EXHIBIT 99.2
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STOCK AND NOTE PURCHASE AGREEMENT
by and among
Phoenix Acquisition Company II, L.L.C.
Merisel, Inc.
and
Merisel Americas, Inc.
Dated September 19, 1997
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TABLE OF CONTENTS
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Page
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ARTICLE I
Definitions
SECTION 1.01. Definitions................................................... 1
ARTICLE II
Purchase; Funding and Closing
SECTION 2.01. Closing....................................................... 4
SECTION 2.02. Funding....................................................... 5
SECTION 2.03. Purchase; Purchase Price...................................... 5
ARTICLE III
Representations and Warranties of Parent and the Company
SECTION 3.01. Organization; Certificate of Incorporation; By-laws........... 5
SECTION 3.02. Capitalization................................................ 6
SECTION 3.03. Authority..................................................... 7
SECTION 3.04. Noncontravention; Filings and Consents........................ 7
SECTION 3.05. SEC Documents; Financial Statements; Undisclosed Liabilities.. 8
SECTION 3.06. Information Supplied.......................................... 9
SECTION 3.07. Absence of Certain Changes or Events.......................... 9
SECTION 3.08. Litigation.................................................... 10
SECTION 3.09. Absence of Changes in Benefit Plans........................... 10
SECTION 3.10. Employee Benefits; ERISA...................................... 10
SECTION 3.11. Labor Matters................................................. 12
SECTION 3.12. Key Employees................................................. 12
SECTION 3.13. Taxes......................................................... 13
SECTION 3.14. Compliance with Applicable Laws; Permits...................... 13
SECTION 3.15. Environmental Matters......................................... 13
SECTION 3.16. Insurance..................................................... 14
SECTION 3.17. Parent Contracts.............................................. 15
SECTION 3.18. Intellectual Property......................................... 15
SECTION 3.19. Receivables................................................... 16
SECTION 3.20. Inventories................................................... 16
SECTION 3.21. State Takeover Statute........................................ 16
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SECTION 3.22. Voting Requirements........................................... 17
SECTION 3.23. Brokers....................................................... 17
SECTION 3.24. No Insolvency................................................. 17
ARTICLE IV
Representations and Warranties of Lender
SECTION 4.01. Organization.................................................. 17
SECTION 4.02. Authority..................................................... 17
SECTION 4.03. Noncontravention; Filings and Consents........................ 18
SECTION 4.04. Information Supplied.......................................... 18
SECTION 4.05. Financing..................................................... 19
SECTION 4.06. Acquisition of Purchased Shares and Conversion Shares for
Investment.................................................. 19
SECTION 4.07. Brokers....................................................... 19
ARTICLE V
Covenants of Parent, the Company and Lender
SECTION 5.01. Conduct of Business........................................... 19
SECTION 5.02. No Solicitation; Company Recommendation....................... 22
SECTION 5.03. Revolving Credit Facility and Stand-by Commitment............. 24
ARTICLE VI
Additional Agreements
SECTION 6.01. Stockholders Meeting; Preparation of the Proxy Statement...... 25
SECTION 6.02. Access to Information; Confidentiality........................ 25
SECTION 6.03. Approvals and Consents; Cooperation........................... 26
SECTION 6.04. Stock Option Plans............................................ 26
SECTION 6.05. Fees and Expenses............................................. 26
SECTION 6.06. Notification.................................................. 27
SECTION 6.07. Rights of Stockholders to Participate in Certain Transactions. 28
SECTION 6.08. Public Announcements.......................................... 29
SECTION 6.09. Use of Proceeds............................................... 29
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ARTICLE VII
Conditions Precedent
SECTION 7.01. Conditions to Each Party's Obligation to Effect the Funding
and the Purchase............................................. 29
SECTION 7.02. Additional Conditions to Lender's Obligation to Effect the
Funding and the Purchase..................................... 30
SECTION 7.03. Additional Conditions to Parent's Obligation to Effect the
Funding and the Purchase..................................... 31
ARTICLE VIII
Termination, Amendment and Waiver
SECTION 8.01. Termination................................................... 32
SECTION 8.02. Effect of Termination......................................... 32
SECTION 8.03. Amendment..................................................... 33
SECTION 8.04. Extension; Waiver............................................. 33
ARTICLE IX
General Provisions
SECTION 9.01. Survival of Representations................................... 33
SECTION 9.02. Notices....................................................... 33
SECTION 9.03. Interpretation................................................ 34
SECTION 9.04. Counterparts.................................................. 34
SECTION 9.05. Entire Agreement; No Third-Party Beneficiaries................ 34
SECTION 9.06. Assignment.................................................... 34
SECTION 9.07. Specific Performance.......................................... 35
SECTION 9.08. Governing Law................................................. 35
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STOCK AND NOTE PURCHASE AGREEMENT (this "Agreement") dated September
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19, 1997 among Phoenix Acquisition Company II, L.L.C., a Delaware limited
liability company ("Lender") (whose sole member is Stonington Capital
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Appreciation 1994 Fund, L.P., which is managed by Stonington Partners, Inc.
("Stonington")), Merisel, Inc., a Delaware corporation ("Parent"), and Merisel
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Americas, Inc., a Delaware corporation and wholly owned subsidiary of Parent
(the "Company").
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WHEREAS, Lender desires to purchase (the "Purchase") from Parent and
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Parent desires to sell to Lender 4,901,316 shares of newly issued Common Stock
(the "Purchased Shares");
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WHEREAS, Lender also desires to transfer $137,100,000 to Parent for
the benefit of the Company in exchange for a Convertible Promissory Note (the
"Note") to be issued by Parent and the Company, in substantially the form
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attached hereto as Exhibit A;
WHEREAS, the Purchase and the Funding (as defined below) are to occur
substantially simultaneously.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Lender, Parent and the Company hereby agree as follows:
ARTICLE I
Definitions
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SECTION 1.01. Definitions. As used in this Agreement, the following
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terms shall have the following meanings:
"Affiliate" with respect to any person, shall mean any other person
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who, directly or indirectly, controls, is controlled by, or is under common
control with such first person.
"CERCLA" means the Comprehensive Environmental Response, Compensation
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and Liability Act of 1980, as amended as of the date hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
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"Confidentiality Agreement" means the confidentiality letter dated
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June 24, 1997 between Parent and Lender.
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"control" with respect to any person, means the power to direct
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management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise and the terms
"controlling" and "controlled" shall have meanings correlative to the foregoing.
"DGCL" means the Delaware General Corporation Law.
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"Environmental Laws" means any federal, state, local or foreign
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statute, law, ordinance, regulation, rule, code or order and any enforceable
judicial or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to pollution,
protection, preservation or restoration of the environment or natural resources,
including and/or relating to the use, handling, transportation, treatment,
storage, disposal, processing, release or discharge of Hazardous Materials, in
effect as of the date hereof.
"Environmental Permits" means any permit, approval, identification
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number, license or other authorization required of Parent or its subsidiaries
under any applicable Environmental Law.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Hazardous Materials" means (a) any petroleum, petroleum products, by
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product or breakdown products, radioactive materials, asbestos-containing
materials or polychlorinated biphenyls or (b) any chemical or substance
regulated as toxic or hazardous or as a pollutant or contaminant or waste under
any applicable Environmental Law.
"HSR Act" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvement Act of
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1976, as amended.
"Indenture" means the indenture dated as of October 15, 1994 between
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Parent and the Bank of New York, as successor to NationsBank of Texas, N.A., as
Trustee.
"knowledge" or "known" means with respect to Parent or the Company the
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actual knowledge, after due inquiry, of the executive officers of Parent or any
of its subsidiaries.
"lien" means any encumbrance, hypothecation, infringement, lien,
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mortgage, pledge, restriction, security interest, title retention or other
security arrangement, or any adverse right or interest, charge or claim of any
nature whatsoever of, on, or with respect to any asset, property or property
interest; provided, however, that the term "lien" shall not include (i) liens
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for water and sewer charges and current taxes not yet due and payable or being
contested in good faith, (ii) mechanics', carriers', workers', repairers',
materialmen's,
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warehousemen's and other similar liens arising or incurred in the ordinary
course of business or (iii) all liens approved in writing by the other party
hereto.
"Limited Waiver Agreement" means the Limited Waiver and Voting
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Agreement dated as of April 11, 1997 by and among Parent and certain holders of
the 122% Senior Notes.
"Material Adverse Effect" means any change or effect that is, or would
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be reasonably likely to be, materially adverse to the assets, liabilities,
business, operations, properties (including intangible properties), condition
(financial or otherwise) or results of operations of Parent and its
subsidiaries, taken as a whole.
"person" means an individual, corporation, partnership, joint venture,
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association, trust, unincorporated organization or other similar entity.
"SEC" means the Securities and Exchange Commission.
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"Securities Act" means the Securities Act of 1933, as amended.
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"subsidiary" of any person means another person, of which such first
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person (either alone or through or together with any other subsidiary) owns an
amount of the voting securities, other voting ownership or voting partnership
interests which is sufficient to elect at least a majority of its Board of
Directors or other governing body, or if there are no such voting interests, 50%
or more of the equity interests.
"122% Senior Notes" means Parent's 122% Senior Notes due December 31,
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2004 issued under the Indenture.
