or conditions relating thereto, including,
without limitation, those relating to the generation, handling, disposal,
transportation or release of hazardous materials (collectively, "Environmental
Laws");
(b) the Company has heretofore provided Parent with true, correct
and complete copies of all files of the Company relating to environmental
matters (or an opportunity to review such files).
(c) neither the Leased Real Property nor improvements or equipment
included within the Leased Real Property contains any asbestos, PCBs or
underground storage tanks.
4.16 Compliance With Laws Generally. Except as set forth in Section
4.16 of the Disclosure Schedule, (i) the Company is, and at all times since
January 28, 1998 has been, in compliance in all material respects with all laws,
rules, regulations and ordinances to which it is subject or by which it is bound
("Laws") including the Product Safety Laws, (ii) no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed, commenced, or, to the Company's knowledge, threatened against the Company
alleging any uncured failure to comply with any Laws. This Section 4.16 shall
not apply to Environmental Laws (including rules and regulations issued
thereunder), all of which are subject to Section 4.15.
4.17 Employee Benefit Plans.
(a) Section 4.17(a) of the Disclosure Schedule contains a true and
complete list of all the following agreements or plans ("Benefit Plans") which
are presently in effect or which have previously been in effect and which cover
or covered any current or former employees, officers, directors or independent
contractors of the Company ("Employees"):
(i) any employee benefit plan as defined in Section 3(3) of
Title I of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), under which the Company has any outstanding, present, or future
obligation or
17
liability, or under which any Employee has any present or future right to
benefits which are covered by ERISA; or
(ii) any other pension, profit sharing, retirement, deferred
compensation, stock purchase, stock option, incentive, bonus, vacation,
severance, disability, hospitalization, medical, life insurance, or other
employee benefit plan, program, policy, or arrangement, written or oral, which
the Company maintains or to or under which the Company has any outstanding,
present, or future obligations to contribute or make payments, whether
voluntary, contingent or otherwise.
(b) The Company has made available to Parent true, correct and
complete copies of all documents relating to the Benefit Plans that are
currently in effect, including but not limited to: (i) all plan documents and
other related material agreements; (ii) all related insurance and annuity
contracts; and (iii) the most recently available Form 5500 annual reports,
certified financial statements, actuarial reports, summary plan descriptions and
favorable determination letters for the Benefit Plans.
(c) All of the Benefit Plans and the related trusts subject to
ERISA comply and have been administered in compliance in all material respects
with (i) the provisions of ERISA, (ii) all provisions of the Code applicable to
secure the intended tax consequences, (iii) all applicable state and federal
securities laws and (iv) all other applicable laws, rules, regulations and
collective bargaining agreements, except where the failure to so comply or to be
so administered would not result in any monetary penalty against the Company.
(d) The Company has materially complied with the continuation
coverage requirements of Section 1001 of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, and ERISA Sections 601 through 608
("COBRA").
(e) Neither the Company, its ERISA Affiliates (that is, any entity
which, together with the company, will be treated as a single employer within
the meaning of Code Section 414(b), (c), (m) or (o)), nor any administrator or
fiduciary of any Benefit Plan (or agent or delegate of any of the foregoing) has
engaged in any transaction or acted or failed to act in any manner that could
subject the Company to any direct or indirect liability (by indemnity or
otherwise) for a breach of any fiduciary or co-fiduciary duty under ERISA. The
Company has not engaged in any prohibited transaction (within the meaning of
ERISA Section 406 or Code Section 4975).
(f) No Benefit Plan is subject to Title IV of ERISA, and neither
the Company nor any of its ERISA Affiliates have incurred any liability under
Title IV of ERISA arising in connection with the termination of any plan covered
or previously covered by Title IV of ERISA that could become, after the Closing
Date, an obligation of Sub or any of its ERISA Affiliates.
(g) Neither the Company nor any of its ERISA Affiliates currently
is or has been a party to any pension or welfare plan that is a multiemployer
plan within the meaning of ERISA Section 4001(a)(3).
18
(h) None of the Benefit Plans provides welfare benefits,
including, without limitation, death or medical benefits (whether or not
insured), with respect to current or former Employees beyond their retirement or
other termination of service (other than coverage required by COBRA or any
similar state law).
(i) The Company does not maintain, and has not maintained, a
defined benefit pension plan.
(j) For each Benefit Plan which is intended to be qualified under
Code Section 401(a) ("Qualified Retirement Plan"), the Company has received from
the Internal Revenue Service a favorable determination letter to the effect that
the plan in form satisfies the requirements for qualification under Code Section
401(a) (taking into account the provisions of the Tax Reform Act of 1986 and all
subsequent legislation). No amendments have been made to any Qualified
Retirement Plan since the application for such determination letter which would
cause disqualification of such plan. To Company's knowledge, any noncompliance
or failure prior to the Closing Date properly to maintain, operate, or
administer any Qualified Retirement Plan has not rendered and will not render:
(i) such plan or its related trust or Sub or its ERISA Affiliates subject to, or
liable (directly or indirectly) for, any taxes, penalties, or liabilities to any
person or governmental agency; (ii) such plan subject to disqualification; or
(iii) the trust under such plan subject to any liability for taxes. No request
has been submitted to the Internal Revenue Service and no request is being
contemplated under any program described in Rev. Proc. 98-22, Rev. Proc. 94-62,
or Rev. Proc.
94-16.
(k) All contributions (including all employer contributions and
employee salary reduction contributions) which are due or withheld have been
paid to each employee pension benefit plan as defined in ERISA Section 3(2) and
all contributions for any period ending on or before the Closing Date which are
not yet due have been paid to each such employee pension benefit plan or accrued
in accordance with the past custom and practice of the Company. All premiums or
other payments for all periods ending on or before the Closing Date have been
paid with respect to each employee welfare benefit plan as defined in ERISA
Section 3(1).
(l) The Company's records accurately reflect its Employees' years
of vesting and eligibility service for purposes of the Benefit Plans.
(m) There is no pending or, to Company's knowledge, any threatened
complaint, claim (other than a routine claim for benefits), proceeding, audit,
or investigation of any kind in or before any court, tribunal, or governmental
agency with respect to any Benefit Plan.
(n) All Forms 5500 Annual Reports and Summary Annual Reports have
been filed or distributed appropriately with respect to each Employee Benefit
Plan.
4.18 Intellectual Property.
(a) "Intellectual Property" means (i) all inventions, patents and
patent applications, (ii) all trademarks, service marks, trade dress, logos,
trade names and corporate names, together with all translations, adaptations,
19
derivations, and combinations thereof, and all applications, registrations and
renewals thereof, including any such Intellectual Property associated with the
name "98 Cents Clearance Centers" or other store or trade name used by the
Company, (iii) all copyrights, and all applications, registrations, and renewals
thereof, (iv) all trade secrets and confidential business information (including
ideas, research, and development, know-how, formulas, compositions,
manufacturing and production processes and techniques, technical data, designs,
drawings, specifications, customer and supplier lists, pricing and cost
information, and business and marketing plans and proposals), (v) all other
proprietary rights, and (vi) all copies and tangible embodiments thereof (in
whatever medium).
(b) The Company owns (or has adequate rights to use pursuant to
license, sublicense, agreement, or permission) all Intellectual Property
necessary and used for the operation of its business activities as presently
conducted, free and clear of all liens and encumbrances except liens arising
pursuant to that certain Loan and Security Agreement dated as of May 16, 1996,
between the Company and ▇▇▇▇▇▇ Financial, Inc., as amended from time to time,
through and including a Ninth Amendment dated as of June 1, 1998. Each item of
Intellectual Property owned or available for use prior to the Closing hereunder
will be owned or available for the royalty-free use by the Company immediately
subsequent to the Closing. The Company has taken all necessary action to protect
each item of Intellectual Property that it owns or uses. The Company has not
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with, in each case in any material respect, any Intellectual Property
rights of third parties, and neither the Company nor any officers, directors, or
employees of the Company has ever received any charge, complaint, claim, demand,
or notice alleging such interference, infringement, misappropriation, or
violation (including any claim that Company must license or refrain from using
any Intellectual Property rights of any third party). To the knowledge of the
Company, no third party has interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual Property rights of the
Company.
(c) Section 4.18(c) of the Disclosure Schedule identifies (i) each
Intellectual Property registration which has been issued to the Company and each
pending Intellectual Property application which has been made by the Company,
(ii) each license, agreement, or other permission which the Company has granted
to any third party with respect to any of its Intellectual Property, and (iii)
each license, agreement, or other permission which has been granted to the
Company by any third party with respect to any Intellectual Property used in the
operation of the Company's business.
4.19 Tax Matters.
(a) "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
Section 59 A), 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,
20
penalty, or addition thereto, whether disputed or not.
(b) "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.
(c) The Company has timely filed all Tax Returns that it was
required to file, including applicable extensions except where failure to file
such Tax Returns would not have a material adverse effect. All such Tax Returns
were correct and complete in all material respects. All Taxes owed by the
Company shown on such Tax Returns have been paid.
(d) The Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
(e) There is no dispute or claim concerning any Tax Liability of
the Company either (i) claimed or raised by any authority in writing, or (ii) as
to which any of the directors and officers (and employees responsible for Tax
matters) of the Company has knowledge based upon personal contact with any agent
of such authority. The Company has delivered to Parent correct and complete
copies of all federal income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by the Company for taxable years
ending on or after December 31, 1995.
(f) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(g) The Company has not filed a consent under Code Section 341(f)
concerning collapsible corporations. The Company has not made any payments, is
obligated to make any payments, or is a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Code Section 280G. The Company has not been a United States
real property holding corporation within the meaning of Code Section 897(c)(2)
during the applicable period specified in Code Section 897(c)(1)(A)(ii). The
Company is not a party to any Tax allocation or sharing agreement. The Company
(i) has not been a member of an affiliated group filing a consolidated federal
income Tax Return (other than a group the common parent of which was the
Target), or (ii) has any Liability for the Taxes of any Person (other than any
of the Target and its Subsidiaries) under Reg. Section 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or successor, by
contract, or otherwise.
(h) The Company has no deferred gain or loss allocable to the
Company arising out of any deferred intercompany transaction as defined in the
U.S. Treasury Department's consolidated income tax regulations.
(i) The unpaid Taxes of the Company (i) did not, as of June 28,
1998, exceed the reserve for tax liability (rather than any reserve for deferred
Taxes established to reflect timing differences between book and Tax income) set
forth
21
on the face of the Interim Balance Sheet (rather than in any notes thereto) and
(ii) do not exceed that reserve as adjusted for the passage of time through the
date hereof, and will not exceed such reserve of the Closing Date, in accordance
with the past custom and practice of the Company in filing its Tax Returns.
4.20 No Broker Involved; Deal Expenses. Except for ▇▇▇▇▇ ▇▇▇▇▇▇▇ Inc.,
the Company has not engaged any broker, finder or agent with respect to the
transactions contemplated by this Agreement or with respect to the Company's
sale or merger or any other transaction relating to the disposition of all or
substantially all of the Company's assets.
