Exhibit 2.1
STOCK PURCHASE AGREEMENT
Regarding the Stock of
▇▇▇▇▇▇, INC.
By and Among
▇▇▇▇▇▇-▇▇▇▇▇▇ COMPANY,
as the Seller,
▇▇▇▇▇▇ HOLDINGS, INC.
and
▇▇▇▇▇▇ HOLDINGS II, INC.,
as the Buyer
Dated as of June 15, 1999, as amended by the
First Amendment hereto dated as of July 13, 1999
TABLE OF CONTENTS
PAGE
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ARTICLE I PURCHASE AND SALE OF THE COMPANY SHARES 1
Section 1.01 Basic Transaction 1
Section 1.02 Purchase Consideration 1
Section 1.03 The Closing 1
Section 1.04 Deliveries at the Closing. 2
Section 1.05 Treatment of Certain Transition Items; Intercompany Items;
and Payments and Distributions 2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLER CONCERNING THE TRANSACTION 3
Section 2.01 Organization of the Seller 3
Section 2.02 Authorization of Transaction 3
Section 2.03 Noncontravention 3
Section 2.04 Brokers'Fees 4
Section 2.05 Investment 4
Section 2.06 Company Shares 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER CONCERNING THE TRANSACTION 4
Section 3.01 Organization of the Buyer 5
Section 3.02 Authorization of Transaction 5
Section 3.03 Noncontravention 5
Section 3.04 Brokers'Fees 5
Section 3.05 Investment 5
Section 3.06 Financing 6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLER CONCERNING THE COMPANY AND ITS SUBSIDIARIES 6
Section 4.01 Organization, Qualification, and Corporate Power. 6
Section 4.02 Capitalization 7
Section 4.03 Noncontravention 7
Section 4.04 Brokers'Fees 8
Section 4.05 Title to Assets 8
Section 4.06 Subsidiaries 8
Section 4.07 Financial Statements 8
Section 4.08 Events Subsequent to Most Recent Fiscal Year End 9
Section 4.09 Undisclosed Liabilities 11
Section 4.10 Legal Compliance 11
Section 4.11 Tax Matters 11
Section 4.12 Real Property 13
Section 4.13 Intellectual Property 15
Section 4.14 Tangible Assets 16
Section 4.15 Inventory 17
Section 4.16 Contracts 17
Section 4.17 Notes and Accounts Receivable 18
Section 4.18 Powers of Attorney 18
Section 4.19 Insurance 18
Section 4.20 Litigation 19
Section 4.21 Product Warranty 19
Section 4.22 Product Liability 19
Section 4.23 Employees 20
Section 4.24 Employee Benefits 20
Section 4.25 Guaranties 22
Section 4.26 Environmental, Health, and Safety Matters 22
Section 4.27 Certain Business Relationships 23
Section 4.28 Disclosure 23
ARTICLE V
PRE-CLOSING COVENANTS 24
Section 5.01 General 24
Section 5.02 Notices and Consents 24
Section 5.03 Operation and Preservation of Business 24
Section 5.04 Full Access 25
Section 5.05 Notice of Developments 25
Section 5.06 Exclusivity 25
Section 5.07 Title Insurance 25
Section 5.08 Surveys 26
Section 5.09 Deloitte & Touche LLP 26
Section 5.10 Confidentiality. 27
ARTICLE VI
POST-CLOSING COVENANTS 27
Section 6.01 General 27
Section 6.02 Litigation Support 27
Section 6.03 Noninterference 27
Section 6.04 Confidentiality 28
Section 6.05 Covenant Not to Compete 28
Section 6.06 Additional Seller Financing 29
Section 6.07 Legends 30
Section 6.08 Leases. 31
Section 6.09 Employee Benefit Plan Matters 32
ARTICLE VII
CONDITIONS TO OBLIGATION TO CLOSE 34
Section 7.01 Conditions to Obligation of the Buyer 34
Section 7.02 Conditions to Obligation of the Seller 36
ARTICLE VIII
REMEDIES FOR BREACHES OF THIS AGREEMENT 37
Section 8.01 Survival of Representations and Warranties 37
Section 8.02 Indemnification Provisions for Benefit of the Buyer 38
Section 8.03 Indemnification Provisions for Benefit of the Seller 39
Section 8.04 Matters Involving Third Parties 40
Section 8.05 Determination of Adverse Consequences 41
Section 8.06 Recoupment Under Seller Note 41
Section 8.07 Other Indemnification Provisions 41
ARTICLE IX
TAX MATTERS 41
Section 9.01 Tax Sharing Agreements 41
Section 9.02 Taxes of Other Persons 42
Section 9.03 Seller Group Tax Returns 42
Section 9.04 Tax Returns to be Filed by the Buyer 42
Section 9.05 Cooperation on Tax Matters 43
Section 9.06 Audits 44
Section 9.07 Carrybacks 44
Section 9.08 Retention of Carryovers 44
Section 9.09 Certain Taxes on the Transaction 44
Section 9.10 Intended Treatment of the Transaction 44
ARTICLE X
TERMINATION 45
ARTICLE XI
DEFINITIONS 45
ARTICLE XII
MISCELLANEOUS 54
Section 12.01 Press Releases and Public Announcements 54
Section 12.02 No Third-Party Beneficiaries 54
Section 12.03 Entire Agreement 54
Section 12.04 Succession and Assignment 54
Section 12.05 Counterparts 54
Section 12.06 Headings 55
Section 12.07 Notices 55
Section 12.08 Governing Law 56
Section 12.09 Amendments and Waivers 57
Section 12.10 Severability 57
Section 12.11 Expenses 57
Section 12.12 Construction 57
Section 12.13 Incorporation by Reference 57
Section 12.14 Specific Performance 58
Section 12.15 Service of Process 58
Exhibits
Exhibit A - Seller Note
Exhibit B-1 - Draft Audited Financial Statements
Exhibit B-2 - Interim Financial Statements
Exhibit C - Transition Services Agreement
Exhibit D - Substance of Opinion Of ▇▇▇▇▇▇▇ ▇▇▇▇▇ Battle & ▇▇▇▇▇▇ LLP
Exhibit E - Substance of Opinion Of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
Exhibit F - Certain Fully Indemnified Matters
Exhibit G - Structuring Term Sheet
Exhibit H - Knowledge: Officers of the Company and its Subsidiaries
Exhibit I - ▇▇▇▇▇▇ Financing Proposal
Exhibit J - Collateral Assignment of Leases
Exhibit K - Form of Guardian Letter Agreement
Disclosure Schedule
Section 4.01 -Directors and Officers
Section 4.03 -Noncontravention
Section 4.05 -Title to Assets: Security Interests
Section 4.06 -Subsidiaries
Section 4.08 -Events Subsequent to Most Recent Fiscal Year End
Section 4.09 -Undisclosed Liabilities
Section 4.11(a) -Tax Return Filing Extensions
Section 4.11(c) -Tax Liability Disputes or Claims; Tax Audits
Section 4.11(d) -Taxes: Waiver of Statute of Limitations
Section 4.11(f) -Tax Allocation or Sharing Agreements
Section 4.11(g) -Tax Basis; Deferred Gain or Loss
Section 4.11(h) -Taxable Income Adjustments
Section 4.12(a) -Owned Real Property
Section 4.12(a)(iii) -Real Property: Approvals of Governmental Authorities
Section 4.12(a)(iv) -Real Property: Third Party Rights
Section 4.12(a)(vi) -Real Property: Possession
Section 4.12(b) -Leased Real Property
Section 4.13(a) -Intellectual Property: Use
Section 4.13(b) -Intellectual Property: Infringement
Section 4.13(c) -Intellectual Property: Patents, Trademarks and Tradenames
Section 4.13(d) -Intellectual Property: Licenses and Sublicenses
Section 4.13(e) -Intellectual Property: Year 2000 Compliance
Section 4.14 -Tangible Assets
Section 4.l6 -Contracts
Section 4.18 -Powers of Attorney
Section 4.19 -Insurance
Section 4.20 -Litigation
Section 4.21 -Product Warranty
Section 4.23(a) -Employees: Collective Bargaining Agreements
Section 4.23(b) -Employees: Unfair Labor Practices
Section 4.24(a) -Employee Benefit Plans
Section 4.24(b) -Employee Benefit Plans: Actions and Investigations
Section 4.25 -Guaranties
Section 4.26(a) -Environmental: General Compliance
Section 4.26(b) -Environmental: Permits, Licenses, and other Authorizations
Section 4.26(c) -Environmental: Notices of Violation
Section 4.26(d) -Environmental: USTs, Asbestos, PCBs and Landfills
Section 4.26(e) -Environmental: Disposal
Section 4.26(f) -Environmental: Site Investigation and Cleanup
Section 4.26(g) -Environmental: Assumption of Liability
Section 4.27 -Certain Business Relationships
Section 6.03 -Noninterference
Section 6.09(a) -New Company Plans
Section 7.01 -Closing: Required Landlord Consents
STOCK PURCHASE AGREEMENT
Stock Purchase Agreement (this "Agreement") entered into as of June 15,
1999, as amended by the First Amendment thereto dated as of July 13, 1999, by
and among ▇▇▇▇▇▇ Holdings, Inc., a Delaware corporation ("Holdings"), ▇▇▇▇▇▇
Holdings II, Inc., a Delaware corporation (the "Buyer"), and ▇▇▇▇▇▇-▇▇▇▇▇▇
Company, a Virginia corporation (the "Seller"). Holdings, the Buyer and the
Seller are referred to collectively herein as the "Parties."
The Seller owns all of the outstanding capital stock of ▇▇▇▇▇▇, Inc., a
Georgia corporation (the "Company").
This Agreement contemplates a transaction in which the Buyer will purchase
from the Seller, and the Seller will sell to the Buyer, all of the outstanding
capital stock of the Company in return for the Cash Consideration, the Seller
Note, the Primary Seller Option, and the Contingent Seller Option (as such terms
are defined in Article XI below).
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
Article I
Purchase and Sale of the Company Shares
Section 1.01 Basic Transaction.
On and subject to the terms and conditions of this Agreement, the Buyer
agrees to purchase from the Seller, and the Seller agrees to sell to the Buyer,
all of the Company Shares for the consideration specified below in this Article
I.
Section 1.02 Purchase Consideration.
The Buyer shall deliver or cause to be delivered to the Seller at the
Closing (a) cash in the amount of Sixty Million Dollars ($60,000,000.00), by
wire transfer or other delivery of immediately available funds (the "Cash
Consideration"), plus (b) the Seller Note, plus (c) the Primary Seller Option,
plus (d) the Contingent Seller Option. The Cash Consideration, the Seller Note,
the Primary Seller Option, and the Contingent Seller Option are referred to
collectively herein as the "Purchase Consideration."
Section 1.03 The Closing.
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ in New York, New
York, commencing at 10:00 a.m. local time on June 30, 1999 or, if later, the
second business day following the satisfaction or waiver of all conditions to
the obligations of the Parties to consummate the transactions contemplated
hereby (other than conditions with respect to actions the respective Parties
will take at the Closing itself) or such other date as the Buyer and the Seller
may mutually determine (the "Closing Date").
Section 1.04 Deliveries at the Closing.
At the Closing, (a) the Seller will deliver to the Buyer the various
certificates, instruments, and documents referred to in Section 7.01 below, (b)
the Buyer will deliver to the Seller the various certificates, instruments, and
documents referred to in Section 7.02 below, (c) the Seller will deliver to the
Buyer stock certificates representing all of the Company Shares, endorsed in
blank or accompanied by duly executed assignment documents, and (d) the Buyer
will deliver to the Seller the consideration specified in Section 1.02 above.
Section 1.05 Treatment of Certain Transition Items;
Intercompany Items; and Payments and
Distributions.
(a) Treatment of Certain Transition Items.
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Except as provided herein, the Seller will not cause or permit any of the
Company and its Subsidiaries to accelerate collections, defer payments, or
engage in any other practice outside the Ordinary Course of Business the primary
purpose or effect of which will be to generate or preserve cash for the account
of the Seller, including, the Company or any of its Subsidiaries not paying its
payables in accordance with applicable industry standards. Without limiting the
generality of the foregoing, the Seller will indemnify the Buyer to the extent
that past due trade accounts payable as of the Closing Date exceed $800,000;
provided, that there are no material changes to the payables practices of the
Company made by the Company's employees in anticipation of the Closing. The
Seller also agrees that any insurance receivable of the Company and its
Subsidiaries (including any proceeds if the receivable is collected prior to the
Closing) will be for the account of the Buyer; provided, that the Parties agree
that (i) that certain insurance receivable of the Company and its Subsidiaries
from Greensboro Insurance in respect of the Company Fire (the "Greensboro
Receivable") will be for the account of the Seller, up to any amount of the
Greensboro Receivable pre-funded by the Seller, as reflected on the books,
records and financial statements of the Seller, and (ii) the Seller will
reimburse the Buyer for any replacement inventory of the Company that is unpaid
as of the Closing Date with respect to the Greensboro Receivable. The Parties
agree that any intercompany payables and receivables as between (x) the Seller
and (y) the Company and its Subsidiaries will be deemed to have been netted and
capitalized effective as of the Closing Date.
(b) Intercompany Items.
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Immediately prior to Closing, except for the Transition Services Agreement
and the Seller Note, the License Agreement, the letter agreement between the
Company and Guardian Products, Inc., substantially in the form attached hereto
as Exhibit K, and the leases and subleases relating to the Company's facilities
located in Clearwater, Florida and Stuart, Florida, all intercompany accounts,
arrangements, and transactions between or among (i) the Company and any of its
Affiliates, on the one hand, and (ii) the Seller and any of its Affiliates, on
the other hand, shall be terminated, canceled and released. Except as provided
under the terms and conditions of the Transition Services Agreement, the Seller
Note, the License Agreement, the letter agreement between the Company and
Guardian Products, Inc., substantially in the form attached hereto as Exhibit K,
and the leases and subleases relating to the Company's facilities located in
Clearwater, Florida and Stuart, Florida, none of the Company or its Subsidiaries
shall have any obligation with respect to any such intercompany accounts,
arrangements or transactions on or after the Closing Date.
(c) Cash at Closing.
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The Seller represents and warrants that the Company had at least $2.0
million in aggregate balances of cash and cash equivalents on deposit in the
Company's bank accounts (in addition to the proceeds of the financing
contemplated by this Agreement) as of the close of business on June 30, 1999.
The Seller represents and warrants that, except for (i) $311,161 and (ii)
amounts of cash and cash equivalents removed from the Company by the Seller and
replaced by the Seller prior to the Closing, it has not removed any cash or cash
equivalents from the Company from the period commencing on July 1, 1999 and
continuing through and including the Closing Date. The Seller will indemnify the
Buyer promptly after the Closing to the extent either of these representations
and warranties has been breached.
Article II
Representations and Warranties of the Seller Concerning the Transaction
The Seller represents and warrants to the Buyer that the statements
contained in this Article II are correct and complete as of the date of this
Agreement, and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Article II).
Section 2.01 Organization of the Seller.
The Seller is duly organized, validly existing, and in good standing under
the laws of the Commonwealth of Virginia.
Section 2.02 Authorization of Transaction.
The Seller has full corporate power and authority to execute and deliver
this Agreement and to perform its obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of the Seller, enforceable
in accordance with its terms and conditions. The Seller need not give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order to consummate the transactions
contemplated by this Agreement; provided, that with respect to the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act, the Seller's representation and warranty is made in
reliance upon the Buyer's representation and warranty in Section 3.02 below.
Section 2.03 Noncontravention.
Neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (a) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which the Seller is subject, or any provision of its charter or bylaws,
or (b) conflict with, result in a breach of, constitute a default under, result
in the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which the Seller is a party or by
which it is bound or to which any of its assets is subject, except where the
violation, conflict, breach, default, acceleration, termination, modification,
cancellation or failure to give notice would not have a material adverse effect
on the Seller or on the ability of the Parties to consummate the transactions
contemplated by this Agreement.
Section 2.04 Brokers Fees.
The Seller has no obligation to pay any fees or commissions to any broker,
finder, or agent with respect to the transactions contemplated by this Agreement
for which the Buyer or any of the Company and its Subsidiaries could become
liable or obligated.
Section 2.05 Investment.
The Seller (a) understands that the Seller Note, the Primary Seller Option
and the Contingent Seller Option have not been, and will not be, registered
under the Securities Act, or under any state securities laws, and are being
offered and sold in reliance upon federal and state exemptions for transactions
not involving any public offering, (b) is acquiring the Seller Note, the Primary
Seller Option and the Contingent Seller Option solely for its own account for
investment purposes, and not with a view to the distribution thereof, (c) is a
sophisticated investor with knowledge and experience in business and financial
matters, (d) has received certain information concerning the Buyer, and has had
the opportunity to obtain additional information as desired, in order to
evaluate the merits and the risks inherent in holding the Seller Note, the
Primary Seller Option and the Contingent Seller Option, (e) is able to bear the
economic risk and lack of liquidity inherent in holding the Seller Note, the
Primary Seller Option and the Contingent Seller Option, and (f) is an Accredited
Investor.
