Exhibit 2.1
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AGREEMENT AND PLAN OF MERGER
By and Among
MOTHERS WORK, INC.
iMATERNITY ACQUISITION CORP.,
eSPECIALTY BRANDS, LLC
and
THE SELLERS LISTED ON SCHEDULE I HERETO
Dated
October 15, 2001
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TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS..........................................................1
ARTICLE 2 THE MERGER...........................................................8
2.1 THE MERGER............................................................8
2.2 EFFECTIVE TIME. AT THE CLOSING........................................8
2.3 CLOSING...............................................................8
2.4 OPERATING AGREEMENT...................................................8
2.5 MANAGERS AND OFFICERS.................................................8
ARTICLE 3 EFFECT OF THE MERGER ON UNITS AND CAPITAL STOCK OF THE
CONSTITUENT ENTITIES; EXCHANGE OF CERTIFICATES.......................9
3.1 EFFECT ON UNITS.......................................................9
3.2 SURRENDER OF CERTIFICATES.............................................9
3.3 TRANSFER BOOKS; LOST CERTIFICATES....................................10
3.4 PAYMENT OF CERTAIN INDEBTEDNESS......................................10
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................10
4.1 ORGANIZATION, STANDING AND QUALIFICATION OF COMPANY; AUTHORITY.......10
4.2 MEMBERS; CAPITALIZATION..............................................11
4.3 SUBSIDIARIES.........................................................11
4.4 FINANCIAL STATEMENTS.................................................12
4.5 BOOKS AND RECORDS....................................................13
4.6 ABSENCE OF UNDISCLOSED LIABILITIES...................................13
4.7 ABSENCE OF CERTAIN DEVELOPMENTS......................................14
4.8 NO CONFLICT..........................................................15
4.9 MATERIAL CONTRACTS AND OBLIGATIONS...................................15
4.10 TAXES. EXCEPT AS SET FORTH ON SCHEDULE 4.10 ATTACHED HERETO,........16
4.11 PROPERTIES...........................................................19
4.12 INVENTORIES; RECEIVABLES, PAYABLES...................................19
4.13 INTELLECTUAL PROPERTY................................................20
4.14 [RESERVED]...........................................................20
4.15 ERISA................................................................20
4.16 LABOR RELATIONS; EMPLOYEES...........................................22
4.17 LITIGATION; ORDERS...................................................22
4.18 COMPLIANCE WITH LAWS; PERMITS........................................23
4.19 ILLEGAL PAYMENTS.....................................................23
4.20 ENVIRONMENTAL........................................................23
4.21 INSURANCE............................................................24
4.22 TRANSACTIONS WITH AFFILIATES.........................................24
4.23 SUPPLIERS............................................................25
4.24 BROKER'S OR FINDER'S COMMISSIONS.....................................25
4.25 DISCLOSURE...........................................................25
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ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF SELLERS...........................25
5.1 SECURITIES MATTERS...................................................25
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF BUYER.............................26
6.1 ORGANIZATION AND QUALIFICATION.......................................26
6.2 CAPITALIZATION.......................................................27
6.3 POWER AND AUTHORITY..................................................27
6.4 AUTHORIZATION AND ENFORCEABILITY.....................................27
6.5 NO VIOLATION OF LAWS OR AGREEMENTS...................................27
6.6 NO PENDING LITIGATION OR PROCEEDINGS.................................28
6.7 SEC REPORTS AND FINANCIAL STATEMENTS.................................28
6.8 ABSENCE OF UNDISCLOSED LIABILITIES...................................28
6.9 ABSENCE OF CERTAIN CHANGES...........................................28
6.10 BROKERAGE............................................................29
6.11 RIGHTS UNAFFECTED....................................................29
6.12 SOLVENCY.............................................................29
6.13 NO KNOWLEDGE OF MISREPRESENTATIONS OR OMISSIONS. ...................29
ARTICLE 7 CERTAIN OBLIGATIONS OF THE COMPANY AND SELLERS......................30
7.1 CONDUCT OF BUSINESS PENDING CLOSING..................................30
7.2 INSURANCE. THE COMPANY..............................................31
7.3 ACCESS, INFORMATION AND DOCUMENTS. THE COMPANY SHALL.................31
7.4 RESIGNATIONS.........................................................32
7.5 ACQUISITION PROPOSALS................................................32
ARTICLE 8 CONDITIONS TO CLOSING; TERMINATION..................................32
8.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER.........................32
8.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE SELLERS...............34
8.3 TERMINATION..........................................................35
ARTICLE 9 CERTAIN ADDITIONAL COVENANTS........................................35
9.1 COSTS, EXPENSES AND TAXES............................................35
9.2 INDEMNIFICATION BY SELLERS...........................................36
9.3 INDEMNIFICATION BY BUYER. ..........................................37
9.4 PROCEDURE FOR CLAIMS.................................................38
9.5 CERTAIN LIMITATIONS..................................................39
9.6 ADJUSTMENTS TO PURCHASE PRICE........................................40
9.7 COVENANT NOT TO COMPETE; CONFIDENTIALITY.............................41
9.8 PUBLIC ANNOUNCEMENT..................................................42
9.9 MUTUAL COVENANTS.....................................................42
9.10 BOARD OBSERVER.......................................................42
9.11 AMENDMENT OF RIGHTS AGREEMENT........................................43
9.12 OFFER TO PURCHASE....................................................43
9.13 IRREVOCABLE PROXIES..................................................45
9.14 OPERATIONAL COVENANTS................................................45
9.15 OFFICER AND DIRECTOR INDEMNIFICATION. ...............................46
9.16 ACCESS. ............................................................46
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ARTICLE 10 MISCELLANEOUS......................................................47
10.1 NATURE AND SURVIVAL OF REPRESENTATIONS...............................47
10.2 KNOWLEDGE............................................................47
10.3 NOTICES..............................................................47
10.4 SUCCESSORS AND ASSIGNS...............................................49
10.5 GOVERNING LAW........................................................49
10.6 HEADINGS; INTERPRETATION.............................................49
10.7 COUNTERPARTS.........................................................50
10.8 FURTHER ASSURANCES...................................................50
10.9 AMENDMENT AND WAIVER.................................................50
10.10 SEVERABILITY.........................................................50
10.11 NO OTHER BENEFICIARIES...............................................50
10.12 ENTIRE AGREEMENT.....................................................51
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LIST OF SCHEDULES
Schedule I................ The Sellers
Schedule 3.1.............. Merger Consideration
Schedule 3.4.............. Payment of Certain Indebtedness
Schedule 4.2(a)........... Members
Schedule 4.2(b)........... Voting Trusts
Schedule 4.3.............. Subsidiaries
Schedule 4.4.............. Financial Statements
Schedule 4.6.............. Absence of Undisclosed Liabilities
Schedule 4.7.............. Absence of Certain Developments
Schedule 4.8.............. No Conflict
Schedule 4.9.............. Material Contracts and Obligations
Schedule 4.10............. Taxes
Schedule 4.11............. Properties
Schedule 4.12............. Inventories; Receivables, Payables
Schedule 4.13............. Intellectual Property
Schedule 4.15............. ERISA
Schedule 4.16............. Employees
Schedule 4.17............. Litigation
Schedule 4.20............. Environmental
Schedule 4.22............. Material Transactions
Schedule 4.23............. Suppliers
Schedule 6.7.............. SEC Reports and Financial Statements
Schedule 9.2(a)........... Costa Rica and U.S. Customs Duties Matters
Schedule 9.2(b)........... Non-Indemnifiable Matters
LIST OF EXHIBITS
Exhibit A Form of Certificate of Merger
Exhibit B Form of New Operating Agreement
Exhibit C Form of Certificate of Designation
Exhibit D Form of Warrant
Exhibit E Form of Consulting and Noncompetition Agreement
Exhibit F Lease Amendment - ▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇
Exhibit G Form of Release by Sellers
Exhibit H Form of Pay-off letter
Exhibit I-1 Form of Warrant Shares Proxy
Exhibit I-2 Form of Open Market Shares Proxy
Exhibit J Form of Termination Agreement
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AGREEMENT AND PLAN OF MERGER
THIS IS AN AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated October
15, 2001, by and among MOTHERS WORK, INC., a Delaware corporation ("Buyer"),
iMATERNITY ACQUISITION CORP., a Delaware corporation and a wholly-owned
subsidiary of Buyer ("Merger Sub"), eSPECIALTY BRANDS, LLC, a Delaware limited
liability company (the "Company") and the sellers listed on Schedule I hereto
(each a "Seller" and together the "Sellers").
BACKGROUND
A. The Sellers together own all of the issued and outstanding equity
interests in the Company consisting of Common Units, Preferred Units, MSI Units
and MSI Preferred Units (as each such term is defined in Article I). The Company
has elected to be taxed as a corporation for federal and relevant state
purposes.
B. Buyer owns all of the outstanding capital stock of Merger Sub, which has
been formed solely for the purpose of acquiring all of the Company Units.
C. It is the intention of the parties that Merger Sub shall merge with and
into the Company, with the Company being the surviving entity.
D. The Board of Managers of the Company has determined that the Merger is
fair to, advisable for and in the best interests of the Company and its members,
and has approved this Agreement and recommended its adoption by the members. All
of the members of the Company have adopted and approved this Agreement.
E. The Boards of Directors of Merger Sub and Buyer have approved, and deem
it advisable and in the best interests of their respective stockholders to
consummate the Merger upon the terms and subject to the conditions set forth
herein.
F. It is intended that the Merger constitute a plan of reorganization for
purposes of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as
amended.
TERMS
In consideration of the mutual covenants contained herein and intending to
be legally bound hereby, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
For the purposes of this Agreement, the following terms shall have the
following respective meanings:
"Acquisition Proposal" shall have the meaning given to such term in Section
7.6 hereof.
"Affiliate" shall mean, with respect to any Person, any person that,
directly or indirectly, controls, is controlled by or is under common control
with such Person. For the purposes of this definition, "control" (including,
with correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities
or by contract or otherwise.
"Agreement" shall have the meaning set forth in the preamble hereof.
"Balance Sheet" shall have the meaning given to such term in Section 4.4
hereof.
"Balance Sheet Date" shall have the meanings set forth in Section 4.4
hereof.
"Bank" shall mean Fleet Capital Corporation.
"Board Observer" shall have the meaning set forth in Section 9.10 hereof.
"Board of Managers" shall mean the Board of Managers of the Company as
defined in the Operating Agreement.
"Buyer" shall have the meaning set forth in the preamble hereof.
"Buyer Common Stock" shall mean Common Stock of Buyer, par value $0.01 per
share.
"Buyer Preferred Stock" shall have the meaning set forth in Section 6.2
hereof.
"Buyer SEC Documents" shall have the meaning set forth in Section 6.7
hereof.
"Centre Partners Confidentiality Agreement" shall mean the Confidentiality
Agreement sated July 11, 2001 between Centre Partners Management LLC and Buyer.
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.
"Certificates" shall have the meaning set forth in Section 3.1(d) hereof.
"Certificate of Designation" shall mean the Series C Cumulative Preferred
Stock Certificate of Designation substantially in the form of Exhibit B hereto.
"Certificate of Merger" shall have the meaning set forth in Section 2.2
hereof.
"Closing" shall have the meaning set forth in Section 2.3 hereof.
"Closing Date" shall have the meaning set forth in Section 2.3 hereof.
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"Code" shall mean the Internal Revenue Code of 1986, as amended. All
citations to provisions of the Code, or to the Treasury Regulations promulgated
thereunder, shall include any amendments thereto and any substitute or successor
provisions thereto.
"Commission" shall mean the Securities and Exchange Commission or any other
governmental authority at the time administering the Securities Act or the
Exchange Act.
"Common Unit" means a Unit having the rights and obligations specified with
respect to Common Units in the Operating Agreement.
"Common Unit Equivalents" shall mean, with respect to any Member, any
Convertible Securities owned by such Member.
"Company" shall have the meaning set forth in the preamble.
"Company Units" shall have the meaning set forth in the Background.
"Competing Activity" shall have the meaning set forth in Section 9.7(a)
hereof.
"Contract" shall have the meaning given to such term in Section 4.9 hereof.
"Convertible Securities" shall mean any options, warrants, convertible
notes or other securities or rights (including, without limitation, the
Preferred Units, MSI Preferred Units and the MSI Units) which are convertible,
exchangeable or exercisable, with or without the payment of additional
consideration, into or for Common Units.
"Damages" shall have the meaning set forth in Section 9.2 hereof.
"DHI" shall mean ▇▇▇ ▇▇▇▇▇▇ Industries, Inc., an Illinois corporation.
"DGCL" shall mean the Delaware General Corporate Law.
"Effective Time" shall have the meaning set forth in Section 2.2 hereof.
"Employee Plan" shall have the meaning given to such term in Section 4.15
hereof.
"Encumbrances" shall have the meaning given to such term in Section 4.11
hereof.
"Environmental Conditions" shall have the meaning given to such term in
Section 4.20 hereof.
"Environmental Law" shall have the meaning given to such term in Section
4.20 hereof.
"Equity Equivalents" shall have the meaning given to such term in Section
4.2 hereof.
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"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any similar or successor Federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
"Financial Statements" shall have the meaning given to such term in Section
4.4 hereof.
"GAAP" shall mean generally accepted accounting principles in the United
States as in effect from time to time and consistently applied.
"Hazardous Substance" shall mean any quantity of asbestos in any form, urea
formaldehyde, polychlorinated biphenyls ("PCBs"), radon gas, crude oil or any
fraction thereof, natural gas, petroleum, petroleum products or by-products,
radioactive substance, toxic, carcinogenic, infectious, reactive, corrosive,
ignitable or flammable substance, pollutant, medical waste, special waste, or
any hazardous or toxic constituent thereof and includes, but is not limited to,
any substance, material or waste subject to regulation or remediation under
Environmental Laws.
"Indebtedness" as applied to any Person, means (a) all indebtedness for
borrowed money, (b) that portion of obligations with respect to capital leases
that is properly classified as a liability on a balance sheet in conformity with
generally accepted accounting principals, (c) notes payable and drafts accepted
representing extensions of credit whether or not representing obligations for
borrowed money, (d) any obligation owed for all or any part of the deferred
purchase price of property or services (excluding any such obligations incurred
under ERISA), which purchase price is (i) due more than six months from the date
of incurrence of the obligation in respect thereof or (ii) evidenced by a note
or similar written instrument, and (e) all indebtedness secured by any Lien on
any property or asset owned or held by that Person regardless of whether the
indebtedness secured thereby shall have been assumed by that Person or is
nonrecourse to the credit of that Person.
"Indemnification Notice" shall have the meaning set forth in Section 9.4(b)
hereof.
"Indemnitee" shall have the meaning set forth in Section 9.4(a) hereof.
"Indemnitor" shall have the meaning set forth in Section 9.4(a) hereof.
"Interim Balance Sheet" shall have the meaning set forth in Section 4.4
hereof.
"Interim Balance Sheet Date" shall have the meaning set forth in Section
4.4 hereof.
"IRS" shall mean the United States Internal Revenue Service.
"Laws" shall have the meaning given to such term in Section 4.8 hereof.
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"Legal Proceeding" shall have the meaning given to such term in Section
4.17 hereof.
"Lien" shall mean any interest in property securing an obligation owed to,
or a claim by, a Person other than the owner of the property, whether such
interest is based on the common law, statute or contract, and including, but not
limited to, the security interest or lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes. The term "Lien" shall include reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances affecting real property.
"Litigation Conditions" shall have the meaning set forth in Section 9.4(b)
hereof.
"LLC Act" shall mean the Delaware Limited Liability Company Act, as it may
be amended from time to time, and any successor statute hereof.
"Material Adverse Effect" shall mean with respect to any Person, any effect
or change that is or is reasonably likely to be materially adverse to the
results of operations, financial condition, prospects, assets, properties or
businesses of such Person together with its Subsidiaries, taken as a whole.
"Member" shall mean a member of the Company.
"Membership Interest" shall mean an interest in the Company's assets,
liabilities and capital, Net Income or Net Loss and Cash Flow (as each is
defined in the Operating Agreement), in each case subject to the provisions of
the Operating Agreement and the LLC Act.
"Membership Units" means all of the (a) Common Units, (b) Preferred Units,
(c) MSI Units, (d) MSI Preferred Units and (e) other Membership Interests in the
Company, including Common Unit Equivalents and, where applicable, any obligation
exercisable for, convertible into or exchangeable for any Membership Interests
in the Company.
"Merger Consideration" shall have the meaning set forth in Section 3.1(a)
hereof.
"Merger Sub" shall mean iMaternity Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Buyer.
"Merger Sub Common Stock" shall mean the common stock of the Merger Sub,
par value $0.01 per share.
"MSI" shall mean Mothers Stores, Inc., a Delaware corporation.
"MSI Preferred Unit" shall mean a Unit having the rights and obligations
respect to MSI Preferred Units in the Operating Agreement.
"MSI Unit" shall mean a Unit having the rights and obligations specified
with Units in the Operating Agreement.