4.21 Contracts. Section 4.21 of the Disclosure Schedule contains a true
and complete list of (or cross-references to another portion of the Disclosure
Schedule listing) the following Company contracts ("Company Contracts") as of
the date hereof:
(a) all unpaid bonds, debentures, notes, mortgages, indentures,
indemnities or guarantees in excess of $50,000 to which the Company is a party
or by which any of its properties or assets (real, personal or mixed, tangible
or intangible) is bound;
(b) all leases to which the Company is a party or by which any of
its properties or assets (real, personal or mixed, tangible or intangible) is
bound involving an annual rental payment in excess of $50,000 individually;
(c) all loans and credit commitments to the Company which are
outstanding and pursuant to which any indebtedness of the Company in the
aggregate principal amount in excess of $50,000 is outstanding, together with a
brief description of such commitments and the name of each financial institution
granting the same;
(d) all contracts or agreements which limit or restrict in any
respect the Company from engaging in any business in any jurisdiction;
(e) all agreements or arrangements that contain any severance pay
or post- employment liabilities or obligations (or a cross-reference to another
section of the Disclosure Schedule in which any such agreements or arrangements
have been listed);
(f) all bonus, deferred compensation, incentive compensation
plans, or any other employee benefit plans or arrangements (or a cross-reference
to another section of the Disclosure Schedule in which any such plans or
arrangements have been listed);
(g) all employment or consulting agreements, contracts or
commitments with any employee, not terminable by Company on thirty days notice
without liability;
(h) all agreements or plans, including, without limitation, any
stock option plans, stock appreciation right plans or stock purchase plans, any
of the benefits of which will be increased, or the vesting of benefits of which
will be
22
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement (or a
cross-reference to another section of the Disclosure Schedule in which any such
plans or arrangements have been listed);
(i) [NOT USED];
(j) all agreements, contracts or commitments containing any
covenant limiting the freedom of Company to engage in any line of business or
compete with any person;
(k) all agreements, contracts or commitments for capital
expenditures for future obligations in excess of $25,000 and not cancelable
without penalty;
(l) all agreements, contracts or commitments currently in force
relating to the disposition or acquisition of assets not in the ordinary course
of business or any ownership interest in any corporation, partnership, joint
venture or other business enterprise;
(m)all material joint marketing, development, supply, franchise or
distribution agreements;
(n) all material sales and purchase commitments, maintenance
agreements, ADP agreements, inventory and accounting agreements, and other
service outsourcing agreements; and
(o) all existing agreements, contracts and commitments, written or
oral (other than those described in the foregoing provisions of this Section
4.21) to which the Company is a party or by which the Company or any of their
respective properties or assets may be bound (i) involving an annual commitment
or annual payment by any party thereto of more than $50,000 individually, (ii)
which cannot be terminated by the Company without penalty or further obligations
on not more than 90 days' notice or (iii) which is otherwise material to the
Company.
True and complete copies of all Company Contracts, including all
amendments thereto, have been made available to Parent. The Company Contracts
are valid and enforceable in accordance with their respective terms with respect
to the Company (as applicable) and valid and enforceable in accordance with
their respective terms with respect to any other party thereto, except as the
enforceability may be limited by Debtors' Rights. There is not under any of the
Company Contracts any existing material breach, default or event of default by
the Company or event that with notice or lapse of time or both would constitute
a material breach, default or event of default by the Company, nor does the
Company know of, and nor has the Company received notice of, or made a claim
with respect to, any material breach or default by any other party thereto. To
the knowledge of the Company, no customer or supplier which paid the Company or
was paid by the Company more than $50,000 during calendar year 1997 intends to
terminate or materially alter its level of business with the Company as a result
of the transactions contemplated by this Agreement.
23
4.22 Officers and Employees. Section 4.22 of the Disclosure Schedule
contains a true and complete list of all of the officers and key employees of
the Company and all other persons with whom the Company has a written employment
agreement or to whom the Company has made verbal commitments which are binding
on the Company under applicable laws, specifying their title, annual rate of
compensation, bonus eligibility and the terms of such agreement or commitment as
of the date hereof. To Company's knowledge, no such employee of Company (i) is
in violation of any term of any employment contract, non-competition agreement,
or any restrictive covenant to a former employer relating to the right of any
such employee to be employed by Company because of the nature of the business
conducted or presently proposed to be conducted by Company or to the use of
trade secrets or proprietary information of others, and (ii) has given notice to
Company, nor is Company otherwise aware, that any such employee intends to
terminate his or her employment with Company except for terminations of a nature
and number that are consistent with Company's prior experience.
4.23 Labor Relations.
(a) The Company is not and since January 1, 1996 has not been a
party to any collective bargaining or other labor union contracts applicable to
any person employed by the Company. There is no pending or, to the knowledge of
the Company, threatened material labor dispute, strike or work stoppage against
the Company. Neither the Company nor its representatives or employees has
committed any material unfair labor practices in connection with the operation
of the business of the Company, and there is no pending or, to the knowledge of
the Company, threatened charge or complaint against the Company by the National
Labor Relations Board or any comparable state agency. No hand billing involving
the employees of the Company is in progress, and no denial of fair
representation claim is pending against the Company.
(b) Except as disclosed in Section 4.12 to the Disclosure
Schedule, (i) no claim for unpaid wages or overtime or for child labor or record
keeping violations is pending under the Fair Labor Standards Act, ▇▇▇▇▇-▇▇▇▇▇
Act, ▇▇▇▇▇-▇▇▇▇▇▇ Act, Service Contract Act, or any other Federal, state, local
or foreign law, regulation, or ordinance, (ii) no discrimination and/or
retaliation claim is pending against the Company under the 1866 or 1964 Civil
Rights Acts, as amended, the Equal Pay Act, the Age Discrimination in Employment
Act, the Americans with Disabilities Act, the Family and Medical Leave Act, the
Fair Labor Standards Act, ERISA or any other Federal law or any comparable state
fair employment practices act or foreign law regulating discrimination in the
workplace (including the California Fair Employment and Housing Act), (iii) the
Company is under no obligation to develop or maintain an affirmative action plan
and has not entered into any conciliation or settlement agreement with any
Federal agency or comparable state or foreign agency or court and no onsite
review or audit is in progress, (iv) no citation has been issued by Occupational
Safety and Health Administration ("OSHA") against the Company for any repeated
or willful violation and no notice of contest or OSHA administrative enforcement
proceeding involving the Company is pending, and (v) no citation of the Company
has occurred for any repeated or willful violation and no enforcement proceeding
has been initiated or is pending under Federal or foreign immigration law, in
24
each case except for such claims, citations, notices, and proceedings which, if
adversely determined, would not have a material adverse effect on the Company.
(c) Before the date of this Agreement the Company has not taken
any action which would constitute a "mass layoff" or "plant closing" within the
meaning of the Worker Adjustment and Retraining Notification Act or otherwise
trigger notice requirements or liability under any local or state plant closing
notice law.
(d) No employee of the Company is indebted to the Company except
in the ordinary course of business consistent with past practices.
(e) Except as disclosed on Section 4.23(e) of the Disclosure
Schedule, the Company has not entered into any written employment,
covenant-not-to-compete, confidentiality, proprietary rights, restrictive
covenant, severance, or golden parachute agreement with any present or former
employee, consultant, or Affiliate which is currently in effect, and the Company
has not entered into any agreement, oral or written, with any present or former
employee that by its terms obligates (either on an absolute or contingent basis)
the Company or Parent to make any payment on, after, or in connection with the
Closing to any present or former employee following his or her termination of
employment.
(f) None of the officers of the Company has, to Company's
knowledge, expressed an intention to resign or retire as a result of the
transaction contemplated by this Agreement or for any other reason except for
▇▇▇▇ ▇▇▇▇.
4.24 Insurance. Section 4.24 of the Disclosure Schedule sets forth a
true and complete list of the current insurance coverages for the Company,
including names of carriers, amounts of coverage and premiums therefor. The
Company has made available to the Parent true and complete copies of all such
insurance policies.
4.25 Title to Property and Related Matters. The Company has good and
valid title to or valid leasehold interest in its personal property, as
reflected in the Interim Balance Sheet (other than property sold, leased or
otherwise disposed of in the ordinary course of business since such date), and
all of such properties are held free and clear of all title defects, liens,
encumbrances, security interests and restrictions whatsoever, except, with
respect to all such properties, (a) liens securing debt reflected as liabilities
on the Interim Balance Sheet, and (b) Permitted Encumbrances.
4.26 Accounts and Notes Receivable. The accounts and notes receivable
of the Company reflected on the Interim Balance Sheet and the related reserves
arose from bona fide transactions in the ordinary course of business, have been
extended on terms consistent with the past practice of the Company, are not
subject to any counterclaims or setoffs other than in the ordinary course
(except for the amount of any applicable existing reserves for counterclaims or
setoffs), have been recorded in the Company's books in accordance with GAAP
consistently applied.
25
4.27 Nondisclosed Payments. Neither the Company nor any of the
Company's officers or directors, nor, to the Company's knowledge, anyone acting
on behalf of any of them, has made or received any material payments not
correctly categorized and fully disclosed in the Company's books and records in
connection with or in any way relating to or affecting the Company.
4.28 [Not Used]
4.29 Business Practices. Neither the Company nor any director or
officer, or, to the Company's knowledge, any employee, agent or other Person
acting on behalf of the Company (i) has used any Company funds for improper or
unlawful contributions, payments, gifts or entertainment, or made any improper
or unlawful expenditures relating to political activity to domestic or foreign
governmental officials or others, or (ii) has accepted or received any improper
or unlawful contributions, payments, gifts or expenditures. The Company has at
all times complied, and is in compliance, in all material respects, with the
Foreign Corrupt Practices Act, as amended, and all foreign laws and regulations
relating to prevention of corrupt practices and similar matters. There is no
agreement (noncompete or otherwise), commitment, judgment, injunction, order or
decree to which Company is a party or, to the knowledge of Company, is otherwise
binding upon Company, which has or reasonably could be expected to have the
effect of prohibiting or impairing any material business practice of Company, or
the conduct of business by Company. Without limiting the foregoing, Company has
not entered into any agreement under which Company is restricted, in any
material respect, from selling, licensing or otherwise distributing any of its
products to any class of customers, in any geographic area, during any period of
time or in any segment of the market.
4.30 [Not Used]
4.31 Securities Matters.
(a) None of the information supplied by or on behalf of the
Company or its officers, directors, or shareholders to be included in the Proxy
Statement will, on the date the Proxy Statement is first mailed to the
Shareholders and on the date of the Shareholders' meeting referred to in Section
6.8, contain any untrue statement of a material fact, or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. No representation is made with respect to information supplied by or
on behalf of Parent or Sub or their respective directors, officers or
shareholders specifically for inclusion or incorporation in the Proxy Statement.
(b) None of the information supplied by or on behalf of the
Company or its officers, directors, or shareholders to be included or
incorporated in the Registration Statement will, at the time it becomes
effective, contain any untrue statement of a material fact, or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. No representation is made with respect to information supplied by or
on behalf of Parent or Sub or
26
their respective directors, officers or shareholders specifically for inclusion
or incorporation in the Registration Statement.