Section 2.06 Company Shares.
The Seller holds of record and owns beneficially all of the Company Shares,
which comprise all of the issued and outstanding shares of capital stock of the
Company, free and clear of any restrictions on transfer (other than any
restrictions under the Securities Act and state securities laws), Taxes,
Security Interests, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands. The Seller is not a party to any option, warrant,
purchase right, or other contract or commitment that could require the Seller to
sell, transfer, or otherwise dispose of any capital stock of the Company (other
than this Agreement). The Seller is not a party to any voting trust, proxy, or
other agreement or understanding with respect to the voting of any capital stock
of the Company.
Article III
Representations and Warranties of the Buyer Concerning the Transaction
The Buyer represents and warrants to the Seller that the statements
contained in this Article III are correct and complete as of the date of this
Agreement, and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Article III).
Section 3.01 Organization of the Buyer.
The Buyer is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware. Buyer is a wholly-owned
subsidiary of Holdings.
Section 3.02 Authorization of Transaction.
The Buyer has full corporate power and authority to execute and deliver
this Agreement and to perform its obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of the Buyer, enforceable
in accordance with its terms and conditions. The Buyer need not give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency (including with respect to the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act) in order to consummate the transactions contemplated by
this Agreement.
Section 3.03 Noncontravention.
Neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (a) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which the Buyer is subject, or any provision of its charter or bylaws,
or (b) conflict with, result in a breach of, constitute a default under, result
in the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which the Buyer is a party or by
which it is bound or to which any of its assets is subject, except where the
violation, conflict, breach, default, acceleration, termination, modification,
cancellation or failure to give notice would not have a material adverse effect
on the Buyer or on the ability of the Parties to consummate the transactions
contemplated by this Agreement.
Section 3.04 Brokers Fees.
The Buyer has no obligation to pay any fees or commissions to any broker,
finder, or agent with respect to the transactions contemplated by this Agreement
for which any Seller could become liable or obligated.
Section 3.05 Investment.
The Buyer is not acquiring the Company Shares with a view to or for sale in
connection with any distribution thereof within the meaning of the Securities
Act. The Buyer is (a) acquiring the Company Shares solely for its own account
for investment purposes, and not with a view to the distribution thereof, (b) is
a sophisticated investor with knowledge and experience in business and financial
matters, (c) has received certain information concerning the Seller, and has had
the opportunity to obtain additional information as desired, in order to
evaluate the merits and the risks inherent in holding the Company Shares, (d) is
able to bear the economic risk and lack of liquidity inherent in holding the
Company Shares, and (e) is an Accredited Investor.
Section 3.06 Financing.
As of the date hereof, the Buyer has no reason to believe that it will not
receive the financing described in the Financing Proposal.
Article IV
Representations and Warranties of the Seller Concerning
the Company and Its Subsidiaries
The Seller represents and warrants to the Buyer that the statements
contained in this Article IV are correct and complete as of the date of this
Agreement, and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Article IV), except as set forth in the disclosure
schedule delivered by the Seller to the Buyer on the date hereof and initialed
by the Parties (the "Disclosure Schedule"). Nothing in the Disclosure Schedule
shall be deemed adequate to disclose an exception to a representation or
warranty made herein, however, unless the Disclosure Schedule identifies the
exception with reasonable particularity and describes the relevant facts in
reasonable detail. The Disclosure Schedule will be arranged in sections
corresponding to the lettered and numbered paragraphs contained in this Article
IV.
Section 4.01 Organization, Qualification, and Corporate Power.
Each of the Company and its Subsidiaries is a corporation duly organized,
validly existing, and in good standing under the laws of the jurisdiction of its
incorporation. Each of the Company and its Subsidiaries is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required, except where the failure to so qualify
would not reasonably be likely to have a material adverse effect on the
business, financial condition, or results of operations of the Company and its
Subsidiaries, taken as a whole ("Material Adverse Effect"). Each of the Company
and its Subsidiaries has full corporate power and authority and all licenses,
permits, and authorizations necessary to carry on the businesses in which it is
engaged and in which it presently proposes to engage and to own and use the
properties owned and used by it, except where the failure to have such licenses,
permits and authorizations would not reasonably be likely to have a Material
Adverse Effect. Section 4.01 of the Disclosure Schedule lists the directors and
officers of each of the Company and its Subsidiaries. The Seller has delivered
to the Buyer correct and complete copies of the charter and bylaws of each of
the Company and its Subsidiaries (as amended to date). The minute books
(containing the records of meetings of the stockholders, the board of directors,
and any committees of the board of directors), the stock certificate books, and
the stock record books of each of the Company and its Subsidiaries are correct
and complete. None of the Company and its Subsidiaries is in default under or in
violation of any provision of its charter or bylaws.
Section 4.02 Capitalization.
The entire authorized capital stock of the Company consists of (i) 20
million Company Shares, of which 100 Company Shares are issued and outstanding,
(ii) 2,000 shares that are designated as Preferred Stock without par value, none
of which shares are issued and outstanding, and (iii) 1,000 shares that are
designated as Class A Preferred Stock, par value $0.01 per share, none of which
shares are issued and outstanding. All of the issued and outstanding Company
Shares have been duly authorized, are validly issued, fully paid, and
nonassessable, and are held of record by the Seller. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments that could require
the Company to issue or sell any of its capital stock. There are no outstanding
or authorized stock appreciation, phantom stock, profit participation, or
similar rights with respect to the Company. There are no voting trusts, proxies,
or other agreements or understandings with respect to the voting of the capital
stock of the Company.
Section 4.03 Noncontravention.
Neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (a) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which any of the Company and its Subsidiaries is subject, or any
provision of the charter or bylaws of any of the Company and its Subsidiaries,
or (b) except as set forth on Section 4.03 of the Disclosure Schedule, conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which any of the Company and its
Subsidiaries is a party or by which it is bound or to which any of its assets is
subject (or result in the imposition of any Security Interest upon any of its
assets), except where the violation, conflict, breach, default, acceleration,
termination, modification, cancellation, failure to give notice or imposition of
a Security Interest would not reasonably be likely to have a Material Adverse
Effect. None of the Company and its Subsidiaries needs to give any notice to,
make any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement, except where the failure to give
notice, to file or to obtain any authorization, consent or approval is not
reasonably likely to have a Material Adverse Effect or have a material adverse
effect on the ability of the Parties to consummate the transactions contemplated
by this Agreement.
Section 4.04 Brokers' Fees.
None of the Company and its Subsidiaries has any obligation to pay any fees
or commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement.
Section 4.05 Title to Assets.
The Company and its Subsidiaries have good and marketable title to, or a
valid leasehold or subleasehold interest in, the properties and assets used by
them, located on their premises, shown on their books and records or acquired
after the date thereof, free and clear of all Security Interests, except for (i)
properties and assets disposed of in the Ordinary Course of Business after the
date of the Most Recent Balance Sheet, and (ii) Security Interests disclosed on
Section 4.05 of the Disclosure Schedule.
Section 4.06 Subsidiaries.
Section 4.06 of the Disclosure Schedule sets forth for each Subsidiary of
the Company (a) its name and jurisdiction of incorporation, (b) the number of
shares of authorized capital stock of each class of its capital stock, (c) the
number of issued and outstanding shares of each class of its capital stock, the
names of the holders thereof, and the number of shares held by each such holder,
and (d) the number of shares of its capital stock held in treasury. All of the
issued and outstanding shares of capital stock of each Subsidiary of the Company
have been duly authorized and are validly issued, fully paid, and nonassessable.
One or more of the Company and its Subsidiaries holds of record and owns
beneficially all of the outstanding shares of each Subsidiary of the Company,
free and clear of any restrictions on transfer (other than restrictions under
the Securities Act and state securities laws), Taxes, Security Interests,
options, warrants, purchase rights, contracts, commitments, equities, claims,
and demands. There are no outstanding or authorized options, warrants, purchase
rights, subscription rights, conversion rights, exchange rights, or other
contracts or commitments that could require any of the Company and its
Subsidiaries to sell, transfer, or otherwise dispose of any capital stock of any
of its Subsidiaries or that could require any Subsidiary of the Company to issue
or sell any of its own capital stock. There are no outstanding stock
appreciation, phantom stock, profit participation, or similar rights with
respect to any Subsidiary of the Company. There are no voting trusts, proxies,
or other agreements or understandings with respect to the voting of any capital
stock of any Subsidiary of the Company. None of the Company and its Subsidiaries
controls directly or indirectly or has any direct or indirect equity
participation in any corporation, partnership, trust, or other business
association which is not a Subsidiary of the Company.
Section 4.07 Financial Statements.
Attached hereto as Exhibits B-1 and B-2 are the following financial
statements (collectively the "Financial Statements"): (a) consolidated balance
sheets and statements of income, changes in stockholders' equity, and cash flow
as of and for the fiscal years ended February 28, 1998 and February 28, 1999
(the "Most Recent Fiscal Year End") for the Company and its Subsidiaries, which
consolidated balance sheets and statements of income, changes in stockholders'
equity, and cash flow (i) are being audited by Deloitte & Touche LLP, (ii) are
attached hereto as Exhibit B-1 in draft form, and (iii) are stamped "Draft"
(collectively, the "Draft Audited Financial Statements" and, after having been
audited by Deloitte & Touche LLP, the "Audited Financial Statements"); and (b)
unaudited consolidated balance sheets and statements of income, and changes in
stockholders' equity as of and for the three months ended May 31, 1998 and May
31, 1999 (the "Most Recent Balance Sheet") for the Company and its Subsidiaries,
which interim Financial Statements are attached hereto as Exhibit B-2. The
Financial Statements (including the notes thereto) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, present fairly in all material respects the financial condition
of the Company and its Subsidiaries as of such dates and the results of
operations of the Company and its Subsidiaries for such periods and are
consistent with the books and records of the Company and its Subsidiaries;
provided, however, that the interim Financial Statements are subject to normal
year-end adjustments (which will not be material individually or in the
aggregate) and lack footnotes and other presentation items. There will be no
substantive differences between the Audited Financial Statements, as delivered
to the Buyer pursuant to the terms and conditions of Section 7.01(k) hereof, and
the Draft Audited Financial Statements.
Section 4.08 Events Subsequent to Most Recent Fiscal Year End.
Except as set forth on Section 4.08 of the Disclosure Schedule, since the
Most Recent Fiscal Year End, there has not been any material adverse change in
the business, financial condition, operations, results of operations, or future
prospects of the Company and its Subsidiaries, taken as a whole. Without
limiting the generality of the foregoing, except as set forth on Section 4.08 of
the Disclosure Schedule, since that date:
(a) none of the Company and its Subsidiaries has sold, leased,
transferred, or assigned any of its material assets, tangible or
intangible, other than in the Ordinary Course of Business;
none of the Company and its Subsidiaries has entered into
(b) any material agreement, contract, lease, or license (or series of
related agreements, contracts, leases, and licenses) outside the
Ordinary Course of Business;
(c) none of the Company and its Subsidiaries, and none of the
other parties thereto, has accelerated, terminated, made material
modifications to, or canceled any material agreement, contract,
lease, or license (or series of related agreements, contracts,
leases, and licenses) to which any of the Company and its
Subsidiaries is a party or by which any of them is bound;
(d) none of the Company and its Subsidiaries has imposed any
Security Interest upon any of its material assets, tangible or
intangible;
(e) none of the Company and its Subsidiaries has made any
material capital expenditure (or series of related capital
expenditures) outside the Ordinary Course of Business;
(f) none of the Company and its Subsidiaries has made any
material capital investment in, any material loan to, or any
acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans, and acquisitions)
outside the Ordinary Course of Business;
(g) none of the Company and its Subsidiaries has issued any
note, bond, or other debt security, or created, incurred,
assumed, or guaranteed any indebtedness for borrowed money or
capitalized lease obligation with an aggregate principal amount
in excess of $50,000, other than intercompany indebtedness owing
to the Seller;
(h) none of the Company and its Subsidiaries has delayed or
accelerated in any material respect the payment of payables or
the collection of receivables outside the Ordinary Course of
Business;
(i) none of the Company and its Subsidiaries has canceled,
compromised, waived, or released any material right or claim (or
series of related rights and claims) outside the Ordinary Course
of Business;
(j) none of the Company and its Subsidiaries has granted any
license or sublicense of any material rights under or with
respect to any Intellectual Property;
(k) there has been no change made or authorized in the charter
or bylaws of any of the Company and its Subsidiaries;
(l) none of the Company and its Subsidiaries has issued, sold,
or otherwise disposed of any of its capital stock, or granted any
option, warrant, or other right to purchase or obtain (including
upon conversion, exchange, or exercise) any of its capital stock;
(m) none of the Company and its Subsidiaries has experienced any
material damage, destruction, or loss (whether or not covered by
insurance) to its property;
(n) none of the Company and its Subsidiaries has made any loan
to, or entered into any other transaction with, any of its
directors, officers, and employees outside the Ordinary Course of
Business;
(o) none of the Company and its Subsidiaries has entered into
any employment contract or collective bargaining agreement,
written or oral, or modified the terms of any existing such
contract or agreement;
(p) none of the Company and its Subsidiaries has granted any
increase in the base compensation of any of its directors,
officers, and employees outside the Ordinary Course of Business;
(q) none of the Company and its Subsidiaries has adopted,
amended, modified, or terminated any bonus, profit-sharing,
incentive, severance, or other plan, contract, or commitment for
the benefit of any of its directors, officers, and employees (or
taken any such action with respect to any other Employee Benefit
Plan);
(r) none of the Company and its Subsidiaries has made any other
material change in employment terms for any of its directors,
officers, and employees outside the Ordinary Course of Business;
and
(s) none of the Company and its Subsidiaries has committed to
any of the foregoing.
Section 4.09 Undisclosed Liabilities.
Except as set forth on Section 4.09 of the Disclosure Schedule, none of the
Company and its Subsidiaries has any material Liability, except for Liabilities
that were accrued in the Financial Statements as of the Most Recent Fiscal Year
End and Liabilities that have arisen after the Most Recent Fiscal Year End in
the Ordinary Course of Business.
Section 4.10 Legal Compliance.
Each of the Company, its Subsidiaries, and their respective predecessors
has complied with all applicable laws (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder)
of federal, state, local, and foreign governments (and all agencies thereof),
except where the failure to so comply is not reasonably likely to have a
Material Adverse Effect, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has been filed or
commenced against any of them alleging any failure so to comply, except where
the failure to so comply is not reasonably likely to have a Material Adverse
Effect.
Section 4.11 Tax Matters.
(a) Each of the Seller Group, the Company, and its Subsidiaries
has filed all Tax Returns that it was required to file. All the
Tax Returns of the Company and its Subsidiaries, as well as all
Tax Returns of the Seller Group to the extent they relate to the
Company and its Subsidiaries, were correct and complete in all
material respects. Except with respect to Taxes that are the
subject of disputes or claims disclosed in Section 4.11(c) of the
Disclosure Schedule, (i) all Taxes owed by the Company or any of
its Subsidiaries (whether or not shown on any Tax Return) that
are due have been paid, and (ii) all Taxes that have accrued but
that are not yet due have been adequately provided for, in all
material respects, on the books and records of the Seller, the
Company, and its Subsidiaries as appropriate. Except as set forth
on Section 4.11(a) of the Disclosure Schedule, none of the Seller
Group, the Company and its Subsidiaries currently is the
beneficiary of any extension of time within which to file any Tax
Return. No claim has ever been made by an authority in a
jurisdiction where any of the Company and its Subsidiaries does
not file Tax Returns that the nonfiling entity is or may be
subject to taxation by that jurisdiction. There are no Security
Interests on any of the assets of the Company and its
Subsidiaries that arose in connection with any failure (or
alleged failure) to pay any Tax.
(b) Each of the Company and its Subsidiaries has withheld and
paid all material Taxes required to have been withheld and paid
in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third
party.
(c) Except as set forth in Section 4.11(c) of the Disclosure
Schedule, (i) there is no pending dispute or claim concerning any
income or franchise Tax Liability of any of the Company and its
Subsidiaries claimed or raised in writing by any Tax authority
and (ii) there is no pending dispute or claim concerning any
other material Tax Liability of the Company and its Subsidiaries
claimed or raised in writing by any Tax authority. Except as set
forth in Section 4.11(c) of the Disclosure Schedule, none of the
Seller Group, the Company, and its Subsidiaries is currently the
subject of a Tax audit.
(d) Except as set forth in Section 4.11(d) of the Disclosure
Schedule, none of the Seller Group, the Company, and its
Subsidiaries has waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(e) None of the Company and its Subsidiaries has filed a consent
under Code Section 341(f) concerning collapsible corporations.