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"Operating Agreement" shall mean that certain Operating Agreement dated as
of March 21, 2000 among the Company and the Members.
"Order" shall have the meaning given to such term in Section 4.17 hereof.
"Permits" shall have the meaning given to such term in Section 4.18 hereof.
"Permitted Encumbrances" shall have the meaning given to such term in
Section 4.11 hereof.
"Person" shall mean and include an individual, a corporation, a limited
liability company, an association, a partnership, a trust or estate, a
government or any department or agency thereof.
"Preferred Unit" shall mean a Unit having the rights and obligations
specified with respect to Preferred Units in the Operating Agreement hereof.
"Proprietary Rights" shall have the meaning given to such term in Section
4.13 hereof.
"Pro Rata Percentage" shall mean the percentage determined by dividing the
number of Series C Preferred Shares held by a Seller as of the Closing Date by
the number of Series C Preferred Shares held by all Sellers as of the Closing
Date.
"Put Option" means the right of the holders of Series C Preferred Shares
pursuant to Section 5 of the Certificate of Designation.
"Related Party" shall have the meaning set forth in Section 4.22 hereof.
"Release" shall mean and include any releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping
or disposing into the indoor or outdoor environment of any Hazardous Substance.
"Rights Agreement" shall have the meaning set forth Section 9.11 hereof.
"SEC" shall mean the United States Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, and any
similar or successor Federal statute, and the rules and regulations of the
Commission thereunder, all as the same may be in effect at the time.
"Seller" or "Sellers" shall have the meaning set forth in the preamble.
"Series C Preferred Shares" shall mean the Buyer's Series C Cumulative
Preferred Stock, par value $0.01 per share, which Series C Preferred Shares
shall have the rights, powers, preferences, and qualification, limitations and
restrictions set forth in the Certificate of Designations.
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"Subsidiary" of any Person shall mean an entity of which such Person owns,
directly or indirectly, more than 50% of the voting shares or interests or of
which such Person has the right, directly or indirectly, to 50% or more of the
profits of the entity or its assets upon dissolution.
"Surviving Entity" shall have the meaning set forth in Section 2.1 hereof.
"Taxes" shall mean any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions, levies and
liabilities, including, without limitation, taxes based upon or measured by
gross receipts, income, profits, sales, use and occupation, value added, ad
valorem, transfer, gains, franchise, withholding, payroll, recapture,
employment, excise, unemployment, insurance, social security, business license,
occupation, business organization, stamp, environmental and property taxes,
together with all interest, penalties and additions imposed with respect to such
amounts. For purposes of this Agreement, "Taxes" also includes any obligations
under any agreements or arrangements with any person with respect to the
liability for, or sharing of, Taxes (including, without limitation, pursuant to
Treas. Reg. Section 1.1502-6 or comparable provisions of state, local or foreign
law) and including, without limitation, any liability for Taxes as a transferee
or successor, by contract or otherwise.
"Tax Reserve" shall have the meaning given to such term in Section 4.10
hereof.
"Tax Return" shall mean any report, return, election, notice, estimate,
declaration, information statement and other forms and documents (including,
without limitation, all schedules, exhibits and other attachments thereto)
relating to and filed or required to be filed with a taxing authority in
connection with any Taxes (including, without limitation, estimated Taxes).
"Taxable Period" shall mean any taxable year or any other period that is
treated as a taxable year (or other period, or portion thereof, in the case of a
Tax imposed with respect to such other period, e.g., a quarter) with respect to
which any Tax may be imposed under any applicable statute, rule or regulation.
"Third Party Claim" shall have the meaning set forth in Section 9.4(b)
hereof.
"Treasury Units" shall have the meaning set forth in Section 3.1(c) hereof.
"Unit" means a unit representing a fractional part of the Membership
Interests of all of the Members of the Company, which shall include all types of
classes and/or series of Units including Common Units, MSI Units, Preferred
Units and MSI Preferred Units; provided, that any type or class or series of
Unit shall have the designations, preferences and/or special rights set forth in
the Operating Agreement, and the Membership Interests represented by such type
or class or series of Units shall be determined in accordance with such
designations, preferences and/or special rights.
"Warrant" or "Warrants" shall mean a warrant or warrants to purchase Buyer
Common Stock, substantially in the form of Exhibit D hereto.
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ARTICLE 2
THE MERGER
2.1 The Merger. At the Effective Time (as hereinafter defined), upon the
terms and subject to the conditions set forth in this Agreement and in
accordance with the Delaware General Corporation Law (the "DGCL") and the
Delaware Limited Liability Company Act (the "LLC Act"), Merger Sub shall be
merged with and into the Company. Upon consummation of the Merger, the separate
corporate existence of Merger Sub shall cease, and the Company shall continue as
the surviving entity (the "Surviving Entity"). The Merger shall have the effects
set forth in this Agreement, the LLC Act and in the DGCL (including Section 259
thereof).
2.2 Effective Time. At the Closing, the parties shall file with the
Secretary of State of the State of Delaware a certificate of merger (the
"Certificate of Merger") executed in accordance with the relevant provisions of
the DGCL and the LLC Act in the form attached hereto as Exhibit A. The Merger
shall become effective at such time as the Certificate of Merger is duly filed
in the Department of State of the State of Delaware, or, if specified in the
Certificate of Merger, at such other time as is permissible in accordance with
the DGCL and LLC Act and as Merger Sub and the Company shall agree (the time the
Merger becomes effective being the "Effective Time").
2.3 Closing. The closing of the Merger (the "Closing") shall take place at
10:00 a.m., local time, on the first business day following satisfaction or
waiver of the conditions set forth in Article 8 hereof, at the offices of ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ LLP, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or at
other time, date or place as Buyer and Sellers shall agree (the "Closing Date").
2.4 Operating Agreement. At the Effective Time, the Operating Agreement of
the Surviving Entity shall be amended and restated in its entirety to read as
set forth on Exhibit B (the "New Operating Agreement"), which New Operating
Agreement shall contain provisions for indemnification and exculpation of
present and former officers, managers, members, employees of the Company and
other Persons as required by Section 9.15 hereof.
2.5 Managers and Officers. The directors and officers of Merger Sub shall
be the managers and officers, respectively, of the Surviving Entity following
the Merger until the earlier of their death, resignation or removal or until
their respective successors are duly elected or appointed and qualified.
ARTICLE 3
EFFECT OF THE MERGER ON UNITS AND CAPITAL STOCK
OF THE CONSTITUENT ENTITIES; EXCHANGE OF CERTIFICATES
3.1 Effect on Units. At the Effective Time, by virtue of the Merger and
without any action on the part of the holder thereof:
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(a) All Units that are issued and outstanding immediately prior to the
Effective Time and held by Sellers shall be converted into the right to
receive the merger consideration set forth opposite each Seller's name on
Schedule 3.1 (the "Merger Consideration"), which Schedule 3.1 shall be
provided by the Sellers to the Buyer on or prior to the Closing Date and
which shall provide that no more than 302,619 Series C Preferred Shares and
350,000 Warrants in the aggregate shall be issuable to the Sellers
hereunder, provided, however that not more than an aggregate of 175,000
Warrants shall be issued to the Centre Partners Indemnitors.
(b) Each share of common stock, par value $0.01 per share of Merger
Sub ("Merger Sub Common Stock"), that is issued and outstanding immediately
prior to the Effective Time shall be converted into one Common Unit of the
Company.
(c) Each Unit that is owned immediately prior to the Effective Time by
(i) the Company (where such units constitute treasury units in the hands of
the holder thereof ("Treasury Units")), (ii) Merger Sub or (iii) a
Subsidiary of the Company shall be canceled and retired and shall cease to
exist, no consideration shall be delivered in exchange therefor, and the
holder thereof shall cease to have any rights with respect to any
Certificates representing any such Units.
(d) On and after the Effective Time, holders of certificates which
immediately prior to the Effective Time represented outstanding Units (the
"Certificates") shall cease to have any rights as equity holders of the
Company, except the right to receive the Merger Consideration for each Unit
represented by such Certificates and held by such holders.
3.2 Surrender of Certificates. At the Closing and immediately after the
Effective Time, each Seller shall deliver to Buyer the Certificates representing
the Units (or affidavit of loss and indemnity satisfactory to the Buyer) to be
transferred in the Merger pursuant to Section 3.1(a) hereof, duly endorsed for
transfer (or accompanied by duly executed instruments of transfer), and Buyer
shall deliver to each Seller certificates evidencing the Series C Preferred
Shares and Warrants to be acquired by such Seller pursuant to Section 3.1(a), in
each case registered in such Seller's name or in the name of such Seller's
nominee. Until surrendered as contemplated by this Article 3, from and after the
Effective Time each Certificate shall be deemed to represent only the right to
receive the Merger Consideration for each Company Unit formerly represented by
such Certificate, and shall not evidence any interest in, or any right to
exercise the rights of a stockholder of Buyer.
3.3 Transfer Books; Lost Certificates.
(a) At the Effective Time, the transfer books of the Company shall be
closed and no transfer of Units shall thereafter be made. If, after the
Effective Time, any Certificate is presented to the Surviving Entity, such
Certificate shall be cancelled and exchanged for the Merger Consideration.
(b) In the event any Certificate or Certificates shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the
Person claiming such
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Certificate or Certificates to be lost, stolen or destroyed, Buyer will
issue in exchange for such lost, stolen or destroyed certificate the Merger
Consideration deliverable in respect thereof as determined in accordance
with this Section 3.3.
3.4 Payment of Certain Indebtedness. At the Closing, Buyer shall cause the
Company to pay off outstanding indebtedness of the Company and its Subsidiaries
under the Second Amended and Restated Loan and Security Agreement among ▇▇▇
▇▇▇▇▇▇ Industries, Inc., Mother's Stores, Inc., and American National Bank and
Trust Company of Chicago dated August 22, 2000 (the "Existing Credit Facility").
At and after Closing, Buyer shall cause the Company payables to be paid to each
of the Persons listed on Schedule 3.4 attached hereto (each, a "Company Payee"
and collectively, the "Company Payee") in the amounts and on the dates set forth
opposite such Company Payee's name on Schedule 3.4 attached hereto by wire
transfer of immediately available funds.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Buyer that except as set
forth in the Schedules hereto.
4.1 Organization, Standing and Qualification of Company; Authority.
(a) The Company is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Delaware.
Except as stated on Schedule 4.3, the Company has no Subsidiaries. The
execution and delivery of this Agreement and any other agreement
contemplated hereby or thereby and the performance of all transactions and
obligations of this Agreement and any other agreement contemplated hereby
or thereby to which the Company is a party, have been duly authorized by
all necessary proceedings on the Company's part. Each of this Agreement and
the exhibits hereto to which the Company is a party, has been duly executed
and delivered by the Company and constitutes or will constitute its legal,
valid and binding obligation enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally. The
Common Units, Preferred Units, MSI Units and MSI Preferred Units have been
duly authorized and validly issued, fully paid and nonassessable, are not
subject to any preemptive rights, and are free and clear of all Liens.
(b) Each of the Subsidiaries of the Company is an entity duly
organized and existing in good standing under the laws of the jurisdiction
of its incorporation, and has the power to own its respective property and
to carry on its respective business as now being conducted, is duly
qualified and in good standing as a foreign corporation to do business in
every jurisdiction where the character of the properties owned or leased by
it or the nature of any business transacted by it makes such qualification
necessary and where such nonqualification or lack of good standing would
have a Material Adverse Effect. Each of the Company and its Subsidiaries
has previously delivered to Buyer true, complete and correct copies of its
organizational documents, as amended and in full force and effect on the
date hereof.
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(c) The execution and delivery by each Seller and the Company of this
Agreement and all other agreements contemplated hereunder, as applicable,
and the performance by each Seller and the Company of all transactions and
obligations contemplated hereby and thereby are within his or its
authority. This Agreement and all exhibits hereto to which any Seller is a
party have been duly and validly authorized, executed and delivered on
behalf of each Seller and are legal, valid and binding agreements of each
Seller, enforceable in accordance with their terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and to general
principles of equity.
(d) Each Seller has approved and adopted this Agreement in accordance
with the DGCL. No Seller has exercised or will exercise his or its
dissenters rights under the DGCL.
4.2 Members; Capitalization.
(a) The Sellers are the only Members of the Company. Schedule 4.2(a)
sets forth the number of Units owned by, and the percentage interests of
each Seller in, the Company. There are no outstanding securities of the
Company convertible into or evidencing the right to purchase or subscribe
for any Units or other ownership interests in the Company, there are no
outstanding or authorized options, warrants, calls, subscription rights,
commitments or other agreements of any character requiring, and there are
no securities outstanding which upon conversion or exchange would require,
the issuance, sale or transfer of any additional Units or other ownership
interests in the Company or other securities convertible into, exchangeable
for or evidencing the right to subscribe for or purchase such Units or
other ownership interests in the Company, or any equity equivalent rights
issued by or binding upon the Company ("Equity Equivalents"). All
outstanding Units are validly issued, and were issued in compliance with
U.S. federal and state securities laws.
(b) Except as set forth on Schedule 4.2(b), there are no voting trusts
or other voting agreements with respect to the Units or other ownership
interests in the Company or any agreement relating to the issuance sale,
redemption, transfer or other disposition of any such interests in the
Company to which the Company is a party, or of which the Company has
knowledge, other than the Operating Agreement and the Registration Rights
Agreement.
4.3 Subsidiaries.
(a) Schedule 4.3 sets forth a true, complete and correct list of (i)
the Subsidiaries of the Company, (ii) each holder of shares of capital
stock of each Subsidiary and (iii) the number of shares of each Subsidiary
held by each stockholder thereof. The Company or a Subsidiary of the
Company owns beneficially and of record, and free and clear of any
Encumbrances, all the shares of capital stock of each Subsidiary listed on
Schedule 4.3 hereto. True, complete and correct copies of the certificate
of incorporation and by-laws as in effect on the date hereof, including all
amendments thereto, for each Subsidiary of the Company have heretofore been
delivered to the Buyer.
(b) Except as set forth in Schedule 4.3, neither the Company nor any
Subsidiary of the Company owns, beneficially or of record, any shares of
capital stock of, or
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membership, equity or other interest in, or controls or participates as a
partner or joint venturer in, any Person.
(c) Except as set forth on Schedule 4.3, there are no outstanding
shares of capital stock of any Subsidiary of the Company. There are no
outstanding options, warrants, rights, calls, commitments, conversion
rights, rights of exchange, plans or other agreements of any character
providing for the purchase, issuance or sale of any shares of the capital
stock of any Subsidiary of the Company. There are no voting trusts or other
agreements or understandings with respect to the voting of the capital
stock of any Subsidiary of the Company nor any restrictions on the
transferability or sale of such shares. None of the Subsidiaries of the
Company has any outstanding stock or securities convertible into or
exchangeable for any shares of its capital stock, or any rights (either
preemptive or other) to subscribe for or to purchase, or any options for
the purchase of, or any agreements providing for the issuance (contingent
or otherwise) or the registration of, or any calls, commitments or claims
of any character relating to any capital stock or any stock or securities
convertible into or exchangeable for any capital stock of any Subsidiary of
the Company. No Subsidiary of the Company is subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire, redeem or
retire any shares of its capital stock or any securities convertible into
or exchangeable for any such capital stock.
4.4 Financial Statements.
(a) Attached hereto as Schedule 4.4 are copies of the following
financial statements for the Company (the "Financial Statements"):
(i) Audited consolidated statements of operations, members'
equity and cash flows of the Company and the Subsidiaries for the
fiscal period March 22, 2000 (inception date) through January 27, 2001
and a consolidated balance sheet of the Company and the Subsidiaries
as at such date;
(ii) Audited statements of operations, stockholders' equity and
cash flows of MSI for the fiscal years ended January 27, 2001, January
29, 2000 and January 30, 1999 and balance sheets of MSI as at such
dates;
(iii) Audited consolidated statements of income, stockholders'
equity and cash flows of DHI and its Subsidiary for the fiscal years
ended September 25, 1999 and September 26, 1998 and consolidated
balance sheets of DHI and subsidiary as at such dates;
(iv) Unaudited consolidated statements of income and retained
earnings of DHI and its Subsidiary for the period ended December 24,
1999 and a consolidated balance sheet of DHI and its Subsidiary as at
such date; and
(v) Unaudited consolidated statements of operations, members'
equity and cash flows of the Company and its Subsidiaries for the
seven-month period ended August 25, 2001 and a consolidated balance
sheet of the Company and its Subsidiaries as at such date.
(b) Except as set forth on Schedule 4.4, all of the Financial
Statements have been prepared in accordance with GAAP, except that the
unaudited Financial Statements
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may not contain all footnotes required by GAAP, and such financial
statements are subject to normal year-end audit adjustments. The Financial
Statements were prepared in accordance with the books of account and other
financial records of the Company and/or its Subsidiaries, as applicable and
fairly present the consolidated financial condition and the results of
operations, changes in financial position and cash flows of the Company
and/or its Subsidiaries, as applicable, as of the dates thereof or for the
periods covered thereby. The operating leases of the Company and each of
its Subsidiaries in the Financial Statements have been appropriately
classified as such pursuant to GAAP and the Statement of Financial
Accounting Standards No. 13.