4.32 Pooling. Company has taken no actions that would prevent the
accounting of the business combination to be effected by the Merger as a pooling
of interests under Opinion 16 of the Accounting Principles Board and applicable
SEC rules and regulations ("pooling of interests"). In addition, the shares of
Parent Common Stock issued in the Merger will be shared ratably by the
Shareholders based on their respective percentage ownership of the Company
capital stock, and there is no agreement among the Shareholders providing for
any reallocation of such Parent Common Stock among the Shareholders. Company has
disclosed to its independent public accountants all actions taken by it that
would impact the accounting of the business combination to be effected by the
Merger as a pooling of interests. As of the date hereof, Company, based on
advice from its independent public accountants, believes that the Merger will
qualify for pooling of interests accounting.
4.33 Reorganization under Section 368 of the Code. The Company will
have taken no action reasonably likely to prevent the Merger from qualifying as
a reorganization within the meaning of Section 368(a) of the Code.
4.34 Full Disclosure. The representations and warranties of the Company
contained in this Agreement (including all information in the Disclosure
Schedule and the Escrow Agreement hereto and the certificate to be furnished by
the Company pursuant to Section 9.1(d)(i)) do not contain any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements so made or information so delivered not misleading.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub jointly and severally represent and warrant to the
Company that, as of the date of this Agreement and on the Closing Date:
5.1 Corporate Organization. Parent is a corporation validly existing
and in good standing under the laws of the Commonwealth of Virginia and has all
requisite corporate power and authority to own, operate and lease its property
and to carry on its business as now being conducted. The Sub is a corporation
validly existing and in good standing under the laws of the State of California
and has all requisite corporate power and authority to own, operate and lease
its property and to carry on its business as now being conducted. The Sub was
formed for the purpose of consummating the transactions contemplated hereby and
has not previously conducted any other activities. Parent and Sub are each
qualified to conduct business as a foreign corporation in each jurisdiction in
which the ownership or leasing of its properties or the conduct of its business
requires such qualification except where the failure to be so qualified would
not individually or in the aggregate have a material adverse effect on the
Parent and its subsidiaries, taken as a whole.
27
5.2 Authorization and Approval of Agreement. Parent and Sub have all
requisite corporate power and authority to execute and deliver this Agreement
and the other agreements, documents and instruments executed and delivered by
Parent or Sub in connection with the transactions contemplated by this Agreement
(the "Parent Ancillary Agreements"), and to fully perform the obligations
required to be performed by them hereunder and thereunder. All corporate
proceedings required by Parent's and Sub's respective charter documents or
otherwise required by law for the execution and delivery of this Agreement and
the Parent Ancillary Agreements and for the consummation of the transactions
provided for herein and therein have been duly taken, and no approval by
Parent's shareholders is required to authorize this Agreement or the Parent
Ancillary Agreements. This Agreement and each of the Parent Ancillary Agreements
has been duly and validly executed and delivered by Parent and Sub and is
enforceable against Parent and Sub in accordance with its terms, except as the
enforceability may be limited by Debtors' Rights.
5.3 Ability to Carry Out Agreement. The execution and delivery of this
Agreement and the Parent Ancillary Agreements by Parent and Sub and the
performance by Parent and Sub of their obligations hereunder and thereunder will
not conflict with, violate or result in any breach of or constitute a default
under any provisions of Parent's and Sub's Articles of Incorporation or By-laws
or, except for the Parent's credit facilities and private placement notes, of
any of the provisions of any indenture, mortgage, lease, agreement, license,
permit, instrument, order, arbitration award, judgment, decree, law, ordinance,
regulation or any other restriction of any kind or character to which Parent or
Sub is a party or by which either of them is bound. Except for compliance with
the applicable requirements of the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act
of ▇▇▇▇ (▇▇▇ "▇▇▇ ▇▇▇") and the Securities Act, the Securities Exchange Act of
1934 (the "Exchange Act"), applicable state securities laws, the bylaws of the
National Association of Securities Dealers, any listing agreement with respect
to the Parent Common Stock, and the filing of the Agreement of Merger with the
State of California, no consent of any governmental authority or other third
party is required to be obtained on the part of Parent in connection with
Parent's execution, delivery or performance of this Agreement or the Parent
Ancillary Agreements.
5.4 Capital Stock. The authorized capital stock of Parent consists of
(i) 100,000,000 common shares $.01 par value per share, and (ii) 10,000,000
preferred shares. All the outstanding common shares are duly authorized, validly
issued, fully paid and nonassessable, and no class of capital stock of Parent is
entitled to preemptive rights or cumulative voting rights. As of the close of
business on June 30, 1998, 59,107,262 common shares and no shares of preferred
stock were issued and outstanding, and since that date there have been no
further issuances of common shares, except in connection with the exercise of
options issued pursuant to the Parent's various stock option and stock purchase
plans. All outstanding shares of capital stock of the subsidiaries of Parent are
owned by Parent or a direct or indirect wholly-owned subsidiary of Parent. As of
June 30, 1998, there were no outstanding options, warrants or other rights to
acquire capital stock from Parent or any of its subsidiaries, or any securities
outstanding which were directly or indirectly convertible into or exchangeable
for shares of capital stock of Parent or any of its subsidiaries, except for
28
options and rights to purchase common shares granted pursuant to the Parent's
various stock option and stock purchase plans and 5,584,900 warrants. As of the
close of business on June 30, 1998, there were 2,706,128 common shares available
for issuance upon exercise of stock options not yet granted, 2,554,170 common
shares reserved for issuance upon exercise of stock options outstanding as of
such date, and 445,944 common shares reserved for issuance under the stock
purchase plan.
5.5 Operations of Subsidiaries. Each subsidiary of Parent (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization and has the full power and authority to
own its properties and conduct its business and operations as currently
conducted, (ii) is duly qualified and in good standing in each jurisdiction in
which the property is owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary, except where the
failure to be so qualified would not individually or in the aggregate have a
material adverse effect.
5.6 Investment Representation. Parent and Sub are acquiring the Company
Shares for investment and not with a view to, or for resale in connection with,
any distribution of the Company Shares.
5.7 No Broker Involved. Parent and Sub have not expressly or impliedly
engaged any broker, finder or agent with respect to the transactions
contemplated by this Agreement.
5.8 Parent Common Stock. The shares of Parent Common Stock to be issued
in the Merger will be validly issued, fully paid, nonassessable and free of
pre-emptive rights.
5.9 Parent SEC Reports. Each registration statement, report and proxy
or information statement filed by Parent with the SEC since January 1, 1997, are
collectively referred to as the "Parent SEC Reports," all of which, as of their
respective filing dates (or if amended or superseded by a filing prior to the
date of this Agreement, then on the date of such filing), complied in all
material respects with all applicable requirements of the Securities Act and the
Exchange Act, and the rules and regulations promulgated thereunder. None of such
Parent SEC Reports, as of the respective dates they were filed, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. Each of
the consolidated financial statements of Parent (including any related notes and
schedules) included (or incorporated by reference) in the Parent SEC Reports
have been prepared in conformity with GAAP applied on a consistent basis
(except, with respect to all financial statements, as may be indicated in the
notes thereto and, with respect to unaudited financial statements, as permitted
by Form 10-Q of the SEC), the consolidated financial position of Parent and its
subsidiaries as of the date thereof and the consolidated results of their
operations and their cash flows for the periods then ended.
29
5.10 Absence of Certain Changes or Events. Since December 31, 1997, and
except as disclosed in the Parent SEC Reports, the business of Parent has been
conducted only in the ordinary course consistent with past practice and there
has not been any event which either individually or in the aggregate has had or
may reasonably be expected to have a material adverse effect on Parent or its
subsidiaries (taken as a whole).
5.11 Material Misstatements or Omissions.
(a) None of the information with respect to Parent or Sub to be
included (or incorporated by reference) in the Proxy Statement will, on the date
the Proxy Statement is first mailed to the Shareholders, and on the date of the
Shareholders' meeting referred to Section 6.8, contain any untrue statement of a
material fact, or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy Statement
will comply as to form in all material respects with the provisions of the
Securities Act, except that no representation is made with respect to
information supplied in writing by or on behalf of the Company or its officers,
directors, or shareholders for inclusion in the Proxy Statement.
(b) None of the information with respect to Parent or Sub to be
included (or incorporated by reference) in the Registration Statement will, at
the time it becomes effective, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The Registration Statement will comply as to form
in all material respects with the provisions of the Securities Act, except that
no representation is made with respect to information supplied by or on behalf
of the Company or its officers, directors, or shareholders specifically for
inclusion or incorporation in the Registration Statement.
5.12 WARN Act. Parent has no present plans or intention to carry out,
after the Closing, any plant closing or mass layoff which would violate the
federal Worker Adjustment and Retraining Notification Act (the "WARN Act") at
any facility of the Company.
5.13 Full Disclosure. The representations and warranties and other
agreements of the Parent and of the Sub contained in this Agreement (including
all information in the Schedules and Exhibits hereto and the certificate to be
furnished by Parent pursuant to Section 10.1(c)(i)) do not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements so made or information so delivered not misleading.
30
5.14 Reorganization under Section 368 of the Code. Parent and Sub will
have taken no action that will prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
5.15 Benefit Plans; Tax Obligations. The material Benefit Plans of
Parent are as described in the Parent SEC Reports. Parent has no material
delinquent Tax obligations.
ARTICLE 6
PRE-CLOSING COVENANTS
6.1 Conduct of Business. The Company covenants and agrees that from the
date of this Agreement to the Closing Date, the Company shall (except as
otherwise consented to in writing by Parent):
(a) carry on its business in a manner consistent with prior
practice and only in the usual and ordinary course, and use reasonable efforts
to preserve its business organization intact and conserve the good will and
relationships of its customers, suppliers and others having business relations
with it;
(b) maintain its existence and good standing in its jurisdiction
of organization plus in each jurisdiction in which the ownership or leasing of
its property or the conduct of its business requires such qualification;
(c) duly and timely file or cause to be filed all reports and
returns required to be filed with any governmental body, agency or authority and
promptly pay or cause to be paid when due all taxes, assessments and
governmental charges, including interest and penalties levied or assessed,
unless diligently contested in good faith by appropriate proceedings;
(d) maintain in existing condition and repair, consistent with
past practice, all buildings, offices, shops and other structures located on the
Leased Real Property [see 4.15(g)], and all equipment, fixtures and other
tangible personal property located on the Leased Real Property;
(e) give Parent and Parent's employees, counsel, accountants and
advisors, full access upon reasonable notice during normal business hours to all
of the properties, personnel, financial and operating data, books, tax returns,
contracts, commitments, and records of the Company in connection with reviewing
the Company and its respective properties and operations;
(f) maintain in full force and effect all existing policies of
insurance except for replacements or renewals in the ordinary course of
business;
(g) use its reasonable best efforts to permit the Company to
retain the material benefits provided by all existing contracts and licenses to
which the Company is a party under arrangements similar to those in effect prior
to the Closing Date;
(h) use its reasonable best efforts to assist Parent and Sub in
retaining the continued services of the Company's key employees.