None of the Company and its Subsidiaries has made any payments,
is obligated to make any payments, or is a party to any agreement
that under certain circumstances could obligate it to make any
payments that will not be deductible under Code Section 280G.
None of the Company and its Subsidiaries has been a United States
real property holding corporation within the meaning of Code
Section 897(c)(2) during the applicable period specified in Code
Section 897(c)(1)(A)(ii). Each of the Company and its
Subsidiaries has disclosed on its federal income Tax Returns all
positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Code
Section 6662.
(f) Except as set forth in Section 4.11(f) of the Disclosure
Schedule, none of the Company and its Subsidiaries is a party to
any Tax allocation or sharing agreement and none of the Company
and its Subsidiaries has been a member of an Affiliated Group
(other than the Seller Group) or has any Liability for the Taxes
of any Person (other than the other members of the Seller Group)
under Reg. Section 1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by
contract, or otherwise.
(g) Section 4.11(g) of the Disclosure Schedule sets forth the
following information with respect to each of the Company and its
Subsidiaries (or, in the case of clause (ii) below, with respect
to each of the Subsidiaries) as of the most recent practicable
date: (i) the basis of the Company or Subsidiary in its assets;
(ii) the basis of the stockholder(s) of the Subsidiary in its
stock (or the amount of any Excess Loss Account); and (iii) the
amount (and date of any expiration) of any net operating loss,
net capital loss, unused investment or other credit, unused
foreign tax, or excess charitable contribution allocable to the
Company or Subsidiary for each jurisdiction in which the Company
or Subsidiary is subject to Tax. In addition, if not set forth in
Section 4.11(g) of the Disclosure Schedule, within a reasonable
time after the Closing, the Seller will supply the Buyer with a
schedule setting forth the amount of any deferred gain or loss
allocable to the Company or Subsidiary arising out of any
Deferred Intercompany Transaction.
(h) Except as set forth in Section 4.11(h) of the Disclosure
Schedule, none of the Company and its Subsidiaries will be
required to make an adjustment to taxable income under Code
Section 481 (or any similar provision of state, local, or foreign
law) for any period ending on or after the Closing Date by reason
of a voluntary change in accounting method initiated by any of
the Company and its Subsidiaries on or prior to the Closing Date,
and neither the Internal Revenue Service nor any other
governmental authority has initiated or proposed any such change
in accounting method.
(i) None of the Company and its Subsidiaries is a "controlled
foreign corporation" within the meaning of Code Section 957. None
of the Company and its Subsidiaries is a United States
Shareholder (as defined in Code Section 951) of any controlled
foreign corporation.
(j) None of the Company and its Subsidiaries owns an interest in
an entity either treated as a partnership or whose separate
existence is ignored for federal income tax purposes.
(k) Anything in the foregoing provisions of this Section 4.11 to
the contrary notwithstanding, the Seller makes no representation
with respect to any Tax matter relating to the Company for
periods prior to the Seller's acquisition of the Company;
provided, however, that the Seller represents that it does not
have actual knowledge of the existence of any Tax Liability of
the Company relating to the periods prior to the Seller's
acquisition of the Company and, provided, further, that the
Seller agrees to indemnify the Buyer as provided in Section 8.02
as to each of the matters in the foregoing provisions of this
Section 4.11, including with respect to periods prior to the
Seller's acquisition of the Company.
Section 4.12 Real Property.
(a) Section 4.12(a) of the Disclosure Schedule lists and
describes briefly all real property that any of the Company and
its Subsidiaries owns. With respect to each such parcel of owned
real property:
(i) the identified owner has good and marketable title to
the parcel of real property, free and clear of any Security
Interest, easements, covenants, or other restrictions,
except for installments of real estate taxes and assessments
incurred or assessed in the Ordinary Course of Business and
special assessments not yet delinquent and recorded
easements, covenants, and other restrictions which do not
impair the current use, occupancy, or value, or the
marketability of title, of the property subject thereto;
(ii) there are no pending or, to the collective Knowledge of
the Officers, threatened condemnation proceedings, lawsuits,
or administrative actions relating to the parcel of owned
real property or other matters materially and adversely
affecting the current use, occupancy, or value thereof;
(iii) except as set forth on Section 4.12(a)(iii) of the
Disclosure Schedule, all facilities have received all
approvals of governmental authorities (including licenses
and permits) required in connection with the ownership or
operation thereof, and have been operated and maintained in
accordance with applicable laws, rules, and regulations,
except where such failure is not reasonably likely to have a
Material Adverse Effect;
(iv) except as set forth on Section 4.12(a)(iv) the
Disclosure Schedule, there are no leases, subleases,
licenses, concessions, or other agreements, written or oral,
granting to any party or parties the right of use or
occupancy of any portion of the parcel of real property;
(v) there are no outstanding options or rights of first
refusal to purchase the parcel of real property, or any
portion thereof or interest therein;
(vi) there are no parties (other than the Company and its
Subsidiaries) in possession of the parcel of real property,
other than tenants under any leases disclosed in Section
4.12(a) of the Disclosure Schedule who are in possession of
space to which they are entitled;
(vii) all facilities located on the parcel of real property
and operated or used by the Company in the Ordinary Course
of Business are supplied with utilities and other services
necessary for the operation of such facilities or use of
such facilities by the Company.
(b) Section 4.12(b) of the Disclosure Schedule lists and
describes briefly all real property leased or subleased to any of
the Company and its Subsidiaries. The Seller has delivered to the
Buyer correct and complete copies of the leases and subleases
listed in Section 4.12(b) of the Disclosure Schedule (as amended
to date). With respect to each lease and sublease listed in
Section 4.12(b) of the Disclosure Schedule:
(i) the lease or sublease is, and following the
consummation of the transactions contemplated hereby will
continue to be, legal, valid, binding, enforceable, and in
full force and effect, subject to obtaining the consents and
approvals contemplated hereby, where applicable, and subject
to bankruptcy, insolvency and other similar laws;
(ii) None of the Company or its Subsidiaries and, to the
collective Knowledge of the Officers, no other party to the
lease or sublease, is in material breach or default of the
terms thereof, no event has occurred which, with notice or
lapse of time, would constitute a material breach or default
or permit termination, modification, or acceleration of or
under the lease or sublease, no party to the lease or
sublease has repudiated in writing any provision thereof,
and there are no material disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease;
and
(iii) none of the Company and its Subsidiaries has assigned,
transferred, conveyed, mortgaged, deeded in trust, or
encumbered any interest in the leasehold or subleasehold.
Section 4.13 Intellectual Property.
(a) Except as set forth on Section 4.13(a) of the Disclosure
Schedule, the Company and its Subsidiaries own or have the right
to use pursuant to license, sublicense, agreement, or permission
all Intellectual Property necessary for the operation of the
businesses of the Company and its Subsidiaries (x) as presently
conducted and (y) as the Seller presently proposes to conduct the
businesses of the Company and its Subsidiaries. Except as set
forth on Section 4.13(a) of the Disclosure Schedule, each item of
Intellectual Property owned or used by any of the Company and its
Subsidiaries immediately prior to the Closing hereunder will be
owned or available for use by the Company or the Subsidiary on
identical terms and conditions immediately subsequent to the
Closing hereunder. Each of the Company and its Subsidiaries has
taken all actions it deemed to be necessary, in the exercise of
its reasonable good faith judgment, to maintain and protect each
item of Intellectual Property that it owns or uses.
(b) Except as set forth on Section 4.13(b) of the Disclosure
Schedule, none of the Company and its Subsidiaries has interfered
with, infringed upon, violated or misappropriated any
Intellectual Property rights of third parties, and none of the
Seller, the Company, and its Subsidiaries has ever received any
charge, complaint, claim, demand, or notice alleging any such
interference, infringement, misappropriation, or violation
(including any claim that any of the Company and its Subsidiaries
must license or refrain from using any Intellectual Property
rights of any third party). To the collective Knowledge of the
Officers, no third party has interfered with, infringed upon,
violated or misappropriated any Intellectual Property rights of
any of the Company and its Subsidiaries.
(c) Section 4.13(c) of the Disclosure Schedule identifies each
patent or registration which has been issued to any of the
Company and its Subsidiaries with respect to any of its
Intellectual Property, identifies each pending patent application
or application for registration which any of the Company and its
Subsidiaries has made with respect to any of its Intellectual
Property, and identifies each written material license,
agreement, or other permission which any of the Company and its
Subsidiaries has granted to any third party with respect to any
of its Intellectual Property (together with any exceptions). The
Seller has delivered to the Buyer correct and complete copies of
all such patents, registrations, applications, licenses,
agreements, and permissions (as amended to date). Section 4.13(c)
of the Disclosure Schedule also identifies each material trade
name or unregistered trademark used by any of the Company and its
Subsidiaries in connection with any of its businesses. With
respect to each item of Intellectual Property required to be
identified in Section 4.13(c) of the Disclosure Schedule, except
as set forth on Section 4.13(c) of the Disclosure Schedule:
(i) the Company and its Subsidiaries possess all right,
title, and interest in and to the item, free and clear of
any Security Interest, license, or other material
restriction;
(ii) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(iii) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or is
threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and
(iv) none of the Company and its Subsidiaries has ever
agreed to indemnify any Person for or against any
interference, infringement, misappropriation, or other
conflict with respect to the item.
(d) Section 4.13(d) of the Disclosure Schedule identifies each
material item of Intellectual Property that any third party owns
and that any of the Company and its Subsidiaries uses pursuant to
a written license, sublicense, agreement, or permission. The
Seller has delivered to the Buyer correct and complete copies of
all such licenses, sublicenses, agreements, and permissions (as
amended to date). With respect to each item of Intellectual
Property required to be identified in Section 4.13(d) of the
Disclosure Schedule, except as set forth on Section 4.13(d) of
the Disclosure Schedule:
(i) the license, sublicense, agreement, or permission
covering the item is, and following the consummation of the
transactions contemplated hereby will continue to be, legal,
valid, binding, enforceable, and in full force and effect;
(ii) None of the Company or its Subsidiaries is and, to the
collective Knowledge of the Officers, no other party to the
license, sublicense, agreement, or permission is in breach
or default of the terms thereof, no event has occurred
which, with notice or lapse of time, would constitute a
breach or default or permit termination, modification, or
acceleration of or under the license, sublicense, agreement,
or permission, no party to the license, sublicense,
agreement, or permission has repudiated any provision
thereof, and there are no disputes, oral agreements, or
forbearance programs in effect as to the license,
sublicense, agreement, or permission; and
(iii) none of the Company and its Subsidiaries has granted
any sublicense or similar right with respect to the license,
sublicense, agreement, or permission.
(e) Except as set forth on Section 4.13(e) of the Disclosure
Schedule, the Company has made an assessment of the microchip and
computer-based systems and the software used in its business and
based upon such assessment believes that it will be Year 2000
Compliant by January 1, 2000.
Section 4.14 Tangible Assets.
Except as set forth on Section 4.14 of the Disclosure Schedule, the Company
and its Subsidiaries own or lease all buildings, and material items of
machinery, equipment, and other tangible assets necessary for the conduct of
their businesses in substantially the same manner as presently conducted. The
tangible assets are free from material defects (patent and latent), have
generally been maintained in accordance with normal industry practice, are in
good operating condition and repair (subject to normal wear and tear), and are
suitable in all material respects for the purposes for which they presently are
used and the purposes for which the Seller presently proposes to use them in the
businesses of the Company and its Subsidiaries.
Section 4.15 Inventory.
The inventory of the Company and its Subsidiaries consists of finished
goods, all of which is merchantable and fit, in all material respects for the
purpose for which it was procured, no material portion of which is slow-moving,
obsolete, damaged, or defective, subject only to (x) normal returns and (y) the
reserve for inventory shrinkage that was accrued in the Financial Statements as
of the Most Recent Fiscal Year End and as adjusted for operations and
transactions through the Closing Date in accordance with the past custom and
practice of the Company and its Subsidiaries.
Section 4.16 Contracts.
Section 4.16 of the Disclosure Schedule lists the following contracts and
other agreements to which any of the Company and its Subsidiaries is a party:
(a) any agreement (or group of related agreements) for the lease
of personal property to or from any Person providing for lease
payments in excess of $25,000 per annum;
(b) any agreement (or group of related agreements) for the
purchase or sale of supplies, products, or other personal
property, or for the furnishing or receipt of services, the
performance of which will extend over a period of more than one
year or involve consideration in excess of $25,000;
(c) any agreement concerning a partnership or joint venture;
(d) any agreement (or group of related agreements) under which
it has created, incurred, assumed, or guaranteed any indebtedness
for borrowed money, or any capitalized lease obligation in excess
of $50,000, other than intercompany indebtedness owing to the
Seller, or under which it has permitted or suffered the
imposition of a Security Interest on any of its assets, tangible
or intangible;
(e) any agreement concerning confidentiality or noncompetition;
(f) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of its current or former directors,
officers, and employees;
(g) any collective bargaining agreement;
(h) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $50,000 or providing severance
benefits;
(i) any agreement under which it has advanced or loaned any
amount to any of its directors, officers, and employees outside
the Ordinary Course of Business;
(j) any agreement under which the consequences of a default or
termination could have a Material Adverse Effect; or
(k) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $50,000.
The Seller has delivered to the Buyer a correct and complete copy of each
written agreement listed in Section 4.16 of the Disclosure Schedule (as amended
to date), and Section 4.16 of the Disclosure Schedule sets forth the material
terms and conditions of each oral agreement referred to therein. With respect to
each agreement required to be listed in Section 4.16 of the Disclosure Schedule:
(i) the agreement is, and following the consummation of the transactions
contemplated hereby will continue to be, legal, valid, binding and enforceable
against the Company or its Subsidiaries, and in full force and effect; (ii) none
of the Company or its Subsidiaries and, to the collective Knowledge of the
Officers, no other party thereto, is in material breach or default of the terms
and conditions thereof, and no event has occurred which with notice or lapse of
time would constitute a material breach or default, or permit termination,
modification, or acceleration, under the agreement; and (iii) none of the
Company or its Subsidiaries and, to the collective Knowledge of the Officers, no
other party thereto, has repudiated any material provision of the agreement.
Section 4.17 Notes and Accounts Receivable.
All notes and accounts receivable of the Company and its Subsidiaries are
reflected properly on their books and records, are valid receivables subject to
no setoffs or counterclaims, are current and collectible, and will be collected
in accordance with their terms at their recorded amounts, subject only to the
reserve for bad debts that was accrued in the Financial Statements as of the
Most Recent Fiscal Year End, as adjusted for operations and transactions through
the Closing Date in accordance with the past custom and practice of the Company
and its Subsidiaries.
Section 4.18 Powers of Attorney.
Except as set forth on Section 4.18 of the Disclosure Schedule, there are
no outstanding powers of attorney executed on behalf of any of the Company and
its Subsidiaries.
Section 4.19 Insurance.
Section 4.19 of the Disclosure Schedule sets forth a complete summary of
each material insurance policy (including policies providing property, casualty,
liability, and workers' compensation coverage and bond and surety arrangements)
to which any of the Company and its Subsidiaries is a party, a named insured, or
otherwise the beneficiary of coverage.
None of the Company and its Subsidiaries is in breach or default with
respect to its obligations under any insurance policy maintained by it and no
party to such policy has repudiated any provision thereof. Each "claims-made"
insurance policy listed on Section 4.19 of the Disclosure Schedule will continue
to cover the Company and its Subsidiaries against claims made through the
Closing Date, and each "occurrence based" insurance policy listed on Section
4.19 of the Disclosure Schedule will continue to cover the Company and its
Subsidiaries against occurrences through the Closing Date, in each case on
identical terms following the consummation of the transactions contemplated
hereby. Each of the Company and its Subsidiaries is covered by insurance in
scope and amount customary and reasonable for the businesses in which it is
engaged. Section 4.19 of the Disclosure Schedule describes any self-insurance
arrangements affecting any of the Company and its Subsidiaries.
Section 4.20 Litigation.
Section 4.20 of the Disclosure Schedule sets forth each instance in which
any of the Company and its Subsidiaries (a) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (b) is a party or, to
the collective Knowledge of the Officers, is threatened, or is reasonably
likely, to be made a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator. None of the actions, suits, proceedings, hearings, and
investigations set forth in Section 4.20 of the Disclosure Schedule would, if
adversely resolved or determined, reasonably be likely to result in a Material
Adverse Effect.
Section 4.21 Product Warranty.
Products sold, leased, or delivered by any of the Company and its
Subsidiaries have been in conformity in all material respects with all
applicable contractual commitments and all express and implied warranties, and
none of the Company and its Subsidiaries has any material Liability for
replacement or repair thereof or other damages in connection therewith, subject
only to the reserve for product warranty claims that was accrued in the
Financial Statements as of the Most Recent Fiscal Year End. No substantial
amount of product sold, leased, or delivered by any of the Company and its
Subsidiaries is subject to any guaranty, warranty, or other indemnity beyond the
applicable standard terms and conditions of sale or lease. Section 4.21 of the
Disclosure Schedule includes copies of the standard terms and conditions of sale
or lease for each of the Company and its Subsidiaries (containing applicable
guaranty, warranty, and indemnity provisions).