In addition, the following terms are defined in the Section indicated:
Term Section
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Agreement.............................. PREAMBLE
Benefit Plans.......................... (S)3.10
Closing................................ (S)2.01
Closing Date........................... (S)2.01
Commitment Letter...................... (S)5.03
Common Stock........................... (S)3.02
Commonly Controlled Entity............. (S)3.10
Conversion............................. (S)3.02
Conversion Date........................ (S)3.19
Conversion Shares...................... (S)6.01
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Employee Agreements.................... (S)3.10
Equivalent Amount...................... (S)6.07
ERISA.................................. (S)3.10
Expenses............................... (S)6.05
Foreign Benefit Plan................... (S)3.10
Funding................................(S)2.02(a)
Funding Proceeds.......................(S)2.02(b)
Governmental Entity....................(S)3.04(b)
Lender................................. PREAMBLE
Lender Offeree......................... (S)6.07
Limited Waiver and Agreement to Amend..(S)7.02(d)
Note................................... PREAMBLE
1997 Stock Plan........................ (S)3.10
Parent................................. PREAMBLE
Parent Contract........................ (S)3.17
Parent Intellectual Property........... (S)3.18
Parent Stockholder Approvals........... (S)3.22
Preferred Stock........................ (S)3.02
Proceeds...............................(S)2.03(b)
Proxy Statement........................(S)3.04(b)
Purchase............................... PREAMBLE
Purchased Shares....................... PREAMBLE
Remarketing Facility...................(S)5.03(b)
Reverse Stock Split.................... (S)3.04
SEC Documents.......................... (S)3.05
Stockholders Meeting................... (S)6.01
Stock Option Plans..................... (S)6.04
Stonington............................. PREAMBLE
Takeover Proposal......................(S)5.02(a)
taxes.................................. (S)3.13
Termination Fee........................(S)6.05(d)
Third Party Offer...................... (S)6.07
Transaction Fee........................(S)6.05(b)
ARTICLE II
Purchase; Funding and Closing
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SECTION 2.01. Closing. The closing of the Funding and the Purchase
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(the "Closing") shall take place at 10:00 a.m. on the first business day after
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the satisfaction or waiver of the conditions set forth in Article VII (the
"Closing Date") at the offices of
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Shearman & Sterling, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, unless
another date or place is agreed to in writing by the parties hereto.
SECTION 2.02. Funding. (a) At the Closing, upon the terms and
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subject to the conditions set forth herein, Parent shall deliver to Lender, and
Lender shall accept and purchase from Parent and the Company, the Note (the
"Funding").
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(b) At the Closing, upon the terms and subject to the conditions set
forth herein, Parent shall deliver to Lender the Note against payment by Lender
to Parent of $137,100,000 (the "Funding Proceeds") by wire transfer in
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immediately available funds to such account as Parent shall designate to Lender
at least one business day prior to the Closing Date.
SECTION 2.03. Purchase; Purchase Price. (a) At the Closing, upon
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the terms and subject to the conditions set forth herein, Parent agrees to sell
to Lender, and Lender agrees to purchase from the Parent, the Purchased Shares.
(b) At the Closing, Lender shall pay to the Parent $14,900,000 (such
amount together with the Funding Proceeds being referred to herein as, the
"Proceeds") for the Purchased Shares, by wire transfer in immediately available
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funds to such account as Parent shall designate to Lender at least one business
day prior to the Closing Date.
(c) At the Closing, Parent shall deliver to Lender a stock certificate
evidencing the Purchased Shares in definitive form, dated the Closing Date and
registered in the name of Lender.
ARTICLE III
Representations and Warranties of Parent and the Company
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Each of Parent and the Company hereby represents and warrants to
Lender as follows:
SECTION 3.01. Organization; Certificate of Incorporation; By-laws.
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(a) Each of Parent and the Company and each of Parent's other subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has all requisite corporate power
and authority and all necessary government approvals to own, lease and operate
its properties and to carry on its business as now being conducted. Each of
Parent and the Company and each of Parent's other subsidiaries is duly qualified
or licensed to do business and in good standing in each jurisdiction in which
the property owned, leased or operated by it or the nature of the
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business conducted by it makes such qualification or licensing necessary, except
where the failure to be so duly qualified or licensed and in good standing would
not, individually or in the aggregate, have a Material Adverse Effect.
(b) Each of Parent and the Company has made available to Lender
complete and correct copies of its certificate of incorporation and by-laws, and
the certificate of incorporation and by-laws or other comparable charter or
organizational documents of its subsidiaries, in each case as amended to the
date of this Agreement.
(c) Schedule 3.01(c) sets forth a true and accurate list of all the
subsidiaries of Parent that are required to be listed by Parent in its annual
report on Form 10-K. All the outstanding shares of capital stock of each
subsidiary are owned by Parent or by another wholly owned subsidiary of Parent,
free and clear of all liens, and are duly authorized, validly issued, fully paid
and nonassessable.
SECTION 3.02. Capitalization. The authorized capital stock of Parent
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consists of 50,000,000 shares of common stock, par value $.01 per share (the
"Common Stock"), and 1,000,000 shares of preferred stock, par value $.01 per
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share (the "Preferred Stock"). As of September 18, 1997, (i) 30,078,495 shares
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of Common Stock were issued and outstanding and no shares of Preferred Stock
were issued and outstanding, and (ii) 1,690,252 shares of Common Stock were
reserved for issuance upon exercise of the outstanding stock options granted
under the Stock Option Plans. All the outstanding shares of Common Stock are,
the Purchased Shares will be, and, subject to obtaining the requisite approvals
of Parent's stockholders, all shares of Common Stock which are to be issued upon
conversion of the Note (the "Conversion"), will be, when issued in accordance
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with the terms of the Note, duly authorized, validly issued, fully paid and
nonassessable and free of any pre-emptive rights in respect thereto. No bonds,
debentures, notes or other indebtedness of Parent convertible into voting
securities of Parent are issued or outstanding and, except as set forth above,
(i) no shares of capital stock or other voting securities of Parent are
outstanding, (ii) no equity equivalents, interests in the ownership or earnings
of Parent or other similar rights are outstanding other than stock appreciation
rights issued to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ that relate to 500,000 phantom shares of
Common Stock, the proceeds of which may be paid in cash or stock and (iii) other
than options issued under the Stock Option Plans, the stock appreciation rights
referred to in clause (ii) of this Section 3.02 and as set forth on Schedule
3.02, there are no existing options, warrants, calls, subscriptions or other
rights or agreements or commitments relating to the capital stock of Parent or
any of its subsidiaries or obligating Parent or any of its subsidiaries to
issue, transfer or sell any shares of capital stock, or other equity interest
in, Parent or any of its subsidiaries or obligating Parent or any of its
subsidiaries to grant, extend or enter into any such option, warrant, call,
subscription or other right, agreement or commitment. As of the date of this
Agreement, there are no outstanding contractual obligations of Parent or any of
its subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock of Parent or any of its subsidiaries.
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SECTION 3.03. Authority. Each of Parent and the Company has the
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requisite corporate power and authority to execute and deliver this Agreement
and the Note. Parent has the requisite corporate power and authority to issue
the Purchased Shares and, subject to obtaining the Parent Stockholder Approvals,
to issue the Conversion Shares. The execution and delivery of this Agreement
and the Note by each of Parent and the Company and the consummation by each of
Parent and the Company of the transactions contemplated hereby and by the Note
have been duly authorized by all necessary corporate action on the part of
Parent and the Company, as the case may be, and, except for the Parent
Stockholder Approvals, no other corporate proceedings on the part of Parent or
the Company are necessary to authorize this Agreement or to consummate the
Funding, the Purchase, the Conversion and the other transactions contemplated
hereby and by the Note. Each of this Agreement and the Note has been duly and
validly executed and delivered by each of Parent and the Company and, assuming
the due execution hereof by Lender in the case of this Agreement, constitutes
the valid and binding obligation of Parent and the Company, enforceable against
Parent and the Company in accordance with its terms.
SECTION 3.04. Noncontravention; Filings and Consents. (a) Except as
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set forth in Schedule 3.04 and assuming receipt of the Parent Stockholder
Approvals and the application of the Proceeds as provided in Section 6.09, the
execution and delivery of this Agreement and the Note by Parent and the Company
do not, and the consummation of the transactions contemplated by this Agreement
and compliance with the provisions of this Agreement and the Note by Parent and
the Company will not, conflict with, or result in any violation of, or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation, or acceleration of any obligation or to loss
of a material benefit under, or result in the creation of any lien upon any of
the properties or assets of Parent, the Company or any of Parent's other
subsidiaries under (i) the certificate of incorporation, as amended, or by-laws
of Parent, the Company or the comparable charter or organizational documents of
any of Parent's other subsidiaries, (ii) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to Parent, the Company or any of
Parent's other subsidiaries or their respective properties or assets or (iii)
any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Parent, the Company or any of Parent's other subsidiaries or their
respective properties or assets, other than, in the case of clauses (ii) and
(iii), any such conflicts, violations, defaults, rights or liens that
individually or in the aggregate would not (w) have a Material Adverse Effect,
(x) impair in any material respect Lender's ability to own, possess or exercise
the rights of an owner with respect to the Note, the Purchased Shares or the
Conversion Shares, (y) reasonably be expected to impair, in any material
respect, the ability of Parent or the Company to perform its obligations under
this Agreement or the Note or (z) prevent or impede, in any material respect,
the consummation of the transactions contemplated by this Agreement or the Note.
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(b) No consent, approval, order or authorization of, or registration,
declaration or filing with, any federal, state or local government or any court,
administrative or regulatory agency or commission or other governmental
authority or agency, domestic or foreign (a "Governmental Entity"), is required
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by Parent, the Company or any of Parent's other subsidiaries in connection with
the execution and delivery of this Agreement or the Note by Parent, the Company
or the consummation by Parent and the Company of the transactions contemplated
by this Agreement or the Note, except for (i) with respect to issuance of the
Conversion Shares, the filing of a notification and report form under the HSR
Act, (ii) the filing with the SEC of a proxy statement relating to the approval
by Parent's stockholders of the one-for-five reverse stock split of the Common
Stock (the "Reverse Stock Split"), the issuance of the Conversion Shares and the
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1997 Stock Plan (as amended or supplemented from time to time, the "Proxy
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Statement"), (iii) the filing of a listing application with Nasdaq Stock Markets
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National Market with respect to listing the Conversion Shares and the Purchased
Shares, (iv) the filing of an amendment to Parent's certificate of incorporation
following receipt of the requisite stockholder approval to reflect the Reverse
Stock Split and (v) such other consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to be obtained or
made would not, individually or in the aggregate (x) impair, in any material
respect, the ability of Parent to perform its obligations under this Agreement
or the Note or (y) prevent or significantly delay consummation of the
transactions contemplated by this Agreement or the Note.
SECTION 3.05. SEC Documents; Financial Statements; Undisclosed
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Liabilities. (a) Parent has filed all reports, proxy statements, forms, and
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other documents with the SEC since December 31, 1993 including, without
limitation, the Registration Statement on Form S-4, filed on May 19, 1997 as
amended, as required under the Securities Act and the Exchange Act
(collectively, the "SEC Documents"). As of their respective dates, (i) the SEC
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Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such SEC Documents
and (ii) none of the SEC Documents when 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.
