AGREEMENT AND PLAN OF MERGER
dated as of
December 17, 1998 among
PHARMHOUSE CORP., PHAR MOR, INC.
and
PHARMACY ACQUISITION CORP.
TABLE OF CONTENTS/1
Page
ARTICLE 1
THE MERGER
Section 1.01. The Merger 1
Section 1.02. Conversion of Shares 2
Section 1.03. Surrender and Payment 3
Section 1.04. Employee Stock Options and Restricted Shares 5
Section 1.05 No Set-Off 5
ARTICLE 2
THE SURVIVING CORPORATION
Section 2.01. Certificate of Incorporation 6
Section 2.02. Bylaws 6
Section 2.03. Directors and Officers 6
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.01. Corporate Existence and Power 6
Section 3.02. Corporate Authorization; Approval of the Board 7
Section 3.03. Governmental Authorization 7
Section 3.04. Noncontravention 7
Section 3.05. Capitalization 8
Section 3.06. Subsidiaries 8
Section 3.07. SEC Filings 9
Section 3.08. Financial Statements. 9
Section 3.09. Proxy Statements; Schedule 13E-3 10
Section 3.10. Absence of Certain Changes 10
Section 3.11. Litigation 12
Section 3.12. No Undisclosed Material Liabilities 12
Section 3.13. Compliance with Laws 12
Section 3.14. Finders' Fees 12
Section 3.15. Taxes 13
Section 3.16. Employee Benefits 13
Section 3.17. Environmental Matters 14
Section 3.18. Material Agreements 15
Section 3.19. Title to Properties; Encumbrances 16
Section 3.20. Labor Matters 16
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Section 4.01. Corporate Existence and Power 17
Section 4.02. Corporate Authorization 17
Section 4.03. Governmental Authorization 17
Section 4.04. Noncontravention 18
Section 4.05. Proxy Statement; Schedule 13E-3 18
Section 4.06 Litigation 18
Section 4.07. Finders' Fees 18
Section 4.08. Financing 19
ARTICLE 5
COVENANTS OF THE COMPANY
Section 5.01. Conduct of the Company 19
Section 5.02. Stockholder Meeting; Proxy Material 20
Section 5.03. Access to Information 21
Section 5.04. Other Offers 21
Section 5.05. Estoppel Certificates. 22
Section 5.06. Confidentiality Agreement 22
Section 5.07. Pre-Closing Balance Sheet 22
ARTICLE 6
COVENANTS OF BUYER
Section 6.01. Obligations of Merger Subsidiary 23
Section 6.02. Director and Officer Liability 23
Section 6.03. Employment Agreements 24
Section 6.04. Standstill 24
Section 6.05 Transitory Nature of Merger Subsidiary. 24
Section 6.06. Buyer's Environmental Report 24
ARTICLE 7
COVENANTS OF BUYER AND THE COMPANY
Section 7.01. Commercially Reasonable Efforts; SEC Filings 24
Section 7.02. Public Announcements 25
Section 7.03. Further Assurances 25
Section 7.04. Notices of Certain Events 25
ARTICLE 8
CLOSING; CONDITIONS TO THE MERGER
Section 8.01. Closing 25
Section 8.02. Conditions to the Obligations of Each Party 26
Section 8.03. Conditions to the Obligations of Buyer and
Merger Subsidiary 26
Section 8.04. Conditions to the Obligations of the Company 27
ARTICLE 9
TERMINATION
Section 9.01. Termination 27
Section 9.02. Effect of Termination 29
ARTICLE 10
MISCELLANEOUS
Section 10.01. Notices 31
Section 10.02. Survival 32
Section 10.03. Amendments; No Waivers 32
Section 10.04. Expense 33
Section 10.05. Successors and Assigns 33
Section 10.06. Counterparts; Effectiveness 33
Section 10.07. Parties in Interest 33
Section 10.08. No Personal Liability 33
Section 10.09. Governing Law 33
Section 10.10. Jurisdiction 33
Section 10.11. Specific Performance 35
Section 10.12. Interpretation 35
Section 10.13. Entire Agreement; Schedules 35
Section 10.14. Severability 36
1/The Table of Contents is not a part of this Agreement
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of
December 17, 1998 among PHARMHOUSE CORP., a New York corporation
(the "Company"), PHAR MOR, INC., a Pennsylvania corporation
("Buyer") and PHARMACY ACQUISITION CORP., a New York corporation and
a wholly owned subsidiary of Buyer ("Merger Subsidiary").
WITNESSETH:
WHEREAS, Buyer and the Company desire that Merger Subsidiary be
merged with and into the Company with the Company being the
surviving corporation and a wholly owned subsidiary of Buyer as
contemplated hereby; and
WHEREAS, the Board of Directors of the Company has approved
this Agreement and the transactions contemplated hereby;
NOW, THEREFORE, in consideration of the mutual promises
contained herein, the parties hereto agree as follows:
ARTICLE 1
THE MERGER
Section 1.01. The Merger. (a) Upon the terms and subject to
the conditions set forth in this Agreement, at the Effective Time
(as defined below), Merger Subsidiary shall be merged (the "Merger")
with and into the Company in accordance with the Business
Corporation Law of the State of New York (the "New York Law"),
whereupon the separate existence of Merger Subsidiary shall
cease and the Company shall be the surviving corporation (the
"Surviving Corporation"). Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all assets,
properties, rights, privileges, powers and franchises of a public
or private nature of the Company and the Merger Subsidiary
shall vest in the Surviving Corporation and all debts, liabilities,
obligations and duties of the Company and the Merger Subsidiary
shall become the debts, liabilities, obligations and duties of the
Surviving Corporation. The Surviving Corporation shall assume and
be liable for all the liabilities, obligations and penalties of
the Company and the Merger Subsidiary. No
liability or obligation due or to become due, claim or demand for any
cause existing against either the Company or the Merger
Subsidiary, or any stockholder, officer or director thereof,
shall be released or impaired by the Merger. No action or
proceeding, whether criminal or civil, then pending by or against
either the Company or the Merger Subsidiary, or any stockholder,
officer or director thereof, shall ▇▇▇▇▇ or be discontinued by the
Merger, but may be enforced, prosecuted, settled or
compromised as if the Merger had not occurred, or the Surviving
Corporation may be substituted in such action or special
proceeding in place of either the Company or the Merger
Subsidiary.