Section 4.22 Product Liability.
None of the Company and its Subsidiaries has any material Liability arising
out of any injury to individuals or property as a result of the ownership,
possession, or use of any product sold, leased, or delivered by any of the
Company and its Subsidiaries.
Section 4.23 Employees.
To the collective Knowledge of the Officers no executive, key employee, or
group of employees has any plans to terminate employment with any of the Company
and its Subsidiaries. Except as set forth on Section 4.23(a) of the Disclosure
Schedule, none of the Company and its Subsidiaries is a party to or bound by any
collective bargaining agreement, nor has any of them experienced any strikes,
grievances, claims of unfair labor practices, or other collective bargaining
disputes since January 1, 1997. Except as set forth on Section 4.23(b) of the
Disclosure Schedule, none of the Company and its Subsidiaries has committed any
material unfair labor practice. None of the Officers has any Knowledge of any
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of any of the Company and its
Subsidiaries.
Section 4.24 Employee Benefits.
(a) Section 4.24(a) of the Disclosure Schedule lists each
Employee Benefit Plan which any of the Company and its
Subsidiaries maintains or is required to maintain, or to which
any of the Company and its Subsidiaries contributes or is
required to contribute, or which covers any current or former
employee of any of the Company and its Subsidiaries, including
all such plans as are established by the Seller on behalf of the
Company pursuant to Section 6.09(a) hereof.
(i) Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) has been maintained,
funded, and administered in accordance with its terms and in
compliance with the applicable requirements of ERISA, the
Code, and other applicable laws.
(ii) All required reports (including Form 5500 Annual
Reports and PBGC-1's) have been timely filed with respect to
each such Employee Benefit Plan. The requirements of COBRA
have been met in all material respects as to each such
Employee Benefit Plan which is a group health plan for
purposes of COBRA.
(iii) All contributions (including all employer contributions
and employee salary reduction contributions) which are due
have been paid to each such Employee Benefit Plan which is
an Employee Pension Benefit Plan, and all contributions for
any period ending on or before the Closing Date which are
not yet due have been paid to each such Employee Pension
Benefit Plan or accrued in accordance with the past custom
and practice of the Company and its Subsidiaries. All
premiums or other payments for all periods ending on or
before the Closing Date have been paid with respect to each
such Employee Benefit Plan which is an Employee Welfare
Benefit Plan.
(iv) Each such Employee Benefit Plan which is intended to be
qualified under Section 401(a) of the Code has received,
within the last two years, a favorable determination letter
from the Internal Revenue Service that it is a "qualified
plan," and, to the Knowledge of the Officers, nothing has
occurred since the date of such determination that could
adversely affect the qualified status of such Employee
Benefit Plan.
(v) Except as set forth on Section 4.24(a) of the
Disclosure Statement, the market value of assets under each
such Employee Benefit Plan which is an Employee Pension
Benefit Plan subject to Title IV of ERISA (other than any
Multiemployer Plan) equals or exceeds the present value of
all vested and nonvested Liabilities thereunder determined
in accordance with PBGC methods, factors, and assumptions
applicable to an Employee Pension Benefit Plan terminating
on the date for determination.
(vi) The Seller has delivered to the Buyer correct and
complete copies of the plan documents and summary plan
descriptions, the most recent determination letter received
from the Internal Revenue Service, the most recent Form 5500
Annual Report, and all related trust agreements, insurance
contracts, and other funding agreements which implement each
such Employee Benefit Plan, to the extent applicable.
(b) With respect to each Employee Benefit Plan that any of the
Company, its Subsidiaries, and their ERISA Affiliates maintains
or has maintained in the previous five plan years of such
Employee Benefit Plan or to which any of them contributes, or has
contributed or been required to contribute in the previous five
plan years of such Employee Benefit Plan:
(i) No such Employee Benefit Plan which is an Employee
Pension Benefit Plan subject to Title IV of ERISA (other
than any Multiemployer Plan) has been completely or
partially terminated or been the subject of a Reportable
Event as to which notices would be required to be filed with
the PBGC. No proceeding by the PBGC to terminate any such
Employee Pension Benefit Plan (other than any Multiemployer
Plan) has been instituted or threatened.
(ii) There have been no Prohibited Transactions with respect
to any such Employee Benefit Plan. To the Knowledge of the
Officers, no Fiduciary has any Liability for breach of
fiduciary duty or any other failure to act or comply in
connection with the administration or investment of the
assets of any such Employee Benefit Plan. Except as set
forth on Section 4.24(b) of the Disclosure Statement, no
action, suit, proceeding, hearing, or investigation with
respect to the administration or the investment of the
assets of any such Employee Benefit Plan (other than routine
claims for benefits) is pending and, to the Knowledge of the
Officers, (i) no such action, suit, proceeding, hearing or
investigation is threatened and (ii) there is no reasonable
basis for any such action, suit, proceeding, hearing, or
investigation.
(iii) None of the Company and its Subsidiaries has, and none
of the Officers has Knowledge of any facts that could
reasonably cause them to expect that any of the Company and
its Subsidiaries will have, any Liability to the PBGC or
otherwise under Title IV of ERISA (including any withdrawal
liability as defined in ERISA Section 4201) or under the
Code with respect to any such Employee Benefit Plan which is
an Employee Pension Benefit Plan or Multiemployer Plan.
(c) None of the Company, its Subsidiaries, and the other members
of the Controlled Group that includes the Company and its
Subsidiaries contributes to, ever has contributed to, or ever has
been required to contribute to any Multiemployer Plan or has any
Liability (including withdrawal liability as defined in ERISA
Section 4201) under any Multiemployer Plan.
(d) None of the Company and its Subsidiaries maintains or has
any Liability with respect to any Employee Welfare Benefit Plan
providing medical, health, or life insurance or other
welfare-type benefits for current or future retired or terminated
employees, their spouses, or their dependents (other than in
accordance with COBRA).
Section 4.25 Guaranties.
Except as set forth on Section 4.25 of the Disclosure Schedule, none of the
Company and its Subsidiaries is a guarantor or otherwise is liable for any
Liability or obligation (including indebtedness) with an aggregate principal
amount in excess of $50,000 of any other Person.
Section 4.26 Environmental, Health, and Safety Matters.
(a) Except as set forth in Section 4.26(a) of the Disclosure
Schedule, each of the Company, its Subsidiaries, and their
respective predecessors has materially complied and is in
material compliance with all Environmental, Health, and Safety
Requirements.
(b) Without limiting the generality of the foregoing, except as
set forth on Section 4.26(b) of the Disclosure Schedule, each of
the Company, its Subsidiaries, and their respective predecessors
has obtained and materially complied with, and is in material
compliance with, all permits, licenses, and other authorizations
that are required pursuant to Environmental, Health, and Safety
Requirements for the occupation of its facilities and the
operation of its business.
(c) Except as set forth on Section 4.26(c) of the Disclosure
Schedule, none of the Seller, the Company, and its Subsidiaries
has received any written or oral notice, report, or other
information regarding any actual or alleged material violation of
Environmental, Health, and Safety Requirements, or any Liability
or investigatory, remedial, or corrective obligation arising
under Environmental, Health, and Safety Requirements, relating to
any of the Company and its Subsidiaries or their facilities.
(d) Except as set forth on Section 4.26(d) of the Disclosure
Schedule, none of the following exists at any property or
facility owned or operated by any of the Company, its
Subsidiaries, and their respective predecessors: (i) underground
storage tanks; (ii) asbestos-containing material requiring
abatement or, to the Knowledge of the Officers, other action,
such as ensuring employee awareness and training or monitoring,
at the time of the Closing under the Environmental, Health, and
Safety Requirements; (iii) any materials or equipment containing
polychlorinated biphenyls in amounts exceeding 50.0 parts per
million ("PCB Containing Equipment"), which PCB Containing
Equipment is owned by the Company or any of its Subsidiaries, or,
to the Knowledge of the Officers, any PCB Containing Equipment
owned by third parties at any facility owned or operated by the
Company or any of its Subsidiaries; or (iv) (A) landfills, (B)
surface impoundments in material violation of the Environmental,
Health, and Safety Requirements, or (C) disposal areas.
(e) Except as set forth on Section 4.26(e) of the Disclosure
Schedule, none of the Company, its Subsidiaries, and their
respective predecessors has treated, stored, disposed of,
arranged for or permitted the disposal of, transported, handled,
or released any substance, including any hazardous substance, or
owned or operated any property or facility, in a manner that has
given (and continues to give) or would give rise to any material
Liability or obligation, and none of the Company, its
Subsidiaries, and their respective predecessors owns or operates
any property or facility that is contaminated with any substance
that has given (and continues to give) or would give rise to any
material Liability or obligation, for response costs,
investigative, corrective, or remedial action, personal injury,
property damage, damage to natural resources, onsite or offsite
releases or threatened releases of hazardous materials,
substances, or wastes, attorney fees, or otherwise, pursuant to
the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, the Solid Waste Disposal Act,
as amended, or any other Environmental, Health, and Safety
Requirements.
(f) Except as set forth on Section 4.26(f) of the Disclosure
Schedule, neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated hereby,
will result in any obligations for site investigation or cleanup,
or notification to or consent of government agencies or third
parties, pursuant to any of the so-called "transaction-triggered"
or "responsible property transfer" Environmental, Health, and
Safety Requirements.
(g) Except as set forth on Section 4.26(g) of the Disclosure
Schedule, none of the Company, its Subsidiaries, and their
respective predecessors has, either expressly or by operation of
law, assumed or undertaken any liability, including any
obligation for investigative, corrective, or remedial action, of
any other Person relating to Environmental, Health, and Safety
Requirements.
Section 4.27 Certain Business Relationships.
Except as set forth on Section 4.27 of the Disclosure Schedule, none of
the Seller and its Affiliates owns any material asset, tangible or intangible,
which is used in the business of any of the Company and its Subsidiaries.
Section 4.28 Disclosure.
The representations and warranties contained in this Article IV do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements and information contained in this
Article IV not misleading.
ARTICLE V
PRE-CLOSING COVENANTS
The Parties agree as follows with respect to the period between the
execution of this Agreement and the Closing.
Section 5.01 General.
Each of the Parties will use its reasonable best efforts to take all action
and to do all things necessary in order to consummate and make effective the
transactions contemplated by this Agreement (including satisfaction, but not
waiver, of the closing conditions set forth in Article VII below).
Section 5.02 Notices and Consents.
The Seller will (at the Seller's expense) cause each of the Company and its
Subsidiaries to give any notices to and make any filings with, and will (at the
Seller's expense) cause the Company and each of its Subsidiaries to use its
reasonable best efforts to obtain any authorizations, consents, and approvals
of, governments, governmental agencies, and third parties that may be required
in connection with the matters referred to in Section 4.03 above. Each of the
Parties will give any notices to, make any filings with, and use its reasonable
best efforts to obtain any authorizations, consents, and approvals of
governments, governmental agencies, and third parties that may be required in
connection with the matters referred to in Section 2.03 and Section 3.03 above.
Without limiting the generality of the foregoing, each of the Parties will file
any Notification and Report Forms and related material that it may be required
to file with the Federal Trade Commission and the Antitrust Division of the
United States Department of Justice under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act, will use
its reasonable best efforts to obtain an early termination of the applicable
waiting period, and will make any further filings pursuant thereto that may be
necessary in connection therewith.
Section 5.03 Operation and Preservation of Business.
The Seller will not cause or permit any of the Company and its Subsidiaries
except as otherwise contemplated by this Agreement to engage in any practice,
take any action, or enter into any transaction outside the Ordinary Course of
Business. Without limiting the generality of the foregoing, the Seller will not
cause or permit any of the Company and its Subsidiaries to engage in any
practice, take any action, or enter into any transaction of the sort described
in Section 4.08 above, except as otherwise contemplated by this Agreement. The
Seller will use its commercially reasonable efforts to cause each of the Company
and its Subsidiaries to keep its business and properties substantially intact,
including its present operations, physical facilities, working conditions, and
relationships with lessors, licensors, suppliers, customers, and employees.
Section 5.04 Full Access.
After reasonable prior notice, the Seller will permit representatives of
the Buyer to have full access, at reasonable times and in a manner so as not to
interfere with the normal business operations of the Company and its
Subsidiaries, to all premises, properties, personnel, books, records (including
Tax records), contracts, and documents of or pertaining to each of the Company
and its Subsidiaries. The Seller will provide copies of any such books, records
(including Tax records), contracts, and documents to the Buyer and its
representatives upon their reasonable request.
Section 5.05 Notice of Developments.
The Seller will give prompt written notice to the Buyer of any material
adverse development causing a breach of any of the representations and
warranties in Article II and Article IV above. The Buyer will give prompt
written notice to the Seller of any material adverse development causing a
breach of any of the representations and warranties in Article III above. No
disclosure by either Party pursuant to this Section 5.05 shall, however, be
deemed to amend or supplement the Disclosure Schedule or deemed to prevent or
cure any misrepresentation, breach of warranty, or breach of covenant.
Section 5.06 Exclusivity.
The Seller will not (a) solicit, initiate, or encourage the submission of
any proposal or offer from any Person relating to the acquisition of any capital
stock or other voting securities, or any substantial portion of the assets, of
any of the Company and its Subsidiaries (including any acquisition structured as
a merger, consolidation, or share exchange) or (b) participate in any
discussions or negotiations regarding, furnish any information with respect to,
assist or participate in, or facilitate in any other manner any effort or
attempt by any Person to do or seek any of the foregoing. The Seller will notify
the Buyer immediately if any Person makes any proposal, offer, inquiry, or
contact with respect to any of the foregoing. The Seller will use its best
efforts to ensure that its directors, officers, employees, consultants,
advisors, and other representatives and agents comply fully with this Section
5.06.
Section 5.07 Title Insurance.
The Seller will cause the Company and its subsidiaries to obtain (at the
Buyer's expense) the following title insurance commitments, policies, and riders
(collectively, the "Title Insurance") in preparation for the Closing:
(a) with respect to each parcel of real estate that any of the
Company and its Subsidiaries owns, an ALTA Owner's Policy of
Title Insurance Form B-1987 (or equivalent policy acceptable to
the Buyer if the real property is located in a state in which an
ALTA Owner's Policy of Title Insurance Form B-1987 is not
available at commercially reasonable rates) issued by First
American Title Insurance Company or such other title insurer
reasonably satisfactory to the Buyer, in such amount as the Buyer
and Seller may agree in good faith to be the fair market value of
such real property (including all improvements located thereon),
insuring title to such real property to be in the Company or its
Subsidiary as of the Closing (subject only to the title
exceptions described above in Section 4.12(a)(i) and in Section
4.12(a)(i) of the Disclosure Schedule); and
(b) Each such title insurance policy shall insure title to the
real property and all recorded easements benefitting such real
property, and where available at commercially reasonable rates
contain (i) an "extended coverage endorsement" insuring over the
general exceptions customarily contained in such policies, (ii)
an ALTA Zoning Endorsement 3.1 (or equivalent), (iii) an
endorsement insuring that the real property described in the
title insurance policy is the same real estate as shown on the
survey delivered with respect to such property, (iv) an
endorsement insuring that the real property described in the
title insurance policy has sufficient pedestrian and vehicular
access to a publicly dedicated street, (v) an inflation
endorsement providing for annual adjustments in the amount of
coverage corresponding to the annual percentage increase, if any,
in the United States Department of Commerce Composite
Construction Cost Index, (vi) if the real property consists of
more than one record parcel, contain a "contiguity" endorsement
insuring that all of the record parcels are contiguous to one
another, (vii) a "non-imputation" endorsement to the effect that
title defects known to the officers, directors, and stockholders
of the owner prior to the Closing shall not be deemed "facts
known to the insured" for purposes of the policy, (viii) a "tax
parcel" endorsement, and (ix) an "owner's comprehensive"
endorsement.
Notwithstanding anything to the contrary contained herein, the terms and
conditions of the Title Insurance shall be reasonably acceptable to the senior
financing sources of the Buyer.
Section 5.08 Surveys.
With respect to each parcel of real property that any of the Company and
its Subsidiaries owns and as to which a title insurance policy is to be procured
pursuant to Section 5.07 above, the Seller will cause the Company and its
Subsidiaries (at the Buyer's expense) to procure in preparation for the Closing
a current survey of the real property certified to the Buyer, prepared by a
licensed surveyor, and conforming to current ALTA Minimum Detail Requirements
for Land Title Surveys, disclosing the location of all improvements, easements,
party walls, sidewalks, roadways, utility lines, and other matters customarily
shown on such surveys, and showing access affirmatively to public streets and
roads. The survey shall not disclose any survey defect or encroachment from or
onto the real property which has not been cured or insured over prior to the
Closing other than those which do not materially and adversely affect such real
property of its intended use.