(b) The financial statements of Parent included in the SEC
Documents comply as to form, as of their respective dates of filing with the
SEC, in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles (except, in
the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present in all material respects the consolidated
financial position of Parent and its consolidated subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of
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unaudited statements, to normal year-end audit adjustments which did not or will
not, individually or in the aggregate, have a Material Adverse Effect).
(c) Except as set forth in the SEC Documents filed and publicly
available prior to the date of this Agreement, and except for liabilities and
obligations incurred in the ordinary course of business consistent with past
practice since the date of the most recent audited consolidated balance sheet
included in the SEC Documents filed and publicly available prior to the date of
this Agreement, neither Parent nor any of its subsidiaries has any liabilities
or obligations of any nature (whether accrued, absolute, contingent or
otherwise) which, individually or in the aggregate, would have a Material
Adverse Effect.
SECTION 3.06. Information Supplied. The Proxy Statement, including
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all information incorporated therein by reference, will not, on the date the
Proxy Statement is first mailed to Parent's stockholders and at the time of the
Stockholders Meeting, 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, except that no representation or warranty is made by
Parent with respect to statements made or incorporated by reference therein
based on information supplied by Lender specifically for inclusion or
incorporation by reference therein. The Proxy Statement will comply as to form
in all material respects with the requirements of the Exchange Act and the rules
and regulations promulgated thereunder.
SECTION 3.07. Absence of Certain Changes or Events. Except as
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disclosed in the SEC Documents filed and publicly available prior to the date of
this Agreement or as set forth in Schedule 3.07, since December 31, 1996,
Parent, the Company and Parent's other subsidiaries have conducted their
respective businesses only in the ordinary course consistent with past practice,
and there has not been (i) any Material Adverse Effect, (ii) any declaration,
setting aside or payment of any dividend or other distribution with respect to
Parent's capital stock, (iii) any split, combination or reclassification of any
of Parent's capital stock or any issuance or the authorization for issuance of
any other securities in respect of, in lieu of or in substitution for shares of
its capital stock, (iv) (x) any granting by Parent or any of its subsidiaries to
any officer of Parent or any of its subsidiaries of any increase in
compensation, including any increases or modifications described in Section
3.09, except in the ordinary course of business consistent with past practice,
(y) any granting by Parent or any of its subsidiaries to any such officer of any
increase in severance or termination pay, except as part of a standard
employment package to any person promoted or hired, or (z) except for
termination arrangements in the ordinary course of business consistent with past
practice with employees other than any executive officer of Parent, any entry by
Parent or any of its subsidiaries into any employment, severance or termination
agreement, (v) any damage, destruction or loss, whether or not covered by
insurance, that would have a Material Adverse Effect, (vi) any change in
accounting methods, principles or practices by Parent materially affecting its
assets, liabilities or business, except insofar as may have been
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required by a change in generally accepted accounting principles, (vii) any
waiver, settlement, release or compromise of any material claims or litigation
or (viii) any revaluation in any material respect to any of Parent's or its
subsidiaries' assets, including writing down of inventory or writing-off notes
or accounts receivables.
SECTION 3.08. Litigation. Except as disclosed in the SEC Documents
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filed and publicly available prior to the date of this Agreement or as set forth
in Schedule 3.08, there are no suits, actions or proceedings pending or, to the
knowledge of Parent, threatened against Parent, the Company or any of Parent's
other subsidiaries that would have a Material Adverse Effect. Except as
disclosed in the SEC Documents filed and publicly available prior to the date of
this Agreement, neither Parent, the Company nor any of Parent's other
subsidiaries is subject to any outstanding order, writ, injunction or decree
that would have a Material Adverse Effect.
SECTION 3.09. Absence of Changes in Benefit Plans. Except as
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disclosed in Schedule 3.09, since December 31, 1996 there has not been any
adoption or amendment in any material respect by Parent or any of its
subsidiaries of any bonus, pension, profit sharing, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock option,
retirement, severance, disability, death benefit, hospitalization, medical or
other plan, arrangement or understanding providing benefits to any current or
former employee, officer or director of Parent or any of its subsidiaries.
Except as disclosed in Schedule 3.09, there exist no employment, consulting,
severance, termination or indemnification agreements, arrangements or
understandings between Parent or any of its subsidiaries and any current or
former employee, officer or director of Parent or any of its subsidiaries, and
there is no oral or written understanding or arrangement to enter into any such
agreement with any such individual.
SECTION 3.10. Employee Benefits; ERISA. (a) Schedule 3.10(a)
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contains a list of (i) all "employee benefit plans" (within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) and all bonus, stock option, stock purchase, stock-based award,
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restricted stock, incentive, deferred compensation, retiree medical or life
insurance, supplemental retirement, severance or other benefit plans, programs
or arrangements, including payroll practices, with respect to which Parent or
any of its subsidiaries or any other person or entity that, together with
Parent, is treated as a single employer under Section 414(b), (c), (m) or (o) of
the Code (each, together with Parent, a "Commonly Controlled Entity") has any
--------------------------
current obligation or which are currently maintained, contributed to or
sponsored by a Commonly Controlled Entity for the benefit of any current or
former employees, officers, agents or directors of Parent or any of its
subsidiaries (all of the foregoing being herein called "Benefit Plans") and (ii)
-------------
all employment, consulting, retention, termination, severance or other contracts
or agreements (excluding stock option agreements) pursuant to which Parent or
any of its subsidiaries has any obligation with respect to any current or former
employees, officers, agents or directors
11
of Parent or any of its subsidiaries (the "Employee Agreements"). Parent has
-------------------
made available to Lender true and complete copies of (v) each Employee Agreement
(or in the case of any unwritten Employee Agreement, a description thereof), (w)
each Benefit Plan (or, in the case of any unwritten Benefit Plans, descriptions
thereof), (x) the most recent annual report on Form 5500 filed with the Internal
Revenue Service with respect to each Benefit Plan (if any such report was
required), (y) the most recent summary plan description (or similar document)
for each Benefit Plan for which a summary plan description is required or was
otherwise provided to plan participants or beneficiaries and (z) each trust
agreement and group annuity contract relating to any Benefit Plan.
(b) Except as disclosed in Schedule 3.10(b), all Benefit Plans and
related trusts that are intended to be tax-qualified plans have been the subject
of determination letters from the Internal Revenue Service to the effect that
such Benefit Plans and related trusts are qualified and exempt from federal
income taxes under Sections 401(a) and 501(a), respectively, of the Code, and no
such determination letter has been revoked nor, to the knowledge of Parent, has
revocation been threatened; no event has occurred and no circumstances exist
that would adversely affect the tax qualification of such Benefit Plan nor has
any such Benefit Plan been amended since the date of its most recent
determination letter or application therefor in any respect that would adversely
affect its qualification or materially increase its costs.
(c) Each Benefit Plan and any Benefit Plan that is not subject to
United States law (a "Foreign Benefit Plan") has been administered in all
--------------------
material respects in accordance with its terms. The Benefit Plans are, and have
been administered, in compliance in all material respects with the applicable
provisions of ERISA, the Code, and all other applicable laws. All employer and
employee contributions to each Foreign Benefit Plan required by law in the
applicable jurisdiction or by the terms of the Foreign Benefit Plan have been
made or accrued in accordance with normal accounting procedures.
(d) No Commonly Controlled Entity has incurred any liability under or
arising out of Title IV of ERISA that would have a Material Adverse Effect, and
no fact or event exists that could reasonably be expected to result in such
liability. None of the assets of any Commonly Controlled Entity is the subject
of any lien arising under Section 302(f) of ERISA or Section 412(n) of the Code
and no member of any Commonly Controlled Entity has been required to post
security under Section 307 of ERISA or Section 401(a)(29) of the Code with
respect to any Benefit Plan, and no fact or event exists which could reasonably
give rise to any such lien or requirement to post any such security.
(e) None of the Benefit Plans (nor any plan previously maintained or
contributed to by a Commonly Controlled Entity within the last six years) is a
multiemployer plan (within the meaning of 3(37) or 4001(a)(3) of ERISA) or a
single employer pension plan
12
(with the meaning of 4001(a)(15) of ERISA) for which any member of the Commonly
Controlled Entity could incur liability under Section 4063 or 4064 of ERISA.
(f) None of the Commonly Controlled Entities, any officer of any
Commonly Controlled Entity, any of the Benefit Plans which are subject to ERISA,
any trusts created thereunder or any trustee or administrator thereof, has
engaged in a "prohibited transaction" (as such term is defined in Section 406 of
ERISA or Section 4975 of the Code) or any other breach of fiduciary
responsibility that could subject Parent, any of its subsidiaries or any officer
of Parent or any of its subsidiaries to any tax or penalty on prohibited
transactions imposed by such Section 4975 or to any liability under Section
502(i) or (l) of ERISA that would have a Material Adverse Effect. With respect
to each Benefit Plan, no member of any Commonly Controlled Entity is currently
liable for any excise tax arising under Section 4971, 4972, 4979, 4980 or 4980B
of the Code that would have a Material Adverse Effect, and no fact or event
exists which could reasonably give rise to any such liability.
(g) Except as set forth in Schedule 3.10(g), no employee of Parent or
any of its subsidiaries will be entitled to any additional benefits or any
acceleration of the time of payment or vesting of any benefits under any Benefit
Plan as a result of the consummation of the transactions contemplated by this
Agreement and the Note. In addition, Parent has taken all actions necessary
(or, as appropriate, has refrained from taking action) to ensure that neither
the execution of this Agreement and the Note nor the consummation of the
transactions contemplated hereunder or thereunder shall result in the
acceleration of vesting or exercisability of any options, or the triggering of
any additional rights, under any Stock Option Plan. Without limiting the
generality of the foregoing, the Board of Directors of Parent has determined in
writing that neither the execution of this Agreement nor the consummation of the
transactions contemplated hereunder or under the Note shall be considered a
"Change of Control" under the terms of the 1997 Stock Award and Incentive Plan
(the "1997 Stock Plan").