(b) As soon as practicable, but in no event later than ten
days after the satisfaction or, to the extent permitted
hereunder, waiver of all conditions to the Merger, the Company and
Merger Subsidiary will file a certificate of merger (together with
any other documents, certificates and instruments required by law
to effectuate and consummate the Merger, all in a form reasonably
acceptable to the Company and Buyer) with the Department of
State of the State of New York and make all other filings or
recordings required by New York Law in connection with the Merger.
The Merger shall become effective at such time as the certificate
of merger is duly filed with the Department of State of the State
of New York (the "Effective Time").
Section 1.02. Conversion of Shares.
(a) At the Effective Time by virtue of the Merger:
(i) each share (each a "Share") of common stock, par
value $.01 per share, of the Company (the "Common Stock")
held by the Company as treasury stock or owned by Buyer or any
subsidiary of Buyer immediately prior to the Effective Time
shall be canceled, and no payment shall be made with respect
thereto;
(ii) each share of common stock of Merger Subsidiary
outstanding immediately prior to the Effective Time shall be
converted into and become one share of common stock of the
Surviving Corporation with the same rights, powers and
privileges as the shares so converted and shall constitute
the only outstanding shares of capital stock of the
Surviving Corporation; and
(iii) each Share outstanding immediately prior to the
Effective Time shall, except as otherwise provided in Section
1.02(a)(i) above or as provided in Sections 1.02(b),
be converted into the right to receive $3.25 in cash,
without interest, but subject to adjustment as provided in
Section 1.02(b) (such amount, as so adjusted, the "Per Share
Amount"), payable in full by wire transfer or check of
immediately available funds within five business days after the
date when such holder has satisfied the procedures
contemplated by Section 1.03, in accordance with the
provisions of this Agreement. Following the Effective Time, all
certificates or other instruments representing shares of Common
Stock outstanding immediately prior to the Merger shall
thereafter only represent the right to receive, upon surrender
thereof, the Merger Consideration (as defined below). At
the Effective time, each share of Common Stock issued and
outstanding prior to the Effective time (all of which shares
will be converted into the right to receive the Merger
Consideration) shall be cancelled and retired and shall
cease to exist. The Per Share Amount payable to all issued
and outstanding Shares pursuant to this Section
1.02(a)(iii) is herein referred to as the "Merger
Consideration."
(b) The Per Share Amount shall be subject to adjustment as follows:
(i) if the Company ceases to conduct normal retail operations at
any store location at which it conducts such operations on the date
hereof, and Buyer waives any right it may have to terminate this
Agreement as a consequence of such closure(s), the Per Share Amount
shall be reduced by an amount equal to $.10 for each such store
closing (including without limitation the cessation of normal retail
operations at either of the Company's store locations no. 167 and
168 for any reason); provided, however, that in no event shall the
Per Share Amount be reduced by an amount in excess of $.20
pursuant to this Section 1.02(b); provided further, that if the
Company ceases to conduct normal retail operations at two or
more of its currently existing store locations (other than a
cessation of such operations at the Company's store locations no.
167 and/or 168 resulting from the termination of the leases for
such locations solely by action of the landlord therefor), then
Buyer has the right to terminate this Agreement pursuant to Section
9.01(g)(i);
(ii) if the Pre-Closing Balance Sheet (as defined below)
shows that the total assets minus the total liabilities of the
Company and the Company Subsidiaries on a consolidated basis (the
"Net Assets") as of the date thereof is less than $1,000,000 then
the Per Share Amount shall be reduced by $.01 for every full
$30,000 by which the Net Assets are less than $1,000,000;
provided, however, that if Net Assets are less than negative
$1,000,000 then Buyer has the right to terminate this Agreement
pursuant to Section 9.01(g)(ii); provided further, that in
determining Net Assets for purposes of this Section
1.02(b)(ii), no adjustment to the Pre-Closing Balance Sheet
shall be made with respect to Section 1.02(b)(iv) below;
(iii) if the Pre-Closing Balance Sheet shows that the Net
Assets are greater than $5,000,000, then the Per Share Amount
shall be increased by $.01 for every full $30,000 by which the
Net Assets are greater than $5,000,000; provided, however, that if
Net Assets are greater than $7,000,000 then the Company has the
right to terminate this Agreement pursuant to Section 9.01(l); and
(iv) if the Closing Environmental Liabilities (as defined
below) are greater than $100,000, then the Per Share Amount shall be
reduced by $.01 for every full $30,000 by which the
Environmental Liabilities exceed $100,000; provided, however,
that in no event shall the Per Share Amount be reduced by an
amount in excess of $.30 pursuant to this Section 1.02(b)(iv); and
provided further, that if the Closing Environmental Liabilities are
greater than $750,000, then Buyer has the right to terminate
this Agreement pursuant to Section 9.01(g)(ii).
Section 1.03. Surrender and Payment. (a) Promptly
following execution of this Agreement, Buyer shall appoint ▇▇▇▇▇▇
Bank & Trust Company (or such other qualified party reasonably
acceptable to the Company) (the "Exchange Agent") for the purpose of
exchanging certificates representing Shares for the Per Share Amount,
and the Company shall provide Buyer and the Exchange Agent with
a complete and accurate list of names and addresses for the
stockholders of record of the Company. On or prior to the
Effective time, Buyer shall deposit, or shall cause to be
deposited, with or for the account of the Exchange Agent, for the
benefit of the holders of Shares of Common Stock, cash in an
amount equal to the Merger Consideration. Buyer shall direct the
Exchange Agent to invest such funds, pending their disbursement in
accordance herewith, in a money market mutual fund registered under
the Investment Company Act of 1940, as amended, selected by Buyer.