(c) All references in this Agreement to the "Balance Sheet" shall mean
the consolidated balance sheet of the Company as at January 27, 2001
included in the Financial Statements. All references to the "Balance Sheet
Date" shall mean January 27, 2001. All references to the "Interim Balance
Sheet" shall mean the consolidated balance sheet of the Company as at
August 25, 2001. All references to the "Interim Balance Sheet Date" shall
mean August 25, 2001.
4.5 Books and Records. The books of account and other financial and
corporate records of the Company and each of its Subsidiaries have been
maintained in all material respects in accordance with the Company's business
and accounting practices consistently applied. The minute books and stock
transfer books of the Company and each of its Subsidiaries are correct in all
material respects. At the Closing, any documentary and stock or equity transfer
tax stamps in connection with the transfer of the Units pursuant to the terms of
this Agreement will be duly affixed for transfer.
4.6 Absence of Undisclosed Liabilities. Except as disclosed or provided for
in the Interim Balance Sheet, neither the Company nor any of its Subsidiaries
has any liabilities (whether known or unknown and whether absolute, accrued,
fixed, contingent or otherwise) except for liabilities or obligations (i)
incurred since the date of the Interim Balance Sheet in the ordinary course of
business consistent (in amount and kind) with past practice (none of which is a
liability resulting from breach of contract, breach of warranty, tort,
infringement, claim or lawsuit) and which would not have, individually or in the
aggregate, a Material Adverse Effect on the Company, (ii) incurred outside the
ordinary course of business and that do not exceed $25,000 individually or
$100,000 in the aggregate, (iii) set forth in Schedule 4.6 or (iv) which would
not have a Material Adverse Effect on the Company. Neither the Company nor any
of its Subsidiaries is a guarantor of or obligor on any material liability of
any other Person except as set forth in Schedule 4.6 hereto.
4.7 Absence of Certain Developments. Except as set forth on Schedule 4.7
hereto or in connection with the transactions contemplated by this Agreement,
since the Interim Balance Sheet Date of the Company, each of the Company and its
Subsidiaries has conducted its business in the ordinary course consistent (in
amount and kind) with past practice, and there has not been (i) any change which
has had or could reasonably be expected to have a Material Adverse Effect on the
Company, (ii) any waiver or cancellation of any material right of the Company or
any of its Subsidiaries, or the cancellation of any material debt or claim held
by the Company or any of its Subsidiaries, (iii) any payment, discharge or
satisfaction of any material claim, liability, or obligation of the Company or
any of its Subsidiaries, other than in the
-13-
ordinary course of business consistent (in amount and kind) with past practice,
(iv) any mortgage, pledge or subjection to any claims, liens, charges,
encumbrances, imperfections of, or other matters affecting, title of any of the
assets of the Company or any of its Subsidiaries, (v) any sale, assignment or
transfer of any material tangible or intangible assets of the Company or any of
its Subsidiaries, except in the ordinary course of business consistent (in
amount and kind) with past practice, (vi) any loans, advances or capital
contributions to, or investments in, any Person, or the payment, of any fees and
expenses to any Affiliate or Related Party, by the Company or any of its
Subsidiaries, (vii) any award or payment of any bonuses to directors, officers,
managers, employees, agents or representatives of the Company or any of its
Subsidiaries, except to the extent accrued on the Interim Balance Sheet, (viii)
any increase, directly or indirectly, in the compensation, bonus or other
incentive compensation paid or payable to any director, officer or manager of
the Company or any of its Subsidiaries or (other than in the ordinary course of
business consistent (in amount and kind) with past practice and that in the
aggregate have not resulted in a material increase in the benefits or
compensation expenses of the Company) to any other employee, consultant or agent
of the Company or any of its Subsidiaries, (ix) any increase of the coverage or
benefits available under any Employee Plan, (x) any material change in the
accounting or tax methods, practices or policies or any material Tax election of
the Company or any of its Subsidiaries, other than as required by GAAP, (xi) any
indebtedness incurred for borrowed money by the Company or any of its
Subsidiaries except pursuant to a drawdown of funds under any loan agreement or
credit facility of the Company in existence as of the date hereof, (xii) any
material amendment to or termination of any material agreement to which the
Company or any of its Subsidiaries is a party other than the expiration of any
such agreement in accordance with its terms, (xiii) any change with respect to
the regulation of the Company or any of its Subsidiaries or their respective
activities by any administrative agency or governmental body to the extent such
change has had or could reasonably be expected to have a Material Adverse Effect
on the Company, (xiv) any capital expenditures or commitments therefor by the
Company or any of its Subsidiaries (including, without limitation, any
acceleration or deferral of the payments of accounts payable or other current
liabilities or deferral of the collection of accounts or notes receivable), (xv)
any damage, destruction or loss, whether or not covered by insurance, with
respect to any property or assets of the Company or any of its Subsidiaries
having a replacement cost of more than $25,000 for any single loss or $100,000
for all such losses, (xvi) any declaration, payment or setting aside of any
dividend or other distribution of any Units or shares of capital stock, as
applicable, of the Company or any of its Subsidiaries, (xvii) any repurchase,
redemption or other acquisition by the Company or any of its Subsidiaries of any
outstanding Units or shares of their capital stock, as applicable, or (xviii)
any agreement or commitment (contingent or otherwise) by the Company or any of
its Subsidiaries to do any of the foregoing.
4.8 No Conflict.
(a) Except as set forth on Schedule 4.8 attached hereto, the execution
and delivery of this Agreement, any other agreement contemplated herein,
and the consummation of the transactions contemplated hereby or thereby and
the compliance by the parties to such agreements with the terms thereof
will not (i) violate any provision of law, statute, rule or regulation, or
any ruling, writ, injunction, order, judgment or decree of any court,
administrative agency or other governmental body (collectively, "Laws")
applicable to the Company or any of its Subsidiaries, or any of the
properties or assets of the Company or its
-14-
Subsidiaries, except for such violations which would not have a Material
Adverse Effect on the Company, (ii) conflict with or result in any breach
of any of the terms, conditions or provisions of, or constitute (with due
notice or lapse of time, or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, or result in the creation
of any Encumbrances upon, any of the properties or assets of the Company or
its Subsidiaries under any material contract to which the Company or any of
its Subsidiaries is a party, or (iii) violate the Certificate of Formation
or Operating Agreement of the Company or certificate of incorporation or
by-laws of any of its Subsidiaries.
(b) Except as set forth on Schedule 4.8, no permit, authorization,
consent or approval of or by, or any notification of or filing with, any
governmental Person is required by the Company in connection with its
execution and delivery of this Agreement, any exhibit hereto or the
consummation of the transactions contemplated hereby or thereby, except as
would not have a Material Adverse Effect on the Company. No permit,
authorization, consent or approval of or by, or any notification of or
filing with, any Person (other than governmental Persons) is required by
the Company in connection with the execution and delivery of this
Agreement, any exhibit hereto or the consummation of the transactions
contemplated hereby or thereby.
4.9 Material Contracts and Obligations.
(a) Except as set forth on Schedule 4.9, neither the Company nor any
of its Subsidiaries is a party to, nor are any of their respective assets
or properties bound by, any of the following contracts, agreements,
indentures, mortgages, guaranties, leases, licenses or understandings,
written or oral (each a "Contract" after giving effect to the following
qualifications and limitations): (i) a material lease agreement (whether as
lessor or lessee) relating to personal property; (ii) license, assignment
or other agreement (whether as licensor, licensee, assignor or assignee)
relating to intellectual property; (iii) management, employment, bonus,
option, equity (or equity related), severance, consulting, non-compete,
confidentiality or similar agreement or contract; (iv) joint venture or
partnership agreement; (v) material agreement granting any Person a
security interest or other claim, lien, charge, encumbrance, imperfection
or any other claim whatsoever on any assets of the Company or any of its
Subsidiaries; (vi) material lease agreement (whether as lessor or lessee)
relating to real property; (vii) agreement for the borrowing or lending of
money, including any indenture, mortgage, note, bond or other evidence of
indebtedness, any credit or similar agreement, or any agreement
guaranteeing, indemnifying, or otherwise becoming liable for the
obligations or liabilities of another; (viii) agreement that restricts the
Company or any of its Subsidiaries from entering into any new or existing
line of business or conducting its respective business as presently
conducted; (ix) agreement with any labor union or association representing
any employee of the Company or any of its Subsidiaries or (x) any other
material agreement. For purposes of this Section 4.9, a material agreement
shall mean any agreement which (A) provides for the payment by the Company
or any of its Subsidiaries of an amount in excess of $100,000 during a
twelve (12) month period or (B) is not cancelable upon 90 days or less
notice without penalty or premium.
(b) Each of such Contracts is, as of the date hereof, a legal, valid
and binding obligation of the Company or the relevant Subsidiary of the
Company, fully enforceable by (except to the extent that enforceability may
be limited by bankruptcy, insolvency or other
-15-
similar laws affecting creditors' rights generally), and in full force and
effect against, the Company or the relevant Subsidiary of the Company and,
to the knowledge of the Company, the other parties thereto. There is no
material breach, violation or default by the Company or any of its
Subsidiaries, and no event (including without limitation, the consummation
of the transactions contemplated by this Agreement) that, with notice or
lapse of time or both, would (i) constitute a material breach, violation or
default by the Company or any of its Subsidiaries, under any such Contract
or (ii) give rise to any lien or right of termination, modification,
cancellation, prepayment, suspension, limitation, revocation or
acceleration against the Company or any of its Subsidiaries, under any such
Contract, except as could not reasonably be expected to have a Material
Adverse Effect on the Company. Accurate and complete copies of every
Contract have been delivered or made available to the Buyer or its agents.
Following the closing of the transactions contemplated herein, each of the
Company and its Subsidiaries will continue to enjoy all of the benefits of
each of the Contracts without the necessity of any consent, authorization
or agreement with any Person, except where the failure to have any such
benefits could not reasonably be expected to have a Material Adverse Effect
on the Company. Neither the Company nor any of its Subsidiaries has
received any notice or communication from any party to a Contract or other
material customer or supplier (whether or not party to a Contract) relating
to such party's intent to modify, terminate or fail to renew the
arrangements and relationships set forth therein.
4.10 Taxes. Except as set forth on Schedule 4.10:
(a) All Tax Returns required to be filed by or with respect to the
Company and its Subsidiaries for all Taxable Periods have been timely
filed. All such Tax Returns were prepared, in all material respects, in the
manner required by applicable law. All Taxes shown to be payable on such
Tax Returns, and all assessments of Tax made against the Company and its
Subsidiaries with respect to such Tax Returns, have been or will be paid
when due. No adjustment relating to any such Tax Return has been proposed
or threatened formally or informally by any taxing authority.
(b) Since the Interim Balance Sheet Date, neither the Company nor any
of its Subsidiaries has incurred any liability for Taxes what would result
in a material decrease in the net worth of such entity.
(c) The Company and its Subsidiaries have paid, or caused to be paid,
all Taxes shown to be due on a Tax Return and have provided a sufficient
reserve for the payment of all Taxes not yet due and payable (the "Tax
Reserve") on the Financial Statements. The Company and its Subsidiaries
have paid (to the extent the last date for payment has passed) all Taxes
due for which no Tax Return is required to be filed.
(d) The Company and its Subsidiaries have complied in all material
respects with the provisions of the Code relating to the withholding and
payment of Taxes, including, without limitation, the withholding and
reporting requirements under Sections 1441 through 1464, 3401 through 3406,
and 6041 through 6049 of the Code, as well as similar provisions under any
other laws, and have, within the time and in the manner prescribed by law,
withheld from employee wages and paid over to the proper governmental
authorities all amounts required for all periods through the date hereof.
-16-
(e) None of the Tax Returns of the Company or its Subsidiaries has
been or is currently being examined by the Internal Revenue Service ("IRS")
or relevant state, local or foreign taxing authorities (each a "Tax
Authority"). There are no examinations by any taxing authority or other
administrative or court proceedings relating to Taxes in progress or
pending, nor has the Company or any of its Subsidiaries received a revenue
agent's or similar report asserting a Tax deficiency. Neither the Company
nor any of its Subsidiaries has knowledge of, or has received notice of,
threatened or current actions, suits, proceedings, investigations, audits
or claims relating to or asserted for Taxes brought by or against any
taxing authority of the Company or any of its Subsidiaries.
(f) No material claim that has not later been withdrawn has ever been
made by any taxing authority with respect to the Company or any of its
Subsidiaries in a jurisdiction where the Company or any such Subsidiary
does not file Tax Returns that the Company or any such Subsidiary is or may
be subject to taxation by that jurisdiction. There are no security
interests on any of the assets of the Company or any of its Subsidiaries
that arose in connection with any failure (or alleged failure) to pay any
Taxes and, except for liens for real and personal property Taxes that are
not yet due and payable, there are no liens for any Tax upon any asset of
the Company or any of its Subsidiaries.
(g) No extension of time with respect to any date on which a Tax
Return was or is to be filed by the Company or any of its Subsidiaries is
in force, and no waiver or agreement by the Company or any of its
Subsidiaries is in force for the extension of time for the assessment or
payment of any Taxes. No closing agreement (as defined in section 7121 of
the Code) or any similar provision of any state, local, or foreign law has
been entered into by or with respect to the Company or any of its
Subsidiaries.
(h) There are no outstanding requests by the Company or any of its
Subsidiaries or by any of their shareholders, with respect to items of
income, gain, loss or deduction attributable to the Company or any of its
Subsidiaries to a Tax Authority for a ruling, determination, permission,
consent, or similar item.
(i) Neither the Company nor any of its Subsidiaries has been a member
of an affiliated group (within the meaning of Section 1504 of the Code)
filing a United States consolidated federal income tax return (or an
affiliated, combined, consolidated, unitary or similar group for state,
local or foreign Tax Return filing purposes) other than one in which the
Company is the common parent. The Company and its Subsidiaries have no
liability for Taxes of any person under Treas. Reg. Section 1.1502-6 (or
any similar provision of state, local or foreign law) as a transferee or
successor, by contract or otherwise.
(j) Neither the Company nor any of its Subsidiaries has agreed or is
required to include in income any adjustment under either Section 481(a) or
482 of the Code (or an analogous provision of state, local, or foreign law)
by reason of a change in accounting method or otherwise.
(k) Neither the Company nor any of its Subsidiaries is, or has been, a
party to any agreement relating to allocating or sharing the payment of, or
liability for, Taxes with respect to any Taxable Period.
-17-
(l) Neither the Company nor any of its Subsidiaries is a party to any
contract, agreement, plan or arrangement that, individually or in the
aggregate, or when taken together with any payment that may be made under
this Agreement or any agreements contemplated hereby could give rise to the
payment of any "excess parachute payment" within the meaning of Section
280G of the Code.
(m) Neither the Company nor any of its Subsidiaries has distributed to
its shareholders or unit holders the stock of any corporation since April
16, 1997. The stock of neither the Company nor any of its Subsidiaries has
been distributed in a transaction intended to satisfying the requirements
of Section 355(a) of the Code since April 16, 1997.
(n) Neither the Company nor any of its Subsidiaries has any deferred
income reportable for a period ending after the Closing Date that is
attributable to a transaction (e.g., an installment sale) occurring in, or
resulting from a change of accounting method for, a period ending on or
prior to the date hereof.
(o) None of the indebtedness of the Company nor any of its
Subsidiaries constitutes "corporate acquisition indebtedness" (as defined
in Section 279(b) of the Code) with respect to which any interest
deductions may be disallowed under Section 279 of the Code.
(p) Each of the Company and its Subsidiaries is not, and has not been,
a United States real property holding corporation (as defined in Section
897(c)(2) of the Code) during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code.
(q) Since the Interim Balance Sheet Date, neither the Company nor any
of its Subsidiaries (at the direction of the Company or otherwise) has (i)
materially changed any material practice with respect to Taxes, (ii) made,
changed or revoked any Tax election, or (iii) compromised or settled any
dispute involving a Tax liability.
(r) Confecciones Acona, S.A., a wholly owned subsidiary of DHI, is
eligible for the benefits, as described in Note J to the DHI September 26,
1998 financial statements, of the Free Zones Law of Costa Rica.
(s) The Company made an election declared effective by the IRS
effective March 21, 2001 to be treated as a corporation for U.S. federal
income tax purposes, and such election has not been revoked.
(t) Each Seller is a U.S. person, as defined by the Code.