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(i) not amend its charter documents or by-laws;
(j) not authorize for issuance, issue or deliver any additional
shares of its capital stock or securities convertible into or exchangeable for
shares of its capital stock, or issue or grant any right, option or other
commitment for the issuance of shares of its capital stock or of such
securities, or split, combine or reclassify any shares of its capital stock
except for issuances of capital stock upon the exercise of options granted
before the date hereof;
(k) not incur any liability, commitment or obligation, except
unsecured current and trade liabilities and other unsecured liabilities incurred
in the ordinary course of business;
(l) not borrow, or agree to borrow, any funds other than pursuant
to its existing loan agreements or otherwise in the ordinary course of business;
(m) not sell, transfer or otherwise dispose of assets, except for
the sale or disposition of obsolete or damaged tangible personal property and
except for the sale of inventory and other assets in the ordinary course of
business;
(n) except for amounts committed for emergency repairs, not make
any material capital commitments;
(o) not mortgage, pledge or encumber any of its assets or guaranty
the obligations of any party except in the ordinary course of business;
(p) not make any adjustments in the salary or wage rate of, or
make or authorize any bonus, severance, or termination payments to or consulting
arrangements with, any officer or employee or amend or adopt any employee
benefit plan, without Parent's prior written consent, other than bonuses for the
1997 and 1998 years and salary increases for the 1998 year which shall be made
in amounts consistent with past practices;
(q) take any action with the intention of causing any of the
representations and warranties made herein to be inaccurate on the Closing Date;
(r) not dispose of or permit to lapse any rights to the use of any
patent, trademark, trade name, license or copyright, or dispose of or disclose
to any person, any trade secret, formula, process, technology or know-how not
heretofore a matter of public knowledge;
(s) not declare, pay or set aside for payment any dividend or
other distribution in respect of the capital stock or other equity securities or
equity interests of the Company and not redeem, purchase or issue any shares of
the capital stock or other securities or equity interests of the Company or
rights or obligations convertible into or exchangeable for any shares of the
capital stock or other securities or equity interests of the Company or
obligations convertible into such, or any options, warrants or other rights to
purchase or subscribe to any of the foregoing except for issuances of capital
stock upon exercise of options granted before the date hereof;
32
(t) deliver to Parent on or prior to the twentieth (20th) business
day of each month a balance sheet of the Company in the form of the Interim
Balance Sheet as of the end of the prior monthly accounting period and an income
statement for such period in each case accompanied by a certificate executed by
the chief financial officer on behalf of the Company that such statements have
been prepared in accordance with the standards set forth in Section 4.7(b); and
(u) not take any action outside the ordinary course of business
consistent with past practice (unless contemplated by this Agreement).
6.2 Public Announcements. Parent and Company shall have the right to
issue a joint press release relating to the subject matter of this Agreement and
the transactions contemplated thereby, provided however that the timing and
content of such press release shall be consistent with the requirements of law,
any applicable bylaw of the National Association of Securities Dealers, and/or
any listing agreement relating to the Parent Common Stock. Until Closing, the
timing and content of all other announcements regarding any aspect of this
Agreement or the Merger to the financial community, government agencies,
employees or the general public shall be mutually agreed upon by Parent and the
Company in advance (unless Parent or the Company is advised by counsel in
writing that any such announcement or other disclosure not mutually agreed upon
in advance is required to be made by law or SEC policy, any applicable bylaw of
the National Association of Securities Dealers or any listing agreement relating
to the Parent Common Stock, and then only after consulting the other party and
making reasonable efforts to comply with the provisions of this Section).
6.3 Supplements to Schedules. On the Closing Date, each of the Company
and Parent shall supplement or amend the respective disclosure schedules which
they have delivered pursuant to this Agreement with respect to any matter
hereafter arising which, if existing or occurring at or prior to the date of
this Agreement, would have been required to be set forth or described in the
disclosure schedule or which is necessary to correct any information in any such
disclosure schedule which has been rendered inaccurate thereby. Before the
Closing Date, each of the Company and Parent shall give prompt notice to the
other if it comes to the attention of such party that an event, condition or
state of facts exists which has resulted or is reasonably likely to result in a
material adverse effect on the Company or Parent, respectively. No supplement or
amendment to any such disclosure schedule shall have any effect for the purpose
of determining satisfaction of the conditions set forth in Sections 9.1(a) or
10.1(a) of this Agreement.
6.4 Pooling of Interests Accounting. From and after the date hereof and
until the Closing Date, neither Parent nor the Company, nor any of their
respective subsidiaries or other Affiliates, shall take, and the Company shall
use its best efforts to ensure that the Company's officers, directors and
holders of ten percent (10%) or more of the Company Shares shall not take, any
action that might jeopardize the characterization of the Merger as a pooling of
interests for accounting purposes, except as expressly authorized by this
Agreement. Each of Parent and Company shall use their respective best efforts to
cause the transactions contemplated by this Agreement, including the Merger, to
be accounted for as a pooling of interests, and such accounting treatment to
33
be accepted by each of Parent's and Company's independent certified public
accountants, respectively, and to be accepted by the SEC.
6.5 The Nasdaq Additional Shares Listing Application. Parent will file
an additional shares listing application with the Nasdaq to approve for a
listing, subject to official notice of its issuance, the shares of Parent Common
Stock to be issued in the Merger and upon exercise of the Assumed Options.
Parent shall use its best efforts to cause its shares of Parent Common Stock to
be issued in the Merger and upon exercise of the Assumed Options to be approved
for listing on the Nasdaq, subject to official notice of issuance, prior to the
Closing Date.
6.6 Antitrust Filing. As soon as practicable following the execution of
this Agreement, both Parent and Company shall file an Antitrust Improvements Act
Notification and Report Form under the HSR Act (the "Antitrust Filing") relating
to the transactions contemplated by this Agreement with the Federal Trade
Commission and the Department of Justice. Parent shall pay all filing fees
required in connection therewith, and Parent and Company shall use their
respective commercially reasonable efforts to take all action necessary, proper
and advisable under applicable laws and regulations to cause the expiration or
termination of the waiting periods under the HSR Act as soon as practicable.
6.7 No Solicitation of Transactions.
(a) Until the earlier of (i) the Closing, or (ii) the termination
of this Agreement pursuant to Article 11, the Company agrees that neither it nor
its officers, directors, employees, agents, representatives (including, without
limitation, investment bankers, attorneys, accountants, financial advisors and
consultants), or Affiliates of the Company shall directly or indirectly:
(i) solicit, encourage, initiate or further (including by way
of furnishing information) the submission of proposals or offers relating
to any Alternative Transaction. An "Alternative Transaction" is any
acquisition, purchase, lease, exchange, mortgage, pledge, transfer or other
disposition of all or any significant portion of the assets of, or 5% or
more of the equity securities (excluding the exercise of outstanding stock
options under the Company Stock Option Plan) of, the Company or any merger,
reorganization, share exchange, recapitalization, liquidation, dissolution,
consolidation, business combination, or similar transaction with the
Company, other than the transactions contemplated by this Agreement;
(ii) participate in any discussions or negotiations regarding,
or furnish any confidential information with respect to the Company, in
connection with any Alternative Transaction;
(iii) except as otherwise provided in Section 6.7(d), agree to
approve, recommend, endorse, or enter into any agreement, plan or
understanding with respect to any Alternative Transaction; or
34
(iv) otherwise cooperate in any way with, or assist or
participate in, facilitate or encourage, or publicly announce any effort or
attempt by any Person to undertake or seek to undertake any Alternative
Transaction.
(b) In the event the Company receives any offer or indication of
interest relating to any Alternative Transaction, the Company shall promptly
(and in no event later than 24 hours) notify Parent in writing of the details of
the offer or indication of interest, except that the identity of the interested
Person is not required to be disclosed.
(c) The Company shall immediately cease and cause to be terminated
any existing activities, discussions or negotiations relating to any Alternative
Transaction, whether conducted prior to the date of this Agreement or
thereafter. The Company agrees not to release any party from any confidentiality
or standstill agreement to which the Company is a party.
(d) Notwithstanding this Section 6.7 or any other provision of
this Agreement, the Board of Directors of the Company may provide information in
response to, evaluate, or consider, approve, recommend, endorse or enter into an
unsolicited bona fide Alternative Transaction made by a Third Party (as defined
below), provided that the following conditions are satisfied: (i) such action is
required for the Board of Directors to carry out its fiduciary duties under
applicable law and the Board of Directors has received advice of counsel to that
effect, and (ii) the Board of Directors in its good faith reasonable judgment
determines, after consultation with its independent financial advisors, that the
Alternative Transaction would result in a transaction more favorable to the
stockholders of Company from a financial point of view than the Merger. In
addition, notwithstanding the provisions of this paragraph (d), Company shall,
upon the direction of Parent, refer any Third Party to this Section 6.7. A
"Third Party" is any individual, firm, corporation, partnership, association,
group (as defined in Section 13(d)(3) of the Exchange Act) or person or entity,
individually or collectively (including, without limitation, any managers or
other employees of the Company or any affiliates) other than Parent or Sub.
(e) The Company shall ensure that the officers, directors, key
employees, agents, representatives and Affiliates of the Company are aware of
the restrictions described in this Section 6.7.
6.8 Shareholder Approval.
(a) The Company will take all action necessary to carry out the
purposes of this Agreement. The Company shall, in accordance with the California
Code and other applicable law and its Articles of Incorporation and By-laws,
convene a meeting of its shareholders (the "Company Shareholders Meeting") as
promptly as practicable to consider and vote upon the Merger. Except to the
extent permitted under Section 6.7(d), the Board of Directors of the Company
shall recommend and declare advisable the approval of this Agreement, the
Agreement of Merger, the Merger and the other transactions contemplated hereby
("Merger Transactions"), and the Company shall as promptly as possible following
dissemination of the Proxy Statement take all lawful action to solicit, and use
all reasonable efforts to obtain, such approval. Pursuant to the terms of the
35
Voting Agreement attached hereto as Exhibit C which shall be executed
simultaneously with the execution of this Agreement, certain Shareholders of the
Company each have agreed to vote all Company Shares owned by them or over which
they have voting control, or to execute or cause to be executed written
shareholder consents, to grant their approval of the Merger, this Agreement, and
the Agreement of Merger.
(b) Parent, as the sole shareholder of Sub, will act by written
consent to approve the Merger and the adoption of this Agreement by Sub.
6.9 Dissenters' Rights Notices. The Company, before the Effective Time,
and Parent, after the Effective Time, shall timely provide all notices and other
communications as are required under the California Code in connection with such
Shareholders' statutory dissenters' rights, to the extent applicable to the
Merger. Without reducing the generality of the foregoing sentence, the Company
or Parent, as applicable, shall send the notice required by Section 1301 of the
Corporation Code to the persons specified therein no later than one (1) business
day following the approval of this Agreement at a meeting of its Shareholders
convened pursuant to Section 6.8(a).
6.10 Shareholder Representative.
(a) Prior to the Closing Date, the Shareholders shall select a
Person (the "Shareholder Representative") to act for and on behalf of all such
Shareholders with respect to all matters arising in connection with Article 8
and the Escrow Agreement as defined in Section 9.1(i), including, without
limitation, the power and authority, in his or her sole discretion, to:
(i) negotiate, determine, defend and settle any dispute which
may arise under Article 8 or the Escrow Agreement; and
(ii) make, execute, acknowledge and deliver any releases,
assurances, receipts, requests, instructions, notices, agreements,
certificates and any other instruments, and to generally do any and all
things and to take any and all actions which may be requisite, proper or
advisable in connection with Article 8 or under the Escrow Agreement.
(b) The Shareholders may replace the Shareholder Representative at
any time with a substitute Shareholder Representative who shall have all the
powers and responsibilities of the Shareholder Representative set forth in this
Section 6.10.