Section 5.09 Deloitte & Touche LLP
The Seller shall (i) cause Deloitte & Touche LLP to complete its audit of
the Draft Audited Financial Statements and (ii) deliver such Audited Financial
Statements to the Buyer, in each case at least five business days prior to the
Closing Date. The Seller shall also cause Deloitte & Touche LLP to (i) prepare a
schedule showing the aging of the Company's trade accounts payable as of the
Closing, and (ii) deliver such schedule to the Buyer on or prior to the
expiration of the sixtieth day following the Closing Date.
Section 5.10 Confidentiality.
The Buyer agrees that it shall be bound by the terms and conditions of the
Confidentiality Agreement as if it were an original party thereto.
ARTICLE VI
POST-CLOSING COVENANTS
The Parties agree as follows with respect to the period following the
Closing.
Section 6.01 General.
In case at any time after the Closing any further action is necessary to
carry out the purposes of this Agreement, each of the Parties will take such
further action (including the execution and delivery of such further instruments
and documents) as the other Party reasonably may request, all at the sole cost
and expense of the requesting Party (unless the requesting Party is entitled to
indemnification therefor under Article VIII below). The Seller acknowledges and
agrees that from and after the Closing, the Buyer will be entitled to possession
of all documents, books, records (including Tax records), agreements, and
financial data of any sort relating to the Company and its Subsidiaries
(collectively, the "Records"); provided, that the Buyer shall provide Seller (at
Seller's reasonable request) with a copy of any Records that relate to the
Seller as well as to the Company and its Subsidiaries.
Section 6.02 Litigation Support.
In the event and for so long as either Party actively is contesting or
defending against any action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand in connection with (a) any transaction contemplated
under this Agreement or (b) any fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction on or prior to the Closing Date involving any of
the Company and its Subsidiaries, the other Party will cooperate with the
contesting or defending Party and its counsel in the contest or defense, make
available its personnel, and provide such testimony and access to its books and
records as shall be necessary in connection with the contest or defense, all at
the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under
Article VIII below).
Section 6.03 Noninterference.
The Seller will not take any action that is designed or intended to have
the effect of discouraging any lessor, licensor, customer, supplier, or other
business associate of any of the Company and its Subsidiaries from maintaining
the same business relationships with the Company and its Subsidiaries after the
Closing as it maintained with the Company and its Subsidiaries prior to the
Closing. For a period of eighteen months following the Closing Date, the Seller
will not solicit for employment (other than through general solicitations in the
public media) nor hire any individual who is or within the trailing 120 days has
been an employee of any of the Company and its Subsidiaries without the prior
written consent of the Buyer. Except with respect to those employees of the
Seller listed on Section 6.03 of the Disclosure Schedule, for a period of
eighteen months following the Closing Date, the Buyer will not solicit for
employment (other than through general solicitations in the public media) nor
hire any individual who is or within the trailing 120 days has been an employee
of the Seller without the prior written consent of the Seller. Buyer
acknowledges that Seller's employees who work at the Seller's corporate
headquarters performing services for the Company shall not be considered as
employees of the Company for purposes of this Section 6.03.
Section 6.04 Confidentiality.
The Seller will treat and hold as confidential all of the Confidential
Information and refrain from using any of the Confidential Information except in
connection with this Agreement. In the event that the Seller is requested or
required (by oral question or request for information or documents in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or similar
process) to disclose any Confidential Information, Seller will notify the Buyer
promptly of the request or requirement so that the Buyer may seek an appropriate
protective order or waive compliance with the provisions of this Section 6.04.
If, in the absence of a protective order or the receipt of a waiver hereunder,
the Seller is, on the advice of counsel, compelled to disclose any Confidential
Information to any tribunal or else suffer penalty, the Seller may disclose that
Confidential Information to the tribunal; provided, however, that the Seller
shall use its best efforts to obtain, at the request of the Buyer, an order or
other assurance that confidential treatment will be accorded to such portion of
the Confidential Information required to be disclosed as the Buyer shall
designate.
Section 6.05 Covenant Not to Compete.
For a period of three years from and after the Closing Date, the Seller
will not, without the written consent of the Buyer, (i) open, directly or
indirectly, any RoomStores or (ii) open or acquire, directly or indirectly, any
other retail furniture stores which target the middle market segment of the
retail furniture industry, in either the case of clauses (i) or (ii), within a
five-mile radius of any retail furniture store owned or operated on the Closing
Date, and continuously operated after the Closing Date, by any of the Company
and its Subsidiaries. With respect to any particular retail furniture store
proposed to be opened or acquired by the Seller, directly or indirectly, the
chief executive officer of the Company may waive, in writing, the Seller's
compliance with the terms and conditions of this Section 6.05. The Seller and
the Buyer acknowledge and agree that the provisions of this Section 6.05 shall
not prohibit the Seller from opening additional retail furniture stores that
employ the home furnishings retailing concept of Seller's core ▇▇▇▇▇▇-▇▇▇▇▇▇
Furniture division. If the final judgment of a court of competent jurisdiction
declares that any term or provision of this Section 6.05 is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed. The Parties agree (i) to allocate $100,000
of the Purchase Consideration to the covenant contained in this Section 6.05 and
(ii) not to file any Tax Return that is inconsistent with such allocation;
provided, that such allocation shall not (x) be construed to constitute
liquidated damages for any reason or (y) impair or preclude, or be construed to
be a waiver of, the rights of the Buyer under Article VIII hereof.
Section 6.06 Additional Seller Financing.
(a) The Seller hereby agrees to provide $20,000,000 (the "Maximum Amount")
of additional financing to the Company on the terms and subject to the
conditions of this Section 6.06; provided, however, that the Maximum Amount
shall decrease to $10,000,000 on June 30, 2002, if Total Availability as of such
date is greater than $30,000,000 and less than $40,000,000; and provided
further, that the Maximum Amount shall decrease to zero on June 30, 2002, and
the obligation of the Seller to provide financing to the Company under this
Section 6.06 shall terminate, if Total Availability as of such date equals or
exceeds $40,000,000. The Seller shall be excused from providing financing to the
Company pursuant to the provisions of this Section 6.06 upon the occurrence of
(x) a Bankruptcy, (y) an Acceleration Event, or (z) an Anticipated Repayment;
provided, that the Seller shall not be excused from providing financing to the
Company pursuant to any Funding Notice delivered by the Buyer to the Seller
prior to the occurrence of any such Bankruptcy, Acceleration Event or
Anticipated Repayment.
(b) At any time the Company has less than $3,000,000 of Availability under
the terms and conditions of the Senior Credit Agreement (the "Funding Trigger"),
the Buyer may deliver to the Seller a notice (the "Funding Notice") specifying
an amount of funds, which shall be an integral multiple of $5,000,000 except as
provided below (the "Funding Amount"), that the Seller shall provide to the
Company pursuant to the terms and conditions of this Section 6.06. Upon the
delivery of a Funding Notice by the Buyer to the Seller, the Seller shall have
seven business days in which to purchase either (x) a Subordinated PIK Note or
(y) a Subordinated Cash Pay Note, at par, in the Funding Amount specified in
such Funding Notice.
(c) Subject to the provisions of Section 6.06(b), the Buyer may deliver to
the Seller, from time to time, any number of Funding Notices; provided, however,
that the aggregate principal amount advanced by the Seller pursuant to the
Funding Notices which is outstanding from time to time (collectively the
"Outstanding Obligations") shall not exceed the Maximum Amount. Amounts that
have been borrowed and repaid by the Company shall become available for
subsequent reborrowing by the Company (whether or not in integral multiples of
$5,000,000) pursuant to the terms and conditions of this Section 6.06.
(d) The Company shall prepay any Outstanding Obligations to the extent
that Total Availability would still exceed $20,000,000 following such
prepayment; provided, however, that if more than one Subordinated PIK Note or
Subordinated Cash Pay Note is outstanding at the time of any such required
prepayment, the total amount prepaid shall be applied to reduce the principal
amount of each outstanding Subordinated PIK Note and Subordinated Cash Pay Note
pro rata in proportion to their respective principal amounts.
(e) So long as there are any Outstanding Obligations, the Company shall
not, without the prior written consent of the Seller, (i) open any new retail
furniture stores, (ii) make, in any ninety-day period, any capital expenditures
in excess of depreciation (as determined in each case in accordance with GAAP),
or (iii) consummate any Acquisition. So long as the Outstanding Obligations
exceed $10,000,000, the Seller may, at its option, notify Holdings that the
Seller is electing to increase the weighted voting power of its designee on
Holdings's Board of Directors from 19% to 51% of the total voting power of the
entire Board. Until such time as the Seller is no longer obligated to provide
any financing to the Company under the provisions of this Section 6.06, and the
Company has repaid any and all Outstanding Obligations to the Seller in full,
the Buyer shall not, and shall not permit the Company, to distribute any cash to
Holdings for application to pay principal or interest on any indebtedness of
Holdings, or to pay dividends on or to redeem or repurchase any stock of
Holdings (other than with respect to any stock held by employees of the Company
in connection with the cessation of their employment).
(f) In lieu of purchasing a Subordinated PIK Note or a Subordinated Cash
Pay Note, the Seller may arrange for the Senior Lender to increase the
Availability under the Senior Credit Agreement, by the Funding Amount specified
in the Funding Notice, within seven business days following delivery of the
Funding Notice; provided, however, that the increase in availability shall not
result in any adverse changes, modifications, or amendments to the other terms
and conditions of the Senior Credit Agreement. For example, the Seller might
provide a letter of credit or a guarantee for the benefit of the Senior Lender
as credit enhancement for the increase in Availability to the Company. The above
provisions of this Section 6.06 shall also apply to any such alternative funding
arrangements, with appropriate modifications to reflect the source of funds;
provided, however, that the Senior Lender may elect to release any letter of
credit or guarantee posted by the Seller as credit enhancement to the extent
that Total Availability would still exceed $10,000,000 (rather than $20,000,000
as specified above) following such release.
Section 6.07 Legends.
(a) The Seller Note will be imprinted with a
legend substantially in the following form:
This Note was originally issued on June
__, 1999, and has not been registered under
the Securities Act of 1933, as amended. This
Note is subject to certain restrictions on
transfer. The payment of principal and
interest on this Note is subject to certain
recoupment provisions set forth in a Stock
Purchase Agreement dated as of June ___, 1999
between the issuer and the original holder of
this Note.
(b) The certificate representing the Contingent
Seller Option will be imprinted with a legend
substantially in the following form:
This Warrant was originally issued on
June __, 1999, has not been registered under
the Securities Act of 1933, as amended (the
"Securities Act"), and may not be transferred
in violation of such Securities Act, the
rules and regulations promulgated thereunder
or the provisions of this Warrant. This
Warrant is also subject to (A) a Contingent
Seller Option Agreement, dated as of June __,
1999, by and between ▇▇▇▇▇▇ Holdings, Inc.
(the "Company") and the original holder
hereof and (B) a Stockholders Agreement,
dated as of June __, 1999, by and among the
Company, the original holder hereof and
certain other stockholders of the Company, in
each case as amended from time to time. A
copy of the Contingent Seller Option
Agreement and the Stockholders Agreement will
be furnished by the Company to the holder
hereof upon request.
(c) The certificate representing the Primary Seller Option will be
imprinted with a legend substantially in the following form:
This Warrant was originally issued on
June __, 1999, has not been registered under
the Securities Act of 1933, as amended (the
"Securities Act"), and may not be transferred
in violation of such Securities Act, the
rules and regulations promulgated thereunder
or the provisions of this Warrant. This
Warrant is also subject to (A) a Primary
Seller Option Agreement, dated as of June __,
1999, by and between ▇▇▇▇▇▇ Holdings, Inc.
(the "Company") and the original holder
hereof and (B) a Stockholders Agreement,
dated as of June __, 1999, by and among the
Company, the original holder hereof and
certain other stockholders of the Company, in
each case as amended from time to time. A
copy of the Primary Seller Option Agreement
and the Stockholders Agreement will be
furnished by the Company to the holder hereof
upon request.
Section 6.08 Leases.
The Buyer will not extend the term of any lease or sublease of real
property (such extended lease or sublease term, the "Extended Term"), pursuant
to which lease or sublease the Seller has guaranteed the obligation of the
Company thereunder (any such lease, a "Guaranteed Lease"), unless the Company
causes the obligations of the Seller under such Guaranteed Lease with respect to
the Extended Term to be terminated (such termination to be evidenced by a
written agreement executed by the landlord or sublandlord, as the case may be,
under such Guaranteed Lease); provided, that the provisions of this Section 6.08
shall not apply to the extension or renewal of the term of the Guaranteed Lease
for the following stores of the Company: (x) Nashville, Tennessee (Store #3003),
(y) Huntsville, Alabama (Store #3030), and (z) Columbus, Ohio (Store #3074).
Notwithstanding anything in this Agreement to the contrary, in the event that
any landlord or sublandlord under a Guaranteed Lease demands performance by the
Seller of the Seller's obligations as a guarantor under the terms and conditions
of any such Guaranteed Lease, the Seller and the Buyer hereby agree that the
Seller shall be subrogated to the rights of the Company, as a tenant, under the
terms and conditions of such Guaranteed Lease. The Company shall execute on the
Closing Date the Collateral Assignment of Leases pursuant to which the Company
shall (i) indemnify the Seller from and against the entirety of any Adverse
Consequences incurred by the Seller with respect to any Guaranteed Lease or the
BNB Guaranty and (ii) collaterally assign to the Seller all of the Company's
right, title and interest in and to each Guaranteed Lease and the leasehold
estate thereunder in order to secure (A) the Buyer's indemnification obligations
under the provisions of Section 8.03(c) and (B) the Company's indemnification
obligations under the Collateral Assignment of Leases (only to the extent that
all necessary consents or approvals are obtained from the landlords or
sublandlords, as the case may be, under a Guaranteed Lease to which the
Collateral Assignment of Leases relates); provided, that following the Closing,
the Buyer will cause the Company, as reasonably requested by the Seller, to
cooperate with the Seller's efforts to obtain any consents required under each
Guaranteed Lease to which the Collateral Assignment of Leases relates.
Section 6.09 Employee Benefit Plan Matters
(a) Prior to the Closing Date, the Seller shall take any and all
actions as may be necessary or required to establish on behalf of
the Company such employee benefit plans, programs and
arrangements as are mutually agreed upon by the Company and the
Seller and set forth on Schedule 6.09(a) hereto (the "New Company
Plans"), with such plans, programs and arrangements to be
maintained by the Company and to be effective and operational
before or as of the Closing Date. Except as otherwise provided in
subsection (b) below, the Company and its Subsidiaries shall
cease to participate in the Seller's employee benefit plans as of
the Closing Date.
(b) In the event that any of the New Company Plans is not
established, effective and operational before or as of the
Closing Date, the Seller shall take any and all actions as may be
necessary or required to permit all Employees to continue to
participate in the equivalent employee benefit plan, program or
arrangement maintained by the Seller (and in which such Employees
participated prior to the Closing Date) until such time following
the Closing Date as the applicable New Company Plan is
established, effective and operational.
(c) From and after the Closing, subject to applicable law and
except as contemplated hereby, Buyer and its Affiliates will
honor, in accordance with their terms, all Employee Benefit Plans
that are sponsored solely by the Company (and not by Seller) (the
"Company Plans"). Notwithstanding the foregoing, and subject to
the terms of the Company Plans, nothing herein shall preclude
Buyer from (x) making, on a prospective basis, any change in or
(y) terminating any Company Plan after the Closing.
(d) Employees who remain employed by the Company or are
transferred to the Company by the Seller following the Closing
will receive credit for years of service with the Company or any
of its Subsidiaries or predecessors prior to the Closing for
purposes of determining eligibility to participate and vesting
under employee benefit plans maintained by Buyer and its
Affiliates ("Buyer Employee Plans"), and shall not be subject to
pre-existing conditions or actively-at-work exclusions under
Buyer Employee Plans that provide medical or dental welfare
benefits. Medical and dental expenses incurred by such Employees
on or before the Closing shall be taken into account under
deductible, coinsurance and maximum out-of-pocket provisions of
Buyer Employee Plans.
(e) The Company and its Subsidiaries shall cease to participate
in the ▇▇▇▇▇▇-▇▇▇▇▇▇ Employees' Profit Sharing and Retirement
Savings Plan (the "Seller's 401(k) Plan") as of the Closing Date.
As soon as practicable following the Closing Date, Buyer shall
establish (or cause to be established) a new 401(k) plan or other
defined contribution plan and trust on behalf of the Company that
contains provisions such that the transfer of account balances
contemplated in subsection (f) below will not violate Section
411(d)(6) of the Code (the "Buyer's 401(k) Plan"). Employees will
not accrue additional benefits after the Closing under defined
contribution plans maintained by the Seller.