4.11 Properties. Schedule 4.11 sets forth a complete list of all real
property owned, and all real property and interests in real property leased, by
each of the Company and its Subsidiaries. Each of the Company and its
Subsidiaries (a) has good and marketable title to all of the property and assets
which it purports to own, real, personal, tangible and intangible (including
those reflected on the Interim Balance Sheet, except as sold or otherwise
disposed of in the ordinary course of business consistent (in amount and kind)
with past practice since the Interim Balance Sheet Date), free and clear of any
and all claims, liens, charges, encumbrances, security interests, imperfections
of, or other matters affecting, title and any rights of third parties
-18-
whatsoever (each and all of the foregoing items being referred to as
"Encumbrances"), except (i) as disclosed in Schedule 4.11, (ii) Encumbrances for
Taxes not yet due and payable or, (iii) such imperfections of title or other
Encumbrances, if any, that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on the Company,
(collectively, "Permitted Encumbrances") and (b) has valid, binding and
enforceable leases with respect to any real or personal property leased by it,
has in all material respects performed all of the obligations required to be
performed by it to the date hereof under the terms of such leases, and such
properties are not subject to any Encumbrances, easements, rights of way,
building or use restrictions, exceptions, reservations or limitations that,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect on the Company. None of the Company and its Subsidiaries
has received notice of (A) any violation of any applicable law, regulation,
ordinance, order or requirement relating to the operation of any of their
respective owned or leased properties that could reasonably be expected, in the
aggregate, to have a Material Adverse Effect on the Company, and, so far as
known to the Company, there are no such pending or threatened proceedings or (B)
any claim of any sort that has been asserted by anyone adverse to the rights of
the Company or any of its Subsidiaries under any of the leases mentioned above
or affecting or questioning the rights of the Company or any of its
Subsidiaries, to the continued possession of such leased premises under any such
lease, which claims could reasonably be expected, in the aggregate, to have a
Material Adverse Effect on the Company. The Store Lease, dated as of May 15,
1990, by and between DHI and Streator Building Trust is a month-to-month lease
and can be terminated by DHI on not more than one month's notice without any
further liability or obligation resulting from the termination of such lease.
4.12 Inventories; Receivables, Payables.
(a) Except as set forth on Schedule 4.12, all inventories reflected on
the Interim Balance Sheet and acquired by the Company or its Subsidiaries
subsequent to the Interim Balance Sheet Date, are owned free and clear of
all Encumbrances except (i) Encumbrances for Taxes not yet due and payable,
(ii) Encumbrances that could not reasonably be expected, in the aggregate,
to have a Material Adverse Effect on the Company, and (iii) other Permitted
Encumbrances.
(b) Except as set forth on Schedule 4.12 or as could not reasonably be
expected, individually or in the aggregate, to have a Material Adverse
Effect on the Company, all accounts receivable reflected on the Interim
Balance Sheet, excluding any such receivables collected prior to the date
hereof, and all additional accounts receivable existing on the date hereof,
represent valid obligations arising from bona fide business transactions in
the ordinary course of business consistent (in amount and kind) with past
practice. Except as set forth on Schedule 4.12 or as could not reasonably
be expected to have a Material Adverse Effect on the Company, to the
knowledge of each Seller, there is no contest, claim, counterclaim, defense
or right of set-off other than discounts, make goods (i.e., services
provided for free consistent with past practice), rebates and returns in
the ordinary course of business, under any Contract with any obligor of any
account receivable relating to the amount or validity of such account
receivable.
(c) Schedule 4.12 includes an aging of all accounts payable showing
amounts due in 30-day aging categories as of September 29, 2001. Except as
set forth on
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Schedule 4.12, all accounts payable reflected on the Interim Balance Sheet,
and all additional accounts payable existing on the date hereof, represent
valid obligations arising from bona fide business transactions in the
ordinary course of business consistent with past practice.
4.13 Intellectual Property. Except as set forth on Schedule 4.13, each of
the Company and its Subsidiaries own, possess or have the right to use pursuant
to license, sublicense, agreement or permission all patents, inventions,
trademarks, service marks, domain names, trade names, whether registered or
otherwise, together with all goodwill associated therewith, copyrights,
licenses, information, proprietary rights and processes (collectively, the
"Proprietary Rights") used in the lawful conduct of its business, without any
infringement of or conflict with the rights of others. There are no outstanding
options, licenses, or agreements of any kind relating to the foregoing
Proprietary Rights, nor are any of the Company and its Subsidiaries bound by or
party to any options, licenses, or agreements of any kind with respect to
Proprietary Rights and processes of any other Person. Except as set forth on
Schedule 4.13, neither the Company nor any of its Subsidiaries has received any
communications alleging that the conduct of their business infringes or
conflicts with the rights of others under trademarks, copyrights and trade
secrets. Except as set forth on Schedule 4.13, to the knowledge of the Company,
the business of the Company and its Subsidiaries as now conducted and as
proposed to be conducted do not or will not infringe or conflict with the
Proprietary Rights of others, including rights under trademarks, copyrights and
trade secrets.
4.14 [Reserved].
4.15 ERISA. Except as set forth on Schedule 4.15:
(a) For purposes of this Agreement, the term "Employee Plan" shall
mean each plan, agreement, arrangement or commitment which is an employment
or consulting agreement, executive or incentive compensation plan, bonus
plan, deferred compensation agreement, employee pension, profit sharing,
savings or retirement plan, employee stock option or stock purchase plan,
group life, health, or accident insurance or other employee benefit plan,
agreement, arrangement or commitment, including, without limitation, any
commitment arising under the laws of any jurisdiction, severance, holiday,
vacation, Christmas or other bonus plans (including, but not limited to,
"employee benefit plans", as defined in Section 3(3) of ERISA, maintained
by the Company, any of its Subsidiaries for any of their respective present
or former employees, officers or directors ("Personnel") or with respect to
which the Company, any of its Subsidiaries, as applicable, has liability,
makes or has an obligation to make contributions.
(b) The Company has made available to the Buyer copies of all current
Employee Plans or in the case of an unwritten plan, a written description
thereof, copies of the most recent annual, financial or actuarial reports
and Internal Revenue Service determination letters relating to such
Employee Plans, copies of current summary plan descriptions (whether or not
required to be furnished under ERISA) and copies of all employee
communications distributed to Personnel relating to such Employee Plans
which materially modify an existing summary plan description.
(c) There are no Personnel who are entitled to (x) any pension benefit
that is unfunded or (y) any pension or other benefit to be paid after
termination of employment
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other than required by Section 601 of ERISA or pursuant to plans intending
to be qualified under Section 401(a) of the Code and listed on Schedule
4.15, and no other benefits whatsoever are payable to any Personnel after
termination of employment (including retiree medical and death benefits).
No commitment has been made by the Company, any of its Subsidiaries or any
ERISA Affiliate to provide any such benefits in the future.
(d) Each Employee Plan that is an employee welfare benefit plan under
Section 3(1) of ERISA is either (x) funded through an insurance company
contract and is not a "welfare benefit fund" within the meaning of Section
419 of the Code or (y) is unfunded.
(e) Each Employee Plan by its terms and operation is in compliance in
all material respects with all applicable laws (including, but not limited
to, ERISA, the Code and the Age Discrimination in Employment Act of 1967,
as amended). All contributions or payments owed with respect to any periods
prior to the Closing Date under any Employee Plan have been made or
properly accrued.
(f) There are no actions, suits or claims pending or threatened (other
than routine noncontested claims for benefits), and, to the knowledge of
the Company, no set of circumstances exist which may reasonably give rise
to such a claim against any Employee Plan or administrator or fiduciary of
any such Employee Plan. As to each Employee Plan for which an annual report
is required to be filed under ERISA or the Code, all such filings,
including schedules, have been made on a timely basis and no material
adverse change has occurred with respect to the financial materials covered
thereby.
(g) Neither the Company, any of its Subsidiaries nor any entity that
is or was at any time treated as a single employer with any of the
foregoing under Section 414(b), (c), (m) or (o) of the Code has at any time
maintained, contributed to, been required to contribute to or has any
liability, with respect to any plan which is subject to Title IV of ERISA
(including, without limitation, a multiemployer plan (as defined in Section
3(37) of ERISA)).
(h) Neither the Company, any of its Subsidiaries nor any other Person,
including any fiduciary, has engaged in any "prohibited transaction" (as
defined in Section 4975 of the Code or Section 406 of ERISA), which could
subject the Company or any of its Subsidiaries, or any Person who the
Company or any of its Subsidiaries has an obligation to indemnify, to any
tax or penalty imposed under Section 4975 of the Code or Section 502 of
ERISA.
(i) The events contemplated by this Agreement (either alone or
together with any other event) will not (w) entitle any Personnel to
severance pay, unemployment compensation, or other similar payments under
any Employee Plan or law, (x) accelerate the time of payment or vesting or
increase the amount of compensation or benefits due under any Employee
Plan, (y) result in any payments (including parachute payments within the
meaning of Section 280G of the Code) under any Employee Plan or law
becoming due to any Personnel, or (z) terminate or modify or give a third
party a right to terminate or modify the provisions or terms of any
Employee Plan.
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(j) With respect to each Employee Plan intended to be qualified under
Section 401(a) of the Code, either the Company or a Subsidiary of the
Company has received a favorable determination letter from the IRS and
nothing has occurred since the date of such letter to cause the letter to
be no longer valid or effective.
4.16 Labor Relations; Employees. Neither the Company nor any of its
Subsidiaries is a party to labor contracts, collective bargaining agreements or
employment agreements. The Company and each of its Subsidiaries are in
compliance in all material respects with all applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, and are not engaged in any unfair labor practice. There is no
labor strike, representation campaign or work stoppage actually pending or
threatened, against or affecting the Company or any of its Subsidiaries. No
grievance or arbitration proceeding arising out of or under collective
bargaining agreements is pending and no claim therefor has been asserted against
the Company or any of its Subsidiaries. Neither the Company nor any of its
Subsidiaries has experienced any work stoppage.
4.17 Litigation; Orders. Except as set forth in Schedule 4.17 hereto or
except as if adversely determined could not reasonably be expected to have a
Material Adverse Effect on the Company, there is no civil, criminal,
administrative or regulatory action, suit, claim, notice, hearing, inquiry,
proceeding or investigation at law or in equity by or before any court,
regulator, arbitrator or similar panel, governmental instrumentality or other
agency (each a "Legal Proceeding" and collectively, "Legal Proceedings") now
pending or threatened, against any of the Company or its Subsidiaries or any of
their respective assets, properties or businesses. Except as set forth on
Schedule 4.17 hereto, neither the Company, nor any Subsidiary, officer, director
or stockholder thereof has been permanently or temporarily enjoined or barred by
order, judgment or decree of any court or other tribunal or any agency or
self-regulatory body from engaging in or continuing any conduct or practice with
respect to the business of the Company or any of its Subsidiaries. Except as if
adversely determined could not reasonably be expected to have a Material Adverse
Effect on the Company, neither the Company, nor any of its Subsidiaries is
subject to any writ, injunction or decree of any court of any federal, state,
municipal or other domestic or foreign governmental department, commission,
board, bureau, agency or instrumentality (each an "Order" and collectively,
"Orders").
4.18 Compliance with Laws; Permits. Except as set forth on Schedule 4.18,
each of the Company and its Subsidiaries has complied with all applicable Laws
to which it is subject, except insofar as noncompliance could not reasonably be
expected to have a Material Adverse Effect on the Company. Except as set forth
on Schedule 4.18, neither the Company nor any of its Subsidiaries has received
any written or oral notice to the effect that, the Company or any of its
Subsidiaries is not in compliance with any Laws, and the Company has no
knowledge of any presently existing circumstances that are likely to result in
violations of any Laws which could reasonably be expected to have a Material
Adverse Effect on the Company. Each of the Company and its Subsidiaries have
obtained all licenses, permits, registrations, authorizations and other
governmental consents of any federal, state, provincial, local or other
authority of the United States, Canada or Costa Rica or other foreign government
to which it is subject except insofar as failure to obtain any Permit would not
have a Material Adverse Effect on the Company (collectively, "Permits") which
are required in connection with the operations of its business as presently
conducted. All Permits are in full force and effect and no proceedings for the
-22-
suspension or cancellation of any Permit is pending or, to the knowledge of the
Company, threatened.
4.19 Illegal Payments. Neither the Company nor any of its Subsidiaries nor,
to the knowledge of the Company, any directors, officers or employees of the
Company or any of its Subsidiaries has made any payment of funds prohibited by
law, and no funds of the Company or any of its Subsidiaries have been set aside
to be used for any payment prohibited by law.
4.20 Environmental. Except as set forth on Schedule 4.20:
(a) Each of the Company and its Subsidiaries are in compliance and
have complied, in all material respects with all Environmental Laws. For
the purposes hereof, "Environmental Law" shall mean any judgment, decree,
order, law, permit, license, rule, regulation, or agency requirement
relating to or addressing health or safety or the environment, including,
without limitation, the Comprehensive Environmental Response, Compensation
and Liability Act, as amended, the Resource Conservation and Recovery Act,
as amended, the Superfund Amendments and Reauthorization Act of 1986, the
Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances
Control Act and any applicable regulation, ordinance, order or decree of
any federal, state, provincial, local or other authority of the United
States, Canada or Costa Rica relating to health, safety or the environment,
each as in effect on or prior to the Closing Date.
(b) There is not now pending or, to the knowledge of the Company,
threatened, any action, claim, proceeding or investigation nor has any of
the Company or its Subsidiaries or, to the knowledge of the Company, any
predecessor of the Company or any of its Subsidiaries, received any written
notice, claim, demand letter, or request for information at any time,
alleging that the Company or any of its Subsidiaries or any predecessor of
any of the foregoing may be in violation of or liable under, any
Environmental Law nor, to the knowledge of the Company, does there exist
any basis for any such action, claim, proceeding or investigation.
(c) To the knowledge of the senior officers of the Company, there are
no present or past Environmental Conditions (as defined below) in any way
relating to the Company or any of its Subsidiaries, or any predecessor of
any of the foregoing, which have, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
"Environmental Conditions" means the Release or threatened Release of any
Hazardous Substance upon, under, in or about any of the properties
currently or formerly owned, leased or operated by the Company or any of
its Subsidiaries or any predecessor of any of the foregoing, or any other
circumstances involving any of the foregoing or such properties that could
be expected to result in any claims, liability, costs or losses, or, with
respect to any property currently owned, leased or operated by it, any
restriction on the ownership, use or transfer of any property or Units
pursuant to any Environmental Law.
(d) The Company and its Subsidiaries have provided or made available
to Buyer copies of all environmental assessments, Phase I or Phase II
reports and other similar documents in their custody or control relating to
Environmental Conditions.
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4.21 Insurance. Substantially all of the assets and properties of the
Company and its Subsidiaries are covered by insurance with reputable carriers
against risks of liability, casualty and fire and other losses and liabilities
customarily obtained to cover comparable businesses and assets in amounts, scope
and coverage that are consistent with prudent industry practice. Except as set
forth on Schedule 4.21, neither the Company nor any of its Subsidiaries is in
material default with respect to its obligations under any material insurance
policy maintained by any of them. Except as set forth on Schedule 4.21, all
policies and other instruments for the insurance coverage of the Company and its
Subsidiaries are in full force and effect and all premiums with respect thereto
have been paid. Except as set forth on Schedule 4.21, there are no claims by the
Company or any of its Subsidiaries pending under any such policies. Except as
set forth on Schedule 4.21, neither the Company nor any of its Subsidiaries have
received notice of any pending or threatened termination of any of such
policies.
4.22 Transactions with Affiliates. Except as set forth on Schedule 4.22,
neither the Company nor any of its Subsidiaries has loaned or borrowed any
moneys from or has outstanding any indebtedness or other similar obligations to
any Affiliate of the Company or any of its Subsidiaries. Except as set forth in
Schedule 4.22 and except for intercompany transactions among the Company and its
Subsidiaries, there are no existing material transactions or proposed material
transactions between the Company or any of its Subsidiaries and (i) any officer,
director, manager, member or shareholder of the Company, any of its Subsidiaries
or any member of the immediate family of any of the foregoing persons (such
officers, directors, managers, members, shareholders and family members being
hereinafter individually referred to as a "Related Party") or (ii) any business
(corporate or otherwise) in which a Related Party has a greater than 5%
ownership interest, or, to the knowledge of the Company between any Related
Party and any business (corporate or otherwise) with which the Company or any of
its Subsidiaries regularly does business or a competitor of the Company, any of
its Subsidiaries. Except as set forth on Schedule 4.22, neither the Company nor
any of its Subsidiaries has any Contracts or understandings with any director,
officer, manager or member of the Company, any of its Subsidiaries with respect
to the subject matter of this Agreement, the consideration payable hereunder or
any other matter.
4.23 Suppliers. Schedule 4.23 sets forth a list of each of the ten (10)
largest suppliers for each of the Company and its Subsidiaries, as measured by
the dollar amount of purchases by each of the Company and its Subsidiaries,
during the interim period ended August 25, 2001, showing the approximate total
purchases from each supplier during such period. Since the Interim Balance Sheet
Date, no supplier listed on Schedule 4.23 has (x) cancelled or otherwise
terminated, or threatened to cancel or otherwise terminate, its relationship
with the Company or any of its Subsidiaries, or (y) materially changed or
threatened or requested a material change in the price or quality of the goods,
services and products purchased by the Company or any of its Subsidiaries from
such supplier.