Buyer shall pay all fees and expenses of the Exchange
Agent. For purposes of determining the Merger Consideration to
be made available, Buyer shall assume that no holder of Shares
will perfect his right to appraisal of his Shares. Promptly
after the Effective Time, Buyer will send, or will cause the
Exchange Agent to send, to each holder of Shares at the Effective
Time a letter of transmittal for use in such exchange (which
shall specify that the delivery shall be effected, and risk of
loss and title shall pass, only upon proper delivery of the
certificates representing Shares to the Exchange Agent).
(b) Each holder of Shares that have been converted into a
right to receive the Per Share Amount, upon surrender to the
Exchange Agent of a certificate or certificates representing such
Shares, together with a properly completed letter of transmittal
covering such Shares, will be entitled to receive the Merger
Consideration payable in respect of such Shares, provided that
Buyer shall direct the Exchange Agent to accept an indemnity in the
form reasonably satisfactory to Buyer and the Exchange Agent, for
any such certificate which is lost, stolen or destroyed. Until
so surrendered, each such certificate shall, after the Effective
Time, represent for all purposes, only the right to receive such
Merger Consideration. The Exchange Agent or Buyer,
as the case may be, shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement such
amounts as the Exchange Agent or Buyer are required to deduct
and withhold under the Internal Revenue Code of 1986, as amended
(the "Code"), or any applicable provision of state, local or foreign
tax law, with respect to the making of any payment in respect of
the Merger Consideration hereunder. To the extent such amounts
are so withheld, such amounts shall be treated for all purposes of
this Agreement as having been paid to the Person with respect to
whom such deduction and withholding was made by the Exchange Agent
or Buyer. No such deduction or withholding shall be made if the
relevant Person shall provide documentation reasonably
satisfactory to the Exchange Agent and Buyer
establishing an exemption from withholding, and Buyer shall take
customary actions to obtain such documentation prior to such
deduction or withholding.
(c) If any portion of the Merger Consideration is to be paid to
a Person other than the registered holder of the Shares represented
by the certificate or certificates surrendered in exchange
therefore, it shall be a condition to such payment that the
certificate or certificates so surrendered shall be properly endorsed
or otherwise be in proper form for transfer and that the Person
requesting such payment shall pay to the Exchange Agent any
transfer or other taxes required by law as a result of such payment
to a Person other than the registered holder of such Shares or
establish to the satisfaction of the Exchange Agent that such tax
has been paid or is not payable. For purposes of this Agreement,
"Person" means an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity
or organization, including a government or political subdivision or
any agency or instrumentality thereof.
(d) If, after the Effective Time, certificates representing Shares
are presented to the Surviving Corporation, they shall be canceled
and exchanged for the consideration provided for, and in accordance
with the procedures set forth, in this Article 1.
(e) Any portion of the Merger Consideration made available to the
Exchange Agent pursuant to Section 1.03(a) that remains unclaimed by
the holders of Shares six months after the Effective Time shall be
returned to Buyer, upon demand, and any such holder who has not
exchanged his Shares for the Merger Consideration in accordance
with this Section prior to that time shall thereafter look only to
Buyer for payment of the Merger Consideration in respect of his
Shares. Notwithstanding the foregoing, Buyer shall not be liable
to any holder of Shares for any amount paid to a public official
pursuant to applicable abandoned property laws. Any amounts
remaining unclaimed by holders of Shares two years after the
Effective Time (or such earlier date immediately prior to such time
as such amounts would otherwise escheat to or become property of
any governmental entity) shall, to the extent permitted by
applicable law, become the property of Buyer free and clear of
any claims or interest of any Person previously entitled thereto.
Section 1.04. Employee Stock Options and Restricted Shares.
(a) At or immediately prior to the Effective Time, (i) each
outstanding option to purchase Common Stock granted under any
employee or nonemployee director stock option or compensation
plan or arrangement of the Company shall be canceled, and each
holder of any such option, whether or not then vested or
exercisable, shall be paid by the Surviving Corporation at the
Effective Time for each such option an amount determined by
multiplying (A) the excess, if any, of the Per Share Amount over the
applicable exercise price of such option by (B) the number of shares
of Common Stock such holder could have purchased (assuming
full vesting of all options) had such holder exercised such
option in full immediately prior to the Effective Time, and (ii)
each restricted Share granted under any employee or nonemployee
director stock option or other compensation plan or arrangement of
the Company shall be vested and converted into the right to receive
the Per Share Amount in accordance with Section 1.02(c).
Schedule 3.16 hereto (A) identifies each employee stock option or
compensation plan or arrangement of the Company and (B)
identifies each employee or nonemployee director of the Company or
any Company subsidiary who holds options pursuant top any such plan,
and sets forth with respect to each such holder (1) the number of
options held thereby and (2) the exercise price per share
applicable to each such option.
(b) Prior to the Effective Time, the Company shall (i) use its
commercially reasonable efforts to obtain any consents from holders
of options to purchase shares of Common Stock and restricted
Shares granted under the Company's stock option or compensation
plans or arrangements and (ii) make any permitted amendments to
the terms of such stock option or compensation plans or
arrangements, and take any other permitted actions thereunder,
that, in the case of either clauses 1.04(b)(i) or 1.04(b)(ii),
are necessary to give effect to the transactions contemplated by
Section 1.04(a). Notwithstanding any other provision of this
Section, payment may be withheld in respect of any option or
restricted Shares until any necessary consent from the holder thereof
is obtained.
Section 1.05 No Set-Off. Except as expressly set forth
in Section 9.02(d), Buyer's obligations to make the payments
provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any setoff,
counterclaim, recoupment, defense or other claim, right or action
which Buyer may have against the Company or any holder of Common
Stock or options to purchase Common Stock.