---------------
SECTION 3.11. Labor Matters. Except as set forth in Schedule 3.11,
-------------
there are no controversies pending or, to the knowledge of Parent, threatened
between Parent and any of its subsidiaries and any of their employees, except
for such controversies which would not have a Material Adverse Effect. Neither
Parent nor any of its subsidiaries is a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by Parent
or any of its subsidiaries.
SECTION 3.12. Key Employees. Parent has previously provided Lender
-------------
all requested information relating to each current salaried employee, officer,
director, consultant or agent of Parent or any of its subsidiaries whose annual
compensation exceeded $150,000 in 1996.
13
SECTION 3.13. Taxes. Except as set forth in Schedule 3.13, each of
-----
Parent, the Company and each of Parent's other subsidiaries has filed all
material tax returns and reports required to be filed by it and has paid (or
Parent has paid on its behalf) all material taxes required to be paid by it, and
the most recent financial statements contained in the SEC Documents filed and
publicly available prior to the date of this Agreement reflect an adequate
reserve for all taxes due and payable by Parent, the Company and each of
Parent's other subsidiaries for all taxable periods and portions thereof through
the date of such financial statements; and no material deficiencies for any
taxes have been proposed, asserted or assessed against Parent, the Company or
any of Parent's other subsidiaries, and no requests for waivers of the time to
assess any such taxes are pending. The statute of limitations for federal
income tax returns has expired for all tax years through 1991. As used in this
Agreement, "tax" or "taxes" means any and all Federal, state, local and foreign
tax and other assessments of a similar nature (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) whether imposed directly or through withholding (including but
not limited to income, franchise, property, sales, use, payroll, employment,
excise, ad valorem, and stamp taxes).
SECTION 3.14. Compliance with Applicable Laws; Permits. Except as
----------------------------------------
set forth in Schedule 3.14, neither Parent, the Company nor any of Parent's
other subsidiaries is in conflict with, or in default or violation of (i) any
domestic (federal, state or local) or foreign law, statute, ordinance, rule,
regulation, order, judgment, decision, writ, injunction or decree applicable to
Parent, the Company or any of Parent's other subsidiaries or by which any of
their respective properties are bound or affected, or (ii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Parent, the Company or any of Parent's
other subsidiaries is a party or by which Parent, the Company or any of Parent's
other subsidiaries or any of their respective properties are bound or affected,
except for such conflicts, defaults or violations which would not, individually
or in the aggregate, have a Material Adverse Effect. Parent, the Company and
Parent's other subsidiaries have all permits, licenses and franchises from
Governmental Entities required to conduct their businesses as now being
conducted, except for such permits, licenses and franchises the absence of which
would not, in the aggregate, result in a Material Adverse Effect.
SECTION 3.15. Environmental Matters. Except as disclosed in the SEC
---------------------
Documents filed and publicly available prior to the date of this Agreement or
set forth in Schedule 3.15 and except as would not result in a Material Adverse
Effect:
(a) Each of Parent, the Company and Parent's other subsidiaries (i)
is in compliance with all applicable Environmental Laws and (ii) holds all
Environmental Permits required for the operation of its business as
currently conducted and (iii) is in compliance with the terms and
conditions of all such Environmental Permits.
14
(b) Neither Parent, the Company nor any of Parent's other
subsidiaries has received any written claim, demand, notice or complaint
alleging violation of, or liability under, any Environmental Laws.
(c) Neither Parent, the Company nor any of Parent's other
subsidiaries has received any written request for information relating to,
or been notified that it is a potentially responsible party under, CERCLA
or any similar state law.
(d) Neither Parent, the Company nor any of Parent's other
subsidiaries has entered into or agreed to any consent decree or order, and
is not subject to any judgment, decree or judicial order, relating to
compliance with Environmental Laws or Environmental Permits or the
investigation, sampling, monitoring, treatment, remediation, removal or
cleanup of Hazardous Materials, and, to the knowledge of Parent, no
investigation, litigation or administrative proceeding is pending or
threatened with respect thereto for which Parent, the Company or any of
Parent's other subsidiaries would reasonably be expected to be held liable.
(e) None of the real properties owned or leased by Parent, the
Company or Parent's other subsidiaries is listed or, to the knowledge of
Parent, proposed for listing, on the "National Priorities List" under
CERCLA, as updated through the date hereof, or any similar state list of
sites requiring investigation or cleanup.
(f) No Hazardous Materials have been released, discharged or disposed
of on, or transported to or from, any of the real properties owned or
occupied by Parent, the Company or Parent's other subsidiaries in any
manner or quantity which requires investigation, assessment, monitoring,
remediation or cleanup under currently applicable Environmental Laws.
(g) Each of Parent and the Company has provided to Lender copies of
all environmental audits, assessments or studies within its possession, or
in the possession of any of Parent's other subsidiaries, with respect to
the facilities or real property currently owned, leased or operated by
Parent, the Company or any of Parent's other subsidiaries.
SECTION 3.16. Insurance. Parent, the Company and Parent's other
---------
subsidiaries have obtained and maintained in full force and effect insurance
with responsible and reputable insurance companies or associations in such
amounts, on such terms and covering such risks, including fire and other risks
insured against by extended coverage, as is reasonably prudent, and each has
maintained in full force and effect public liability insurance, insurance
against claims for personal injury or death or property damage occurring in
connection with the activities of Parent, the Company or Parent's other
subsidiaries or any properties owned, occupied or controlled by Parent, the
Company or
15
Parent's other subsidiaries, in such amount as reasonably deemed necessary by
Parent, the Company or Parent's other subsidiaries.
SECTION 3.17. Parent Contracts. Except as disclosed in the SEC
----------------
Documents filed and publicly available prior to the date hereof or as disclosed
on Schedule 3.17, neither Parent, the Company nor any of Parent's other
subsidiaries is a party to or bound by (a) any contract or commitment for
capital expenditures in excess of $250,000 for any one project not included in
Parent's capital budget previously provided to Lender, (b) contracts or
commitments for the purchase of materials or supplies or for the performance of
services over a period of more than 60 days from the date of this Agreement and
calling for aggregate future payments, if other than in the ordinary course, of
$1,000,000 and otherwise of $5,000,000 or more during the term of such contract
or commitment, excluding purchase orders for inventory, (c) any contract that is
a "material contract" (as such term is defined in Item 601(b)(10) of Regulation
S-K of the SEC) that has not been filed or incorporated by reference in the SEC
Documents filed and publicly available prior to the date of this Agreement, (d)
any contract that contains a non-compete or any exclusivity provisions or
restrictions on Parent's or its subsidiaries' ability to conduct any business
with respect to any geographic area or (e) any contract that would prohibit or
materially delay the consummation of the Funding, the Purchase, the Conversion
or the other transactions contemplated by this Agreement or the Note. Each
contract, arrangement, commitment or understanding of the type described in this
Section 3.17, whether or not set forth in Schedule 3.17, is referred to as a
"Parent Contract". Except as disclosed in the SEC Documents filed and publicly
----------------
available prior to the date hereof or as disclosed on Schedule 3.17, each Parent
Contract: (a) is valid and binding on the respective parties thereto and is in
full force and effect and (b) upon consummation of the transactions contemplated
by this Agreement, shall continue in full force and effect without penalty or
other adverse consequence. Except as disclosed in the SEC Documents filed and
publicly available prior to the date hereof or as disclosed on Schedule 3.17,
none of Parent or any of its subsidiaries is in material breach of, or default
under, any Parent Contract, and, to the knowledge of Parent, no other party to
any Parent Contract is in material breach thereof or default thereunder. Except
as disclosed in the SEC Documents filed and publicly available prior to the date
hereof or as disclosed on Schedule 3.17, there is no contract, agreement or
other arrangement granting any person any preferential right to purchase, other
than in the ordinary course of business consistent with past practice, any of
the properties or assets of Parent, the Company or any of Parent's other
subsidiaries.
SECTION 3.18. Intellectual Property. Except as set forth on Schedule
---------------------
3.18, Parent, the Company and Parent's other subsidiaries own or possess
adequate licenses or other valid rights to use all patents, patent rights,
trademarks, trademark rights, trade names, trade dress, trade name rights,
copyrights, servicemarks, trade secrets, applications for trademarks and for
servicemarks, mask works, know-how and other proprietary rights and information
used in the conduct of their businesses ("Parent Intellectual Property") except
----------------------------
16
where the failure to own or possess such rights would not have a Material
Adverse Effect, and, to Parent's knowledge, no person is currently challenging
the validity of any of the foregoing. To the knowledge of Parent and the
Company, the conduct of the business of Parent, the Company and Parent's other
subsidiaries does not infringe any intellectual property of any third party. To
the Parent's knowledge, there are no infringements by any third party of any
proprietary rights owned by or licensed by or to Parent, the Company or any of
Parent's other subsidiaries. Except as set forth on Schedule 3.18, none of
Parent, the Company or any of Parent's other subsidiaries has licensed any
Parent Intellectual Property to any third party. Schedule 3.18 hereto lists, as
of the date hereof, all United States and foreign patents and patent
applications, trademark registrations and applications therefor, registered
copyrights and applications therefor and trade names of Parent, the Company and
Parent's other subsidiaries.
SECTION 3.19. Receivables. The accounts receivable of Parent and its
-----------
subsidiaries reflected in the most recent consolidated financial statements
included in the SEC Documents filed and publicly available prior to the date of
this Agreement, and all accounts receivable of Parent and its subsidiaries
arising since such date, are valid receivables not subject to setoff or
counterclaim, are current and collectible subject to the reserve for bad debts
set forth in such financial statements with respect to the accounts receivable
reflected in such financial statement and subject to reserves taken in the
ordinary course of business and that would not, individually or in the aggregate
have a Material Adverse Effect with respect to accounts receivable arising since
the date of such financial statements, represent bona fide claims against
debtors for sales, services performed or other charges arising on or before the
date thereof, and all the services performed that gave rise to such accounts
were delivered or performed in all material respects in accordance with the
applicable orders, contracts or customer requirements.