4.24 Broker's or Finder's Commissions. No broker's, finder's, placement or
structuring fees or commissions will be payable to any Person retained by the
Company, its Subsidiaries, or any Seller, with respect to this Agreement or any
of the transactions contemplated hereby, and the Sellers will hold the Buyer and
the Company harmless from any claim, demand or liability for broker's, finder's,
placement or structuring fees or commissions
-24-
alleged to have been incurred in connection with this Agreement or the
transactions contemplated hereby on behalf of the Company, its Subsidiaries or
the Sellers.
4.25 Disclosure. The representations and warranties of the Company and its
Subsidiaries contained in this Agreement, and certificates and other documents
made or delivered in connection herewith or therewith (including the schedules
hereto), do not contain any untrue statement of a material fact or omit any
material fact necessary to make the statements contained herein or therein, when
taken as a whole, in view of the circumstances under which they were made, not
misleading.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLERS
Each Seller hereby represents and warrants to Buyer as follows:
5.1 Securities Matters.
(a) Each Seller acknowledges that the Series C Preferred Shares, the
Warrants and the shares of Buyer Common Stock issuable upon the exercise of
the Warrants (the "Warrant Shares") or upon conversion of the Series C
Preferred Shares in accordance with the terms of the Certificate of
Designation (the "Conversion Shares" and together with the Series C
Preferred Shares, Warrants and Warrant Shares, the "Buyer Securities")
issued hereunder will not be registered under the Securities Act of 1933,
as amended (the "Securities Act"), are hereby issued under an exemption
based on each Seller's representations and warranties made in this Section
5.1, and must be held indefinitely unless subsequently registered under the
Securities Act or unless an exemption from such registration becomes or is
available.
(b) Each of the Sellers is an "accredited investor" within the meaning
of Regulation D promulgated under the Securities Act. Each Seller is acting
herein for such Seller's own account and is acquiring the Buyer Securities
for investment without a view to the resale or other distribution thereof.
Each Seller is financially able to hold the Buyer Securities for long-term
investment, believes that the nature and amount of the Buyer Securities to
be acquired hereunder is consistent with such Seller's overall investment
program and financial position, and recognizes that there are substantial
risks involved in an investment in the Buyer Securities.
(c) Each Seller is well versed in financial matters and has such
knowledge and experience in financial and business matters and that such
Seller is fully capable of understanding the merits and risks of the
investment being made in the Buyer Securities and the risks involved in
connection therewith. Such Seller has reviewed the description of Buyer's
business, financial condition and prospects set forth in the Buyer SEC
Documents (as defined in Section 6.7) and has been afforded the opportunity
to ask questions and receive answers from Buyer's management concerning
Buyer and its business, financial condition and prospects.
(d) Each Seller acknowledges and agrees that Buyer may, if it so
desires, permit transfers, or authorize its transfer agent to permit
transfers, of the Buyer Securities only when such Buyer Securities have
been registered under the Securities Act or when the request for transfer
is accompanied by, if requested, an opinion of counsel acceptable
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to Buyer, that the sale or proposed transfer does not require registration
under the Securities Act, and each Seller agrees that a legend to such
effect will be placed on the Buyer Securities.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Sellers as follows:
6.1 Organization and Qualification. Each of Buyer and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and has all requisite corporate power and authority
and all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as now being conducted, except where the
failure to be so organized, existing and in good standing or to have such power,
authority, and governmental approvals could not reasonably be expected to have a
Material Adverse Effect on Buyer. Buyer and each of its Subsidiaries is duly
qualified or licensed to do business and in good standing in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing necessary, except
where the failure to be so duly qualified or licensed and in good standing could
not reasonably be expected to have a Material Adverse Effect on Buyer.
6.2 Capitalization. As of June 30, 2001, the authorized capital stock of
Buyer consists of 10,000,000 shares of Buyer Common Stock and 2,000,000 shares
of preferred stock, $0.01 par value per share (the "Buyer Preferred Stock"). As
of June 30, 2001, (i) 3,453,910 shares of Buyer Common Stock were authorized,
issued and outstanding, (ii) 41,000 shares of Series A Preferred Stock were
issued and outstanding and (iii) no shares of Series B Junior Participating
Preferred Stock were issued and outstanding. All of the issued and outstanding
shares of Buyer Common Stock and Series A Preferred Stock are duly authorized,
validly issued, fully paid and nonassessable. The Buyer Securities to be
delivered or issued to the Sellers have been duly authorized for issuance
pursuant to this Agreement, and, when issued and delivered by Buyer pursuant to
this Agreement, against delivery of the Certificates, will be validly issued,
fully paid and non-assessable and will be issued free and clear of all Liens
other than any Lien created by any Seller. The issuances of the Buyer Securities
hereunder are not subject to the preemptive or other similar rights of any
security holder of the Buyer. Subject to the accuracy of the representations and
warranties of each Seller in Section 5.1 hereof, the offering, sale and issuance
of the Buyer Securities are in compliance with applicable securities laws. The
Series C Preferred Shares issued hereunder represent, as of the Closing Date, 8%
of the combined voting power of the outstanding shares of Buyer Common Stock and
the Series C Preferred Shares.
6.3 Power and Authority. Each of Buyer and Merger Sub has full corporate
power and corporate authority to make, execute, deliver and perform this
Agreement.
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6.4 Authorization and Enforceability. The execution, delivery and
performance of this Agreement by Buyer and Merger Sub, respectively, have been
duly authorized by all necessary corporate action on the part of Buyer and
Merger Sub, respectively, and this Agreement constitutes the legal, valid and
binding obligation of Buyer and Merger Sub, respectively, enforceable against
such party in accordance with its terms.
6.5 No Violation of Laws or Agreements. Subject to the terms and provisions
of existing Senior Debt agreements (as defined in the Certificate of
Designation), the execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and the
compliance with the terms, conditions and provisions of this Agreement, the
Certificate of Designation (including the payment of dividends and the exercise
of the Put Option) and the Warrants by Buyer or Merger Sub will not contravene
any provision of such party's certificate of incorporation or bylaws; or
conflict with or result in a breach of or constitute a default (or an event
which might, with the passage of time or the giving of notice or both,
constitute a default) under any of the terms, conditions or provisions of any
material indenture, mortgage, lease, loan or credit agreement or any other
agreement or instrument to which Buyer, Merger Sub or any of their respective
Subsidiaries may be bound or affected, or any judgment or order of any court or
governmental department, commission, board, agency or instrumentality, domestic
or foreign, or any applicable law, rule or regulation.
6.6 No Pending Litigation or Proceedings. There are no actions, suits,
investigations, arbitrations or proceedings pending or, to the best of Buyer's
knowledge, threatened against or affecting the Buyer, Merger Sub or their
respective Subsidiaries which would have a material adverse affect on Buyer's or
Merger Sub's ability to consummate the transactions contemplated hereby or which
would have a Material Adverse Effect on Buyer and its Subsidiaries.
6.7 SEC Reports and Financial Statements. Buyer has filed with the
Securities and Exchange Commission (the "SEC"), true and complete copies of all
forms, reports, schedules, statements and other documents required to filed by
it and its subsidiaries since October 1, 2000 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act") or the Securities Act (as such
documents have been amended since the time of their filing, collectively, the
"Buyer SEC Documents"). Except as set forth on Schedule 6.7 hereto, as of their
respective dates or, if amended, as of the date of the last such amendment, the
Buyer SEC Documents, including any financial statements or schedules included
therein (a) did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading and (b) complied in all material respects with the
applicable requirements of the Exchange Act and the Securities Act, as the case
may be, and the applicable rules and regulations of the SEC thereunder. Each of
the consolidated financial statements included in the Buyer SEC Documents has
been prepared from, and is in accordance with, the books and records of Buyer
and its consolidated subsidiaries, complies in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, has been prepared in accordance with GAAP
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly presents the consolidated financial
position and the consolidated results of operations and
-27-
cash flows of the Buyer and its consolidated subsidiaries as at the dates
thereof or for the periods presented therein.
6.8 Absence of Undisclosed Liabilities. Except as disclosed or provided for
in the Buyer SEC Documents, neither the Company nor any of its Subsidiaries has
any liabilities (whether known or unknown and whether absolute, accrued, fixed,
contingent or otherwise), except for liabilities or obligations incurred since
July 1, 2001 in the ordinary course of business consistent (in amount and kind)
with past practice (none of which is a liability resulting from breach of
contract, breach of warranty, tort, infringement, claim or lawsuit) and which
would not have, individually or in the aggregate, a Material Adverse Effect on
Buyer.
6.9 Absence of Certain Changes. Except to the extent disclosed in the Buyer
SEC Documents filed prior to the date of this Agreement, since July 1, 2001
through the date of this Agreement, Parent and its Subsidiaries have conducted
their respective businesses and operations in all material respects consistent
with past practice only in the ordinary and usual course. From July 1, 2001
through the date of this Agreement, there has not occurred: (i) any events,
changes, or effects (including the incurrence of any liabilities of any nature,
whether or not accrued, contingent or otherwise) having or, which could not
reasonably be expected to have Material Adverse Effect on Buyer; (ii) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to the equity interests of
Buyer of any of its Subsidiaries; or (iii) any change by Buyer any of its
Subsidiaries in accounting principles or methods, except insofar as may be
required by a change in GAAP or applicable law.
6.10 Brokerage. Buyer has not made any agreement or taken any other action
which might cause anyone to become entitled to a broker's fee or commission as a
result of the transactions contemplated hereunder.
6.11 Rights Unaffected. The rights of the holders of Series C Preferred
Shares as to the payment of dividends or payment under such holders' Put Option
(as defined in the Certificate of Designation), are not subject to the prior
approval or consent of any currently outstanding class or series of capital
stock of Buyer. Subject to the terms and provisions of existing Senior Debt
agreements (as defined in the Certificate of Designation), no provision of the
Certificate of Designation with respect to the Series C Preferred Shares
(including the rights to receive dividends and to exercise the Put Option)
conflicts with or is superseded by the terms of any other instrument, agreement
or document to which the Buyer or any of its Subsidiaries are party or bound,
including, without limitation, the Certificate of Designation for the Series A
Preferred Stock of the Company.
6.12 Solvency. Buyer is solvent as of the day of this Agreement and,
subject to the accuracy in all material respects of the Company's
representations and warranties in this Agreement, shall not become insolvent as
a result of the consummation of the Merger and the transactions contemplated
hereby. Buyer is, and, subject to the accuracy in all material respects of the
Company's representations and warranties in this Agreement, after giving effect
to the Merger and the transactions contemplated hereby, will be, able to pay its
debts as they become due, and Buyer's property now has, and after giving effect
to the Merger and the transactions contemplated hereby shall have, a fair
saleable value (determined on a going concern basis)
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greater than the amounts required to pay its debts. Buyer has adequate capital
to carry on its business, and subject to the accuracy in all material respects
of the Company's representations and warranties in this Agreement, after giving
effect to the Merger and the transactions contemplated hereby, Buyer shall have
adequate capital to conduct its business.
6.13 No Knowledge of Misrepresentations or Omissions. Other than with
respect to the matters set forth on Schedule 9.2(a) for which indemnification
may be sought pursuant to Section 9.2(a)(iv), the Buyer has no actual knowledge
that the representations and warranties of the Company in this Agreement and the
schedules hereto are not true and correct in all material respects.
ARTICLE 7
CERTAIN OBLIGATIONS OF THE COMPANY AND SELLERS
7.1 Conduct of Business Pending Closing. From and after the date hereof and
pending Closing, and unless Buyer shall otherwise consent or agree in writing or
except in connection with the transactions contemplated hereby, the Company
covenants and agrees that:
(a) Ordinary Course. Except as would not otherwise have a Material
Adverse Effect, the business of the Company and each of its Subsidiaries
will be conducted only in the ordinary course consistent with past
practice, including billing and collection practices and payment of
accounts payable.
(b) Preservation of Business. Except as would not otherwise have a
Material Adverse Effect, the Company will use commercially reasonable
efforts to preserve the business organization of the Company and each of
its Subsidiaries intact to keep available to Buyer the services of the
present officers and employees of the Company and each of its Subsidiaries,
and to preserve for Buyer the goodwill of the suppliers, customers and
others having business relations with the Company and its Subsidiaries,
including, without limitation, maintaining in full force and effect the
Permits and all Contracts set forth on Schedule 4.9.
(c) Material Transactions. Without the prior consent of an officer of
Buyer, the Company will not and will not permit any of its Subsidiaries to:
(i) amend its charter or organizational documents including its
Operating Agreement, as applicable,
(ii) change its authorized or issued equity interests, capital
stock or issue any rights or options to acquire shares of its equity
interests or capital stock;
(iii) enter into any contract or commitment the performance of
which may extend beyond the Closing, except those made in the ordinary
course of business, the terms of which are consistent with past
practice and reasonable in light of current conditions;
(iv) enter into any employment or consulting contract or
arrangement with any person which is not terminable at will, without
penalty or continuing obligation;
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(v) incur, create, assume or suffer to exist any mortgage,
pledge, Lien, restriction, encumbrance, tenancy, encroachment,
covenant, condition, right-of-way, easement, claim, security interest,
charge or other matter affecting title on any of its assets or other
property, except Permitted Encumbrances or pursuant to the Existing
Credit Facility;
(vi) make, change or revoke any tax election or make any
agreement or settlement with any taxing authority (other than with
respect to Form 8832);
(vii) other than draw-downs on the Company's Existing Credit
Facility, incur any debt or other obligation for money borrowed;
(viii) loan, advance funds or make an investment in or capital
contribution to any Person other than the Company or any of its
Subsidiaries;
(ix) enter into any new real property lease, or renew, terminate
or amend in any material respect, any existing real property lease;
(x) convert, as a matter of state law, from a limited liability
company to a corporation; or
(xi) enter into any agreement to do any of the foregoing.
(d) Post-Signing Financial Statements. The Company will deliver to
Buyer within 45 days after the end of each month and the end of each
calendar quarter prior to the Closing Date, commencing with the month ended
September 30, 2001, an unaudited consolidated balance sheet as of such date
and related unaudited consolidated statements of income and cash flows for
the periods then ended for the Company and the Subsidiaries (the
"Post-Signing Financial Statements"), which Post-Signing Financial
Statements shall fairly present the Company's consolidated financial
condition, results of operations and cash flows for the periods then ended
in accordance with GAAP.
(e) [Reserved].
(f) Costa Rica. The Company and Sellers shall take all necessary or
required corporate or other actions (including in respect of the corporate
books and records) and obtain all necessary or required Permits with
respect to its operations in Costa Rica to enable (1) the Company and its
Subsidiaries to enter into this Agreement and consummate the transactions
contemplated by this Agreement and (2) the Company and its Subsidiaries to
own all assets in respect of the Costa Rica operations that they purport to
own and (3) Buyer to take good and marketable title to such Costa Rica
assets through its ownership of the Company after Closing.
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7.2 Insurance. The Company and its Subsidiaries shall use commercially
reasonable efforts to maintain in full force and effect the policies of
insurance of the Company and its Subsidiaries, subject only to variations
required by the ordinary operations of their businesses, or else will obtain,
prior to the lapse of any such policy, substantially similar coverage with
insurers of recognized standing and approved in writing by the Buyer. The
Company shall promptly advise the Buyer in writing of any change of insurer or
type of coverage in respect of the policies of the Company and its Subsidiaries.
7.3 Access, Information and Documents. The Company shall give to Buyer and
to Buyer's counsel, accountants and other representatives full access during
normal business hours to all of the Company's and the Subsidiaries' properties,
books, tax returns, contracts, commitments, records, officers, personnel and
accountants and will furnish to Buyer all such documents and copies of documents
(certified to be true copies if requested) and all information with respect to
the affairs of the Company and the Subsidiaries as Buyer may reasonably request.
7.4 Resignations. At the Closing, the Company will deliver such written
resignations of the Company's and Subsidiary's board of managers, directors and
officers, and of trustees and fiduciaries of the Employee Plans who are Related
Parties, as Buyer shall reasonably request.
7.5 Acquisition Proposals. From the date hereof through the Closing, no
Seller shall sell or otherwise transfer any of the Units owned by him or it to
any other person and neither the Sellers, the Company or any of their
Affiliates, nor any of its or their officers, managers, directors, employees,
representatives or agents, shall, directly or indirectly, solicit, initiate or
participate in any way in discussions or negotiations with, or provide any
information or assistance to, any person or group of persons (other than Buyer)
concerning any acquisition of an equity interest in, or in a merger,
consolidation, liquidation, dissolution, disposition of assets (other than in
the ordinary course of business and as specifically permitted pursuant to this
Agreement) of the Company or any of its Subsidiaries or any disposition of any
of the Securities (other than pursuant to the transactions contemplated by this
Agreement) (each, an "Acquisition Proposal"), or assist or participate in,
facilitate or encourage any effort or attempt by any other person to do or seek
to do any of the foregoing. Sellers shall promptly communicate to Buyer the
terms of any Acquisition Proposal which it or any such other person may receive.