ARTICLE 2
THE SURVIVING CORPORATION
Section 2.01. Certificate of Incorporation. The
certificate of incorporation of the Company in effect at the
Effective Time shall be the certificate of incorporation of the
Surviving Corporation until amended in accordance herewith and
with applicable law.
Section 2.02. Bylaws. The bylaws of the Company in effect
at the Effective Time shall be the bylaws of the Surviving
Corporation until amended in accordance herewith and with
applicable law.
Section 2.03. Directors and Officers. From and after the
Effective Time, until successors are duly elected or appointed and
qualified in accordance with applicable law, the directors and
officers of Merger Subsidiary at the Effective Time shall be the
directors and officers of the Surviving Corporation.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Buyer that:
Section 3.01. Corporate Existence and Power. The Company is
a corporation duly incorporated, validly existing and in good
standing under the laws of the State of New York, and has all
corporate powers and all material governmental licenses,
authorizations, consents and approvals required to carry on its
business as now conducted. The Company is duly qualified to do
business as a foreign corporation and is in good standing in each
jurisdiction where the character of the property owned or leased by
it or the nature of its activities makes such qualification
necessary, except for those jurisdictions where the failure to be so
qualified would not, individually or in the aggregate, have a
Material Adverse Effect. The Company has heretofore delivered to
Buyer true and complete copies of the Company's certificate of
incorporation and bylaws as currently in effect. As used in this
Agreement, the term "Material Adverse Effect" means a material
adverse effect on the business, assets, operations, condition or
prospects (financial or otherwise), results of operations or the
conduct of the business of the Company and the Company
Subsidiaries taken as a whole; provided, however, that the
cessation of normal retail operations at any two or more store
locations at which either the Company or any Company Subsidiary
conducts business on the date hereof (other than a cessation of
such operations at either of the Company's store locations no. 167
or 168 resulting from the termination of the leases for such
locations solely by action of the landlords therefor) shall
constitute a Material Adverse Effect; and provided further that the
incurrence by the Company on a consolidated basis of net losses
not exceeding $600,000 for February 1999 and not exceeding $825,000
for March 1999, in and of itself shall not constitute a Material
Adverse Effect for purposes hereof. For purposes of this
Agreement, a "Subsidiary," as to any Person, means any
corporation or other entity of which securities or other
ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing
similar functions are directly or indirectly owned by such
Person, and "Company Subsidiary" means any Subsidiary of the
Company.
Section 3.02. Corporate Authorization; Approval of the
Board. The execution, delivery and performance by the Company of
this Agreement and the consummation by the Company of the
transactions contemplated hereby are within the Company's
corporate powers and, except for any required approval by the
Company's stockholders in connection with the consummation of the
Merger, have been duly authorized by all necessary corporate
action of the Company. This Agreement constitutes a valid and
binding agreement of the Company enforceable against the Company in
accordance with its terms, except (x) as the same may be limited
by applicable bankruptcy, insolvency, moratorium or similar
laws of general application relating to or affecting creditors'
rights, and (y) for the limitations imposed by general principles of
equity. The foregoing exceptions (x) and (y) are hereinafter
referred to as the "Enforceability Exceptions." The
Board of Directors of the Company has, by resolutions duly
adopted at a meeting duly called and held, [unanimously] approved
this Agreement, the Merger and the other transactions
contemplated hereby on the material terms and conditions set
forth herein. The Board of Directors of the Company has received the
opinion as of the date of this Agreement of Jefferies & Co., Inc.,
as financial advisor to the Board of Directors of the Company,
that the consideration to be received by the Company's stockholders
(other than Buyer and its Subsidiaries) in the Merger is fair
to such stockholders from a financial point of view, and such
opinion has been made available to Buyer.
Section 3.03. Governmental Authorization. The execution,
delivery and performance by the Company of this Agreement and the
consummation of the Merger by the Company require no material
action by or in respect of, or filing with, any governmental
body, agency, official or authority other than (a) the filing of a
certificate of merger in accordance with New York Law, (b)
compliance with any applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder (the "Exchange Act"), (c) for notification
pursuant to, and expiration or termination of the waiting period
under, the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder (the "HSR Act"),
and (d) where the failure to take such action or make such filing
would not have, and would not reasonably be expected to
have, a Material Adverse Effect or materially interfere with or
delay the transactions contemplated hereby.
Section 3.04. Noncontravention. The execution, delivery and
performance by the Company of this Agreement and the
consummation by the Company of the transactions contemplated
hereby do not and will not (a) contravene or conflict with the
certificate of incorporation or bylaws of the Company, (b)
assuming compliance with the matters referred to in Section 3.03,
to the best of the Company's knowledge, contravene or conflict in any
material respect with any provision of any law, regulation,
judgment, injunction, order or decree binding upon or applicable to
the Company or any Company Subsidiary, (c) except as set forth on
Schedule 3.04 or as disclosed on the SEC Reports (as defined below)
and with such other exceptions as would not individually or in the
aggregate have a Material Adverse Effect, to the best of the
Company's knowledge, constitute a default under or give rise to a
right of termination, cancellation or acceleration of
any right or obligation of the Company or any Company Subsidiary or
to a loss of any benefit to which the Company or any Company
Subsidiary is entitled under any provision of any agreement,
contract, real estate lease or other instrument binding upon the
Company or any Company Subsidiary or any license, franchise,
permit or other similar authorization held by the Company or any
Company Subsidiary or (d) with such exceptions as would not
individually or in the aggregate have a Material Adverse Effect, to
the best of the Company's knowledge, result in the creation or
imposition of any Lien on any asset of the Company or any Company
Subsidiary. For purposes of this Agreement, "Lien" means, with
respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect to such
asset.