(c) Neither the Shareholder Representative, nor any substitute
Shareholder Representative, shall be liable to any Person for any action taken
or any omission to act, in good faith, in connection with the Shareholder
Representative's responsibilities as Shareholder Representative.
(d) Promptly following his or her selection, the Shareholder
Representative, or any substitute Shareholder Representative, shall provide
Parent with a written certification of his or her selection and of the address
for notices to such Shareholder Representative. Parent may thereafter deal
36
exclusively with the Shareholder Representative in connection with the claims
procedure in reliance on such certification. Whenever in connection with the
provisions of this Agreement or the Escrow Agreement, Parent shall receive any
certificate or other written correspondence from the Shareholder Representative,
such certificate or other written correspondence shall be full authorization to
Parent for any action taken or suffered in good faith by it under the provisions
of this Agreement or the Escrow Agreement in reliance thereon.
6.11 Agreements with Respect to Affiliates. Not less than 45 days prior
to the Effective Time, Company shall deliver to Parent a list of names and
addresses of each person who, in Company's reasonable judgment is an affiliate
within the meaning of Rule 145 of the rules and regulations promulgated under
the Securities Act or otherwise applicable SEC accounting releases with respect
to pooling of interests accounting treatment (each such person, a "Pooling
Affiliate") of Company. Company shall provide Parent such information and
documents as Parent shall reasonably request for purposes of reviewing such
list. The Company shall deliver or cause to be delivered to Parent at Closing an
affiliate's agreement in the form attached hereto as Exhibit D ("Affiliate's
Agreement"), executed by each Pooling Affiliate of Company identified in the
foregoing list.
6.12 Access to Information; Confidentiality.
(a) Each party will afford the other party and its officers,
employees, agents, accountants, counsel, financial advisors, lenders, and
underwriters ("Representatives") reasonable access during normal business hours
to the properties, books, records and personnel of the other party during the
period prior to the Effective Time to obtain all information concerning the
business, including the status of merchandising efforts, leasing activities,
distribution center relocation efforts, properties, results of operations and
personnel of such party, as the other party may reasonably request . No
information or knowledge obtained in any investigation will affect or be deemed
to modify any representation or warranty contained herein or the conditions to
the obligations of the other party.
(b) The Confidentiality Agreement dated May 12, 1998 between
Parent and the Company ("Confidentiality Agreement") shall, upon execution of
this Agreement, be deemed terminated. All information furnished to the parties
hereto or to their respective Representatives pursuant to Section 6.12, the
Confidentiality Agreement or the August 7, 1997 agreement between Parent and
Company and all analyses, compilations, studies or other documents prepared by
either party hereto or by their respective Representatives containing, or based
in whole or part on, any such information, are herein collectively referred to
as the "Confidential Information." In the event this Agreement is terminated,
each party agrees that after the date of termination neither it nor its
Representatives shall use the Confidential Information of any other party for
any purpose and all copies of the Confidential Information will be returned or
destroyed upon written request of the furnishing party, provided however that
any Confidential Information consisting of documents prepared by a party or its
Representatives based on data contained in the Confidential Information need
only be destroyed and not returned, and such party shall certify to the other
party
37
that it has done so. The term Confidential Information shall not include such
portions of the Confidential Information which (i) are or become generally
available to the public other than as a result of a disclosure by a party hereto
or its Representatives in breach of its obligations hereunder or under the
Confidentiality Agreement before the date hereof, (ii) are or become available
to a party or its Representatives on a nonconfidential basis from a source other
than the other party or its Representatives, or (iii) were known to a party or
its Representatives prior to disclosure by the other party or its
Representatives.
6.13 Legal Requirements. Each of Parent, Sub and Company will take all
reasonable actions necessary or desirable to comply promptly with all legal
requirements which may be imposed on them with respect to the consummation of
the transactions contemplated by this Agreement (including furnishing all
information required in connection with approvals of or filings with any
governmental entity, and prompt resolution of any litigation prompted hereby)
and will promptly cooperate with and furnish information to any party hereto
necessary in connection with any such requirements imposed upon any of them in
connection with the consummation of the transactions contemplated by this
Agreement.
6.14 Third Party Consents. As soon as practicable following the date
hereof, each of Parent and Company will use its commercially reasonable efforts
to obtain all material consents, waivers and approvals under any of its
agreements, contracts, licenses or leases required to be obtained in connection
with the consummation of the transactions contemplated hereby. On or before
Closing, Company will provide Parent with consents to the Merger and waivers of
any default that may occur, or any penalty that may be due, as described in
Section 4.2 of the Disclosure Statement.
6.15 [Not Used].
6.16 Indemnification of Directors and Officers of the Company. Parent
shall, and agrees to cause Sub to indemnify and hold harmless from liabilities
for acts or omissions occurring at or prior to the Effective Time the Company's
directors and officers to the same extent provided in the indemnification
provisions contained in the Sub's Articles of Incorporation or By-laws. In
addition, from and after the Effective Time, any directors and officers of
Company will be entitled to indemnification under Sub's Articles of
Incorporation and By-laws, and to all other indemnity rights and protections as
are afforded to other directors and officers of Sub, and Sub shall not amend,
repeal or modify any such provision to reduce or adversely affect the rights of
such persons thereunder in respect of actions or omissions by them occurring at
or prior to the Effective Time. In the event that Sub or any of its successors
or assigns (i) consolidates with or merges into any other person and is not the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers or conveys all or substantially all of its properties and assets
to any person, then, and in each such case, proper provision will be made so
that the successors and assigns of Sub assume the obligations set forth in this
Section 6.16. The provisions of this Section 6.16 are intended to be for the
benefit of, and will be enforceable by, each indemnified party, his or her heirs
and his or her representatives.
38
6.17 Notification of Certain Matters. Parent will give prompt notice to
Company, and Company will give prompt notice to Parent, of the occurrence, or
failure to occur, of any event, which occurrence or failure to occur would be
reasonably likely to cause (a) any representation or warranty contained in this
Agreement to be untrue or inaccurate in any material respect at any time from
the date of this Agreement to the Effective Time, or (b) any material failure of
Parent and Sub or Company, as the case may be, or of any officer, director,
employee or agent thereof, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement.
Notwithstanding the above, the delivery of any notice pursuant to this section
will not limit or otherwise affect the remedies available hereunder to the party
receiving such notice; provided that the failure to give such notice on a timely
basis shall not be treated as a breach of covenant for purpose of Section 9.1(a)
or 10.1(a) unless such failure prejudices the other party in any material
manner.
6.18 Letters of Company's Accountants. Company shall cause to be
delivered to Parent two letters from Price as the Company's independent
accountant, one dated as of the date on which the Registration Statement shall
become effective and one dated as of the Closing Date, each addressed to Parent,
in form and substance reasonably satisfactory to Parent and customary in scope
and substance for comfort letters delivered by independent public accountants in
connection with registration statements similar to the Registration Statement.
Company shall cause to be delivered to Parent and KPMG two letters from Price
addressed to Parent and Company, one dated as of the date the Registration
Statement is effective and one dated as of the Closing Date, stating that the
accounting for the Merger as a pooling of interests under Opinion 16 of the
Accounting Principles Board and applicable SEC rules and regulations is
appropriate if the Merger is closed and consummated in accordance with the terms
of this Agreement.
6.19 Best Efforts and Further Assurances. Subject to the respective
rights and obligations of Parent and Company under this Agreement, each of the
parties to this Agreement will use its best efforts to effectuate the Merger and
the other transactions contemplated hereby and to fulfill and cause to be
fulfilled the conditions to closing under this Agreement. Each party hereto, at
the reasonable request of another party hereto, will execute and deliver such
other instruments and do and perform such other acts and things as may be
reasonably necessary or desirable for effecting completely the consummation of
the transactions contemplated hereby.
6.20 Tax Treatment. Company shall use its best efforts to obtain an
opinion of ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, counsel to Company, dated as of the Closing Date,
substantially to the effect that the Merger will be treated for federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code. In connection therewith, each of Company and Parent shall deliver to
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ customary representation letters in form and substance
reasonably satisfactory to such counsel and Company shall obtain any
representation letters from appropriate Shareholders and shall deliver any such
letters obtained to ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ (the representation letters referred to in
this sentence are collectively referred to as the "Tax Certificates"). Each of
Company and Parent shall use best efforts to cause the Merger to qualify as a
reorganization under
39
the provisions of Section 368(a) of the Code and to obtain the opinion of
counsel referred to in Section 9.1, including, without limitation, forebearing
from taking any action that would cause the Merger not to qualify as a
reorganization under the provisions of Section 368(a) of the Code.
6.21 Current Report. Company shall assist Parent in the preparation and
filing, on the earliest practicable date after the date of this Agreement, of a
Current Report on Form 8-K for Company containing the historical financial
statements of Company required by Rule 3-05 of Regulation S-X of the SEC and the
pro forma financial information with respect to the business combination
contemplated by this Agreement required by Article 11 of Regulation S-X of the
SEC.
ARTICLE 7
POST-CLOSING COVENANTS
7.1 Post-Closing Audit.
(a) Parent shall cause Company to prepare a balance sheet of the
Company ("Closing Balance Sheet") as of the end of the accounting period (as
described in the last sentence to Section 2.4) immediately preceding the
Effective Time, or as of the date of the Effective Time if such date is as of
the end of the accounting period ("Determination Date"). Such Closing Balance
Sheet shall be derived from and in accordance with the books and records of the
Company and determined in accordance with GAAP applied on a basis consistent
with the principles used in the preparation of the 1997 Financial Statements (as
defined in Section 4.7(b)). Such Closing Balance Sheet shall be audited by KPMG
and accompanied by KPMG's opinion that such Closing Balance Sheet presents
fairly in all material respects the financial position of the Company, except
that it will substantially omit financial statement disclosures required under
GAAP.
(b) Parent shall also cause Company to prepare a statement of
closing equity ("Statement of Closing Equity") which shall calculate Closing
Equity, and KPMG will opine that the Statement of Closing Equity was prepared in
accordance with the requirements of this Section 7.1. For purposes of this
Agreement, "Closing Equity" shall be defined as the assets of the Company
reduced by its liabilities as shown in the Closing Balance Sheet with the
following clarifications, adjustments, and exceptions (regardless of whether
such clarifications, adjustments, and exceptions are in accordance with GAAP,
generally accepted auditing standards ("GAAS"), or the Company's past
practices):
(i) Closing Equity shall not exclude or be decreased by (A) any reserves
for accounts or notes receivable recorded since June 28, 1998,
including any retroactive adjustments proposed by KPMG during their
review of the Company's financial statements; (B) any expenses
recorded as a result of, or in connection with, this Merger
Agreement, the Exhibits hereto, or the Merger or the transactions
contemplated hereby; (C) any expenses recorded as a result of a
change in accounting policies (choice of GAAP) made by KPMG to
conform the Company's financial statements with those of Parent; or
40
(D) any retroactive adjustments for any period prior to June 28,
1998 proposed by KPMG for any reserves for inventory; and
(ii) Closing Equity shall not include or be increased by any payments
to the Company for options exercised between the date hereof and
the Determination Date.