Sellers represent and warrant to, and covenant and agree with, Buyer that none
of the Sellers or the Company or any of their Affiliates has incurred any
obligation to any potential acquirer that would be violated by reason of the
execution, delivery and consummation of this Agreement.
ARTICLE 8
CONDITIONS TO CLOSING; TERMINATION
8.1 Conditions Precedent to Obligations of Buyer. The obligations of Buyer
to proceed with the Closing under this Agreement are subject to the fulfillment
prior to or at Closing of the following conditions (any one or more of which may
be waived in whole or in part by Buyer in Buyer's sole discretion):
(a) Bringdown of Representations and Warranties. The representations
and warranties of the Company contained in this Agreement shall be true and
correct in all
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material respects on and as of the time of Closing, with the same force and
effect as though such representations and warranties had been made on, as
of and with reference to such time (except for representations and
warranties which by their terms are to be true and correct only as of a
specified date prior to the date of this Agreement, which representations
and warranties shall be true and correct in all material respects as of
such specified date), and Buyer shall have received a certificate to such
effect, signed by an executive officer of the Company in his capacity as
such.
(b) Performance and Compliance. The Company and each Seller shall have
performed in all material respects all of the covenants and complied in all
material respects with all of the provisions required by this Agreement to
be performed or complied with by him or it on or before the Closing, and
Buyer shall have received a certificate to such effect, signed by an
executive officer of the Company in his capacity as such.
(c) Satisfactory Instruments. All instruments and documents required
on the Sellers' part to effectuate and consummate the transactions
contemplated hereby shall be delivered to Buyer and shall be in form and
substance reasonably satisfactory to Buyer and its counsel.
(d) Required Consents. All consents and approvals of third parties set
forth on Schedule 8.1(d) hereto shall have been obtained.
(e) Litigation. No order of any court or administrative agency shall
be in effect which restrains or prohibits the transactions contemplated
hereby or which would limit or adversely affect Buyer's ownership or
control of the Company, any Subsidiary of the Company or the business of
the Company or any Subsidiary of the Company, and there shall not have been
threatened, nor shall there be pending, any action or proceeding by or
before any court by a third party or governmental agency or other
regulatory or administrative agency or commission, challenging any of the
transactions contemplated by this Agreement or seeking monetary relief by
reason of the consummation of such transactions, if adversely determined,
could reasonably be expected to have a Material Adverse Effect on the
Company.
(f) Related Party Payables. Any instruments in respect of the Company
payables to Related Parties set forth on Schedule 3.4 not paid in their
entirety at Closing shall be amended to give effect to the payment schedule
set forth on Schedule 3.4.
(g) Lease Amendments. ▇▇▇▇ Partners, L.P. and DHI shall enter into an
amendment to the Lease, dated September 1, 1994, as amended including by
the First Amendment, dated March 21, 2000, by and between ▇▇▇▇ Partners
L.P. and DHI, substantially in the form of Exhibit F hereto.
(h) Consulting and Non-Competition Agreement. ▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
shall have entered into a Consulting and Non-Competition Agreement (the
"Consulting Agreement"), substantially in the form of Exhibit E hereto.
(i) Release. Each Seller shall have executed and delivered a release,
substantially in the form of Exhibit G.
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(j) Approval by Bank; Landlord's Waiver. Fleet Capital Corporation
(the "Bank") shall have approved the consummation of the transactions
contemplated hereby. Sellers shall cause to be executed a landlord's waiver
with respect to the Company's headquarters located at ▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, which landlord's waiver shall be in form and substance
reasonably satisfactory to Sellers.
(k) Resignations. The Sellers shall have delivered the resignations
requested by Buyer pursuant to Section 7.4 hereof.
(l) Termination of Operating Agreement and Other Agreements. The
Sellers and the Company shall have entered into a termination agreement
with respect to the termination of certain agreements substantially in the
form of Exhibit J hereto.
8.2 Conditions Precedent to the Obligations of the Sellers. The obligations
of the Sellers to proceed with the Closing hereunder are subject to the
fulfillment prior to or at Closing of the following conditions (any one or more
of which may be waived in whole or in part by a majority of the Sellers in their
sole discretion):
(a) Bringdown of Representations and Warranties. The representations
and warranties of Buyer contained in this Agreement shall be true and
correct in all material respects on and as of the time of Closing, with the
same force and effect as though such representations and warranties had
been made on, as of and with reference to such time (except for
representations and warranties which by their terms are to be true and
correct only as of a specified date prior to the date of this Agreement,
which representations and warranties shall be true and correct in all
material respects as of such earlier specified date), and Buyer shall have
delivered to the Sellers a certificate, signed by its President or a Vice
President, to such effect.
(b) Performance and Compliance. Buyer shall have performed in all
material respects all of the covenants and complied with in all material
respects all the provisions required by this Agreement to be performed or
complied with by it on or before the Closing, and Buyer shall have
delivered to the Sellers a certificate, signed by its President or a Vice
President, to such effect.
(c) Litigation. No order of any court or administrative agency shall
be in effect which restrains or prohibits the transactions contemplated
hereby, and there shall not have been threatened, nor shall there be
pending, any action or proceeding by or before any court or governmental
agency or other regulatory or administrative agency or commission
challenging any of the transactions contemplated by this Agreement or
seeking monetary relief by reason of the consummation of such transactions.
(d) Satisfactory Instruments. All instruments and documents required
on the part of Buyer to effectuate and consummate the transactions
contemplated hereby shall be delivered to the Sellers and shall be in form
and substance reasonably satisfactory to the Sellers and their counsel.
(e) Required Consents. All consents and approvals of all governmental
departments, agencies, authorities and commissions required for the
transactions contemplated hereby shall have been obtained.
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(f) Termination of Confidentiality Agreement. The Confidentiality
Agreement, dated July 11, 2001 between Centre Partners Management LLC and
Buyer (the "Centre Partners Confidentiality Agreement") shall have been
terminated.
(g) Consulting Agreement. Buyer shall have executed and delivered to
▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇ the Consulting Agreement.
(h) Payoff of ANB Credit Facility. Buyer shall have caused the Company
to pay all outstanding indebtedness of DHI and MSI to American National
Bank Trust Company ("ANB") under the Existing Credit Facility in the amount
set forth on Schedule 3.4 hereto, provided Buyer shall receive a pay-off
letter from ANB at or prior to Closing, substantially in the form of
Exhibit H attached hereto.
8.3 Termination.
(a) When Agreement May Be Terminated. This Agreement may be terminated
at any time prior to Closing:
(i) By mutual consent of Buyer and Sellers;
(ii) By Buyer if there has been a material misrepresentation by
any Seller or a material breach by any Seller of any of their
warranties or covenants, and such breach shall not have been cured
within ten (10) days after notice thereof has been delivered by Buyer
to Sellers, or if any of the conditions specified in Section 8.1
hereof shall not have been fulfilled by the time required and shall
not have been waived by Buyer;
(iii) By Sellers if there has been a material misrepresentation
by Buyer, or a material breach by Buyer of any of its warranties or
covenants, and such breach shall not have been cured within ten (10)
days after notice thereof has been delivered by Sellers to Buyer, or
if any of the conditions specified in Section 8.2 hereof shall not
have been fulfilled by the time required and shall not have been
waived by Sellers;
(iv) By Buyer or Sellers if Closing shall not have occurred prior
to October 19, 2001; provided, however, that neither Buyer nor Sellers
may terminate this Agreement pursuant to this subparagraph (iv) if
such party is in material breach of this Agreement on the date of
termination.
(b) Effect of Termination. In the event of termination of this
Agreement by the Sellers or Buyer, as provided above, this Agreement shall
forthwith terminate and there shall be no liability on the part of the
Company, the Sellers or the Buyer or any of their respective officers,
directors and Affiliates; provided, however, that the obligations of the
parties set forth in Section 9.1 shall survive such termination.
ARTICLE 9
CERTAIN ADDITIONAL COVENANTS
9.1 Costs, Expenses and Taxes. The Sellers (but not the Company) will pay
all costs and expenses, including legal fees and the fees of any broker, in
connection with their
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and (prior to the Closing) the Company's negotiation, performance of and
compliance with this Agreement, and all transfer, documentary and similar taxes
in connection with the delivery of the Units to be made hereunder. Buyer will
pay all costs and expenses, including legal fees, of Buyer's negotiation,
performance of and compliance with this Agreement.
9.2 Indemnification By Sellers.
(a) Extent of Indemnity. Except as set forth in Section 9.5(f), from
and after the Closing, each Seller hereby severally agrees to indemnify and
hold harmless Buyer and its officers, directors, stockholders, and
employees (each, a "Buyer Indemnitee") from and against:
(i) any and all Damages (as defined below) of or to Buyer, the
Company or of any Subsidiary of the Company arising out of or
resulting from any misrepresentation, breach of warranty or
nonfulfillment of any agreement on the part of the Sellers or, at or
prior to the Closing, the Company contained in this Agreement or in
any certificate furnished to Buyer pursuant to Section 8.1(a) or
Section 8.1(b) hereof;
(ii) any and all Damages of the Company, any Subsidiary of the
Company or Buyer arising out of or resulting from the bankruptcy
proceedings of MSI (case #94B86) including under the Home Run
Provisions in the Composition Agreement, dated April 1996, by and
between Mother's Stores, Inc. and the Official Committee of Unsecured
Creditors as appointed by the United States Trustee in case #94B86;
(iii) any and all Damages of the Company, any Subsidiary of the
Company or Buyer arising out of or resulting from the termination by
DHI in accordance with Section 4 of the Sponsorship Agreement, dated
July 2000, by and between iVillage Inc. and DHI d/b/a ▇▇▇▇▇▇▇▇▇▇.▇▇▇
and ▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ (the "Sponsorship Agreement"), other than Damages
arising from the failure of DHI or Buyer to give notice of such
termination 60 days before the third anniversary of the Launch Date
(as defined in the Sponsorship Agreement) in accordance with Section 4
thereof and, if iVillage objects to such notice before the third
anniversary of the Launch Date, failure of Buyer or DHI shall give a
second termination on the third anniversary of the Launch Date (or as
promptly as possible after iVillage objects to such termination if the
notice of objection from iVillage is delivered after the third
anniversary of the Launch Date); and
(iv) any and all Damages of or to Buyer, the Company or any
Subsidiary of the Company relating to any of the matters set forth on
Schedule 9.2(a) hereto ("Costa Rica and U.S. Customs Duties Matters").
For purposes of this Agreement, "Damages" shall mean any and all losses,
liabilities, claims, demands, damages (including any governmental penalty or
punitive damages, but only to the extent awarded to any third party or assessed
against or imposed on any party seeking indemnification hereunder),
deficiencies, diminution in value (without giving effect to any multiple in the
calculation thereof), interest, costs and expenses and any actions, judgments,
costs and expenses (including attorneys' fees and all other reasonable expenses
incurred in investigating, preparing or defending any litigation or proceeding,
commenced or threatened
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incident to the enforcement of this Agreement), provided, however, that Damages
shall (i) not include any punitive damages or lost profits of Buyer (including
its Subsidiaries) other than as set forth above, (ii) be reduced to take into
account amounts received, or to be received (pursuant to an unconditional
obligation), by the damaged party from a third party, and (iii) not include any
fees and expenses incurred in investigating, or preparing for, any claim for
which an Indemnitor is not entitled to be indemnified because of the limitations
on indemnification set forth herein or for any other reason or for which no
claim for indemnification is made. Notwithstanding anything else to the contrary
set forth in this Agreement (x) subject to Section 9.5(f) hereof, no Seller
shall be liable to pay any Damages in respect of any indemnification obligation
in excess of such Seller's Pro Rata Percentage and (y) no Seller shall have any
liability for any Damages in connection with, arising out, or related to any of
the matters or issues set forth on Schedule 9.2(b) attached hereto (it being
understood that the matters and issues set forth on Schedule 9.2(b) were taken
into account by the parties in determining the Merger Consideration to be paid
to the Sellers). No Buyer Indemnitee shall be entitled to recover more than once
for the same Damages. The obligation of any party to make an indemnification
payment hereunder shall arise only after the earlier of (i) the indemnifying
party has agreed in writing that it is obligated to make the indemnification
payment and (ii) the date that a final determination has been made by a court of
competent jurisdiction or other dispute resolution panel that is convened by the
parties hereto that the indemnified party is obligated to make such indemnity
payment.
(b) Satisfaction of Indemnification Obligations. Subject to Section
9.2(c) hereof, all payments for indemnification claims by a Seller shall be
satisfied by delivery by the indemnifying Seller to the Buyer Indemnitee of
a number of Series C Preferred Shares with aggregate Stated Value (as
defined in the Certificate of Designation) plus accrued but unpaid
dividends equal to the indemnification obligation that such Seller is
required to satisfy. In the event that the certificate representing the
Series C Preferred Shares being tendered in satisfaction of such
indemnification obligation evidences a number of Series C Preferred Shares
in excess of the Series C Preferred Shares required to be tendered in
connection with such indemnification obligation (the "Difference"), the
Buyer shall simultaneously deliver to the indemnifying Seller a certificate
evidencing a number of Series C Preferred Shares equal to the Difference.
Without limiting the limits on indemnification set forth herein or the
generality of the foregoing, each Buyer Indemnitee's sole recourse (other
than as set forth in Section 9.2(c)) for any amounts due and payable with
respect to any indemnification obligation shall be against the Series C
Preferred Shares (including accrued and unpaid dividends thereon) and
subject to Section 9.2(c) hereof, the Buyer agrees that neither it nor any
Buyer Indemnitee shall pursue any other assets of any Seller in
satisfaction of any indemnification obligation and neither the Buyer nor
any Buyer Indemnitee nor any of their respective Affiliates may look to any
Seller's direct or indirect partners or any of their Affiliates, officers,
directors or employees for satisfaction of any indemnification obligations
hereunder.
(c) Certain Exceptions. If any Seller no longer holds a sufficient
number of outstanding Series C Preferred Shares to satisfy such Seller's
indemnification obligations for any indemnification claim, then such Seller
shall satisfy such indemnification obligation to a Buyer Indemnitee in
cash. Notwithstanding the foregoing, in no event shall any Seller's
aggregate cash indemnification obligations pursuant to this Section 9.2(c)
exceed the aggregate cash proceeds received by such Seller in respect of a
repurchase by Buyer of such Seller's Series C Preferred Shares.
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9.3 Indemnification by Buyer. From and after the Closing, Buyer hereby
agrees to indemnify and hold harmless the Sellers from and against any Damages
arising out of or resulting from any misrepresentation, breach of warranty or
nonfulfillment of any agreement on the part of Buyer (and, for any
non-fulfillment of any agreement to be performed after the Closing on the part
of the Company or its Subsidiaries) contained in this Agreement or in any
certificate furnished to the Sellers pursuant to Section 8.2(a) or Section
8.2(b) hereof.
9.4 Procedure for Claims.
(a) The provisions of this Section 9.4 shall govern any claim for
indemnification by a Buyer Indemnitee pursuant to Section 9.2 or by any
Sellers pursuant to Section 9.3 (each such indemnified party an
"Indemnitee") against any Sellers pursuant to Section 9.2 or against Buyer
pursuant to Section 9.3 (the "Indemnitor").
(b) Each Indemnitee agrees to provide Indemnitor prompt written notice
of any claim, assertion, event or proceeding concerning any Damages as to
which it may request indemnification hereunder (the "Indemnification
Notice"); provided, however, that failure to notify Indemnitor shall not
relieve Indemnitor of its indemnity obligation, except to the extent
Indemnitor is actually prejudiced in its defense of the action by such
failure. In connection with any third party claim which may give rise to
indemnification by Indemnitor for any Damages resulting from or arising out
of any claim or legal proceeding by a person other than the parties hereto
(a "Third Party Claim"), the Indemnitor, at the sole cost and expense of
the Indemnitor, may, after receiving the Indemnification Notice and at any
time prior to the resolution of such Third Party Claim, upon written notice
to the Indemnitee, assume the defense of any such Third Party Claim if: (i)
Indemnitor (which, in the case of any claim pursuant to Section 9.2, shall
mean all Sellers) acknowledges in writing the obligation of Indemnitor to
indemnify fully the Indemnitee pursuant to Section 9.2 or 9.3, as
applicable, subject to the limitations of Section 9.5, with respect to such
Third Party Claim and (ii) the Third Party Claim involved seeks (and
continues to seek) solely monetary damages (clauses (i) and (ii) are
collectively referred to as the "Litigation Conditions"). Notwithstanding
the foregoing, in respect of Third Party Claims involving any Special
Indemnifiable Item (as defined in Section 9.5(b) hereof) involving both
non-monetary damages and monetary damages, the Indemnitor shall have the
right, at its sole cost and expense, to assume the defense of such Third
Party Claim, provided Indemnitor satisfies Litigation Condition in clause
(i), and Indemnitor consults and confers with Indemnitee on a regular basis
in respect of such claim. The Indemnitee shall be entitled to participate
in any Third Party Claim at its own expense after such assumption of any
Third Party Claim by Indemnitor as provided in this Section 9.4.