Section 3.05. Capitalization. The authorized capital stock of
the Company consists of 25,000,000 shares of common stock, par value
$.01 per share (defined above as "Common Stock"), and 2,500,000
shares of preferred stock, par value $.10 per share. As of
December 10, 1998, there were outstanding (i) 2,594,827 shares of
Common Stock and no shares of preferred stock, (ii)
stock options held by employees and nonemployee directors of the
Company to purchase a total of 845,319 shares of Common Stock at
such exercise prices as set forth in Schedule 3.05, and (iii)
stock awards to nonemployee directors in aggregate amount equal to
13,728 shares of Common Stock. All outstanding Shares have been
duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth in this Section and in
Schedule 3.05 or as disclosed in the SEC Reports, and except for
changes since December 10, 1998 resulting from the exercise of
stock options granted to employees and nonemployee directors of
the Company and referred to in the preceding clause (ii), there are
outstanding (a) no shares of capital stock or other voting
securities of the Company, (b) no securities of the Company
convertible into or exchangeable for shares of capital stock or
voting securities of the Company, (c) no options or other rights to
acquire from the Company, and no obligation of the Company to issue,
any capital stock, voting securities or securities convertible
into or exchangeable for capital stock or voting securities of
the Company and (d) no stock appreciation rights or similar rights
with respect to any securities of the Company (the
items in clauses 3.05(a), 3.05(b), 3.05(c) and 3.05(d) being
referred to collectively as the "Company Securities"). There are no
outstanding obligations of the Company or any Company
Subsidiary to repurchase, redeem or otherwise acquire any Company
Securities.
Section 3.06. Subsidiaries. (a) Schedule 3.06 lists each
of the Company's subsidiaries and the jurisdiction of
incorporation and organization of each Subsidiary. Each Company
Subsidiary is a corporation duly incorporated, validly existing and
in good standing under the laws of its jurisdiction of
incorporation, has all corporate powers and all material
governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted and is duly
qualified to do business as a foreign corporation and is in good
standing in each jurisdiction where the character of the property
owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where
failure to be so qualified would not, individually or in the
aggregate, have a Material Adverse Effect. All Company
Subsidiaries and their respective jurisdictions of incorporation are
identified on Schedule 3.06(a).
(b) Except as set forth in Schedule 3.06(b) or as disclosed in
the SEC Reports, all of the outstanding capital stock of, or other
ownership interests in, each Company Subsidiary, is owned by the
Company, directly or indirectly, free and clear of any
Lien and free of any other limitation or restriction (including any
restriction on the right to vote, sell or otherwise dispose of such
capital stock or other ownership interests). There are
no outstanding (i) securities of the Company or any Company
Subsidiary convertible into or exchangeable for shares of capital
stock or other voting securities or ownership interests in any
Company Subsidiary, (ii) options or other rights to acquire from the
Company or any Company Subsidiary, and no other obligation of the
Company or any Company Subsidiary to issue, any capital stock,
voting securities or other ownership interests in, or any
securities convertible into or exchangeable for any capital
stock, voting securities or ownership interests in, any Company
Subsidiary or (iii) stock appreciation rights or similar rights
with respect to any securities of any Company Subsidiary (the
items in clauses 3.06(b)(i), 3.06(b)(ii) and 3.06(b)(iii) being
referred to collectively as the ("Company Subsidiary
Securities"). There are no outstanding obligations of the
Company or any Company Subsidiary to repurchase, redeem or
otherwise acquire any outstanding Company Subsidiary Securities.
Section 3.07. SEC Filings. (a) The Company has made
available to Buyer (i) the annual reports on Form 10-K for its
fiscal years ended January 31, 1998, February 1, 1997 and
February 3, 1996, (ii) its quarterly reports on Form 10-Q for its
fiscal quarters ended May ▇, ▇▇▇▇▇▇ ▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇, (▇▇▇) its
proxy or information statements relating to meetings of, or actions
taken without a meeting by, the stockholders of the
Company held since January 31, 1996, and (iv) all of its other
reports, statements, schedules and registration statements filed
with the Securities and Exchange Commission (the "SEC") since
January 31, 1996. As used herein, the term "Form 10-K" means the
Company's annual report on Form 10-K for the fiscal year ended
January 31, 1998, the term "Form 10-Q" means the Company's
quarterly report on Form 10-Q for the fiscal quarter ended
October 31, 1998, and the term "SEC Reports" means all of the
reports and other filings referred to in the preceding clauses (i)
through (iv).
(b) As of its filing date, each such report or statement
filed pursuant to the Exchange Act did not contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not
misleading.
(c) Each such registration statement, as amended or
supplemented, if applicable, filed pursuant to the Securities Act of
1933, as amended (the "Securities Act"), as of the date such
statement or amendment became effective did not contain any
untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading.
Section 3.08. Financial Statements. The audited
consolidated financial statements and unaudited consolidated
interim financial statements of the Company included in its
annual reports on Form 10-K and the quarterly reports on Form 10Q
referred to in Section 3.07 fairly present, in all material
respects and in conformity with generally accepted accounting
principles ("GAAP") applied on a consistent basis (except as may be
indicated in the notes thereto), the consolidated financial
position of the Company and its consolidated subsidiaries as of the
dates thereof and their consolidated results of the
operations and changes in financial position for the periods then
ended (subject to normal year-end adjustments in the case of any
unaudited interim financial statements).
Section 3.09. Proxy Statements; Schedule 13E-3. The proxy
statement of the Company (the "Company Proxy Statement") to be
mailed to the stockholders of the Company in connection with the
meeting of such stockholders to vote on the approval and adoption of
this Agreement and the Merger (the "Company Stockholder
Meeting"), and any amendments or supplements to such proxy
statement will, when filed with the SEC, to the best of the
Company's knowledge, comply as to form in all material respects
with the applicable requirements of the Exchange Act. At the
time the Company Proxy Statement or any amendment or supplement
thereto is first mailed to stockholders of the Company and at the
time such stockholders vote on adoption of this Agreement, the
information supplied by the Company for inclusion or
incorporation by reference in the Company Proxy Statement or in the
Rule 13e-3 Transaction Statement on Schedule 13E-3 to be filed
with the SEC in connection with the Merger (the "Schedule 13E-3"),
as either such document may be supplemented or amended, if
applicable, to the best of the Company's knowledge, will not contain
any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not
misleading.