(f) As soon as practicable after the establishment of Buyer's
401(k) Plan, assets of Seller's 401(k) Plan equal to the account
balances (whether or not vested) of Employees under Seller's
401(k) Plan will be transferred to Buyer's 401(k) Plan. The
transfer will be made in cash, provided that any outstanding plan
loans to Employees shall be transferred with the underlying
accounts. The account balances of Employees in Seller's 401(k)
Plan will be valued as of the date on which the transfer is made
(the "Transfer Date"). The account balances ees in Seller's
401(k) Plan shall share in the earnings, appreciation and
depreciation of Seller's 401(k) Plan for the period between the
Closing and the Transfer Date. For the period between the Closing
and the Transfer Date, Seller shall cause the trustee of Seller's
401(k) Plan to continue to administer any outstanding loans under
Seller's 401(k) Plan on behalf of any Employee, and shall accept
from Buyer as a credit against any such outstanding loans amounts
transmitted by Buyer on behalf of any Employee for the purpose of
continued loan repayment.
(g) Any benefits that are payable to Employees from Seller's
401(k) Plan after the Closing and before the assets are
transferred shall be paid from Seller's 401(k) Plan in the
ordinary course. The amount to be transferred to Buyer's 401(k)
Plan shall be reduced by the amount of such payments.
(h) The account balances to be credited for Employees under
Buyer's 401(k) Plan shall not be less than the account balances
of Employees under Seller's 401(k) Plan as of the date on which
the transfer is made. Effective on the date of the transfer of
Seller's 401(k) Plan assets, (i) Buyer and Buyer's 401(k) Plan
shall assume all liabilities in connection with the account
balances of Employees under Seller's 401(k) Plan, and (ii)
Seller, its Affiliates and Seller's 401(k) Plan shall have no
further liability with respect to the account balances of
Employees.
(i) Buyer shall request that the Internal Revenue Service issue
a favorable determination letter with respect to the
qualification under Sections 401 and 501 of the Internal Revenue
Code of Buyer's 401(k) Plan and its related trust. Buyer shall
make such changes to Buyer's 401(k) Plan as may be required by
the Internal Revenue Service in order for the Internal Revenue
Service to issue a favorable determination letter. Buyer shall
provide Seller with a copy of the determination letter received
from the Internal Revenue Service with respect to Buyer's 401(k)
Plan as soon as the determination letter is received.
(j) Buyer and Seller shall each make their appropriate employees
available to the other at such reasonable times as may be
necessary for the proper administration by the other of any and
all matters relating to employee benefits affecting Employees.
(k) The Buyer shall be responsible for providing group health
plan coverage under COBRA for (i) each person who is entitled to
receive COBRA coverage under a Company Plan and (ii) each
Employee and each qualified beneficiary with respect to an
Employee who is entitled to COBRA coverage under an employee
benefit plan of Seller as described in subsection (b), if
applicable, as a result of a "qualifying event" (as defined under
COBRA) that occurs prior to, on or after the Closing Date.
ARTICLE VII
CONDITIONS TO OBLIGATION TO CLOSE
Section 7.01 Conditions to Obligation of the Buyer.
The obligation of the Buyer to consummate the transactions to be performed
by it in connection with the Closing is subject to satisfaction of the following
conditions:
(a) the representations and warranties of the Seller set forth
in Article II and Article IV (and, in the case of Section 4.11,
without regard to the limitation on representations and
warranties contained in Section 4.11(k)) above shall be true and
correct in all material respects at and as of the Closing Date,
the Seller shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing,
and the Seller shall have delivered a certificate to the Buyer
representing and warranting that this condition is fully
satisfied without exception;
(b) no action, suit, or proceeding shall be pending before any
court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (i)
prevent consummation of any of the transactions contemplated by
this Agreement, (ii) cause any of the transactions contemplated
by this Agreement to be rescinded following consummation, (iii)
affect adversely the right of the Buyer to own the Company Shares
and to control the Company and its Subsidiaries, or (iv) affect
materially and adversely the right of any of the Company and its
Subsidiaries to own its assets and to operate its businesses (and
no such injunction, judgment, order, decree, ruling, or charge
shall be in effect);
(c) all applicable waiting periods (and any extensions thereof)
under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act shall have expired or otherwise
been terminated, and the Buyer, the Company, and its Subsidiaries
shall have received all other material authorizations, consents,
and approvals of governments and governmental agencies referred
to in Section 3.03, and Section 4.03 above;
(d) the Parties shall have entered into the Transition Services
Agreements, substantially in form and substance as set forth in
Exhibit C attached hereto (the "Transition Services Agreement"),
and the same shall be in full force and effect;
(e) the Buyer shall have received from ▇▇▇▇▇▇▇ ▇▇▇▇▇ Battle &
▇▇▇▇▇▇ LLP, counsel to the Seller, an opinion in substance as set
forth in Exhibit D attached hereto, addressed to the Buyer, and
dated as of the Closing Date;
(f) the Seller shall have procured for the Buyer all of (i) the
material third party consents specified in Section 5.02 above,
including those landlord consents related to the leases and
subleases involving the Company's distribution centers (which
landlord consents are listed on Section 7.01(f) of the Disclosure
Schedule) and excluding all other landlord consents, (ii) the
title insurance commitments, policies, and riders specified in
Section 5.07 above, and (iii) the surveys specified in Section
5.08 above;
(g) the Buyer shall have received the resignations, effective as
of the Closing, of any directors and officers of the Company and
its Subsidiaries who will be employees of the Seller following
the Closing or whom the Buyer shall have designated for removal
by notice to the Seller at least five business days prior to the
Closing;
(h) the Buyer shall have obtained as contemplated, in part, by
the ▇▇▇▇▇▇ Financing Proposal, all of the debt financing, and all
of the equity financing it needs in order to consummate the
transactions contemplated hereby and in order to fund the working
capital requirements of the Company and its Subsidiaries after
the Closing;
(i) the Buyer shall have received evidence that, as of the
Closing Date, no Funded Debt (other than those Capitalized Leases
of the Company and its Subsidiaries set forth on the Audited
Financial Statements) of (x) the Company and its Subsidiaries
shall exist and (y) the Seller that could be a liability of the
Company and its Subsidiaries shall exist;
(j) (i)that certain letter agreement, substantially in the form
attached hereto as Exhibit K, shall have been executed by each of
the parties thereto, and (ii) that certain requirements contract
to be entered into by and between the Company and Voyager
Insurance Company shall (A) be in form and substance reasonably
satisfactory to the Buyer and (B) contain such economic terms as
are substantially similar to the economic terms of the
arrangement, as of the date hereof, between the Company and
Voyager Insurance Company;
(k) (i)the Buyer shall have received the Audited Financial
Statements, together with the unqualified reports thereon and
certifications thereof by Deloitte & Touche LLP stating that such
Audited Financial Statements (A) have been prepared in accordance
with GAAP and (B) present fairly the results of operations and
financial condition of the Company and its Subsidiaries, and (ii)
no substantive differences shall exist between the Draft Audited
Financial Statements and the Audited Financial Statements.
(l) the Buyer shall have received evidence satisfactory to it
that the Seller's representations and warranties set forth in
Section 1.05(c) above are true and correct in all material
respects;
(m) the Seller shall have entered into the Contingent Seller
Option Agreement, the Primary Seller Option Agreement, and the
Stockholders Agreement; and
(n) all actions to be taken by the Seller in connection with
consummation of the transactions contemplated hereby, and all
certificates, opinions, instruments, and other documents required
in order to effect the transactions contemplated hereby, will be
reasonably satisfactory in form and substance to the Buyer and
its counsel.
The Buyer may waive any condition specified in this Section 7.01 if it executes
a writing so stating and delivers it to the Seller at or prior to the Closing.
Section 7.02 Conditions to Obligation of the Seller.
The obligation of the Seller to consummate the transactions to be performed
by it in connection with the Closing is subject to satisfaction of the following
conditions:
(a) the representations and warranties of the Buyer set forth in
Article III above shall be true and correct in all material
respects at and as of the Closing Date, the Buyer shall have
performed and complied with all of its covenants hereunder in all
material respects through the Closing, and the Buyer shall have
delivered a certificate to the Seller representing and warranting
that this condition is fully satisfied without exception;
(b) no action, suit, or proceeding shall be pending before any
court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (i)
prevent consummation of any of the transactions contemplated by
this Agreement or (ii) cause any of the transactions contemplated
by this Agreement to be rescinded following consummation (and no
such injunction, judgment, order, decree, ruling, or charge shall
be in effect);
(c) all applicable waiting periods (and any extensions thereof)
under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act shall have expired or otherwise
been terminated, and the Seller shall have received all other
authorizations, consents, and approvals of governments and
governmental agencies referred to in Section 2.03 above;
(d) the Parties shall have entered into the Transition Services
Agreement, and the same shall be in full force and effect;
(e) the Seller shall have received from ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇,
counsel to the Buyer, an opinion in substance as set forth in
Exhibit E attached hereto, addressed to the Seller, and dated as
of the Closing Date;
(f) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby, and all
certificates, opinions, instruments, and other documents required
to effect the transactions contemplated hereby, will be
satisfactory in form and substance to the Seller and its counsel;
(g) Holdings shall have issued 500 shares of its Class C
Preferred Stock, all such shares to be fully vested upon
issuance, to a group of employees of the Company identified by
the chief executive officer of the Company in writing prior to
the Closing Date solely in consideration for services to be
rendered, with no cash or other property having been contributed
by any such employee to Holdings, the Buyer or to the Company in
exchange for any stock of Holdings;
(h) Holdings shall have entered into the Contingent Seller
Option Agreement, the Primary Seller Option Agreement, and the
Stockholders Agreement and Buyer shall have issued the Seller
Note; and
(i) the Company shall have entered into the Collateral
Assignment of Leases.
The Seller may waive any condition specified in this Section 7.02 if it executes
a writing so stating and delivers it to the Buyer at or prior to the Closing.
ARTICLE VIII
REMEDIES FOR BREACHES OF THIS AGREEMENT
Section 8.01 Survival of Representations and Warranties.
All of the representations and warranties of the Seller set forth in
Article IV above (other than in Section 4.11, Section 4.24, or Section 4.26
thereof) shall survive the Closing hereunder, even if the Buyer knew or had
reason to know of any misrepresentation or breach of warranty at the time of
Closing, and continue in full force and effect for a period of eighteen months
thereafter. The representations and warranties of the Seller set forth in
Section 4.11, Section 4.24, and Section 4.26 above shall survive the Closing
hereunder, even if the Buyer knew or had reason to know of any misrepresentation
or breach of warranty at the time of Closing, and continue in full force and
effect for a period of (i) ninety days following the expiration of the
applicable statute of limitations, (ii) three years thereafter, and (iii) three
years thereafter, respectively. All of the representations and warranties of the
Seller set forth in Article II above and all of the representations and
warranties of the Buyer set forth in Article III above shall survive the Closing
hereunder, even if the Buyer (with respect to representations and warranties of
the Seller set forth in Article II above) or the Seller (with respect to
representations and warranties of the Buyer set forth in Article III above) knew
or had reason to know of any misrepresentation or breach of warranty at the time
of Closing, and continue in full force and effect for a period of eighteen
months thereafter; provided, that the representations and warranties of the
Seller set forth in Section 2.06 above shall survive the Closing hereunder, even
if the Buyer knew or had reason to know of any misrepresentation or breach of
warranty at the time of Closing, and continue in full force and effect for a
period of ninety days following the applicable statute of limitations.
Section 8.02 Indemnification Provisions for Benefit of the
Buyer.
(a) In the event the Seller breaches (or in the event any third party
alleges facts that, if true, would mean the Seller has breached) any of its
representations, warranties, and covenants contained herein, and, if there is an
applicable survival period with respect to such representations and warranties
of the Seller pursuant to Section 8.01 above, provided that the Buyer makes a
written claim for indemnification against the Seller within such survival
period, then the Seller agrees to indemnify each of Holdings, the Buyer and
their respective Affiliates, officers, directors, agents, and representatives
(collectively the "Buyer Indemnified Parties") from and against the entirety of
any Adverse Consequences that such Buyer Indemnified Parties may suffer through
and after the date of the claim for indemnification (including any Adverse
Consequences that such Buyer Indemnified Parties may suffer after the end of any
applicable survival period) resulting from, arising out of, relating to, in the
nature of, or caused by the breach (or the alleged breach).
(b) The Seller shall not have any obligation to indemnify the Buyer
Indemnified Parties from and against any Adverse Consequences resulting from,
arising out of, relating to, in the nature of, or caused by any set of related
facts comprising a breach of one or more of the representations and warranties
of the Seller contained in Article II or Article IV above (other than in Section
2.06 or Section 4.11 above), unless such Buyer Indemnified Parties have suffered
such Adverse Consequences in excess of a $500,000 aggregate deductible, at which
point the Seller will be obligated, subject to the provisions of Section
8.02(d), to indemnify the Buyer Indemnified Parties from and against further
such Adverse Consequences.
(c) In addition, the Seller agrees to indemnify the Buyer Indemnified
Parties from and against the first $500,000 of Adverse Consequences, plus
one-half of any Adverse Consequences in excess of $1,000,000, in each case that
the Buyer Indemnified Parties may suffer in the aggregate resulting from,
arising out of, relating to, in the nature of, or caused by the failure of the
Seller to obtain prior to the Closing Date any of the landlord (and sublandlord)
consents that are required in connection with the transactions contemplated by
this Agreement; provided, however, that the Buyer shall use its reasonable
efforts to mitigate the amount of any Adverse Consequences that the Buyer
Indemnified Parties may suffer with respect to any failure of the Seller to
obtain any such consent; and provided further that the Buyer must make a written
claim for any such indemnification against the Seller within a survival period
of eighteen months after the Closing as described above in Section 8.02(a). The
Seller also agrees to indemnify the Buyer Indemnified Parties from and against
the entirety of any Adverse Consequences that such Buyer Indemnified Parties may
suffer resulting from, arising out of, relating to, in the nature of, or caused
by any of the specific matters identified on Exhibit F attached hereto;
provided, that the Seller shall have the right to defend those matters
identified under items 1 and 3 of Exhibit F without regard to the provisions of
clauses (i), (ii), and (iii) of Section 8.04(b).
(d) There will be a $20,000,000 aggregate ceiling on the obligation of the
Seller to indemnify the Buyer Indemnified Parties against Adverse Consequences
pursuant to this Section 8.02; provided, however, that this $20,000,000 ceiling
will not apply with respect to the provisions of Article IX below.
Section 8.03 Indemnification Provisions for Benefit of the
Seller.
(a) In the event the Buyer breaches (or in the event any third party
alleges facts that, if true, would mean the Buyer has breached) any of its
representations, warranties, and covenants contained herein, and, if there is an
applicable survival period with respect to such representations and warranties
of the Buyer pursuant to Section 8.01 above, provided that the Seller makes a
written claim for indemnification against the Buyer within such survival period,
then the Buyer agrees to indemnify each of the Seller and its Affiliates,
officers, directors, agents, and representatives (collectively the "Seller
Indemnified Parties") from and against the entirety of any Adverse Consequences
that such Seller Indemnified Parties may suffer through and after the date of
the claim for indemnification (including any Adverse Consequences that such
Seller Indemnified Parties may suffer after the end of any applicable survival
period) resulting from, arising out of, relating to, in the nature of, or caused
by the breach (or the alleged breach).
(b) The Buyer shall not have any obligation to indemnify the Seller
Indemnified Parties from and against any Adverse Consequences resulting from,
arising out of, relating to, in the nature of, or caused by any set of related
facts comprising a breach of one or more of the representations and warranties
of the Buyer contained in Article III above (other than Section 3.02 insofar as
it relates to the inapplicability of the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act to the
transactions contemplated hereby), unless such Seller Indemnified Parties have
suffered such Adverse Consequences in excess of a $500,000 aggregate deductible,
at which point the Buyer will be obligated, subject to the provisions of Section
8.03(d), to indemnify the Seller Indemnified Parties from and against further
such Adverse Consequences.
(c) The Buyer also agrees to indemnify the Seller Indemnified Parties from
and against the entirety of any Adverse Consequences that such Seller
Indemnified Parties may suffer resulting from, arising out of, relating to, in
the nature of, or caused by the Seller guaranteeing the obligations of the
Company and its Subsidiaries under the Guaranteed Leases and the BNB Guaranty
following the Closing.
(d) There will be a $20,000,000 aggregate ceiling on the obligation of the
Buyer to indemnify the Seller Indemnified Parties against Adverse Consequences
pursuant to this Section 8.03; provided, however, that this $20,000,000 ceiling
will not apply with respect to the provisions of Section 8.03(c) above or
Article IX below.
Section 8.04 Matters Involving Third Parties.