SECTION 3.20. Inventories. The inventory of supplies, raw materials,
-----------
work in process and finished goods of Parent, the Company and Parent's other
subsidiaries consists only of items of quality and quantity commercially usable
and salable in the ordinary course of business, except for any items of obsolete
material or material below standard quality, all of which have been written down
to realizable market value, or for which adequate reserves have been provided in
accordance with generally acceptable accounting principles, and the current
amount of such inventory is reasonable in the present circumstances of the
business of Parent, the Company and Parent's other subsidiaries.
SECTION 3.21. State Takeover Statute. The Board of Directors of
----------------------
Parent has taken all actions necessary under the DGCL, including approving the
Funding, the Purchase, the issuance of the Conversion Shares and the other
transactions contemplated in this Agreement and the Note to ensure that the
restrictions on business combinations set forth in Section 203 of the DGCL do
not or will not apply to the Funding, the Purchase or the Conversion or any of
the transactions contemplated by this Agreement and the Note.
17
SECTION 3.22. Voting Requirements. (a) Other than the affirmative
-------------------
vote of the holders of a majority of the outstanding shares of the Common Stock
entitled to vote, which is necessary to approve the Reverse Stock Split and the
affirmative vote of the holders of a majority of the shares of Common Stock
casting votes, which is necessary to approve the issuance of the Conversion
Shares and to implement the 1997 Stock Plan (such votes being collectively
referred to herein as the "Parent Stockholder Approvals"), no vote of the
----------------------------
holders of any capital stock of the Company is necessary to approve the
transactions contemplated by this Agreement.
(b) The Board of Directors of the Parent has recommended, upon the
terms and subject to the conditions set forth in this Agreement, to the
stockholders of Parent that such stockholders vote at the Stockholders Meeting
to approve the Reverse Stock Split, the issuance of the Conversion Shares and
the 1997 Stock Plan.
SECTION 3.23. Brokers. No broker, investment banker, financial
-------
advisor or other person, other than ▇▇▇▇▇▇▇▇▇, Lufkin & ▇▇▇▇▇▇▇▇, the fees and
expenses of which will be paid by Parent, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Parent. Parent has provided Lender true and correct copies of
the agreements between Parent and ▇▇▇▇▇▇▇▇▇, Lufkin & ▇▇▇▇▇▇▇▇.
SECTION 3.24. No Insolvency. None of Parent, the Company or any of
-------------
Parent's other subsidiaries is now or, after giving effect to the issuance of
the Note and the consummation of the transactions contemplated hereby and
thereby will be (i) insolvent, (ii) left with unreasonably small capital with
which to engage in its anticipated business or (iii) incurring debts beyond its
ability to pay such debts as they become due.
ARTICLE IV
Representations and Warranties of Lender
----------------------------------------
Lender hereby represents and warrants to Parent and the Company as
follows:
SECTION 4.01. Organization. Lender is a limited liability company
------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to carry
on its business as it is now being conducted.
SECTION 4.02. Authority. Lender has all requisite corporate power
---------
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation
18
of the transactions contemplated hereby by Lender have been duly authorized by
Lender and no other limited liability company proceedings on the part of Lender
are necessary to authorize this Agreement or to consummate the Funding, the
Purchase, the Conversion and the other transactions contemplated by this
Agreement or the Note. This Agreement has been duly and validly executed and
delivered by Lender and, assuming the due execution hereof by Parent and the
Company, constitutes the legal, valid and binding obligation of Lender,
enforceable against Lender in accordance with its terms.
SECTION 4.03. Noncontravention; Filings and Consents. (a) The
--------------------------------------
execution and delivery of this Agreement by Lender do not, and the consummation
of the transactions contemplated by this Agreement and the Note and compliance
with the provisions of this Agreement and the Note by Lender will not, conflict
with, or result in any violation of, or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to the loss of a material benefit under, or
result in the creation of any lien upon any of the properties or assets of
Lender under, (i) the certificate of formation or by-laws of Lender, (ii) any
loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license applicable to
Lender or its properties or assets or (iii) subject to the governmental filings
and other matters referred to in paragraph (b) below, any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Lender or its
properties or assets, other than, in the case of clauses (ii) and (iii), any
such conflicts, violations, defaults, rights or liens that individually or in
the aggregate would not (x) reasonably be expected to impair, in any material
respect, the ability of Lender to perform its obligations under this Agreement
or (y) prevent or impede, in any material respect, the consummation of any of
the transactions contemplated by this Agreement or the Note.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by Lender in
connection with the execution and delivery of this Agreement by Lender or the
consummation by Lender of any of the transactions contemplated by this Agreement
or the Note except for (i) the filing of a notification and report form under
the HSR Act and (ii) such other consents, approvals, orders, authorizations,
registrations, declaration and filings the failure of which to be obtained or
made would not, individually or in the aggregate, (x) impair, in any material
respect, the ability of Lender to perform its obligations under this Agreement
or (y) prevent or significantly delay the consummation of the transactions
contemplated by this Agreement or the Note.
SECTION 4.04. Information Supplied. None of the information supplied
--------------------
or to be supplied by Lender expressly for inclusion or incorporation by
reference in the Proxy Statement will on the date the Proxy Statement is first
mailed to Parent's stockholders or at the time of the Stockholders Meeting,
contain any untrue statement of a material fact or omit
19
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.
SECTION 4.05. Financing. Lender has, or will have at the time of the
---------
Closing, sufficient cash available to purchase the Purchased Shares and the
Note.
SECTION 4.06. Acquisition of Purchased Shares and Conversion Shares
-----------------------------------------------------
for Investment. Lender is acquiring the Purchased Shares, the Note and,
--------------
following the Conversion, the Conversion Shares for investment and not with a
view toward, or for sale in connection with, any distribution thereof, or with
any present intention of distributing or selling the Purchased Shares, the Note,
or, following the Conversion, the Conversion Shares. Lender agrees that the
Purchased Shares, the Note and, following the Conversion, the Conversion Shares
may not be sold, transferred, offered for sale, pledged, hypothecated or
otherwise disposed of without registration under the Securities Act, except
pursuant to an exemption from such registration available under the Securities
Act, and without compliance with foreign securities laws, in each case, to the
extent applicable.
SECTION 4.07. Brokers. No broker, investment banker, financial
-------
advisor or other person is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Lender.
ARTICLE V
Covenants of Parent, the Company and Lender
-------------------------------------------
SECTION 5.01. Conduct of Business. Parent covenants and agrees that
-------------------
during the period between the date of this Agreement and through and including
the earlier of the termination of this Agreement or the Conversion Date, unless
Lender shall otherwise agree in writing (including, without limitation, in this
Agreement and the Note), the businesses of Parent and its subsidiaries shall be
conducted only, and Parent and its subsidiaries shall not take any action except
in the ordinary course of business consistent with past practice and Parent
shall use its best efforts (i) to preserve substantially intact the business
organization of Parent and its subsidiaries, including its officers and
employees, (ii) to keep available the services of the present officers and key
employees of Parent and its subsidiaries and (iii) consistent with past
practice, to preserve the present relationships of Parent and its subsidiaries
with customers, suppliers and other persons with which Parent or any of its
subsidiaries has significant business relations. By way of amplification and
not limitation of the foregoing sentence, except as contemplated by this
Agreement and the Note, Parent shall not, and shall cause its subsidiaries not
to, during the period between the date of this Agreement and through and
including the earlier of the termination of this Agreement or
20
the Conversion Date, directly or indirectly do, or propose or commit to do, any
of the following except with the prior written consent of Lender, which consent
shall not be unreasonably withheld:
(a) (i) other than dividends or distributions by any direct or
indirect wholly owned subsidiary of Parent declare or pay any dividends on
or make other distributions in respect of any of its shares of capital
stock, (ii) other than the Reverse Stock Split, split, combine or
reclassify any of its shares of capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock or (iii) repurchase, redeem
or otherwise acquire, or permit any subsidiary to repurchase, redeem or
otherwise acquire, any shares of capital stock;
(b) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock of any class or any
securities convertible into, or any rights, warrants, calls, subscriptions
or options to acquire, any such shares or convertible securities, or any
other ownership interest other than (i) the issuance of shares of Common
Stock upon the exercise of Stock Options or stock appreciation rights or
warrants outstanding on the date of this Agreement and in accordance with
the present terms of such options or stock appreciation rights, (ii)
issuances by a wholly owned subsidiary of Parent of its capital stock to
Parent, (iii) the issuance of Stock Options to certain employees in
fulfillment of the existing arrangements set forth on Schedule 3.02 with
respect to the issuance of such Stock Options in regular annual
installments and (iv) Stock Options to purchase up to an aggregate of
20,000 shares of Common Stock to be issued to newly hired management
employees consistent with past practices of Parent and the Company;
(c) amend or propose to amend its certificate of incorporation, as
amended, or by-laws or other comparable organization documents;
(d) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial equity interest in or substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof;
(e) sell, lease, subject to any lien or otherwise dispose of, or
agree to sell, lease, encumber or otherwise dispose of, any of its assets,
other than in the ordinary course consistent with past practice;
(f) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any
21
debt securities of Parent or any of its subsidiaries or guarantee any debt
securities of others, except in the ordinary course of business consistent
with past practice;
(g) make any tax election that would have a Material Adverse Effect
or settle or compromise any income tax liability of Parent or any of its
subsidiaries that would have a Material Adverse Effect (Parent shall,
before filing or causing to be filed any material tax return of Parent or
any of its subsidiaries, consult with Lender and its advisors as to the
positions and elections that are not in the ordinary course and that are
inconsistent with past practices which may be taken or made by Parent with
respect to such return);
(h) pay, discharge, settle or satisfy any claim, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities recognized or disclosed in the most recent
consolidated financial statements (or the notes thereto) of Parent included
in the SEC Documents filed and publicly available prior to the date of this
Agreement or incurred since the date of such financial statements in the
ordinary course of business consistent with past practice or any such
settlement or satisfaction of any claim, liability or obligation for which
Parent pays less than $100,000 in respect of such settlement or claim,
liability or obligation, or waive the benefit of, or agree to modify in any
manner, any confidentiality, standstill or similar agreement to which
Parent or any of its subsidiaries is a party;
(i) except in the ordinary course of business, terminate, cancel or
request any material change in, or agree to any material change in any
Parent Contract to which Parent or such subsidiary is a party or waive,
release or assign any material rights or claims or enter into any contract
or agreement material to the business, results of operations or financial
condition of Parent and its subsidiaries taken as a whole;
(j) (i) grant any increase in the compensation of any of its
directors, officers or key employees, except for increases for officers and
employees in the ordinary course of business consistent with past practice,
(ii) pay or agree to pay any pension, retirement allowance or other
employee benefit not required or contemplated by any of the existing
Benefit Plans or Employee Agreements as in effect on the date of this
Agreement to any director, officer or key employee, (iii) except as set
forth on Schedule 5.01(j)(iii) enter into any new employment, severance or
termination agreement with any person who is a director, officer or key
employee or (iv) except as may be required to comply with applicable law,
become obligated under any Benefit Plan that was not in existence on the
date of this Agreement or amend any such plan in existence on the date of
this Agreement to enhance the benefits
22
thereunder; provided, however, that (x) Parent may adopt the 1997 Stock
-------- -------
Plan in the form previously approved by the Board of Directors of Parent
and provided to Lender, and (y) Parent may make grants pursuant to the 1997
Stock Plan in substitution for grants under existing Stock Option Plans but
only to the extent that, taking into account all options outstanding under
the existing Stock Option Plans and all such grants made under the 1997
Stock Plan, the number of shares of Common Stock subject to outstanding
stock options or other awards shall not exceed 8% of the Common Stock
outstanding after giving effect to the transactions contemplated by this
Agreement and the Note;
(k) make or authorize any capital expenditure in excess of $250,000
for any one project or $500,000 in the aggregate, other than those
contemplated by Parent's capital budget, a copy of which was previously
provided to Lender;
(l) take any action that may reasonably be expected to result in any
of the representations and warranties of Parent set forth in this Agreement
being or becoming untrue, or in any of the conditions to Lender set forth
in Article VII not being satisfied;
(m) take any action or fail to take any action which individually or
in the aggregate would have a Material Adverse Effect; or
(n) agree in writing or otherwise to do any of the foregoing.