Section 3.10. Absence of Certain Changes. Except as set
forth on Schedule 3.10 or as otherwise permitted by this
Agreement, since October 31, 1998, the Company and Subsidiaries
have in all material respects conducted their business in the
ordinary course consistent with past practice and there has not
been:
(a) any event, occurrence or development of a state of
circumstances or facts which has had or reasonably would be
expected to have a Material Adverse Effect (other than those arising
from general economic or industry-wide events or occurrences);
(b) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital stock of
the Company, or any repurchase, redemption or other acquisition
by the Company or any Company Subsidiary of any outstanding
shares of capital stock or other securities of, or other
ownership interests in, the Company or any Company Subsidiary;
(c) any amendment of any material term of any outstanding
security of the Company or any Company Subsidiary;
(d) any amendment of any material term of any real estate lease
to which the Company or any Company Subsidiary is a party;
(e)any incurrence, assumption or guarantee by the Company or
any Company Subsidiary of any indebtedness for borrowed money in
excess of $50,000 in the aggregate other than in the ordinary
course of business and in amounts and on terms consistent with
past practices (but excluding indebtedness owed to Buyer or any
Subsidiary of Buyer);
(f) any creation or assumption by the Company or any Company
Subsidiary of any Lien (other than Permitted Liens (as defined
below)) on any material asset other than in the ordinary course
of business consistent with past practices;
(g) any transaction or commitment made, or any contract or
agreement entered into, by the Company or any Company Subsidiary
relating to its assets or business (including the acquisition or
disposition of any assets) or any relinquishment by the Company or
any Company Subsidiary of any contract or other right, in either
case, material to the Company and the Subsidiaries taken as a
whole, other than transactions and commitments in the ordinary
course of business consistent with past practice, those
contemplated by this Agreement and additions of subscribers to
existing programming agreements;
(h) any making of any loan, advance or capital contributions to or
investment in any Person other than advances to employees in the
ordinary course of business consistent with past practice and
loans, advances or capital contributions to or investments in wholly
owned Company Subsidiaries made in the ordinary course of business
consistent with past practices;
(i) any change in any method of accounting or accounting
practice by the Company or any Company Subsidiary, except for
any such change required by reason of a concurrent change in GAAP;
or
(j) any (i) grant of any severance or termination pay to any
director, officer or employee of the Company or any of the Company
Subsidiaries, except as set forth in the Company's employment
agreements listed in Schedule 3.20, (ii) entering into of any
employment, deferred compensation or other similar agreement (or
any amendment to any such existing agreement) with any director,
officer or employee of the Company or any of the Company
Subsidiaries, (iii) increase in benefits payable under any existing
severance or termination pay policies or (iv) increase in
compensation, bonus or other benefits payable to directors or
officers (who are not employees) of the Company or any of the
Company Subsidiaries, or, other than in the ordinary course of
business consistent with past practice, to employees (including
officers who are employees) of the Company or any of the Company
Subsidiaries.
For purposes of this Agreement, "Permitted Liens" means (i)
materialmen's, mechanics', carriers', workmen's, warehousemen's,
repairmen's, and other like Liens arising in the ordinary course of
business for payments which are not material in amount, and pledges
or deposits to obtain the release of such Liens; (ii) Liens for
current taxes or assessments not yet due and payable or which are
being contested in good faith by appropriate
proceedings and for which appropriate reserves have been
established; (iii) Liens securing indebtedness owed to Buyer or any
Subsidiary of Buyer; and (iv) other Liens or minor
imperfections of title that, taken in the aggregate, do not
materially impair the conduct of the Company's and the Company
Subsidiaries' business or the use of any material assets.
Section 3.11. Litigation. Except as set forth in Schedule
3.11 or as disclosed in the SEC Reports, there is no action,
suit, investigation or proceeding pending against, or to the
knowledge of the Company threatened against, the Company or any
Company Subsidiary or any of their respective properties before any
court or arbitrator or any governmental body, agency or official
(i) which would reasonably be expected to have a Material
Adverse Effect, or (ii) which seek to prevent, hinder, modify or
challenge the transactions contemplated by this Agreement.
Section 3.12. No Undisclosed Material Liabilities. Neither
the Company nor any of the Company Subsidiaries has any
indebtedness, liability or obligation of any type, whether or not
required by GAAP to be reflected on a balance sheet and whether or
not due, except (a) liabilities reflected or reserved against in the
balance sheet set forth in the Form 10-Q, or otherwise disclosed
in the other SEC Reports, (b) liabilities incurred in the ordinary
course of business since October 31, 1998, (c) other liabilities,
individually or in the aggregate, which would not reasonably be
expected to have a Material Adverse Effect and (d) as set forth on
any Schedule hereto or any contract or agreement set forth thereon
(other than for breach thereof).
Section 3.13. Compliance with Laws. Except as set forth on
Schedule 3.13, the Company and the Company Subsidiaries hold all
licenses, franchises, certificates, consents, permits,
qualifications and authorizations from all governmental
authorities necessary for the lawful conduct of their businesses,
except where the failure to hold any of the foregoing would not
have, and would not reasonably be expected to have, a Material
Adverse Effect. Neither the Company nor any Company Subsidiary has
violated, or is in violation of, any such licenses,
franchises, certificates, consents, permits, qualifications or
authorizations or any applicable statutes, laws, ordinances,
rules and regulations (including, without limitation, any of the
foregoing related to occupational safety, storage, disposal,
discharge into the environment of hazardous wastes, environmental
protection, conservation, unfair competition, labor practices or
corrupt practices) of any governmental authorities, except where
such violations do not have, and would not reasonably be expected
to have, a Material Adverse Effect.