(c) Company shall have the right to observe all steps (including
any physical inventory) taken by Parent in connection with the preparation of
the Closing Balance Sheet and to review all work papers and procedures relating
thereto.
ARTICLE 8
SURVIVAL AND INDEMNIFICATION
8.1 Indemnification Obligations of the Shareholders. From and after the
Closing Date, and to the extent provided in this Article 8, all Shareholders
(other than holders of Dissenting Shares) hereby jointly and severally
indemnify, defend and hold harmless Parent and its subsidiaries and Affiliates
(including Sub, the Company and the Surviving Corporation), each of their
respective officers, directors, employees, agents and representatives and each
of the heirs, executors, successors and assigns of any of the foregoing
(collectively, the "Parent Indemnified Parties") from, against and in respect of
any and all claims, liabilities, obligations, losses, costs, expenses,
penalties, fines and judgments (at equity or at law) and damages whenever
arising or incurred (including, without limitation, amounts paid in settlement,
costs of investigation and reasonable attorneys' fees and expenses) arising out
of or relating to:
(a) any breach or inaccuracy of any representation or warranty
made by the Company in this Agreement, the Escrow Agreement, the Disclosure
Schedule or certificate delivered pursuant to Section 9.1(d)(i)
contemplated hereby;
(b) any breach by Company of any covenant, agreement or
undertaking made in this Agreement, the Escrow Agreement, or the Disclosure
Schedule contemplated hereby or any failure by the Shareholders of Company
to pay all Deal Expenses in excess of $1,300,000.00.
The claims, liabilities, obligations, losses, costs, expenses, penalties,
fines, judgments and damages of the Parent Indemnified Parties arising under
this Section 8.1 as to which the Parent Indemnified Parties are entitled to
indemnification are hereinafter collectively referred to as "Parent Losses." As
a condition of the Merger and upon the Closing Date, this Article 8 shall be
binding on, and enforceable against, each Shareholder, even though such
Shareholder has not executed this Agreement and may not vote in favor of this
Agreement or the Merger, solely by virtue of the approval of this Agreement and
the transactions contemplated hereby by the requisite holders of Company Shares.
The indemnification obligations of the Shareholders pursuant to Section 8.1
shall be satisfied through a reduction of the Merger Consideration effected by
cancellation or other disposition of Escrow Shares pursuant to the terms of the
Escrow Agreement.
41
8.2 Indemnification Obligations of Parent. From and after the Closing
Date, Parent and Sub shall jointly and severally indemnify and hold harmless the
Shareholders and each of the affiliates, heirs, executors, successors and
assigns of such Shareholders (collectively, the "Shareholder Indemnification
Parties") from, against and in respect of any and all claims, liabilities,
obligations, losses, costs, expenses, penalties, fines and judgments (at equity
or at law) and damages whenever arising or incurred (including, without
limitation, amounts paid in settlement, costs of investigation and reasonable
attorneys' fees and expenses) arising out of or relating to:
(a) any breach or inaccuracy of any representation or warranty
made by Parent or Sub in this Agreement or any certificate, exhibit, or schedule
contemplated hereby; or
(b) any breach of any covenant, agreement or undertaking made by
Parent or Sub in this Agreement or any certificate, exhibit, or schedule
contemplated hereby.
The claims, liabilities, obligations, losses, costs, expenses, penalties, fines
and damages of the Shareholder Indemnification Parties arising under this
Section 8.2 as to which the Shareholder Indemnification Parties are entitled to
indemnification are hereinafter collectively referred to as "Shareholder
Losses."
8.3 Limitations on Indemnification.
(a) Except for the specific exceptions contained in this Section
8.3(a), the Parent Indemnified Parties will not be entitled to seek
indemnification under Section 8.1 unless and until the aggregate of all Parent
Losses incurred by the Parent Indemnified Parties exceeds $600,000 (the
"Shareholder Basket Amount"). In the event that the aggregate of all Parent
Losses exceeds the Shareholder Basket Amount, the Parent Indemnified Parties
will only be entitled to seek indemnification in respect of Parent Losses in
excess of the Shareholder Basket Amount, but in no event will the Shareholder's
obligations for Parent Losses pursuant to Section 8.1 be greater than the Escrow
Shares and Dividend Account (as defined in the Escrow Agreement) held pursuant
to the Escrow (the "Shareholder Maximum Indemnity"); provided, however, that the
Shareholder Basket Amount shall not apply with respect to Parent Losses arising
under: (i) Section 8.1(a) with respect to any breach or inaccuracy of any
representation or warranty made by the Company in Sections 4.1(a), 4.2, 4.3,
4.4, 4.15, fines and penalties under Section 4.17, 4.19 or 4.20; or (ii) Section
8.1(b), with respect to a willful breach by the Company of the covenants
contained in Article 6.
(b) The Shareholder Indemnification Parties will not be entitled
to seek indemnification under Section 8.2 for Shareholder Losses unless and
until the aggregate amount of all Shareholder Losses incurred by the Shareholder
Indemnification Parties exceeds $600,000 (the "Parent Basket Amount"). In the
event that the aggregate of all Shareholder Losses exceeds the Parent Basket
Amount, the Shareholder Indemnification Parties will only be entitled to seek
indemnification in respect of Shareholder Losses in excess of the Parent Basket
Amount, but in no event will Parent's obligation for Shareholder Losses be
42
greater than the product of the number of Escrow Shares transferred to the
Escrow multiplied by the Average Closing Price (the "Parent Maximum Indemnity");
provided, however, that the Parent Basket Amount shall not apply with respect to
Shareholder Losses arising under (i) Section 8.2(a) with respect to any breach
or inaccuracy or any representation or warranty made by Parent in Sections 5.1,
5.2, 5.3 or 5.7 or (ii) Section 8.2(b), with respect to willful breach by the
Parent of the covenants contained in Article 6.
8.4 Indemnification Procedure.
(a) [Not Used].
(b) Claims Against Indemnifying Party by Indemnified Party. In the
event a Parent Indemnified Party or a Shareholder Indemnified Party (hereinafter
collectively referred to as an "Indemnified Party") shall claim a right to
payment (or, a credit towards the Shareholders Basket Amount or Parent Basket
Amount) pursuant to this Article 8, the Shareholder Representative on behalf of
the Shareholder Indemnified Parties shall send written notice of such claim to
Escrow Agent and Parent, or Parent on behalf of Parent Indemnified Parties shall
send notice to the Shareholder Representative and Escrow Agent, as the case may
be. Such notice shall specify the basis for such claim. As promptly as possible
after the Indemnified Party has given such notice, such Indemnified Party and
Parent or Shareholder Representative, as the case may be, shall establish the
merits and amount of such claim (by mutual agreement, litigation, arbitration or
otherwise) in accordance with the provisions of the Escrow Agreement.
8.5 Survival; Claims Period. All representations and warranties
contained in this Agreement shall survive the Effective Time for the applicable
Claims Period specified in this Section 8.5, and shall not be deemed waived or
otherwise affected by any investigation made or any knowledge acquired with
respect thereto. For purposes of this Agreement, a "Claims Period" shall be the
only period during which a claim for indemnification may be asserted under this
Agreement by a Parent or Shareholder Indemnified Party. The Claims Periods under
this Agreement shall commence on the date of this Agreement and shall terminate
one (1) year following the Effective Time; provided, however, no claim may be
brought after the date of issuance of the first independent audit report with
respect to the financial statements of Parent after the Effective Time if such
claim is of a type expected to be encountered in the course of such audit
performed in accordance with generally accepted auditing standards.
Notwithstanding the foregoing, if, prior to the close of business on the last
day of the applicable Claims Period, an Indemnifying Party shall have been
properly notified as provided hereunder of a claim for indemnity hereunder and
such claim shall not have been finally resolved or disposed of at such date,
such claim shall continue to survive and shall remain a basis for indemnity
hereunder until such claim is finally resolved or disposed of in accordance with
the terms hereof.
8.6 Recovery. Parent may recover Parent Losses pursuant to Section 8.1
only in accordance with the provisions of the Escrow Agreement (as defined in
Section 9.1(i)).
43
8.7 Exclusive Remedy. The indemnity of this Article 8 shall be the
exclusive remedy of the Shareholder Indemnified Parties against Parent or Sub
for a breach, misrepresentation, nonfulfillment, or default by Parent or Sub in
the performance of the representations, warranties, covenants, or agreements of
this Agreement or any certificate, exhibit, or schedule contemplated hereby,
except in the event of actual fraud or fraud in the inducement. The indemnity of
this Article 8 shall be the exclusive remedy of Parent and Sub against the
Shareholders for a breach, misrepresentation, nonfulfillment, or default by
Company in the performance of the representations, warranties, covenants, or
agreements of this Agreement or any certificate, exhibit, or schedule
contemplated hereby, except in the event of actual fraud or fraud in the
inducement; provided, however, nothing in this Agreement shall limit the
remedies of Parent Indemnified Parties against a Shareholder for a breach by
such Shareholder of any document (e.g., the Letter of Transmittal, Voting
Agreement, Affiliate Agreement, or Non-Competition Agreement) signed by such
Shareholder in a capacity other than as a director or officer of the Company.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND SUB
9.1 Conditions Precedent. Parent's and Sub's obligation to consummate
the Merger and the transactions contemplated by this Agreement is subject to the
fulfillment or waiver, on or before the Closing Date, of each of the following
conditions:
(a) Representations, Warranties and Covenants. The representations
and warranties of the Company set forth herein shall be accurate in all material
respects on and as of the Closing Date as if made on and as of such date;
provided, however, that any representation or warranty that by its terms is
qualified by materiality shall be true and correct in all respects as of the
Closing Date as though made on that date. The Company shall have complied in all
material respects with or performed in all material respects all agreements,
covenants and conditions on their part to be performed or complied with on or
prior to the Closing Date.
(b) Legal Actions. No suit, action or other proceeding by any
third party shall be pending before any court or governmental agency seeking to
restrain or prohibit, or to obtain damages or other relief in connection with,
this Agreement or the consummation of the transactions contemplated hereby.
(c) Consents. All consents and waivers to be obtained by Company
that are referred to in Section 6.14, all consents and waivers from Parent's
Lenders, and all consents, authorizations, orders and approvals of (or filings
or registrations with) any governmental commission, board or other regulatory
body required in connection with the execution, delivery and performance of this
Agreement by the Company shall have been obtained or made, except for filing of
the Agreement of Merger and any other documents required to be filed after the
Effective Time and except where the failure to have obtained or made any such
consent, authorization, order approval, filing or registration would not have a
material adverse effect on Parent or the Company following the Effective Time.
44
(d) Deliveries. The Company shall have delivered to Parent:
(i) a certificate executed by the President or any Vice
President of the Company certifying to the fulfillment on the Closing Date
of the conditions set forth in Sections 9.1(a), (b), and (c).
(ii) a certificate by the Secretary of the Company as to the
Board of Directors and Shareholders of the Company having taken all actions
necessary to authorize the execution, delivery and performance of this
Agreement by the Company and the consummation of the transactions
contemplated thereby;
(iii) the minute books, stock transfer books (containing
canceled stock certificates representing all transfers of its capital stock
prior to the Closing Date) and corporate seal of the Company which are in
the Company's possession;
(iv) the opinion of ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, counsel for the Company
and the Shareholders and the local counsel to Company, dated as of the
Closing Date, opining as to the matters described on Exhibit E hereto;
(v) an Affiliate Agreement in the form of Exhibit D hereto
executed by each Pooling Affiliate; and
(vi) such other documents and items as are contemplated by
this Agreement or as Parent may reasonably request, including a good
standing certificate from the State of California and a certificate of
qualification to do business for each other state in which one is required.