(a) If any third party shall notify either Party (the
"Indemnified Party") with respect to any matter (a "Third Party
Claim") which may give rise to a claim for indemnification
against the other Party (the "Indemnifying Party") under this
Article VIII, then the Indemnified Party shall promptly notify
the Indemnifying Party thereof in writing; provided, however,
that no delay on the part of the Indemnified Party in notifying
the Indemnifying Party shall relieve the Indemnifying Party from
any obligation hereunder unless (and then solely to the extent)
the Indemnifying Party is prejudiced by the delay.
(b) The Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of
its choice reasonably satisfactory to the Indemnified Party so
long as (i) the Indemnifying Party notifies the Indemnified Party
in writing within 15 days after the Indemnified Party has given
notice of the Third Party Claim that the Indemnifying Party will
indemnify the Indemnified Party from and against the entirety of
any Adverse Consequences the Indemnified Party may suffer
resulting from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim, (ii) the Third Party Claim
involves only money damages and does not seek an injunction or
other equitable relief, (iii) settlement of, or an adverse
judgment with respect to, the Third Party Claim is not, in the
good faith judgment of the Indemnified Party, likely to establish
a precedential custom or practice adverse to the continuing
business interests of the Indemnified Party, and (iv) the
Indemnifying Party conducts the defense of the Third Party Claim
actively and diligently.
(c) So long as the Indemnifying Party is conducting the defense
of the Third Party Claim in accordance with Section 8.04(b)
above, (i) the Indemnified Party may retain separate co-counsel
at its sole cost and expense and participate in the defense of
the Third Party Claim, (ii) the Indemnified Party will not
consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written
consent of the Indemnifying Party (not to be unreasonably
withheld), and (iii) the Indemnifying Party will not consent to
the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written
consent of the Indemnified Party (not to be unreasonably
withheld).
(d) In the event any of the conditions in Section 8.04(b) above
is or becomes unsatisfied, however, (i) the Indemnified Party may
defend against, and consent to the entry of any judgment or enter
into any settlement with respect to, the Third Party Claim in any
manner it may in good ▇▇▇▇▇ ▇▇▇▇ appropriate (and the Indemnified
Party need not consult with, or obtain any consent from, the
Indemnifying Party in connection therewith), (ii) the
Indemnifying Party will reimburse the Indemnified Party promptly
and periodically for the costs of defending against the Third
Party Claim (including reasonable attorneys' fees and expenses),
and (iii) the Indemnifying Party will remain responsible for any
Adverse Consequences the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or caused by
the Third Party Claim to the full extent provided in this Article
VIII.
Section 8.05 Determination of Adverse Consequences.
In determining Adverse Consequences for purposes of this Article VIII, the
Parties shall disregard (i) any qualifications as to materiality set forth in
Article IV above and (ii) the limitations and qualifications set forth in
Section 4.11(k) above. All indemnification payments under this Article VIII
shall be deemed adjustments to the Purchase Consideration.
Section 8.06 Recoupment Under Seller Note.
The Buyer shall have the option of recouping all or any part of any Adverse
Consequences (as (x) agreed to by the Seller or (y) finally determined in a
final non-appealable order of a court of competent jurisdiction entered in an
action, suit or proceeding in which a Buyer Indemnified Party and the Seller are
parties) it may suffer (in lieu of seeking any indemnification to which it is
entitled under this Article VIII) by notifying the Seller that the Buyer is
reducing the principal amount outstanding under the Seller Note. This shall
affect the timing and amount of payments required under the Seller Note in the
same manner as if the Buyer had made a permitted prepayment (without premium or
penalty) thereunder.
Section 8.07 Other Indemnification Provisions.
The Parties agree and acknowledge that, other than with respect to fraud by
the Seller or the Buyer (as the case may be) (including with respect to (x)
fraud in the inducement by the Seller or the Buyer (as the case may be) or (y)
similar or related fraud theories advanced by the Seller or the Buyer (as the
case may be)), the foregoing indemnification provisions of this Article VIII
shall constitute the sole and exclusive rights and remedies of the Parties under
this Agreement for any inaccuracies in or breaches of any representations or
warranties, or any breach or failure to perform any covenants hereunder.
ARTICLE IX
TAX MATTERS
The following provisions shall govern the allocation of responsibility
between the Buyer and the Seller for certain Tax matters following the Closing
Date:
Section 9.01 Tax Sharing Agreements.
Any Tax sharing arrangement between any member of the Seller Group and any
of the Company and its Subsidiaries is terminated as of the Closing Date and
will have no further effect, and neither the Seller, on the one hand, nor the
Company and its Subsidiaries, on the other, shall have any Liability to the
other after the Closing in respect of any such arrangement
Section 9.02 Taxes of Other Persons.
The Seller agrees to indemnify the Buyer from and against the entirety of
any Adverse Consequences the Buyer may suffer resulting from, arising out of,
relating to, in the nature of, or caused by any Liability of any of the Company
and its Subsidiaries for the Taxes of any Person other than any of the Company
and its Subsidiaries (a) under Reg. Section 1.1502-6 (or any similar provision
of state, local, or foreign law), (b) as a transferee or successor, (c) by
contract, or (d) otherwise.
Section 9.03 Seller Group Tax Returns.
The Seller will (a) include the income of the Company and its Subsidiaries
(including any deferred income triggered into income by Reg. Section 1.1502-13
and Reg. Section 1.1502-14 and any excess loss accounts taken into income under
Reg. Section 1.1502-19) on the Seller's consolidated federal income Tax Returns,
as well as all state and local Tax Returns which it files on a consolidated,
combined, or unitary basis and which include the Company and its Subsidiaries,
for all periods through the Closing Date and (b) pay any Taxes attributable to
such income. The Buyer will furnish Tax information to the Seller for inclusion
in such Tax Returns for the period which includes the Closing Date in accordance
with the past custom and practice of the Company and its Subsidiaries. The
Seller will allow the Buyer an opportunity to review and comment upon such Tax
Returns (including any amended returns) to the extent that they relate to the
Company and its Subsidiaries. The Seller will take no position on such returns
that relate to the Company and its Subsidiaries that would adversely affect the
Company and its Subsidiaries after the Closing Date; provided, however, that the
Seller may take positions on returns that are consistent with the prior practice
of the Company and its Subsidiaries; and, provided, further, that the Seller
will not be required to take any position that is contrary to applicable laws,
rules and regulations. The income of the Company and its Subsidiaries will be
apportioned to the period up to and including the Closing Date and the period
after the Closing Date by closing the books of the Company and its Subsidiaries
as of the end of the Closing Date.
Section 9.04 Tax Returns to be Filed by the Buyer.
The Buyer shall prepare and file all Tax Returns for the Company and its
Subsidiaries which are to be filed after the Closing Date, other than income Tax
Returns with respect to periods for which a consolidated, unitary, or combined
income Tax Return of the Seller will include the operations of the Company and
its Subsidiaries. The Seller will furnish Tax information to the Buyer for
inclusion in such Tax Returns as required for the period through the Closing
Date. The Buyer will allow the Seller an opportunity to review and comment upon
such Tax Returns (including any amended returns) to the extent that they relate
in whole or in part to the period through the Closing Date. The Buyer will take
no position on any Tax Return (including any amended return) to the extent that
any such Tax Return relates to the Company and its Subsidiaries that would
adversely affect the Seller after the Closing Date, provided, however, that the
Buyer may take positions on any such return that are consistent with the prior
practice of the Company and its Subsidiaries, and, provided, further, that the
Buyer will not be required to take any position that is contrary to applicable
laws, rules and regulations. The Seller shall reimburse the Buyer, by the later
of (a) 15 days after receiving such Tax Return or (b) two days before the due
date for the Taxes shown on such Tax Return, for the portion of such Taxes
relating to the portion of any taxable period ending on or before the Closing
Date. For purposes of this Section 9.04, in the case of any Taxes that are
imposed on a periodic basis and are payable for a taxable period that includes
(but does not end on) the Closing Date, the portion of such Tax which relates to
the portion of such taxable period ending on the Closing Date shall (x) in the
case of any Tax not based upon or related to income or receipts, be deemed to be
the amount of such Tax for the entire taxable period multiplied by a fraction
the numerator of which is the number of days in the taxable period ending on the
Closing Date and the denominator of which is the number of days in the entire
taxable period, and (y) in the case of any Tax based upon or related to income
or receipts, be deemed to be the amount which would be payable if the relevant
taxable period ended on the Closing Date. Any credits relating to a taxable
period that begins before and ends after the Closing Date shall be taken into
account as though the relevant taxable period ended on the Closing Date. All
determinations necessary to give effect to the foregoing allocations shall be
made in a manner consistent with the prior practice of the Company and its
Subsidiaries.
Section 9.05 Cooperation on Tax Matters.
Each Party shall cooperate fully, as and to the extent reasonably requested
by the other Party, in connection with the filing of Tax Returns pursuant to
this Article IX and any audit, litigation, or other proceeding with respect to
Taxes. Such cooperation shall include the retention, and upon request the
provision, of records and information which are reasonably relevant to any such
audit, litigation, or other proceeding and making employees available on a
mutually convenient basis to provide additional information and explanation of
any material provided hereunder. Each of the Parties agrees to retain all books
and records with respect to Tax matters pertinent to the Company and its
Subsidiaries relating to any taxable period beginning before the Closing Date
until the expiration of the statute of limitations for the respective taxable
periods (and any extensions thereof of which it has received notice), to abide
by all record retention agreements entered into with any taxing authority, to
give the other Party reasonable written notice prior to transferring,
destroying, or discarding any such books and records and, if the other Party so
requests, to allow the other Party to take possession of such books and records
rather than destroying or discarding them. Each Party further agrees, upon
request, to use its reasonable best efforts to obtain any certificate or other
document from any governmental authority or any other Person as may be necessary
to mitigate, reduce, or eliminate any Tax that could be imposed (including with
respect to the transactions contemplated hereby). Each Party further agrees,
upon request, to provide the other Party with all information that the
requesting Party may be required to report pursuant to Code Section 6043 and all
Treasury Department Regulations promulgated thereunder.
Section 9.06 Audits.
The Seller will allow the Buyer and its counsel to participate in any
audits of a Seller Group Tax Return to the extent that such return relates to
any of the Company and its Subsidiaries. The Seller will not settle any such
audit in a manner which would adversely affect the Company and its Subsidiaries
after the Closing Date without the prior written consent of the Buyer (not to be
unreasonably withheld).
Section 9.07 Carrybacks.
To the extent permitted by law, the Buyer shall cause the Company and its
Subsidiaries to carry forward any net operating losses, net capital losses, tax
credits, or other tax attributes attributable to periods after the Closing. To
the extent that applicable law requires the Company or any of its Subsidiaries
to carry back any such Tax attribute to a period before Closing, the Seller
shall cooperate with the Company and its Subsidiaries in the filing of any Tax
Returns necessary to effect such carryback and shall promptly upon receipt pay
to the Buyer any Tax refund resulting from such carryback. The Buyer agrees to
indemnify the Seller for any Taxes (including interest at the statutory rate fo
deficiencies from the date of refund to the Buyer to the date of repayment to
the Seller) resulting from the disallowance of such postacquisition Tax
attribute on audit or otherwise. The Seller may elect to reimburse the Buyer for
any refund that would have resulted from any carryback in lieu of amending any
Tax Return or filing any refund claims provided in this Section 9.07.
Section 9.08 Retention of Carryovers
The Seller will elect to retain any net operating loss carryovers or
capital loss carryovers of the Company and its Subsidiaries under Reg. Section
1.1502-20(g).
Section 9.09 Certain Taxes on the Transaction.
All transfer, documentary, sales, use, stamp, registration, and other such
Taxes and fees (including any penalties and interest) incurred in connection
with the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, shall be paid by the Seller when due, and the
Seller will, at its own expense, file all necessary Tax Returns and other
documentation with respect to all such transfer, documentary, sales, use, stamp,
registration, and other Taxes and fees. If required by applicable law, the Buyer
will join in the execution of any such Tax Returns and other documentation.
Section 9.10 Intended Treatment of the Transaction.
The Parties intend that the transaction contemplated by this Agreement be
treated for tax purposes as a sale of the stock of the Company by the Seller to
the Buyer in which gain or loss is recognizable by the Seller and in which Buyer
takes a cost basis for its stock in the Company.
ARTICLE X
TERMINATION
The Buyer and the Seller may terminate this Agreement by mutual written
consent at any time prior to the Closing or, if the Closing shall not have
occurred on or before August 31,1999 for any reason, either Party may terminate
this Agreement unilaterally. Upon any termination of this Agreement, all rights
and obligations of the Parties hereunder shall terminate without any Liability
of either Party to the other Party; provided, however, that termination will not
extinguish any Liability of either Party for any breach of this Agreement prior
to such termination of this Agreement pursuant to the terms and conditions of
this Article X.
ARTICLE XI
DEFINITIONS
"Acceleration Event" means (i) the exercise by the Senior Lender of its
rights, as Agent, to declare all or any portion of the Obligations to be
immediately due and payable or (ii) all Obligations becoming immediately due and
payable, in each case pursuant to the terms and conditions of Section 8.3 of the
Senior Credit Agreement.
"Accredited Investor" has the meaning set forth in Regulation D promulgated
under the Securities Act.
"Acquisition" means any transaction, or any series of related transactions,
consummated on or after the date of this Agreement, by which the Company (i)
acquires for cash any going business or all or substantially all of the assets
of any firm, corporation or division thereof, whether through purchase of
assets, merger or otherwise or (ii) directly or indirectly acquires for cash (in
one transaction or as the most recent transaction in a series of transactions)
at least a majority (in number of votes) of the securities of a corporation
which have ordinary voting power for the election of directors (other than
securities having such power only by reason of the happening of a contingency)
or a majority (by percentage of voting power) of the outstanding equity
interests of another Person.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and reasonable attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of Code
Section 1504(a) or, as applicable, any consolidated, combined, or unitary group
defined under a provision of state, local, or foreign law.
"Agent" has the meaning assigned to such term in the Senior Credit
Agreement.
"Agreement" has the meaning set forth in the preface above.
"Anticipated Repayment" means the delivery of a Funding Notice by the Buyer
to the Seller at a time or under circumstances that indicate that any Note
Proceeds resulting from the delivery of such Funding Notice will inevitably be
used by the Company to repay the Obligations upon the end of the Original Term
or upon the Termination Date
"Audited Financial Statements" has the meaning set forth in Section 4.07
above.
"Availability" shall mean the undrawn portion of the "Maximum Revolving
Loan Amount" (as such term is defined under the Senior Credit Agreement).
"Bankruptcy" means the happening of any of the following events: (i) an
involuntary proceeding shall be commenced or an involuntary petition shall be
filed in a court of competent jurisdiction seeking relief in respect of the
Company under Title 11 of the United States Code, as now constituted or
hereafter amended, and such proceeding or petition shall continue undismissed
for 90 days from the date of such involuntary filing or involuntary petition; or
(ii) the Company voluntarily commences any proceeding or files any petition
seeking relief under Title 11 of the United States Code, as now constituted or
hereafter amended.
"Benefit Arrangement" means any employment, consulting, severance, or other
similar contract, arrangement, or policy, and each plan, arrangement, program,
agreement, or commitment providing for insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
retirement benefits, or life, health, disability, or accident benefits
(including any "voluntary employees' beneficiary association" as defined in
Section 501(c)(9) of the Code providing for the same or other benefits) or for
deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation rights, stock purchases, or other forms of incentive compensation
or post-retirement insurance, compensation, or benefits, which is not an
Employee Welfare Benefit Plan, an Employee Pension Benefit Plan, or a
Multiemployer Plan.
"BNB Guaranty" means the obligations of the Seller arising under the terms
and conditions of the Second Amended and Restated Guaranty Agreement, dated as
of January 26, 1999, by and between the Seller in favor of Beneficial National
Bank USA.
"Buyer" has the meaning set forth in the preface above.
"Buyer Employee Plans" has the meaning set forth in Section 6.09(d) above.
"Buyer Indemnified Parties" has the meaning set forth in Section 8.02
above.
"Buyer's 401(k) Plan" has the meaning set forth in Section 6.09(e) above.
"Capitalized Lease" of a Person means any lease of property by such Person
as lessee which would be capitalized on a balance sheet of such Person prepared
in accordance with GAAP and applied in a manner consistent with that used in
preparing the financial statements of such Person.
"Cash Consideration" has the meaning set forth in Section 1.02 above.
"Class B Common" means Holdings's Class B Common Stock, par value $0.01 per
share.
"Class C Preferred Stock" means Holdings's junior 13.0% Class C Preferred
Stock, par value $100 per share.
"Closing" has the meaning set forth in Section 1.03 above.
"Closing Date" has the meaning set forth in Section 1.03 above.