Section 3.14. Finders' Fees. Except for Jefferies & Co.,
Inc., the terms of whose engagement are set forth in the
engagement letter provided to Buyer, there is no investment
banker, broker, finder or other intermediary which has been
retained by or is authorized to act on behalf, of the Company or
any Company Subsidiary who might be entitled to any fee or
commission from Buyer or any of its affiliates upon consummation
of the transaction contemplated by this Agreement.
Section 3.15. Taxes. Except as to any items that would
not, individually, or in the aggregate, have a Material Adverse
Effect and except as set forth on Schedule 3.15 or as disclosed in
the SEC Reports: (a) the Company and each of the Company
Subsidiaries has (i) paid all United States federal, state, local and
foreign income, FICA/FUTA, sales, excise, franchise and similar
taxes of any nature whatsoever (together with any related penalties
and interest) (any of the foregoing, a "Tax"), required to be paid
by it or collected from employees or customers in the form of
payroll withholding on or before the date hereof (and will duly
pay all such amounts required to be paid between the date hereof
and the Effective Time) and (ii) properly completed in correct
form and timely filed all United States federal, state, local
and foreign income (including any estimated Taxes) and other Tax
returns or reports (including declarations of estimated Tax),
required to be filed by it; (b) there are no claims or
assessments pending against the Company or any of the Company
Subsidiaries for any alleged deficiency in or failure to pay any
Tax, and the Company does not know of any threatened Tax claims or
assessments against the Company or any of the Company Subsidiaries;
(c) the Company and each of the Company Subsidiaries has
established adequate accruals for Taxes, interest, penalties
and other additions thereto and for any liability for deferred
Taxes in accordance with GAAP; (d) there are no Liens for Taxes
(other than for current Taxes not yet due and payable) on the assets
of the Company or any of the Company's Subsidiaries; (e) there are
no agreements, waivers, or other arrangements providing for
extensions of time in respect of the assessment or collection of
any unpaid Tax; (f) except as set forth on Schedule 3.15(f), the
Company has not made any payment which will be or may be
characterized as an "excess parachute payment" within the meaning of
Section 280G(b)(1) of the Internal Revenue Code of 1986, as amended;
(g) the Company has not taken any action that could have the effect
of deferring any liability for Taxes from any period ending on or
before the Effective Time to any taxable period ending thereafter;
(h) the Federal income tax returns of the Company have either
been audited by the Internal Revenue Service or the period
during which any assessments may be made has expired without
waiver or extension, for all periods prior to and including the
taxable year ended 1994; and (i) from January 31, 1998, there have
not been any Tax elections, any settlements or compromises of any
income or other Tax liabilities or any changes in Tax attributes.
Section 3.16. Employee Benefits. (a) Except as set forth on
Schedule 3.16, the Company does not maintain, contribute to or have
any material liability (whether direct or indirect, including,
without limitation, as a result of an indemnification obligation)
under, or with respect to, and no ERISA Affiliate has any liability
which has or will create any material obligation by, or result in
any material liability to, Buyer with respect to or under, any
Employee Benefit Plan. No material liability (whether direct or
indirect, including, without limitation, as a result of an
indemnification obligation) with respect to any Employee Benefit
Plan has been or is reasonably expected to be incurred by the
Company or any ERISA Affiliate under or pursuant to Title I or
Title IV of ERISA or the penalty, excise tax or joint and several
liability provisions of the Code relating to employees, employee
compensation or employee benefit plans that could, following the
Effective Time, become or remain a material
liability of Buyer or of any Employee Benefit Plan established or
contributed to by Buyer, and no event, transaction or condition has
occurred or exists that could result in any such liability to their
operations or, following the Effective Time, Buyer's.
(b) Except as set forth on Schedule 3.16(b), neither the
execution and delivery by the Company of this Agreement nor the
consummation of the transactions contemplated by this Agreement
will result in the acceleration or creation of any rights of any
person to benefits under any Employee Benefit Plan (including,
without limitation, the acceleration of vesting or exercisability of
any stock options or restricted stock, the acceleration of the
accrual or vesting under any Employee Benefit Plan or the
acceleration or creation under any severance, parachute or change of
control agreement) which could result in a material liability to
Buyer.
(c) Except as set forth on Schedule 3.16(c), there is no
material action, order, writ, injunction, judgment or decree
outstanding or claim, suit, litigation, proceeding arbitration,
governmental audit or investigation relating to or seeking
benefits under any Employee Benefit Plan that is pending or, to the
knowledge of the Company, threatened or anticipated against the
Company, any ERISA Affiliate or any Employee Benefit Plan, other
than claims for benefits in the ordinary course.
(d) Except as set forth on Schedule 3.20, neither any
provision of any employee Benefit Plan or any contract (whether or
not written), nor any transaction, condition or other event exists
or has occurred that would require Buyer to provide any material
compensation, payments or benefits, including, without limitation,
severance payments) to or on behalf of any former or current
employee of the Company or any ERISA Affiliate.
(e) As used herein, the term "Employee Benefit Plan" means
any pension, retirement, profit-sharing, deferred compensation,
bonus, incentive, performance, stock option, phantom stock, stock
purchase, restricted stock, premium conversion, medical,
hospitalization, vision, dental or other health, life,
disability, severance, termination or other employee benefit
plan, program, arrangement, agreement or policy, whether written or
unwritten, to which the Company or any Company Subsidiary
contributes, is obligated to contribute to, is a party to or is
otherwise bound, or with respect to which the Company or any
Company Subsidiary may have any liabilities. As used herein, the
term "ERISA Affiliate" means (i) a member of any "controlled
group" (as defined in Section 414(b) of the Code) of which the
Company is a member, (ii) a trade or business, whether or not
incorporated, under common control (within the meaning of Section
414(c) of the Code) with the Company, or (iii) a member of any
affiliated service group (within the meaning of Section 414(m) of
the Code) of which the Company is a member.
Section 3.17. Environmental Matters.