(e) Antitrust Filing. The waiting period required in connection
with the Antitrust Filing, if any, shall have expired or been terminated.
(f) Pooling Letters. KPMG shall have delivered to Parent two
letters, one dated as of the date on which the Registration Statement shall
become effective and one dated as of the Closing Date to the effect that, based
upon discussions with officials responsible for financial and accounting
matters, and information to be furnished to KPMG through each such date, KPMG
concurs with management's conclusion that, as of each such date, no conditions
exist which would preclude Parent from accounting for the merger with the
Company as a pooling of interests under Opinion 16 of the Accounting Principles
Board and applicable SEC rules and regulations. In addition, Company shall have
caused to be delivered to KPMG the two letters of Price referred to in the
second sentence of Section 6.18.
(g) Comfort Letters. Company shall have caused to be delivered to
Parent and KPMG the two letters referred to in the first sentence of Section
6.18.
(h) Listing of Parent Common Stock. The Parent Common Stock to be
issued pursuant to the Merger and to be issued pursuant to the Assumed Options
45
shall have been approved for listing on the Nasdaq, subject only to official
notice of issuance by Parent.
(i) Escrow Agreement. The Shareholder Representative shall have
executed and delivered the Escrow Agreement, substantially in the form attached
hereto as Exhibit F (the "Escrow Agreement") with such changes as may be
required by the escrow agent thereunder, pursuant to which there shall be
deposited with the escrow agent named therein on the Closing Date (the "Escrow
Agent") the Escrow Shares to secure their obligations under this Agreement.
(j) Non-Competition Agreements. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇
▇▇▇▇, and ▇▇▇▇▇▇▇ ▇▇▇▇▇ shall have executed and delivered to Parent the
Non-Competition Agreements, and ▇▇▇▇ ▇▇▇▇ shall have executed and delivered to
Parent the Non-Competition and Consulting Agreement, substantially in the forms
attached hereto as Exhibit G (collectively these five agreements are referred to
as the "Non-Competition Agreements"); which is a material inducement of the
Parent entering into this Agreement. Company agrees to use its best efforts to
have the signatories execute the Non-Competition Agreements at Closing.
(k) Comparable Store Sales. The comparable store sales results of
Company, as determined on a rolling two-month period ending on the day before
the Company Shareholders Meeting, shall be at least five percent.
(l) Related Party Debt. Each Shareholder or its Affiliate shall
have paid in full all amounts of any kind owed by such Shareholder or its
Affiliate to the Company, or such amount shall have been offset on a
dollar-for-dollar basis against any indebtedness for borrowed money owed by the
Company to such Shareholder or its Affiliate.
(m) Dissenting Shares. Holders of not more than 9-98/100% of the
Company Shares shall have the right to elect to exercise dissenters' rights
pursuant to the California Code; PROVIDED, HOWEVER, THAT SUCH PERCENTAGE SHALL
BE REDUCED TO THE EXTENT REQUIRED BY PRICE AND KPMG TO DELIVER THE POOLING
LETTERS REFERRED TO IN SECTION 6.18.
(n) Shareholder Approval. This Agreement, the Agreement of Merger,
and the Merger shall have been duly approved by the shareholders of the Company
in accordance with all applicable laws, the Articles of Incorporation and
By-laws of the Company and otherwise.
(o) Corporate Documents. The Agreement of Merger relating to the
Merger and the related officers' certificates required by the California Code
shall have been executed by the Company and delivered to Parent for filing.
(p) Registration Statement. The Registration Statement shall be
effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall be in effect and no
proceedings for such purpose, or under the proxy rules of the SEC pursuant to
the Exchange Act and with respect to the transactions contemplated by this
Agreement, shall be pending before or threatened by the SEC. All applicable
state securities laws shall have been complied with in connection with the
issuance of Parent Common Stock to be
46
issued pursuant to the Merger, and no stop order suspending the effectiveness of
any qualification or registration of such Parent Common Stock under such state
securities laws shall have been issued and pending or threatened by the
authorities of any such state.
9.2 Waiver. The Parent and the Sub shall have the right to waive the
foregoing conditions, or any of them, wholly or in part; provided, however, that
no such waiver shall be deemed to have occurred unless the same is set out in
writing and executed by the Parent and the Sub.
ARTICLE 10
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
10.1 Conditions Precedent. The obligation of the Company to consummate
the Merger and the transactions contemplated by this Agreement is subject to the
fulfillment or waiver, on or before the Closing Date, of each of the following
conditions:
(a) Representations, Warranties and Covenants. The representations
and warranties made by Parent and Sub herein shall be accurate in all material
respects on and as of the Closing Date to the same extent as if made on and as
of such date; provided, however, that any representation or warranty that by its
terms is qualified by materiality shall be true and correct in all respects as
of the Closing Date as though made on that date. Parent and Sub shall have
complied in all material respects with or performed in all material respects all
agreements, covenants and conditions on their part to be performed or complied
with on or prior to the Closing Date.
(b) Legal Actions. No suit, action or other proceeding by any
third party shall be pending before any court or governmental agency seeking to
restrain or prohibit, or to obtain damages or other relief in connection with,
this Agreement or the consummation of the transactions contemplated hereby.
(c) Deliveries. Parent shall have delivered to the Company:
(i) a certificate executed by the President or any
Vice-President of Parent and Sub certifying to the fulfillment on the
Closing Date of the conditions set forth in Sections 10.1(a), (b), and (c).
(ii) a certificate by the Secretary or any Assistant Secretary
of Parent and Sub as to the due adoption by the Board of Directors of
Parent and the Board of Directors and shareholders of Sub of the required
corporate resolutions authorizing the execution, delivery and performance
of this Agreement by Parent and Sub and the consummation of the
transactions contemplated thereby;
(iii) the opinion of ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, P.C., as counsel for
Parent and Sub, opining as to the matters described on Exhibit H hereto;
and
47
(iv) such other documents and items as are contemplated by
this Agreement or as the Company may reasonably request.
(d) Antitrust Filing. The waiting period required in connection
with the Antitrust Filing, if any, shall have expired or been terminated.
(e) Listing of Parent Common Stock. The Parent Common Stock to be
issued pursuant to the Merger and pursuant to the Assumed Options shall have
been approved for listing on the Nasdaq, subject only to official notice of
issuance by Parent.
(f) Registration Statement. The Registration Statement shall be
effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall be in effect and no
proceedings for such purpose shall be pending before or threatened by the SEC.
All applicable state securities laws shall have been complied with in connection
with the issuance of Parent Common Stock to be issued pursuant to the Merger,
and no stop order suspending the effectiveness of any qualification or
registration of such Parent Common Stock under such state securities laws shall
have been issued and pending or threatened by the authorities of any such state.
(g) Shareholder Approval. The Merger, this Agreement and the
transactions contemplated hereby shall have been approved at the Shareholders
meeting in accordance with all applicable laws and the Articles of Incorporation
and By-laws of the Company.
(h) Corporate Documents. The Agreement of Merger relating to the
Merger and the related officers' certificates required by the California Code
shall have been executed by the Company and delivered to Parent for filing.
(i) Tax Opinion. The Company shall have received the opinion of
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ described in Section 6.20.
10.2 Waiver. The Company shall have the right to waive the foregoing
conditions, or any of them, wholly or in part; provided, however, that no such
waiver shall be deemed to have occurred unless the same is set out in writing
and executed by the Company. Any waiver made by the Company hereunder shall also
constitute a waiver with respect to any rights or remedies that the Company may
otherwise have against Parent in respect of or relating to the specific
conditions waived.
ARTICLE 11
TERMINATION
11.1 Termination. This Agreement may be terminated at any time at or
prior to the Closing (the "Termination Date"), whether before or after approval
of this Agreement and the Merger by the Shareholders of Company:
(a) in writing by mutual consent of Parent and Company;
48
(b) by written notice from the Company to Parent if Parent or Sub
shall breach or fail to perform any of its agreements or covenants contained
herein required to be performed by it on or prior to the Closing Date, or any of
the representations and warranties of Parent and Sub contained herein shall be
or become inaccurate or untrue in either case such that the condition set forth
in Section 10.1(a) would not be satisfied; provided that if any such breach,
failure, inaccuracy, or untruth is reasonably capable of cure by January 1, 1999
and Parent is using its good faith efforts to effect such cure at the earliest
practicable time, the Company shall not be permitted to terminate this Agreement
pursuant to this subparagraph (b);
(c) by written notice from Parent to the Company, if the Company
shall breach or fail to perform any of its agreements or covenants contained
herein or any of its representations and warranties contained herein shall be or
become inaccurate or untrue in either case such that the conditions set forth in
Section 9.1(a) would not be satisfied; provided that if any such breach,
failure, inaccuracy, or untruth is reasonably capable of cure by January 1, 1999
and Company is using its good faith efforts to effect such cure at the earliest
practicable time, Parent shall not be permitted to terminate this Agreement
pursuant to this subparagraph (c);
(d) by written notice by either Parent or Company, if the Closing
has not occurred by January 1, 1999; provided, however, that the right to
terminate this Agreement under this subsection 11.1(d) shall not be available to
any party whose failure to fulfill any obligation under this Agreement has been
the cause of the failure of the Merger to occur on or before such date;
(e) by either Company or the Parent, if there shall be any order
which is final and nonappealable preventing the consummation of the Merger,
unless the party relying on such order has not complied with its material
obligations under this Agreement;
(f) by Parent or, upon payment of the fee required pursuant to
Section 11.4(a) of this Agreement, Company, if the requisite vote of the
stockholders of Company in favor of this Agreement shall not have been obtained
at the Company Shareholders Meeting (including any adjournment or postponement
thereof);
(g) by Parent if (i) the Board of Directors of the Company
withdraws or modifies its recommendation of the Merger or shall have resolved or
publicly announced or disclosed to any third party its intention to do any of
the foregoing or the Board of Directors of the Company shall have recommended to
the Shareholders of the Company any Alternative Transaction or resolved to do
so; or (ii) the Company shall not convene a meeting of its Company Shareholders
Meeting to approve the Merger within a reasonable time;
(h) by the Company, if all of the following conditions are
satisfied: (i) the Board of Directors of Company withdraws or modifies its
recommendation of the Merger or has resolved or publicly announced or disclosed
to any third party its intention to do any of the foregoing or has determined to
recommend an Alternative Transaction to its Shareholders or a tender offer or
exchange offer for Company Shares is commenced or a registration statement with
respect thereto shall have been filed and the Board of Directors of the Company,
within ten (10)
49
Business Days after such tender offer or exchange offer is so commenced, either
fails to recommend against acceptance of such tender or exchange offer by its
Shareholders or takes no position with respect to the acceptance of such tender
or exchange offer by its Shareholders; (ii) except where a tender or exchange
offer is commenced, all of the provisions set forth in Section 6.7(d) are
satisfied; and (iii) Company makes the payment required pursuant to Section
11.4(a) of this Agreement. The Company shall use its best efforts to give Parent
at least two Business Days prior notice of its intention to effect such
termination pursuant to this Section 11.1(h);
(i) [Not Used].