SECTION 5.02. No Solicitation; Company Recommendation. (a) Parent
---------------------------------------
shall not, nor shall it permit any of its subsidiaries to, nor shall it
authorize or permit any officer, director or employee of, or any investment
banker, attorney or other advisor or representative of, Parent or any of its
subsidiaries to (i) solicit or initiate, or knowingly encourage (including by
way of furnishing information), or take any other action designed to facilitate,
any inquiries or the making of any proposal which constitutes a Takeover
Proposal or (ii) participate in any discussions or negotiations regarding a
Takeover Proposal; provided, however, that if the Board of Directors of Parent,
-------- -------
after consultation with, and based on the advice of, outside counsel, determines
in good faith that it is necessary to do so in order to comply with its
fiduciary duties to Parent's stockholders under applicable law, Parent may, in
response to a Takeover Proposal that was not solicited by Parent or which did
not otherwise result from a breach of this Section 5.02(a), and subject to
Parent providing prior notice to Lender of its decision to take such action and
subject to compliance with this Section 5.02(a) and Section 5.02(c), (x) furnish
information with respect to Parent to any persons pursuant to a confidentiality
agreement on terms no less favorable to Parent than those contained in the
Confidentiality Agreement and (y) participate in discussions or negotiations
regarding such Takeover Proposal. For purposes of this Agreement, "Takeover
--------
Proposal" means any proposal or offer from any person relating to any direct or
--------
indirect
23
acquisition or purchase of a business that constitutes 25% or more of the net
revenues, net income or the assets of Parent and its subsidiaries, taken as a
whole, or of 25% or more of any class of equity securities of Parent or any of
its subsidiaries, any tender offer or exchange offer that if consummated would
result in any person beneficially owning 25% or more of any class of equity
securities of Parent or any of its subsidiaries, or any merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving Parent or any of its subsidiaries, other than the
transactions contemplated by this Agreement and the Note.
(b) Except as set forth in this Section 5.02(b), neither the Board of
Directors of Parent nor any committee thereof shall (i) withdraw or modify, or
propose to withdraw or modify, in a manner adverse to Lender, the approval or
recommendation by the Board of Directors or any such committee of the issuance
of the Conversion Shares and the Reverse Stock Split, (ii) approve or recommend,
or propose to approve or recommend, any Takeover Proposal or (iii) enter into
any agreement with respect to any Takeover Proposal. Notwithstanding the
foregoing, in the event the Board of Directors of Parent determines in good
faith after consultation with, and based on the advice of, outside counsel, that
failure to do so would be inconsistent with its fiduciary duties to Parent's
stockholders under applicable law, the Board of Directors of Parent may withdraw
or modify its approval or recommendation of the issuance of the Conversion
Shares and the Reverse Stock Split, approve or recommend a Takeover Proposal, or
enter into an agreement with respect to a Takeover Proposal, in each case at any
time after midnight on the third business day following Lender's receipt of
written notice advising Lender that the Board of Directors of Parent has
received a Takeover Proposal, specifying the material terms and conditions of
such Takeover Proposal and identifying the person making such Takeover Proposal;
provided that such information shall be kept confidential by Lender under the
--------
terms of the Confidentiality Agreement.
(c) In addition to the obligations of Parent set forth in paragraphs
(a) and (b) of this Section 5.02, Parent shall promptly advise Lender of any
request for information or of any Takeover Proposal, or any proposal with
respect to any Takeover Proposal, the material terms and conditions of such
request or Takeover Proposal, and the identity of the person making any such
Takeover Proposal or inquiry. Parent will keep Lender fully informed of the
status and details (including amendments or proposed amendments) of any such
request, Takeover Proposal or inquiry; provided that such information shall be
--------
kept confidential by Lender under the terms of the Confidentiality Agreement.
(d) Nothing contained in this Section 5.02 shall prohibit Parent from
taking and disclosing to its stockholders a position contemplated by Rule 14e-
2(a) promulgated under the Exchange Act or from making any disclosure to
Parent's stockholders if, in the opinion of the Board of Directors of Parent,
after consultation with, and based on the advice
24
of, outside counsel, failure so to disclose would be inconsistent with its
fiduciary duties under applicable law.
SECTION 5.03. Revolving Credit Facility and Stand-by Commitment. (a)
-------------------------------------------------
Lender shall use its reasonable best efforts to obtain, on behalf of and at the
expense of Parent, prior to the Conversion Date an executed commitment letter
from one or more financial institutions reasonably satisfactory to Parent for a
revolving credit facility to provide working capital for the operating
subsidiaries of Parent following the Conversion Date in the aggregate amount of
$100,000,000 and otherwise having terms and conditions that are commercially
reasonable and reasonably satisfactory to Parent and Lender (the "Commitment
----------
Letter"). In the event that Lender is unable to obtain, on behalf of and at the
------
expense of Parent, the Commitment Letter prior to the Conversion Date, (i)
Lender shall continue following the Conversion Date to use its reasonable best
efforts to obtain, on behalf of and at the expense of Parent, the Commitment
Letter and (ii) Lender shall provide a revolving credit facility for such
purpose of at least $50,000,000 and having terms and conditions substantially
similar to those set forth on Exhibit B.
(b) Lender shall use its reasonable best efforts to obtain, on behalf
of and at the expense of Parent, prior to the Conversion Date an executed
commitment letter from one or more financial institutions reasonably
satisfactory to Parent for a stand-by credit or remarketing facility having
terms and conditions that are commercially reasonable and reasonably
satisfactory to Lender and Parent for the repurchase or remarketing, as the case
may be, of any 122% Senior Notes put to Parent pursuant to Section 4.15 of the
Indenture following the Conversion (the "Remarketing Facility").
--------------------
(c) In connection with Lender's undertakings in Sections 5.03(a) and
5.03(b), Parent and the Company shall (i) make reasonably available for
inspection by any such financial institution, and any attorney or other agent
thereof, all relevant financial and other records, pertinent corporate documents
and properties of Parent, the Company and the other subsidiaries of Parent
requested by such financial institution, (ii) cause Parent's and the Company's
officers, directors and employees to supply all relevant information reasonably
requested by any such financial institution or any such attorney or agent in
connection with providing such revolving credit agreement or the Remarketing
Facility, as the case may be, (iii) make such representation and warranties to
any such financial institution, in form, substance and scope as are customarily
made by borrowers or issuers under such circumstances, (iv) use its reasonable
best efforts to obtain opinions of counsel to Parent and the Company, if so
requested by any such financial institution, covering such matters as are
customarily covered in such opinions, and (v) deliver such documents and
certificates as may be reasonably requested by any such financial institution or
such attorney or other agent.
25
ARTICLE VI
Additional Agreements
---------------------
SECTION 6.01. Stockholders Meeting; Preparation of the Proxy
----------------------------------------------
Statement. (a) Parent will, as soon as practicable following the date of this
---------
Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders (the "Stockholders Meeting") for the purpose of approving the
--------------------
Reverse Stock Split, the issuance of the shares of Common Stock to be issued
pursuant to the Note as set forth therein (the "Conversion Shares") and the 1997
-----------------
Stock Plan. Subject to the provisions of Section 5.02(b), Parent will, through
its Board of Directors, recommend to its stockholders approval of the Reverse
Stock Split, the issuance of the Conversion Shares and the 1997 Stock Plan.
Without limiting the generality of the foregoing, Parent agrees that its
obligations pursuant to the first sentence of this Section 6.01(a) shall not be
affected by the commencement, public proposal, public disclosure or
communication to Parent of any Takeover Proposal.
(b) Parent will as soon as practicable prepare and file a preliminary
Proxy Statement with the SEC, and Lender will cooperate in such preparation and
filing. In addition, Parent will respond, and Lender will cooperate in
responding, to any comments of the SEC or its staff, and Parent will cause the
Proxy Statement to be mailed to Parent's stockholders as promptly as practicable
after responding to all such comments to the satisfaction of the SEC or its
staff. Parent will notify Lender promptly of the receipt of any comments from
the SEC or its staff and of any request by the SEC or its staff for amendments
or supplements to the Proxy Statement or for additional information and will
supply Lender with copies of all correspondence between Parent or any of its
representatives, on the one hand, and the SEC or its staff, on the other hand,
with respect to the Proxy Statement. If at any time prior to the Stockholders
Meeting there shall occur any event that should be set forth in an amendment or
supplement to the Proxy Statement, Parent will promptly prepare (and if relating
to Lender, Lender will also promptly cooperate with the Parent in preparing) and
mail to its stockholders such an amendment or supplement. Parent will not file
or mail any Proxy Statement, or any amendment or supplement thereto, to which
Lender reasonably objects, if such objection relates to the information provided
by Lender for inclusion in the Proxy Statement.