"COBRA" means the requirements of Part 6 of Subtitle B of Title I of ERISA
and Code Section 4980B.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral Assignment of Leases" means the Indemnification Agreement and
Collateral Assignment of Leases, dated as of the Closing Date, by and between
the Company and the Seller, and substantially in the form of Exhibit J attached
hereto.
"Company" has the meaning set forth in the preface above.
"Company Fire" means that certain fire that occurred in February 1999 at
the Company's distribution center located at Greensboro, North Carolina.
"Company Plans" has the meaning set forth in Section 6.09(c) above.
"Company Share" means any share of the Common Stock, par value $0.01 per
share, of the Company.
"Confidentiality Agreement" means that certain letter agreement, dated as
of February 1, 1999, by and between Citicorp Venture Capital, Ltd. and ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ Inc. on behalf of the Seller.
"Confidential Information" means any information concerning exclusively the
businesses and affairs of the Company and its Subsidiaries (even if such
information is contained in any Records that contains information relating to
the Seller) that is not already, or does not in the future become, generally
available to the public other than as a result of a disclosure of such
information by the recipient of such information or any of its agents or
representatives.
"Contingent Seller Option" means, collectively, one or more stock purchase
warrants exercisable for 55,556 shares of Class B Common at $0.98 per share of
Class B Common, issued by Holdings to the Seller on the Closing Date pursuant to
the Contingent Seller Option Agreement, and having terms substantially similar
to those set forth on Exhibit G attached hereto.
"Contingent Seller Option Agreement" means the Contingent Seller Option
Agreement, dated as of the Closing Date, by and between Holdings and the Seller,
and having terms substantially similar to those set forth on Exhibit G attached
hereto, as the same may be amended, modified, or restated from time to time in
accordance with its terms.
"Controlled Group" has the meaning set forth in Code Section 1563.
"Deferred Intercompany Transaction" has the meaning set forth in Reg.
Section 1.1502-13.
"Disclosure Schedule" has the meaning set forth in Article IV above.
"Draft Audited Financial Statements" has the meaning set forth in Section
4.07 above.
"Employee" means any employee of the Company.
"Employee Benefit Plan" means any Benefit Arrangement, Multiemployer Plan,
Employee Pension Benefit Plan, or Employee Welfare Benefit Plan.
"Employee Pension Benefit Plan" means any "employee pension benefit plan,"
as defined in Section 3(2) of ERISA (other than a Multiemployer Plan).
"Employee Welfare Benefit Plan" means any "employee welfare benefit plan,"
as defined in Section 3(1) of ERISA.
"Environmental, Health, and Safety Requirements" shall mean all applicable
federal, state, local and foreign statutes, regulations, ordinances and other
governmental provisions having the force or effect of law, all judicial and
administrative orders and determinations, and all common law concerning public
health and safety, worker health and safety, and pollution or protection of the
environment, including all those relating to the presence, use, production,
generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
release, control, or cleanup of any hazardous materials, substances or wastes,
chemical substances or mixtures, pesticides, pollutants, contaminants, toxic
chemicals, petroleum products or byproducts, asbestos, polychlorinated
biphenyls, noise or radiation, each as amended and as now or hereafter in
effect.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means each entity which is treated as a single employer
with another entity for purposes of Code Section 414.
"Excess Loss Account" has the meaning set forth in Reg. Section 1.1502-19.
"Extended Term" has the meaning set forth in Section 6.08 above.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Financial Statement" has the meaning set forth in Section 4.07 above.
"Funded Debt" means, as of any date, without duplication, the aggregate
amount of all obligations due as of such date under indebtedness for borrowed
money and capitalized leases (as determined in accordance with GAAP), including
any guarantees of the same, including all obligations for principal, interest,
premiums, fees, expenses, overadvances, overdrafts, breakage costs, and
indemnities due as of such date thereunder.
"Funding Amount" has the meaning set forth in Section 6.06 above.
"Funding Notice" has the meaning set forth in Section 6.06 above.
"Funding Trigger" has the meaning set forth in Section 6.06 above.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Greensboro Receivable" has the meaning set forth in Section 1.05 above.
"Guaranteed Lease" has the meaning set forth in Section 6.08 above.
"▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements
Act of 1976, as amended.
"▇▇▇▇▇▇ Credit Facility" means the Company's $76.0 million credit facility,
as evidenced by the Senior Credit Agreement.
"▇▇▇▇▇▇ Financing Proposal" means that certain term sheet of the Senior
Lender in respect of the Senior Credit Agreement and attached hereto as Exhibit
I.
"Holdings" means ▇▇▇▇▇▇ Holdings, Inc., a Delaware corporation.
"Indemnified Party" has the meaning set forth in Section 8.04 above.
"Indemnifying Party" has the meaning set forth in Section 8.04 above.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights and processes, and (h)
all copies and tangible embodiments thereof (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
"Liability" means any liability (whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.
"License Agreement" means the License Agreement, dated as of the Closing
Date, by and between the Seller and the Buyer, as the same may be amended,
modified, or restated from time to time in accordance with its terms.
"Material Adverse Effect" has the meaning set forth in Section 4.01 above.
"Maximum Amount" has the meaning set forth in Section 6.06 above.
"Most Recent Balance Sheet" has the meaning set forth in Section 4.07
above.
"Most Recent Fiscal Year End" has the meaning set forth in Section 4.07
above.
"Multiemployer Plan" mean any "multiemployer plan," as defined in ERISA
Section 4001(a)(3).
"New Company Plans" has the meaning set forth in Section 6.09(a) above.
"Non-Default Revolver Interest Rate" means, with respect to the Revolving
Credit Facility, the rate of interest on loans made under such Revolving Credit
Facility, prior to the occurrence and continuance of any event that would
constitute a default under the terms and conditions of the Senior Credit
Agreement.
"Note Proceeds" means the proceeds received by the Buyer pursuant to the
sale by the Buyer to the Seller of a Subordinated PIK Note or a Subordinated
Cash Pay Note.
"Obligations" has the meaning assigned to such term in the Senior Credit
Agreement.
"Officers" means those officers of the Company and its Subsidiaries listed
on Exhibit H attached hereto.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Original Term" has the meaning assigned to such term in the Senior Credit
Agreement.
"Outstanding Obligations" has the meaning set forth in Section 6.06 above.
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PCB Containing Equipment" has the meaning set forth in Section 4.26(d)
above.
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
"Primary Seller Option" means, collectively, one or more stock purchase
warrants exercisable for 50,000 shares of Class B Common at $2.00 per share of
Class B Common, issued by Holdings to the Seller on the Closing Date pursuant to
the Primary Seller Option Agreement, and having terms substantially similar to
those set forth on Exhibit G attached hereto.
"Primary Seller Option Agreement" means the Primary Seller Option
Agreement, dated as of the Closing Date, by and between Holdings and the Seller,
and having terms substantially similar to those set forth on Exhibit G attached
hereto, as the same may be amended, modified, or restated from time to time in
accordance with its terms.
"Prohibited Transaction" means any non-exempt prohibited transaction within
the meaning of ERISA Section 406 and Code Section 4975.
"Purchase Consideration" has the meaning set forth in Section 1.02 above.
"Records" shall have the meaning set forth in Section 6.01 above.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"RoomStores" means The RoomStores, a business segment of Seller.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for Taxes not yet due and payable or for Taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, (d) other liens arising in the Ordinary Course of Business and not
incurred in connection with the borrowing of money, and (e) easements, covenants
or other restrictions that do not impair, in any material respect, the current
use, occupancy, value or marketability of title of the property subject thereto.
"Seller" has the meaning set forth in the preface above.
"Seller Group" means any Affiliated Group of which the Seller is or has
been the common parent and which includes or has included the Company or any of
its Subsidiaries.
"Seller Indemnified Parties" has the meaning set forth in Section 8.03
above.
"Seller Note" means that certain promissory note of the Buyer to be issued
to the Seller in the original principal amount of Forty Million Dollars
($40,000,000.00), substantially in the form attached hereto as Exhibit A.
"Seller's 401(k) Plan" has the meaning set forth in Section 6.09(e) above.
"Senior Credit Agreement" means that certain Senior Credit Agreement, dated
as of the Closing Date, by and between the Company and the Senior Lender.
"Senior Lender" means ▇▇▇▇▇▇ Financial, Inc., as Agent and as Lender under
the terms and conditions of the Senior Credit Agreement.
"Stockholders Agreement" means the Stockholders Agreement, dated as of the
Closing Date, by and among Holdings, the Seller, and certain other parties
thereto, and having terms substantially similar to those set forth on Exhibit G
attached hereto, as the same may be amended, modified, or restated from time to
time in accordance with its terms.
"Subordinated Cash Pay Note" means, in respect of a Funding Notice
delivered by the Buyer to the Seller pursuant to Section 6.06 above, a
promissory note of the Buyer due on December 31, 2004 in an original principal
amount equal to the Funding Amount specified in such Funding Notice, bearing
cash interest at a rate equal to the Non-Default Revolver Interest Rate, and
containing terms identical to the Seller Note in all other respects (except as
modified to incorporate the terms of Section 6.06 above).
"Subordinated PIK Note" means, in respect of a Funding Notice delivered by
the Buyer to the Seller pursuant to Section 6.06 above, a promissory note of the
Buyer due on December 31, 2004 in an original principal amount equal to the
Funding Amount specified in such Funding Notice, bearing interest at a rate
equal to (x) 10.0% (if the issuer of such promissory note elects to defer the
payment of interest on any interest payment date pursuant to the terms and
conditions of such promissory note) or (y) 9.5% (if the issuer of such
promissory note elects to pay interest on any interest payment date in cash
pursuant to the terms and conditions of such promissory note), and containing
terms identical to the Seller Note in all other respects (except as modified to
incorporate the terms of Section 6.06 above).
"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Section 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Termination Date" has the meaning assigned to such term in the Senior
Credit Agreement.
"Third Party Claim" has the meaning set forth in Section 8.04 above.
"Title Insurance" has the meaning set forth in Section 5.07 above.
"Total Availability" means, as of any date of determination, the sum of (i)
average Availability for the one hundred eighty (180) day period immediately
preceding the date of determination, and (ii) cash and cash equivalents of the
Company.
"Transfer Date" has the meaning set forth in Section 6.09(f) above.
"Transition Services Agreement" has the meaning set forth in Section
7.01(d) above.
"Year 2000 Compliant" means that all software, embedded microchips and
other processing capabilities of the Company utilized by, and material to the
business operations or financial condition of the Company, are able to
interpret, store, transmit, receive and manipulate data on and involving all
calendar dates correctly and without causing any abnormal ending scenarios in
relation to dates in and after the Year 2000.
ARTICLE XII
MISCELLANEOUS
Section 12.01 Press Releases and Public Announcements.
Neither Party shall issue any press release, make any public announcement,
or make any announcement to employees relating to this Agreement and the
transactions contemplated hereby without the prior written approval of the other
Party; provided, however, that either Party may make any public disclosure it
believes in good faith is required by applicable law or any listing or trading
agreement concerning its publicly-traded securities (in which case the
disclosing Party will use its reasonable best efforts to advise the other Party
prior to making the disclosure).
Section 12.02 No Third-Party Beneficiaries.
This Agreement shall not confer any rights or remedies upon any Person
other than the Parties and their respective successors and permitted assigns.
Section 12.03 Entire Agreement.
This Agreement (including the documents referred to herein) constitutes the
entire agreement between the Parties and supersedes any prior understandings,
agreements, or representations by or between the Parties, written or oral, to
the extent they also concerned the subject matter hereof.
Section 12.04 Succession and Assignment.
This Agreement shall be binding upon and inure to the benefit of the
Parties named herein and their respective successors and permitted assigns.
Neither Party may assign either this Agreement or any of its rights, interests,
or obligations hereunder without the prior written approval of the other Party;
provided, however, that the Buyer may (i) assign any or all of its rights and
interests hereunder (x) to one or more of its Affiliates, (y) to any subsequent
purchaser of the Company, and (z) as collateral security in connection with the
transactions contemplated by the ▇▇▇▇▇▇ Financing Proposal (provided, that in
connection with such collateral security, the Seller shall be entitled to deal
exclusively with the Buyer as to any matters arising under this Agreement until
such time as the Seller receives written notice that the Senior Lender is
exercising its remedies following an event of default under the terms and
conditions of such collateral security) and (ii) designate one or more of its
Affiliates to perform its obligations hereunder (in any or all of which cases
the Buyer shall nonetheless remain responsible for the performance of all of its
obligations hereunder).
Section 12.05 Counterparts.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original but all of which together will constitute one and
the same instrument.
Section 12.06 Headings.
The section headings contained in this Agreement are inserted for
convenience only, and shall not affect in any way the meaning or interpretation
of this Agreement.
Section 12.07 Notices.
All notices, requests, demands, claims, and other communications hereunder
will be in writing. Any notice, request, demand, claim, or other communication
hereunder shall be deemed duly given if (and then two business days after) it is
sent by registered or certified mail, return receipt requested, postage prepaid,
and addressed to the intended recipient as set forth below:
If to the Seller:
▇▇▇▇▇▇-▇▇▇▇▇▇ Company
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇▇
Facsimile: 804.784.7931
Copy to:
McGuire, Woods, Battle & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III, Esq.
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Facsimile: 804.775.1061
If to the Buyer:
▇▇▇▇▇▇ Holdings, Inc.
c/o ▇▇▇▇▇▇-▇▇▇▇▇▇ Company
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇
Facsimile: 804.784.7945
Copies to:
LifeStyle Furnishings International Ltd.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile: 336.878.7008
and
Citicorp Venture Capital, Ltd.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: M. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Facsimile: 212.888.2940
and
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
Citicorp Center
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Facsimile: 212.446.4900
Either Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth above
using any other means (including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail, or electronic mail), but no such
notice, request, demand, claim, or other communication shall be deemed to have
been duly given unless and until it actually is received by the intended
recipient. Either Party may change the address to which notices, requests,
demands, claims, and other communications hereunder are to be delivered by
giving the other Party notice in the manner herein set forth.
Section 12.08 Governing Law.
This Agreement shall be governed by and construed in accordance with the
domestic laws of the State of New York, without giving effect to any choice or
conflict of law provision or rule (whether of the State of New York or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of New York.
Section 12.09 Amendments and Waivers.
No amendment of any provision of this Agreement shall be valid unless the
same shall be in writing and signed by the Buyer and the Seller. No waiver by
either Party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder, or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
Section 12.10 Severability.
Any term or provision of this Agreement that is invalid or unenforceable in
any situation in any jurisdiction shall not affect the validity or
enforceability of the remaining terms and provisions hereof or the validity or
enforceability of the offending term or provision in any other situation or in
any other jurisdiction.
Section 12.11 Expenses.
Except as otherwise provided in this Agreement, each of the Parties will
bear its own costs and expenses (including legal fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby. Except
as otherwise provided herein, the Seller agrees that none of the Company and its
Subsidiaries has borne or will bear any of the Seller's costs and expenses
(including any of its legal fees and expenses) in connection with this Agreement
or any of the transactions contemplated hereby.
Section 12.12 Construction.
The Parties have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the Parties, and no presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of any of the provisions of
this Agreement. Any reference to any federal, state, local, or foreign statute
or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word "including" shall
mean including without limitation. The Parties intend that each representation,
warranty, and covenant contained herein shall have independent significance. If
any Party has breached any representation, warranty, or covenant contained
herein in any respect, the fact that there exists another representation,
warranty, or covenant relating to the same subject matter (regardless of the
relative levels of specificity) which the Party has not breached shall not
detract from or mitigate the fact that the Party is in breach of the first
representation, warranty, or covenant.
Section 12.13 Incorporation by Reference.
The Exhibits and the Disclosure Schedule identified in this Agreement are
incorporated herein by reference and made a part hereof.
Section 12.14 Specific Performance.
Each of the Parties acknowledges and agrees that the other Party would be
damaged irreparably in the event any of the provisions of this Agreement are not
performed in accordance with their specific terms or otherwise are breached.
Accordingly, each of the Parties agrees that the other Party shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions hereof in any action instituted in any court of the United States or
any state thereof having jurisdiction over the Parties and the matter, in
addition to any other remedy to which they may be entitled, at law or in equity.
Section 12.15 Service of Process.
Either Party may make service on the other Party by sending or delivering a
copy of the process to the Party to be served at the address and in the manner
provided for the giving of notices in Section 12.07 above. Nothing in this
Section 12.15, however, shall affect the right of any Party to serve legal
process in any other manner permitted by law or at equity. Each Party agrees
that a final judgment in any action or proceeding so brought shall be conclusive
and may be enforced by suit on the judgment or in any other manner provided by
law or at equity.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
▇▇▇▇▇▇ HOLDINGS, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------
Title: President
---------------------------
▇▇▇▇▇▇-▇▇▇▇▇▇ COMPANY
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------
Title: Executive Vice President
----------------------------
▇▇▇▇▇▇ HOLDINGS II, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------
Title: President
---------------------------