(j) by the Parent, if there shall have occurred one or more events
which shall have caused or are reasonably likely to have a material adverse
effect on the Company; or
(k) by written notice by Parent to the Company, if the Average
Closing Price is less than $34 11/32 unless the Company agrees in writing to
treat the Average Closing Price as $34 11/32 within forty-eight hours of
Company's receipt of Parent's election to terminate, pursuant to this Section
11.1(k).
The right of any party hereto to terminate this Agreement pursuant
to this Section 11.1 shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any party hereto, any
person controlling any such party or any of their respective officers,
directors, representatives, or agents, whether prior to or after the execution
of this Agreement.
11.2 Specific Performance and Other Remedies. The parties hereto each
acknowledge that the rights of each party to consummate the transactions
contemplated hereby are special, unique and of extraordinary character, and
that, in the event that any party violates or fails or refuses to perform any
covenant or agreement prior to the Closing Date made by it herein, the
non-breaching party may be without an adequate remedy at law. The parties each
agree, therefore, that in the event that either party violates or fails or
refuses to perform any covenant or agreement made by such party herein, the
non-breaching party or parties may, subject to the terms of this Agreement and
in addition to any remedies at law for damages or other relief, institute and
prosecute an action in any court of competent jurisdiction to enforce specific
performance of such covenant or agreement or seek any other equitable relief.
Subject to Section 8.7, any and all remedies herein expressly conferred upon a
party will be deemed cumulative with and not exclusive of any other remedy
conferred hereby, or by law or equity upon such party, and the exercise by a
party of any one remedy will not preclude the exercise of any other remedy.
11.3 Effect of Termination. In the event of termination of this
Agreement pursuant to this Article 11, this Agreement shall thereafter become
void and there shall be no liability on the part of any party or its respective
officers, directors or stockholders for acts or omissions occurring after the
Termination Date, except for obligations under Section 6.2, Section 11.4,
Article 12 and this Section 11.3, all of which shall survive the Termination
Date. Notwithstanding
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the foregoing, nothing contained herein shall relieve any party from liability
for any willful breach of its representations, warranties, covenants, or
agreements contained in this Agreement occurring on or before the Termination
Date.
11.4 Termination Fee; Lock-Up Option. As a condition and inducement to
Parent's willingness to enter into this Agreement, Company agrees as follows:
(a) If this Agreement is terminated consistent with the provisions
of 11.1(c), (f), (g) or (h), the Company shall pay to Parent within two (2)
business days following such termination (by wire transfer of immediately
available funds to an account designated by Parent) the amount of THREE MILLION
DOLLARS ($3,000,000.00) (the "Termination Fee"). If such Termination Fee is not
paid when due, the Termination Fee shall accrue simple interest on a daily basis
at a rate equal to the lesser of (i) 8% per annum or (ii) the greatest rate
permitted by California law from the due date until paid in full.
(b) Without the necessity of further action by either party, the
Company hereby irrevocably grants to Parent an option to purchase from the
Company for cash a number of shares of Company Common Stock equal to 19.9% of
the total number of Company Common and Preferred Stock issued and outstanding as
of the date of this Agreement (the "Lock-Up Option") at a price per share (the
"Exercise Price") equal to $45.97. The Lock-Up Option shall be vested
immediately and unless this Agreement is terminated by Company pursuant to
Section 11.1(b) or 11.1(k), may be exercised by Parent in whole or in part, in
one or more exercise, at any time prior to:
(i) the second anniversary of the termination of this
Agreement if the Agreement is terminated consistent with the provisions of
Section 11.1(c), (f), (g) or (h); and
(ii) the first anniversary of the termination of this
Agreement in all other events.
In the event of any merger, consolidation, recapitalization, combination, stock
split, stock dividend, or other change involving the Company's Common or
Preferred Stock, this Lock-Up Option shall survive and the number of shares
subject to the Lock-Up Option and Exercise Price shall be appropriately adjusted
to reflect such change.
ARTICLE 12
EXPENSES
Except as set forth in this Article 12 or as otherwise provided herein,
all fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, whether or not the Merger is consummated.
12.1 Deal Expenses. "Deal Expenses" shall mean all out-of-pocket
expenses of the Company payable to ▇▇▇▇▇ ▇▇▇▇▇▇▇ Inc., accountants, lawyers, and
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consultants relating to the negotiation and execution of this Agreement and the
performance of the obligations and the carrying out of the Merger and the other
transactions contemplated hereby.
12.2 Payment on Closing. In the event of Closing, Company shall pay all
Deal Expenses up to a maximum of $1,300,000.00. The parties hereto contemplate
that the failure of the Shareholders of Company to pay all Deal Expenses in
excess of $1,300,000.00 shall give rise to a claim by Parent for indemnification
in accordance with the provisions of Article 8.
ARTICLE 13
MISCELLANEOUS
13.1 Cooperation Following the Closing. Following the Closing, Parent
and the Shareholders each shall deliver to the other such further information
and documents and shall execute and deliver to the other such further
information and documents and shall execute and deliver such further instruments
and agreements as the other shall reasonably request in order to consummate or
confirm the transactions provided for herein, to accomplish the purpose of this
Agreement or to assure to the other the benefits of this Agreement.
13.2 Benefits and Burdens: Assignment.
(a) Upon the execution of this Agreement by Parent, Sub, and the
Company, this Agreement shall become a binding and enforceable agreement with
respect to Parent, Sub and the Company.
(b) This Agreement shall inure to the benefit of and shall be
binding upon the Company, Sub and Parent, and each of their respective
successors and permitted assigns. No party to this Agreement may assign its
rights or obligations hereunder without the prior written consent of each of the
other parties hereto; provided, however, that this Agreement may be assigned by
Parent to a corporation, all of whose issued and outstanding capital stock is
owned directly or indirectly by Parent, but in such event Parent shall not be
released from its obligations hereunder.
(c) Except for Section 6.16, nothing contained in this Agreement
or in any instrument or document executed by any party in connection with the
transactions contemplated hereby shall create any rights in, or be deemed to
have been executed for the benefit of, any person or entity that is not a party
hereto, a successor or permitted assign of such a party or a person or entity
expressly entitled to indemnification hereunder.
13.3 Amendment. This Agreement may be amended by the parties hereto, by
or pursuant to action taken by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the Merger
by the Shareholders of the Company, but, after any such approval, no amendment
shall be made which by law requires further approval by such Shareholders
without such further approval. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
52
13.4 Notices. All notices, communications and deliveries hereunder
shall be made in writing signed by or on behalf of the party making the same,
shall specify the Section hereunder pursuant to which it is given or being made,
and shall be delivered personally or by telecopy transmission or sent by
registered or certified mail (return receipt requested) or by any national
overnight courier service (with postage and other fees prepaid) as follows:
If to Parent or, after the Closing, the Company:
Dollar Tree Stores, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Mr. H. ▇▇▇ ▇▇▇▇▇▇▇
With a required copy to:
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
P. O. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. Old, Jr., Esquire
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
If, prior to Closing, to the Company:
Step Ahead Investments, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
With a required copy to:
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esquire
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address or to such other person or persons designated in
writing by such party or counsel, as the case may be. Any such notice,
communication or delivery shall be deemed given or made (a) on the date of
delivery if delivered in person, (b) on the date after delivery to a national
overnight courier service, (c) upon transmission by facsimile if receipt is
confirmed by telephone or (d) on the fifth (5th) business day after it is mailed
by registered or certified mail.
13.5 Entire Agreement. The letter dated July 8, 1998 from Parent and
agreed to by Company is hereby terminated and rendered null and void ab initio.
This Agreement embodies the entire agreement and understanding of the parties
hereto in respect of the subject matter contained herein. There are no
53
restrictions, promises, representations, warranties, covenants or undertakings
other than those expressly set forth or referred to herein. This Agreement
supersedes all prior agreements and understandings between the parties. The
parties make no representations or warranties to each other, except as contained
in this Agreement, and any and all prior representations, warranties, assurances
and promises made by any party or its representatives, whether verbally or in
writing, are deemed to have been merged into this Agreement, it being intended
that no such prior representations, warranties, assurances and promises shall
survive the execution and delivery of this Agreement.
13.6 Headings. The section headings in this Agreement are intended
solely for convenience and shall be given no effect in the construction and
interpretation hereof.
13.7 Construction. The parties hereto have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Where the context requires, any reference to
Parent may be deemed to include a reference to Parent, Dollar Tree Management,
Inc. and/or Dollar Tree Distribution, Inc., which are wholly owned subsidiaries
of Parent, as the case may be. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. The table of contents, headings and definitional
cross-reference contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement. If
any party has breached any representation, warranty, or covenant contained
herein in any respect, the fact that there exists another representation,
warranty, or covenant relating to the same subject matter (regardless of the
relative levels of specificity) which the party has not breached shall not
detract from or mitigate the fact that the party is in breach of the first
representation, warranty, or covenant.
13.8 Incorporation of Exhibits and Schedules. The exhibits and
schedules identified in this Agreement, including the Disclosure Schedule are
incorporated herein by reference and made a part hereof. The term "Agreement"
shall include all such exhibits and schedules. The inclusion of any item in the
Disclosure Schedule is not evidence of the materiality or immateriality of such
item for the purposes of this Agreement.
13.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument, and, when signed by all
of the parties hereto, shall become legally binding on such parties effective as
of the date set forth at the beginning of this Agreement.
54
13.10 Governing Law. This Agreement shall be governed by and
interpreted under the laws of the Commonwealth of Virginia applicable to
contracts made and to be performed entirely within such Commonwealth and without
giving effect to the choice of law principles of such Commonwealth; provided,
however, that the Agreement of Merger and the provisions of this Agreement
relating solely to the operation of the Merger for purposes of corporate law
shall be governed by the applicable provisions of the California Code.
13.11 Enforcement; Waiver of Jury Trial. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, such remedy being in addition to any
other remedy to which any party is entitled at law or in equity. Parent and the
Company hereby waive any right to a trial by jury in connection with any such
action, suit or proceeding.
13.12 Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
13.13 Time. Time is of the essence under this Agreement.
13.14 Knowledge. The phrase "to the knowledge of the Company" or its
equivalent as used herein shall mean to the knowledge of the Company and its
directors and officers after appropriate inquiry.
13.15 Statutes. Any reference herein to any federal, state or local
statute shall include all amendments to such statute through the date of this
Agreement or the Effective Time, as applicable.
IN WITNESS WHEREOF, the parties have executed or caused to be executed
this Agreement effective as of the day and year first above written.
STEP AHEAD INVESTMENTS, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇
--------------------------
▇▇▇▇ ▇▇▇▇
Chief Executive Officer
DOLLAR TREE STORES, INC.
By: /s/ H. ▇▇▇ ▇▇▇▇▇▇▇
-----------------------------
H. ▇▇▇ ▇▇▇▇▇▇▇
Executive Vice President
55
DOLLAR TREE WEST, INC.
By: /s/ H. ▇▇▇ ▇▇▇▇▇▇▇
------------------------------
H. ▇▇▇ ▇▇▇▇▇▇▇
Executive Vice President
56