SECTION 6.02. Access to Information; Confidentiality. Subject to the
--------------------------------------
Confidentiality Agreement, Parent shall afford to Lender, and to Lender's
officers, employees, accountants, counsel, financial advisors and other
representatives, reasonable access during normal business hours during the
period prior to the Conversion Date to all the properties, books, contracts,
commitments and records of Parent and the Company and Parent's other
subsidiaries and, during such period, Parent and the Company shall furnish
promptly to Lender (a) a copy of each report, schedule, registration statement
and other document filed by it or its subsidiaries during such period pursuant
to the requirements of
26
federal or state securities laws and (b) all other information concerning its or
its subsidiaries, business, properties and personnel as Lender may reasonably
request.
SECTION 6.03. Approvals and Consents; Cooperation. (a) Upon the
-----------------------------------
terms and subject to the conditions set forth in this Agreement, each of the
parties agrees to use all reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other party in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the issuance of
the Conversion Shares, the Reverse Stock Split and the other transactions
contemplated by this Agreement and the Note, including (i) the obtaining of any
necessary actions or nonactions, waivers, consents and approvals from
Governmental Entities and the making of all necessary registrations and filings
(including filings with Governmental Entities) and the taking of all reasonable
steps as may be necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by, any Governmental Entity, (ii) the obtaining of all
necessary consents, approvals or waivers from third parties, (iii) the defending
of any lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of any of the transactions
contemplated by this Agreement, including seeking to have any stay or temporary
restraining order entered by any court or other Governmental Entity vacated or
reversed and (iv) the execution and delivery of any additional instruments
necessary to consummate the transactions contemplated by, and to fully carry out
the purposes of, this Agreement.
(b) Lender and Parent shall file as soon as practicable after the
date hereof notifications under the HSR Act and shall respond as promptly as
practicable to all inquiries or requests received from the Federal Trade
Commission or the Antitrust Division of the Department of Justice for additional
information or documentation and shall respond as promptly as practicable to all
inquiries and requests received from any State Attorney General or other
Governmental Entity in connection with antitrust matters.
SECTION 6.04. Stock Option Plans. Following the effective date of
------------------
the 1997 Stock Plan, no additional options or other awards shall be granted
under any stock option plan listed on Schedule 3.10(a) (the "Stock Option
------------
Plans") other than the 1997 Stock Plan and the 1992 Stock Option Plan for
Nonemployee Directors.
SECTION 6.05. Fees and Expenses. (a) Except as provided in this
-----------------
Section 6.05, all fees and expenses incurred in connection with this Agreement,
the Funding, the Purchase, the Conversion and the other transactions
contemplated hereby and by the Note shall be paid by the party incurring such
fees or expenses, whether or not the Funding or the Purchase is consummated.
(b) Parent shall pay in immediately available funds, by wire transfer
to an account designated by Lender, to Stonington upon demand a fee of $7.5
million (the
27
"Termination Fee") plus reimbursement for all Expenses if (i) Parent enters into
---------------
a definitive agreement in accordance with Section 5.02(b), (ii) the Board of
Directors of Parent shall have withdrawn or modified in any manner adverse to
Lender its approvals or recommendations to Parent's stockholders of the issuance
of the Conversion Shares or the Reverse Stock Split or shall have approved a
Takeover Proposal, (iii) the Parent's stockholders shall not have approved the
issuance of the Conversion Shares or the Reverse Split and prior to the
Stockholders Meeting a Takeover Proposal shall have been publicly announced and
not withdrawn, or (iv) the Parent Stockholder Approvals are not obtained by
January 31, 1998 and within 12 months following the date on which this Agreement
is terminated pursuant to Section 8.01 a Takeover Proposal shall have been
consummated; provided, that in the event that (x) none of the events set forth
--------
in clauses (i) through (iii) of this sentence has occurred and (y) the Parent
Stockholder Approvals have been obtained, then, if the condition to Conversion
set forth in Section 4.01(e) of the Note has not been satisfied by January 31,
1998, and, as a consequence the Conversion has not occurred by such date,
Parent's obligations with respect to payment of the Termination Fee pursuant to
this Section 6.05(b) shall terminate. For purposes of this Section 6.05,
"Expenses" means all out-of-pocket expenses and fees incurred by Lender and its
--------
Affiliates (including, without limitation, fees and expenses payable to legal,
accounting, financial and other professional advisors, but excluding any
judgments, fines or amounts paid in settlement of any pending or threatened
legal proceeding against Lender or its affiliates) arising out of, in connection
with or related to this Agreement and the Note and the transactions contemplated
hereby and thereby.
(c) In addition to any Expenses payable to Lender pursuant to Section
6.05(b), with respect to any lawsuit commenced against Lender, any Affiliate of
Lender, Parent or the Company in connection with the transactions contemplated
hereby, provided that Lender has not breached any material term of this
--------
Agreement, Parent shall promptly reimburse Lender or any such Affiliate of
Lender for all Expenses in connection with or arising from any such litigation
and, in the event that the Conversion does not occur pursuant to the Note as a
result of such litigation, Parent shall promptly reimburse Lender or such
Affiliate for all Expenses.
(d) At Closing, Parent shall pay Stonington a transaction fee of $3
million, payable in immediately available funds by wire transfer to an account
designated by Stonington (the "Transaction Fee").
---------------
SECTION 6.06. Notification. Each of Parent and the Company shall
------------
give prompt notice to Lender of (i) any representation or warranty made by it
contained in this Agreement that is qualified as to materiality becoming untrue
or inaccurate in any respect or any such representation or warranty that is not
so qualified becoming untrue or inaccurate in any material respect or (ii) the
failure by it to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
28
Agreement; provided, however, that no such notification shall affect the
-------- -------
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
SECTION 6.07. Rights of Stockholders to Participate in Certain
------------------------------------------------
Transactions. (a) Following the Conversion, so long as any of Lender or any of
------------
its Affiliates owns 40% or more of the outstanding shares of Common Stock (prior
to giving effect to any transaction which is the subject of this Section 6.07),
none of Lender or any of its Affiliates (the "Lender Offeree") shall, directly
--------------
or indirectly, in one transaction or a series of related transactions, transfer
for value to a single person or any group of persons (as such term is used in
Rule 13d-1(b) under the Exchange Act), other than an Affiliate of Lender, shares
of Common Stock constituting more than 20% of the then issued and outstanding
shares of Common Stock, unless each other holder of shares of Common Stock is
provided with the opportunity, at the option of each such holder, to transfer an
"Equivalent Amount" (as defined below) of shares of Common Stock to such third
-----------------
party on the same terms and conditions as offered to the Lender Offeree. If any
Lender Offeree receives any such offer from a third party (a "Third Party
-----------
Offer") that such Lender Offeree intends to accept, such Lender Offeree shall
cause such third party to offer to acquire, on the same terms and conditions as
contained in the Third Party Offer, an Equivalent Amount of the shares of Common
Stock of each such other holder, which offer will comply with the provisions of
the Securities Act and the Exchange Act applicable thereto. For purposes of
this Section 6.07, "Equivalent Amount" means with respect to any holder of
-----------------
shares of Common Stock, the number of shares of Common Stock owned by such
holder equal to the product of (x) the total number of shares of Common Stock
proposed to be transferred by the Lender Offeree to the third party multiplied
by (y) a fraction, the numerator of which shall be the total number of shares of
Common Stock then owned by such holder and the denominator of which shall be the
total number of shares of Common Stock then issued and outstanding.
(b) The Lender Offeree may transfer to such third party the greater
of (i) the number of shares of Common Stock by which the total number of such
shares originally proposed to be transferred by the Lender Offeree to such third
party exceeds the sum of the aggregate Equivalent Amount of shares of Common
Stock of all other such holders and (ii) the number of shares of Common Stock by
which the total number of such shares originally proposed to be transferred by
the Lender Offeree to such third party exceeds the sum of the aggregate
Equivalent Amount of shares of Common Stock actually tendered to be sold to such
third party by all other such holders.
(c) If any such third party does not offer to purchase shares of
Common Stock from the other stockholders of Parent as provided in this Section
6.07, then the entire proposed sale by the Lender Offeree of any shares of its
Common Stock to such third party shall be invalid.
29
(d) If, at the expiration of any period during which a Third Party
Offer is open in accordance with the applicable provisions of the Securities Act
and the Exchange Act, any holder of shares of Common Stock shall not have
accepted such Third Party Offer with respect to all or any portion of the
Equivalent Amount of shares of Common Stock of such holder, such holder shall be
deemed to have thereby waived all of its rights with respect to the transfer of
such shares of Common Stock to such third party on the terms and conditions
specified in such Third Party Offer.
SECTION 6.08. Public Announcements. Subject to consultation with the
--------------------
other parties hereto, each party may make an initial press release concerning
this Agreement and the Note and the transactions contemplated hereby and thereby
and, thereafter, Lender, Parent and the Company shall consult with each other
before issuing any press release or otherwise making any public statements with
respect to this Agreement or any of the transactions contemplated hereunder and
shall not issue any such press release or make any such public statement prior
to such consultation, except to the extent required by applicable law or the
requirements of any applicable stock exchange regulations, in which case the
issuing party shall use its reasonable best efforts to consult with the other
party prior to issuing any such release or making any such public statement.