Notwithstanding the preceding two sentences, in the event of any Third
Party Claim for an amount in excess of the remaining aggregate liability of
Indemnitor under Section 9.5(c) hereof, such Third Party Claim shall be
jointly defended by Indemnitor and Indemnitee. Upon assuming defense of any
Third Party Claim in accordance with this Section 9.4, Indemnitor shall
agree to be fully responsible for, and to pay, the entire amount of any
monetary judgment or settlement such Indemnitor would be obligated to pay
pursuant to Section 9.2 or 9.3, as applicable, subject to the limitations
of Section 9.5. Indemnitor shall not consent to a settlement of, or the
entry of any judgment arising from, any such claim or legal proceeding
without the prior written consent of the Indemnitee (which consent shall
not be unreasonably withheld or delayed). Indemnitor shall not, without the
prior written consent of the Indemnitee, enter into any compromise or
settlement
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which commits the Indemnitee to take, or to forbear to take, any action.
Indemnitee shall provide Indemnitor with access to its records and
personnel relating to any such Third Party Claim during normal business
hours and shall otherwise cooperate with Indemnitor in the defense or
settlement thereof, and Indemnitor shall reimburse Indemnitee for all its
reasonable out-of-pocket-expenses in connection therewith. If Indemnitor
elects to direct the defense of any such Third Party Claim, Indemnitee
shall not pay, or permit to be paid, any part of any claim or demand
arising from such asserted Damages unless (A)Indemnitor consents in writing
to such payment, (B) Indemnitor withdraws from the defense of such asserted
Damages, or (C) a final judgment from which no appeal may be taken by or on
behalf of Indemnitor is entered against Indemnitee for such Damages. If
Indemnitor shall fail to defend a Third Party Claim, or if after commencing
or undertaking any such defense to a Third Party Claim, fail to prosecute,
or withdraw from such defense to a Third Party Claim, Indemnitee shall have
the right to undertake the defense or settlement thereof, at Indemnitor's
expense. Indemnitee shall have the right to defend a Third Party Claim
prior to Indemnitor assuming the defense of such claim in accordance with
the terms of this Section 9.4 and all expenses reasonably incurred by
Indemnitee in such defense shall constitute indemnifiable Damages.
(c) In the event that the Sellers receive Indemnification Notice
pursuant to Section 9.4(b) of any Third Party Claim and elect not to or
otherwise decline to assume defense of any Third Party Claim for which
Buyer has delivered an Indemnification Notice, Buyer shall take all actions
reasonably necessary such that Sellers may, at their election and expense,
participate in the defense of such Third Party Claim to the extent that any
Seller may request. Without limiting the generality of the foregoing, (i)
Buyer shall use all reasonable efforts to schedule all meetings,
conferences and discussions regarding such Third Party Claim at a time
when, and in place where, Sellers can participate, (ii) Buyer shall cause,
during normal business hours on reasonable advance notice, to be retained
and made available to Sellers as and when requested by any Seller in
connection with such Third Party Claim (x) all information in the
possession of or obtained by Buyer or any of its Subsidiaries and (y)
personnel of the Buyer and its Subsidiaries with knowledge or information
thereof and (iii) Buyer shall give Sellers reasonable advance notice of the
terms of any proposed settlement of such Third Party Claim, including the
proposed date for settlement.
9.5 Certain Limitations.
(a) Exclusive Remedy. Except where a party is entitled to specific
performance or other equitable remedies, the indemnification provisions set
forth in this Article 9 constitute the sole and exclusive remedies of the
parties with respect to Damages arising out of this Agreement, and shall
preclude the assertion of other rights or remedies for claims arising out
of this Agreement.
(b) Time Limit on Certain Indemnification Claims. No action or claim
for Damages shall be brought against any Seller or made against any Seller
after January 31, 2003, except that such time limitation shall not apply to
(i) (A) claims for breaches of the representations and warranties set forth
in Section 4.10 (Taxes) or (B) a claim in respect of any Costa Rica and
U.S. Customs Duties Matter ((A) and (B) together shall constitute the
"Special Indemnifiable Items") or claims under Section 9.2(a)(ii), which
may be asserted until the third anniversary of the Closing, or (ii) claims
under Section 9.2(a)(iii) which may be asserted until
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July 31, 2005 or (iii) any claims which have been the subject of a written
notice from a Buyer Indemnitee to the Sellers prior to the applicable
expiration date set forth above, which notice specifies in reasonable
detail the nature of the claim (which claims shall survive until resolution
or settlement thereof) or (iv) covenants which by their terms require
performance by such party after January 31, 2003.
(c) Limitations on Sellers' Liability. Subject to Section 9.5(d)
hereof, no Buyer Indemnitee shall be entitled to indemnification from any
Seller for Damages unless the cumulative total of all Damages exceeds Two
Hundred Fifty Thousand Dollars ($250,000) (the "Basket") and then only to
the extent of such excess; provided that Buyer Indemnitees shall be
entitled to indemnification under Sections 9.2(a)(ii) and (iii) hereof from
the first dollar of Damages for which they are entitled to indemnification
without regard to the Basket. Subject to Section 9.5(d) hereof, the maximum
aggregate liability of the Sellers for Damages of the Buyer Indemnitees
shall not exceed Three Million Five Hundred Thousand Dollars ($3,500,000);
provided, however, that in respect of any Damages for Special Indemnifiable
Items, the maximum aggregate liability of Sellers for such Special
Indemnifiable Items shall not exceed Five Million Dollars ($5,000,000)
(exclusive of the maximum liability for all other claims).
(d) Certain Matters Excluded. Notwithstanding anything to the contrary
in Section 9.2 or this Section 9.5, no limitation of liability provided in
this Section 9.5 shall apply to a particular party for any breach by such
party that constitutes fraud.
(e) Limitations on Buyer's Liability. Subject to Section 9.5(d)
hereof, Sellers shall not be entitled to indemnification from Buyer for
Damages from breaches of representations and warranties unless the
cumulative total of all such Damages exceeds Two Hundred Fifty Thousand
Dollars ($250,000) and then only to the extent of such excess. Buyer's
maximum aggregate liability for Damages from breaches of representations
and warranties by Buyer shall not exceed Three Million Five Hundred
Thousand Dollars ($3,500,000).
(f) Joint and Several Liability. Notwithstanding anything to the
contrary contained herein, if Buyer is unable, after exercising
commercially reasonable efforts, to collect indemnification obligations
from any Seller in accordance with its or his Pro Rata Percentage, then
Buyer may collect any unpaid indemnification obligations due from (i) any
of ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, as Trustee of The ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇ Trust, or Maternity Holding Corporation (each a "▇▇▇▇▇▇
Indemnitor") from any other ▇▇▇▇▇▇ Indemnitor or (ii) any of Centre Capital
Investors, III L.P., Centre Capital Investors III, L.P., Centre Capital
Individual Investors III, L.P., Centre Capital Tax-Exempt Investors III,
L.P., Centre Capital Offshore Investors III, L.P., Centre Partners
Coinvestment III, L.P. (each a "Centre Partners Indemnitor") from any other
Centre Partners Indemnitor.
9.6 Adjustments to Purchase Price. Amounts payable in respect of the
indemnification obligations under Sections 9.2 and 9.3 hereof shall be treated
by Sellers and Buyer as adjustments to the Merger Consideration.
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9.7 Covenant Not to Compete; Confidentiality.
(a) None of the Sellers nor any controlled Affiliate of any Seller
shall, for the period commencing on the Closing Date and ending on the
second anniversary following the Closing Date, (i) own, manage, operate,
control, or participate in the ownership, management or control of, or
engage in or offer to engage in, directly or indirectly, as proprietor,
partner, shareholder (other than ownership of not more than ten percent
(10%) of any class of securities of a publicly traded entity which engages
in a Competing Activity, provided such Seller or its affiliate does not
participate in the management, operation or control of such entity),
director, officer, executive, member, manager, employee, agent, creditor,
consultant, joint venturer, investor or in any other capacity or manner
whatsoever, the business of manufacturing, designing or selling maternity
apparel anywhere in the world (any activity referred to in Section
9.7(a)(i) being a "Competing Activity") (provided, that any entity which
derives less than five percent (5%) of its consolidated revenues from the
business of manufacturing, designing or selling maternity apparel shall be
deemed not to be engaged in a Competing Activity), or (ii) directly or
indirectly as proprietor, partner, shareholder, director, officer,
executive, member, manager, employee, agent, creditor, consultant, joint
venturer, investor or in any other capacity or manner whatsoever, solicit
or hire (in connection with or to be involved in any Competing Activity)
any person employed as an officer or senior executive by the Company, or
any of its Subsidiaries or Buyer or any subsidiary of Buyer.
(b) Each Seller acknowledges that given the nature of the Company's
and the Subsidiaries' businesses the covenants contained in this Section
9.7 contain reasonable limitations as to time, geographical area and scope
of activity to be restrained, and do not impose a greater restraint than is
necessary to protect and preserve for the benefit of Buyer the goodwill of
the Company's and its Subsidiaries' businesses and to protect the
legitimate business interests of Buyer. If, however, this Section 9.7 is
determined by any court of competent jurisdiction to be unenforceable by
reason of its extending for too long a period of time or over too large a
geographic area or by reason of its being too extensive in any other
respect or for any other reason it will be interpreted to extend only over
the longest period of time for which it may be enforceable and/or over the
largest geographical area as to which it may be enforceable and/or to the
maximum extent in all other aspects as to which it may be enforceable, all
as determined by such court and in such action.
(c) No Seller shall agree to divulge, communicate or use in any way,
in whole or in part, any proprietary or confidential information or trade
secrets related to the Company or any of their respective Subsidiaries as
they may exist from time to time. Each Seller acknowledges that the list of
Buyers', the Company's or any of their respective Subsidiaries' customers
as it may exist from time to time, and Buyers', the Company's and their
respective Subsidiaries' proprietary or confidential information, and trade
secrets, are valuable, special and unique assets of Buyer, the Company and
their respective Subsidiaries. Each Seller acknowledges and agrees that any
information or data it or he has acquired on any of these matters or items
was received in confidence. Each Seller agrees to hold, as the property of
the Company and their respective Subsidiaries, all memoranda, books,
papers, letters and other data and all copies thereof or therefrom, made by
it or him or otherwise coming into is or his possession which relates to
Buyer, the Company or any Subsidiary of Buyer of the Company, and at any
time to deliver the same to Buyer upon its demand. The obligation of any
Seller under
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this Section 9.7 shall not apply to information which is or becomes
generally available to the public without breach of the commitment provided
for in this Section 9.7. Notwithstanding the foregoing, in the event any
Seller is requested or required by law to disclose any proprietary or
confidential information or trade secrets, such Seller shall provide Buyer
with prompt written notice of any such request or requirement so that Buyer
may seek a protective order or other appropriate remedy and/or waive
compliance with the provisions of this Section. If in the absence of a
protective order or other remedy or the receipt of a waiver by Buyer, such
Seller is nonetheless legally compelled to disclose confidential
information to any tribunal or else stand liable for contempt or suffer
other censure or penalty, such Seller may, without liability hereunder,
disclose to such tribunal only that portion of the confidential information
which such Seller is legally required to disclose, provided that such
Seller exercises its best efforts to preserve the confidentiality of the
confidential information, including, without limitation, by cooperating
with Buyer to obtain an appropriate protective order or other reliable
assurance that confidential treatment (at Buyer's expense) will be accorded
the confidential information by such tribunal.
(d) The provisions of this Section 9.7 shall not apply to ▇▇▇▇▇ ▇▇▇▇▇▇
(see covenants in Consulting Agreement).
9.8 Public ▇▇▇▇▇▇▇▇▇▇▇▇.▇▇ party hereto shall make or issue, or cause to be
made or issued, any public announcement or written statement concerning this
Agreement or the transactions contemplated hereby (except to the respective
directors and officers of Buyer and the Company) without the prior written
consent of the other party or as required by applicable law or NASD rules.
9.9 Mutual Covenants. The parties mutually covenant from the date of this
Agreement to the Closing Date:
(a) to cooperate with each other in determining whether filings are
required to be made or consents required to be obtained in any jurisdiction
in connection with the consummation of the transactions contemplated by
this Agreement and in making or causing to be made any such filings
promptly and in seeking to obtain timely any such consents;
(b) to use all reasonable efforts to obtain promptly the satisfaction
(but not waiver) of the conditions to the Closing of the transactions
contemplated herein. Each party hereto shall furnish to the other and to
the other's counsel all such information as may be reasonably required in
order to effectuate the foregoing action; and
(c) to advise the other party promptly if such party determines that
any condition precedent to its obligations hereunder will not be satisfied
in a timely manner.
9.10 Board Observer. From the day after the Closing Date until the earlier
to occur of (a) the fifth anniversary of the Closing Date (or such later date if
the holders of Series C Preferred Shares elect to nominate a Board Observer (as
hereinafter defined) as opposed to assuming a seat on the Board of Directors
during a Put Option Default Period as defined in the Certificate of
Designation), or (b) the date on which 80% (by stated value) of the Series C
Preferred Shares have been redeemed, the Sellers as a group shall be entitled to
designate one
-41-
representative (the "Board Observer") to attend as an observer (and not a
participant) all meetings of the Board of Directors of Buyer held during such
period. Buyer shall provide the Board Observer with notice of all such meetings
at the same time and in the same manner as other directors and with all written
materials given to directors in connection with such meetings. Buyer shall
reimburse the Board Observer for reasonable expenses incurred by Board Observer
consistent with Buyers' policy on reimbursing directors for similar expenses.
9.11 Amendment of Rights Agreement. Not later than five Business Days after
Closing, Buyer shall amend the Amended and Restated Rights Agreement, dated
March 17, 1997, as amended, by and between Buyer and Stock Trans, Inc. (the
"Rights Agreement") to permit Centre Partners Management LLC to (i) purchase up
to 400,000 shares of Buyer Common Stock in open market transactions within two
years after Closing, (ii) to exercise its Warrants and (iii) exercise conversion
rights as provided in the Certificate of Designation in each case without being
deemed an "Acquiring Person" under the Rights Agreement.
9.12 Offer to Purchase.
(a) At any time after Closing, subject to the delivery by facsimile
and reputable overnight courier service to the holders of Series C
Preferred Shares then outstanding a notice (a "Notice of Offer to
Purchase"), Buyer may make a bona fide offer to purchase for cash (an
"Offer to Purchase") some (on a pro rata basis among all holders of Series
C Preferred Shares then outstanding) or all of the Series C Preferred
Shares then outstanding. In addition, at any time following Closing, Buyer
may deliver by facsimile and overnight courier to the holders of the Series
C Preferred Shares then outstanding a notice (the "Notice of Qualifying
Offer to Purchase") that Buyer is irrevocably offering to purchase all of
the Series C Preferred Shares then outstanding for cash (a "Qualifying
Offer to Purchase") at a price per share equal to the Stated Value (as
defined in the Series C Certificate of Designation), plus all accrued and
unpaid dividends thereon, such dividends to accrue and be computed through
the date of the Qualifying Offer to Purchase Expiration Date (as defined
below) (the "Qualifying Offer Price"). The Notice of Offer to Purchase
shall specify the offer price per share of Series C Preferred Stock then
outstanding, the date on which the Offer to Purchase expires (the "Offer to
Purchase Expiration Date") which date shall be not fewer than seven (7) and
not more than ten (10) days thereafter, and any other material terms and
conditions of the Offer to Purchase. The Notice of Qualifying Offer to
Purchase shall specify the date on which the Qualifying Offer to Purchase
expires (the "Qualifying Offer to Purchase Expiration Date"), which date
shall be not fewer than seven (7) nor more than ten (10) days thereafter.
The Notice of Offer to Purchase and Notice of Qualifying Offer to Purchase
shall each specify the procedures for tendering shares to be followed by
the holders of Series C Preferred Shares then outstanding, which procedures
shall be reasonable (including the giving of sufficient advance notice of
such Offer to Purchase or Qualifying Offer to Purchase such that the
holders of Series C Preferred Shares could reasonably comply with such
terms, including the tender of Series C Preferred Shares on or before the
Offer to Purchase Expiration Date or the Qualifying Offer to Purchase
Expiration Date).
(b) If at least a majority of the Series C Preferred Shares then
outstanding have been tendered on the Qualifying Offer to Purchase
Expiration Date in accordance with the terms of the Notice of Qualifying
Offer to Purchase, then all non-tendering holders of Series C Preferred
Shares then outstanding shall promptly tender their Series C
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Preferred Shares in such Qualifying Offer to Purchase. If fewer than a
majority of the Series C Preferred Shares then outstanding shall have been
tendered on the Qualifying Offer to Purchase Expiration Date in accordance
with the terms of the Notice of Qualifying Offer to Purchase, then Buyer
may declare an event of default (the "Qualifying Offer to Purchase Event of
Default") by notice to all of the holders of Series C Preferred Shares then
outstanding that less than a majority of Series C Preferred Shares then
outstanding have been tendered. Following a Qualifying Offer to Purchase
Event of Default, Buyer shall have each the following remedies, the
exercise of any of which shall not preclude the exercise of any other
remedy listed below:
(i) Buyer shall accept and pay for those Series C Preferred
Shares which have been tendered in accordance with the terms of the
Notice of Qualifying Offer to Purchase (the "Purchased Shares");
provided, however, that Buyer shall not be obligated to purchase such
shares if Buyer's financing for such Qualifying Offer to Purchase
includes a condition that Buyer purchase at least a majority of the
outstanding Series C Preferred Shares in such Qualifying Offer to
Purchase;
(ii) Buyer may, by written notice, terminate all of the Warrants
then outstanding (other than Warrants held by any holder of Purchased
Shares) without payment or liability therefor, on the part of Buyer,
and upon receipt of such notice of termination, each holder of
Warrants shall promptly deliver said Warrants to Buyer to be marked
cancelled; provided, however, that, if any Warrants have been
exercised by a holder (other than Warrants exercised by any holder of
Purchased Shares) then Buyer may demand by written notice that all
Warrant Shares held by such holder shall immediately be delivered to
Buyer without any payment or liability therefor on the part of Buyer,
and following receipt of such notice, such holder shall promptly
deliver such Warrant Shares to Buyer; and provided, further, that, if
any Warrant Shares have been sold by such holder (other than Warrant
Shares sold by any holder of Purchased Shares) then Buyer may, by
written notice, declare that all accrued and unpaid dividends of such
holders of Series C Preferred Shares then outstanding shall be
forfeited without any payment or liability therefor on the part of
Buyer, and that all dividends accruing after such date of forfeiture
on all Series C Shares then outstanding held by such holder shall also
be forfeited without any payment or liability therefor on the part of
Buyer, provided, that, if it is determined that such dividends cannot
be retrospectively or prospectively forfeited, then such holder shall
be obligated to repay any such dividends and Buyer shall be entitled
to reduce any obligations it has to such holder by the amount of such
holder's obligations to Buyer in respect of such dividends;
(iii) the operational covenants in Section 9.14 hereof (other
than Section 9.14(d)) shall automatically terminate and thereafter be
of no further force or effect, without any liability therefor on the
part of Buyer; and
(iv) the Put Option Date (as defined in the Certificate of
Designation) shall automatically be extended for an additional five
years.
(c) Once tendered and purchased by Buyer pursuant to a Notice of Offer
to Purchase or Notice of Qualifying Offer to Purchase, all such shares of
Series C Preferred Stock shall be cancelled and not subject to reissuance.
Upon the payment of the offer price or Qualifying Offer Price, as
applicable, all of the holder's rights in such Series C Preferred
-43-
Shares shall cease and terminate, and such shares shall no longer be deemed
outstanding, whether or not the certificates representing such shares have
been received by Buyer.
(d) Each Seller acknowledges and agrees that, until the Put Default
Date, the Warrants are non-detachable from the Series C Preferred Shares,
and may not be transferred separately from the Series C Preferred Shares.
Prior to the Put Default Date, no holder of Series C Preferred Shares or
Warrants may transfer such Series C Preferred Shares or Warrants unless and
until the proposed transferee of such Series C Preferred Shares or Warrants
has executed a written instrument, in form and substance satisfactory to
Buyer, to the effect that such transferee agrees to be bound by the
applicable provisions and restrictions in Sections 9.12, 9.13 and 9.14.
9.13 Irrevocable Proxies.
(a) At Closing, each Seller shall execute and deliver to the corporate
secretary of Buyer an irrevocable proxy, substantially in the form of
Exhibit I-1 hereto (the "Warrant Shares Proxy").
(b) At Closing, Centre Partners will execute and deliver to the
corporate secretary of Buyer an irrevocable proxy (the "Open Market Shares
Proxy"), substantially in the form of Exhibit I-2 hereto.
9.14 Operational Covenants. Subject to Section 9.12(b)(iii) hereof, without
a vote of the majority of the holders of the Series C Preferred Shares then
outstanding, Buyer shall not:
(a) authorize, issue or enter into any agreement providing for the
issuance (contingent or otherwise) of (i) any capital stock or other equity
securities (or any debt or securities convertible into or exchangeable for
any capital stock or other equity securities) which are senior to or on a
parity with the Series C Preferred Shares with respect to the payment of
dividends, redemption or distributions upon liquidation or otherwise or
(ii) any additional shares of Series C Preferred Shares;
(b) become subject to, or permit any of its Subsidiaries to become
subject to, (including, without limitation, by way of amendment to or
modification of) any agreement or instrument which by its terms would
restrict or impair the Company's right to perform the provisions of the
Certificate of Designation (including, without limitation, provisions
relating to the declaration and payment of dividends on, and the making of
repurchases pursuant to the Put Option or Call Option (as defined in the
Certificate of Designation) of, the Series C Preferred Shares), provided,
however, that Buyer may enter any Senior Debt (as defined in the
Certificate of Designation) agreement or instrument if prior thereto Buyer
shall have used its best efforts to limit or eliminate any such
restrictions in such Senior Debt agreement or instrument, and such efforts
were unable to implement such limitation or restriction;
(c) redeem any shares of Series A Preferred Stock then outstanding
unless Buyer makes an Offer to Purchase the Series C Preferred Shares on a
pari passu basis with redemption of such shares of Series A Preferred Stock
and Series C Preferred Shares in
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proportion to the total amount outstanding (stated value plus accrued
dividends) of each such series;
(d) redeem, purchase or otherwise acquire directly or indirectly
(including through a Subsidiary) any Junior Stock (as defined in the
Certificate of Designation) (other than (i) repurchases of not more than 5%
of Buyer Common Stock from present or former employees or consultants of
Buyer or its Subsidiaries upon termination of employment or consultancy in
accordance with arrangements approved by Buyer's Board of Directors or (ii)
open market purchases of Buyer Common Stock, in accordance with applicable
securities laws and with the terms of existing Senior Debt (as defined in
the Certificate of Designation) agreements, but only to the extent that,
after giving effect to such open market purchases, in management's good
faith judgment based on projected operating results, Buyer would be able to
pay cash dividends to Sellers as provided under Section 2(B) of the
Certificate of Designation, provided, that Buyer shall not be entitled to
make such open market purchases during any period in which there are cash
dividends in arrears under the Certificate of Designation); or
(e) consummate, or agree to consummate, any Change in Ownership or
Fundamental Change (each as defined in the Certificate of Designation),
unless in connection therewith or as a condition to the consummation
thereof, the Company repurchases all Series C Preferred Shares then
outstanding in cash at a price per share equal to the Stated Value (as
defined in the Certificate of Designation) thereof plus all accrued and
unpaid dividends thereon.
9.15 Officer and Director Indemnification. For a period of six (6) years
after the Closing, the Buyer shall not, and shall not permit the Company or any
of its Subsidiaries to, amend, repeal or modify any provision in the Company's
or any of its Subsidiaries' operating agreements (including, without limitation,
the Operating Agreement), certificate of incorporation or bylaws relating to the
exculpation or indemnification of former officers, directors and managers
(unless required by law), it being the intent of the parties that the officers,
directors and managers of the Company and its Subsidiaries prior to the Closing
shall continue to be entitled to such exculpation and indemnification to the
fullest extent permitted under applicable law; provided, however, that
notwithstanding the foregoing, the Company and its Subsidiaries may be merged
with one or more Persons so long as substantially equivalent exculpation and
indemnification provisions are maintained, and provided, further, that under no
circumstances shall any indemnification obligation of any Seller under this
Agreement be limited by the foregoing indemnity provisions.
9.16 Access. After the Closing, Buyer shall provide, and shall cause its
Affiliates to provide, during normal business hours and upon reasonable advance
notice, the Sellers with such assistance and access as they may reasonably
request in connection with the preparation of Tax Returns required to be filed,
any audit or other examination by or communication with any governmental
authority relating to Taxes or customs duties, any judicial or administrative
proceedings relating to liability for Taxes or customs duties, or any claim for
refund in respect of Taxes. Such assistance shall include making employees
available, during normal business hours and upon reasonable advance notice, to
the Sellers and their counsel, providing additional information and explanation
of any material to be provided, furnishing to or permitting the copying by the
Sellers or their counsel of any records, returns, schedules, documents, work
papers or other relevant materials which might reasonably be expected to be
-45-
used in connection with such return, audit, examination, proceeding or claim.
The Sellers will reimburse the Buyer for any out of pocket costs reasonably
incurred in providing such assistance. Except to the extent performance
hereunder would violate applicable law, Buyer shall, prior to contacting or
responding to any governmental Person (or permitting one of its Subsidiaries to
contact or respond to any governmental Person) in respect of a matter relating a
Special Indemnifiable Item, provide notice to and confer with Sellers as to the
reasons for and nature of such contact or response, and, if Sellers acknowledge
liability for such matter, Sellers may assume control of such matter in
accordance with Section 9.4(b) hereof, or if Sellers do not acknowledge
responsibility for such matter, Sellers may participate in accordance Section
9.4(c) hereof. The Buyer will, and will cause its Subsidiaries to, retain for a
period of five (5) years after the Closing Date, and upon the reasonable request
of the Sellers, provide, any records or information which may be relevant to
such reporting, return, audit, examination, proceeding or claim.
ARTICLE 10
MISCELLANEOUS
10.1 Nature and Survival of Representations. The representations,
warranties, covenants and agreements of Buyer, the Sellers and the Company
contained in this Agreement, and in any certificate furnished pursuant to
Sections 8.1(a), 8.1(b), 8.2(a) and 8.2(b) of this Agreement, shall be deemed to
constitute representations, warranties, covenants and agreements of the
respective party delivering the same. All such representations, warranties,
covenants and agreements shall survive the Closing indefinitely subject to
Section 9.5(b). Except with respect to the representation and warranty of Buyer
set forth in Section 6.13 hereof, each party acknowledges that its
representations and warranties and covenants in this Agreement shall not be
affected or mitigated by any investigation conducted by the other parties hereto
or their representatives prior to Closing or any knowledge of such party.
10.2 Knowledge. All references in this Agreement to any Person's knowledge
respecting a particular matter shall conclusively be deemed and presumed to
include, without limitation, all facts, circumstances and conditions known to
the senior executive officers and general managers of such Person and its
Subsidiaries (and in the case of the Company or any Subsidiaries, the Sellers)
regarding such matter.
10.3 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered, telefaxed (with confirmation of transmission) or, if
mailed, when mailed by overnight courier by a reputable service or United States
first-class, certified or registered mail, postage prepaid, to the other party
at the following addresses (or at such other address as shall be given in
writing by any party to the other):
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If to Buyer, to:
Mothers Work, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
Telefax: 215.625.6931
With a required copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Telefax: ▇▇▇.▇▇▇.▇▇▇▇
If to the Company before closing, to:
eSpecialty Brands, LLC
▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Telefax: 773.777.0057
With a required copy to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telefax: 312.861.2200
and
Centre Partners Management LLC
▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telefax: 212.332.5801
If to any Seller, to the address of such Seller
set forth on Schedule I hereto
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With a required copies to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telefax: 312.861.2200
Weil, Gotshal & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇, Esq.
Telefax: 713.224.9511
10.4 Successors and Assigns. No party shall assign this Agreement or any
rights hereunder or delegate any obligations hereunder, without the prior
written consent of the other parties. Subject to the foregoing, this Agreement,
and all rights and powers granted hereby, will bind and inure to the benefit of
the parties hereto and their respective successors and assigns.
10.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware without giving effect
to principles of conflicts of laws. The parties hereto agree that the federal
and state courts located in the State of Delaware shall constitute the exclusive
jurisdiction and venue for purposes of any dispute arising under or regarding
this Agreement.
10.6 Headings; Interpretation. The headings preceding the text of the
sections and subsections hereof are inserted solely for convenience of reference
and shall not constitute a part of this Agreement, nor shall they affect its
meaning, construction or effect. The parties agree that any rule of law or any
legal decision that would require interpretation of any claimed ambiguities in
this Agreement against the party that drafted it has no application and is
expressly waived. As used herein the term "including" shall mean "including
without limitation." The specification of any dollar amount in the
representations and warranties contained in this Agreement or the inclusion of
any specific item in the disclosure schedules is not intended to imply that such
amounts, or higher or lower amounts, or the items so included or other items,
are or are not required to be disclosed or are within or outside of the ordinary
course of business, and neither party shall use the fact of the setting of such
amounts or the fact of the inclusion of any such item in the disclosure
schedules in any dispute or controversy with any party as to whether any
obligation, item or matter not described herein or included in a disclosure
schedule is or is not required to be disclosed (including, without limitation,
whether such amounts are required to be disclosed as material) or in the
ordinary course of business for the purposes of this Agreement. The information
contained in the disclosure schedules is disclosed solely for the purposes of
this Agreement, and no information contained therein shall be deemed to be an
admission by any party hereto to any third party of any matter whatsoever,
including of any violation of law or breach of any agreement.
-48-
10.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
10.8 Further Assurances. Each party shall cooperate and take such action as
may be reasonably requested by another party in order to carry out the
provisions and purposes of this Agreement and the transactions contemplated
hereby.
10.9 Amendment and Waiver. The parties may by mutual agreement amend this
Agreement in any respect, and any party, as to such party, may (a) extend the
time for the performance of any of the obligations of any other party, (b) waive
any inaccuracies in representations by any other party, (c) waive compliance by
any other party with any of the agreements contained herein and performance of
any obligations by such other party, and (d) waive the fulfillment of any
condition that is precedent to the performance by such party of any of its
obligations under this Agreement. To be effective, any such amendment or waiver
must be in writing and be signed by the party against whom enforcement of the
same is sought.
10.10 Severability. This Agreement shall be deemed severable, and the
invalidity or unenforceability of any term or provision hereof shall not affect
the validity or enforceability of this Agreement or of any other term or
provision hereof. Furthermore, in lieu of any such invalid or unenforceable term
or provision, the parties hereto intend that there shall be added as a part of
this Agreement a provision as similar in terms to such invalid or unenforceable
provision as may be valid and enforceable.
10.11 No Other Beneficiaries. This Agreement is being made and entered into
solely for the benefit of Buyer, the Company and Sellers, and none of Buyer, the
Company or any Seller intends hereby to create any rights in favor of any other
person, as a third party beneficiary of this Agreement or otherwise; provided
that the Company Payees shall be third-party beneficiaries pursuant to Section
3.4 hereof, subsequent holders of Series C Preferred Shares shall be third-party
beneficiaries under Section 9.14 and the pre-Closing officers, managers and
directors of the Company and its Subsidiaries are third-party beneficiaries of
Section 9.15 hereof.
10.12 Entire Agreement. This Agreement and the Schedules and Exhibits
hereto, each of which is hereby incorporated herein, set forth all of the
promises, covenants, agreements, conditions, undertakings, representations and
warranties between the parties hereto with respect to the subject matter hereof
and supersede all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written.
[SIGNATURE PAGES FOLLOW]
-49-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year first above written.
MOTHERS WORK, INC.
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Chairman and Chief Executive Officer
eSPECIALTY BRANDS, LLC
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chief Executive Officer
iMATERNITY ACQUISITION CORP.
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-----------------------------------------
▇▇▇ ▇. ▇▇▇▇▇▇▇▇
President
SELLERS:
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, as Trustee of
The ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Trust
dated October 8, 1986
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
[SIGNATURES CONTINUE ON NEXT PAGE]
CENTRE CAPITAL INVESTORS III, L.P.
CENTRE CAPITAL INDIVIDUAL INVESTORS III, L.P.
CENTRE CAPITAL OFFSHORE INVESTORS III, L.P.
CENTRE CAPITAL TAX-EXEMPT INVESTORS III, L.P.
By: Centre Partners III, L.P.
as general partner of such partnerships
By: Centre Partners Management LLC
Attorney-in-fact
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Managing Director
CENTRE PARTNERS COINVESTMENT III, L.P.
By: Centre Partners III, LLC, as general partner
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Managing Director
MATERNITY HOLDING CORPORATION
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
President
SCHEDULE I
SELLERS
Member Address
------ -------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
fax: ▇▇▇.▇▇▇.▇▇▇▇ ▇/▇ ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇/▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telefax: 312.861.2200
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, as Trustee 2225 Tennyson
of The ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Trust, dated October 8, 1986
fax: ▇▇▇.▇▇▇.▇▇▇▇ c/o ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇
Maternity Holding Corporation c/o Kirkland & ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Telefax: 312.861.2200
Centre Capital Investors III, c/o Centre Partners Management LLC
L.P. ▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telefax: 212.332.5801
Centre Capital Individual c/o Centre Partners Management LLC
Investors III, L.P. ▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telefax: 212.332.5801
Centre Capital Tax-Exempt c/o Centre Partners Management LLC
Investors III, L.P. ▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telefax: 212.332.5801
Centre Capital Offshore c/o Centre Partners Management LLC
Investors III, L.P. ▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telefax: 212.332.5801
Centre Partners Coinvestment c/o Centre Partners Management LLC
III, L.P. ▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telefax: 212.332.5801
[Remainder of Schedule I intentionally omitted.]