SECTION 6.09. Use of Proceeds. The Proceeds shall be used to (a)
---------------
repay the outstanding principal amount under, accrued and unpaid interest due
on, and any prepayment penalty with respect to each of (i) the Revolving Credit
Agreement among the Company and Merisel Europe, Inc. and the lenders thereto
dated as of ▇▇▇▇▇ ▇▇, ▇▇▇▇, (▇▇) the senior notes issued pursuant to the Amended
and Restated Senior Note Purchase Agreement between the Company and the
noteholders party thereto dated as of December 23, 1993, as subsequently
amended, and (iii) the subordinated notes issued pursuant to the Amended and
Restated Subordinated Note Purchase Agreement between the Company and the
noteholders party thereto dated as of December 23, 1993, as subsequently amended
and (b) pay the Transaction Fee to Stonington.
ARTICLE VII
Conditions Precedent
--------------------
SECTION 7.01. Conditions to Each Party's Obligation to Effect the
---------------------------------------------------
Funding and the Purchase. The respective obligations of each party to effect
------------------------
the Funding and the Purchase are subject to the satisfaction or waiver on or
prior to the Closing Date of the following conditions:
(a) No Injunctions or Restraints. No statute, rule, regulation,
----------------------------
executive order, decree, temporary restraining order, preliminary or
permanent injunction or
30
other order issued by any Governmental Entity or other legal restraint or
prohibition preventing the consummation of the Funding, the Purchase or the
Reverse Stock Split or the issuance of the Conversion Shares shall be in
effect; provided, however, that, in the case of a decree, injunction or
-------- -------
other order, each of the parties shall have used its best efforts to
prevent the entry of any such injunction or other order and to appeal as
promptly as possible any injunction or other order that may be entered.
(b) Consents. All consents, approvals and authorizations required to
--------
be obtained prior to the Closing Date from any third party in connection
with this Agreement and the transactions contemplated hereunder shall have
been obtained, except where the failure to obtain same would not have a
Material Adverse Effect.
SECTION 7.02. Additional Conditions to Lender's Obligation to Effect
------------------------------------------------------
the Funding and the Purchase.
----------------------------
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties of Parent and the Company contained in this Agreement (i) that is
qualified as to materiality shall be true and correct and (ii) that is not so
qualified shall be true and correct in all material respects, in each case as of
the Closing Date as though made as of the Closing Date (except that the accuracy
of representations and warranties that by their terms speak only as to an
earlier date will be determined as of such earlier date). Lender shall have
received a certificate of the Chief Executive Officer of each of Parent and the
Company dated the Closing Date to that effect.
(b) Agreements and Covenants. Each of Parent and the Company shall
------------------------
have performed or complied in all material respects with all obligations
required to be performed by it under this Agreement on or prior to the Closing
Date. Lender shall have received a certificate of the Chief Executive Officer
of each of Parent and the Company dated the Closing Date to that effect.
(c) Absence of a Material Adverse Change. There shall have been no
------------------------------------
material adverse change in the assets, liabilities, business, operations,
properties (including intangible properties), condition (financial or otherwise)
or results of operations of Parent and its subsidiaries, taken as a whole.
(d) Absence of Litigation. There shall be no (i) injunction, order or
---------------------
similar restraint issued by any Governmental Entity of competent jurisdiction
that imposes limitations on Lender's ability to exercise full rights of
ownership with respect to the Purchased Shares, the Note or Conversion Shares or
(ii) finding that Parent has breached or is in breach of any material obligation
under the Limited Waiver Agreement or the Limited Waiver and Agreement to Amend
dated as of April 14, 1997 by and among Parent, the Company, Merisel Europe,
Inc. and the other parties thereto (the "Limited Waiver and
------------------
31
Agreement to Amend"), whether preliminary, interlocutory or final, by a
------------------
Governmental Entity of competent jurisdiction.
(e) Registration Rights Agreement. The Registration Rights Agreement,
-----------------------------
in substantially the form attached hereto as Exhibit C, shall have been executed
and delivered to Lender by Parent and the Company.
(f) Waiver Agreements. Each of the Limited Waiver Agreement and the
-----------------
Limited Waiver and Agreement to Amend shall have terminated in accordance with
its terms.
(g) Accounts Receivable. The net book value of the accounts
-------------------
receivable of Parent and its subsidiaries shall be at least $225,600,000.
SECTION 7.03. Additional Conditions to Parent's Obligation to Effect
------------------------------------------------------
the Funding and the Purchase.
----------------------------
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties of Lender contained in this Agreement (i) that is qualified as to
materiality shall be true and correct and (ii) that is not so qualified shall be
true and correct in all material respects, in each case as of the Closing Date
as though made as of the Closing Date (except that the accuracy of
representations and warranties that by their terms speak only as to an earlier
date will be determined as of such earlier date). Parent shall have received a
certificate of the member of Lender dated the Closing Date to that effect.
(b) Agreements and Covenants. Lender shall have performed or complied
------------------------
in all material respects with all obligations required to be performed by it
under this Agreement on or prior to the Closing Date. Parent shall have
received a certificate of the member of Lender to that effect.
(c) Waiver Agreements. Each of the Limited Waiver Agreement and the
-----------------
Limited Waiver and Agreement to Amend shall have terminated in accordance with
its terms.
(d) Absence of Breach. There shall be no finding that Parent has
-----------------
breached or is in breach of any material obligation under the Limited Waiver
Agreement or the Limited Waiver and Agreement to Amend.
32
ARTICLE VIII
Termination, Amendment and Waiver
---------------------------------
SECTION 8.01. Termination. This Agreement may be terminated at any
-----------
time prior to the Closing Date:
(a) by mutual written consent of Lender, Parent and the Company;
(b) by either Lender, on the one hand, or Parent and the Company, on
the other hand, if the Closing Date shall not have occurred on or before
the tenth business day from the date hereof; provided that the right to
--------
terminate this Agreement under this Section 8.01(b) shall not be available
to any party whose failure to fulfill any obligations under this Agreement
has been the cause of, or resulted in, the failure of the Closing Date to
occur on or before such date; or
(c) by either Lender, on the one hand, or the Parent and the Company
on the other hand, if any Governmental Entity of competent jurisdiction
shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the Funding,
the Purchase, the Reverse Stock Split, the issuance of the Conversion
Shares or any other transactions contemplated herein and such order, decree
or ruling or other action shall have become final and nonappealable;
(d) by either Lender or Parent, if at the Stockholders Meeting the
Parent Stockholder Approvals are not obtained;
(e) by Lender, provided that Lender has not breached any material term
of this Agreement, if the Board of Directors of Parent shall have withdrawn
or modified in any manner adverse to Lender its approval or recommendation
to Parent's stockholders of the Reverse Stock Split or the issuance of the
Conversion Shares or shall have approved a Takeover Proposal;
(f) by Parent, in connection with entering into a definitive agreement
in accordance with Section 5.02(b), provided it has complied with all
provisions thereof, including the notice provisions therein, and that it
makes simultaneous payment of the Termination Fee and Expenses pursuant to
Section 6.05(b).
SECTION 8.02. Effect of Termination. In the event of termination of
---------------------
this Agreement by either Parent and the Company, on the one hand, or Lender, on
the other hand, as provided in Section 8.01, this Agreement shall forthwith
become void and have no effect, without any liability or obligation on the part
of Lender, Parent or the Company,
33
other than the provisions of Section 3.23, Section 4.07, Section 6.05, this
Section 8.02 and Article IX and except to the extent that such termination
results from the wilful and material breach by a party of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
SECTION 8.03. Amendment. This Agreement may not be amended except by
---------
an instrument in writing signed on behalf of each of the parties.
SECTION 8.04. Extension; Waiver. Any agreement on the part of a
-----------------
party to any waiver shall be valid only if set forth in any instrument in
writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of those rights.
ARTICLE IX
General Provisions
------------------
SECTION 9.01. Survival of Representations. If the Funding occurs,
---------------------------
the representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive until the Conversion Date, at
which time they shall expire and be of no further force and effect.
SECTION 9.02. Notices. All notices, requests, claims, demands and
-------
other communications under this Agreement shall be in writing and shall be
deemed given if delivered personally or sent by overnight courier (providing
proof of delivery) to the parties at the following addresses (or at such address
for a party as shall be specified by like notice):
(a) if to Lender, to:
Stonington Partners, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
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Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ III
with a copy to:
Shearman & Sterling
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Attention: ▇▇▇▇▇ ▇'▇▇▇▇▇, Esq.
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(b) if to Parent or the Company, to:
Merisel, Inc.
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Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
with a copy to:
Skadden, Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
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▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
SECTION 9.03. Interpretation. When a reference is made in this
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Agreement to a Section, Exhibit or Schedule, such reference shall be to a
Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation".
SECTION 9.04. Counterparts. This Agreement may be executed in one or
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more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
SECTION 9.05. Entire Agreement; No Third-Party Beneficiaries. This
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Agreement constitutes the entire agreement, and supersedes all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement (provided, however, that the provisions of the
Confidentiality Agreement shall remain valid and in effect) and, is not intended
to confer upon any person other than the parties any rights or remedies
hereunder.
SECTION 9.06. Assignment. Neither this Agreement nor any of the
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rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise by any of the parties without
the prior written consent of the other parties, except that Lender may assign,
in its sole discretion, any or all of its rights, interests and obligations
under this Agreement to any affiliate of Lender, but no such assignment shall
relieve Lender of any of its obligations under this Agreement. Subject to
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the preceding sentence, this Agreement will be binding upon, inure to the
benefit of, and be enforceable by, the parties and their respective successors
and assigns.
SECTION 9.07. Specific Performance. The parties hereto agree that
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irreparable damage would occur in the event that any party fails to consummate
the transactions contemplated by this Agreement in accordance with the terms of
this Agreement and that the parties shall be entitled to specific performance in
such event, in addition to any other remedy at law or in equity.
SECTION 9.08. Governing Law. This Agreement shall be governed by,
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and construed in accordance with, the laws of the State of New York, without
regard to any applicable conflicts of law.
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IN WITNESS WHEREOF, Lender, Parent and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
Phoenix Acquisition Company II, L.L.C.
by: Stonington Capital Appreciation 1994
Fund, L.P., as a member,
by: Stonington Partners, L.P., its
general partner,
by: Stonington Partners, Inc. II, its
general partner
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ III
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Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ III
Title: Partner
Merisel, Inc.
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: Chief Executive Officer
Merisel Americas, Inc.
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: Chief Executive Officer