(a) To the best of the Company's knowledge, except as set
forth on Schedule 3.17 or as disclosed in the SEC Reports, there are
no material Environmental Liabilities (as defined below) of the
Company or any of the Company Subsidiaries. To the best of the
Company's knowledge, the Company and the Company Subsidiaries are in
compliance and have been in compliance, in all material respects,
with all Environmental Laws. There has been no report regarding
any material environmental assessment, investigation, study, audit,
test, review or other analysis conducted of which the Company has
knowledge in relation to the current or prior business of the
Company or the Company Subsidiaries or any property or facility
now or previously owned by the Company or the Company
Subsidiaries which has not been delivered to Buyer. Schedule
3.17 identifies all environmental reports and studies in
the possession or control of the Company relating to any real
property that previously has been or currently is owned or leased
by the Company, any Company Subsidiary or any predecessor
thereof, copies of which previously been furnished to Buyer.
Schedule 3.17 identifies all real property owned by the Company or
any Company Subsidiary, and all real property previously or
currently leased or owned by the Company or any Company
Subsidiary at which automotive repair services ever have been
performed.
(b) For purposes of this Agreement, "Environmental
Liabilities" means any and all liabilities of the named entity,
which (i) arise under or relate to matters covered by
Environmental Laws and (ii) relate to actions occurring or
conditions existing on or prior to the Effective Time, and
includes but is not limited to fines, penalties, and costs of
correcting any compliance deficiencies, and obligations for site
cleanup or investigation or cleanup resulting from the disposal,
release or threatened release of hazardous substances,
pollutants, contaminants, or wastes.
(c) For purposes of this Agreement, "Closing Environmental
Liabilities" means the estimated cost to remediate all
Environmental Liabilities of the Company with respect to the real
property locations identified on Schedule 3.17 as determined by
reference to the environmental report to be obtained by Buyer
pursuant to Section 6.06; provided, however, that if the Company
disputes the amount of such remediation costs as so determined, the
Company shall notify the Buyer to such effect within ten business
days of its receipt of Buyer's environmental report pursuant to
Section 6.06, and the amount of the Closing Environmental
Liabilities shall then be determined in accordance with the
dispute resolution procedure set forth in Section 10.10(d).
(d) For purposes of this Agreement, "Environmental Laws"
means any federal, state, and local laws, judicial decisions,
regulations, rules, judgments, orders, decrees, permits,
licenses, agreements and governmental restrictions, relating to
human health, the environment or to emissions, discharges or
releases of pollutants, contaminants or other hazardous
substances or wastes into the environment, including without
limitation ambient air, surface water, ground water or land, or
otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of
pollutants, contaminants or other hazardous substances or wastes or
the clean-up or other remediation thereof.
Section 3.18. Material Agreements. Except for those
contracts listed on Schedule 3.18 (the "Material Agreements"), or as
disclosed in SEC Reports, neither the Company nor any of the Company
Subsidiaries is a party to or is bound by any written or oral
contract, commitment or agreement which is material to the Company
and the Company Subsidiaries taken as a whole or which involves
payments of more than $150,000 in the aggregate over the remaining
term thereof or which restricts the Company and its affiliates
from engaging in any business in a manner that would be consistent
with its current practices and activities. Each Material Agreement
is in all material respects the validly existing, legally
enforceable obligation of the Company or one of the Company
Subsidiaries, as the case may be, and, to the best of the Company's
knowledge, of the other parties thereto, subject to the
Enforceability Exceptions. To the best of the Company's
knowledge, the Company and the Company Subsidiaries are validly and
lawfully operating in all material respects under the Material
Agreements to which they are a party. To the best of the Company's
knowledge, the Company and the Company Subsidiaries have duly
complied in all material respects with all of the terms and
conditions of each of the Material Agreement to which they are a
party.
Section 3.19. Title to Properties; Encumbrances. Except as
set forth on Schedule 3.19 or as disclosed in the SEC Reports, the
Company and each of the Company Subsidiaries has good and
marketable title to (or in the case of leased assets, valid and
existing leasehold interests in) the material assets set forth on the
balance sheet included in the Form 10-Q (other than those disposed
of in the ordinary course of business since October 31, 1998), free
and clear of all Liens other than Permitted Liens. Schedule 3.19
sets forth a list of all real property which is owned or leased
by the Company or any of the Company Subsidiaries, and sets
forth with respect to each lease: (i) the term thereof; (ii) the
renewal options, if any, applicable thereto; (iii) the number of
square feet of leased space; and (iv) the rents and other
financial terms applicable thereto. Except as set forth in
Schedule 3.19 or disclosed in the SEC Reports and with such
other exceptions as would not have a Material Adverse Effect, to
the best of the Company's knowledge, all buildings, improvements,
furniture, fixtures, equipment and other operating assets of
the Company and the Company Subsidiaries are in good working
order and condition, normal wear and tear excepted.
Section 3.20. Labor Matters. (a) Except as set forth on
Schedule 3.20, neither the Company nor any Company Subsidiary is a
party to any employment, labor or collective bargaining
agreement, and there are no employment, labor or collective
bargaining agreements which pertain to employees of the Company or
of any Company Subsidiary. The Company has heretofore made
available to Buyer true, complete and correct copies of the (i)
employment agreements listed on Schedule 3.20 and (ii) labor or
collective bargaining agreements listed on such Schedule,
together with all amendments, modifications, supplements or side
letters affecting the duties, rights and obligations of any party
thereunder.
(b) No employees of the Company or of any Company
Subsidiary are represented by any labor organization. To the
knowledge of the Company, no labor organization or group of
employees of the Company or of any Company Subsidiary has made a
pending demand for recognition or certification, and there are no
representation or certification proceedings or petitions seeking
a representation proceeding presently pending or threatened in
writing to be brought or filed with the National Labor Relations
Board or any other labor relations tribunal or authority. To the
knowledge of Company, there are no organizing activities
involving either the Company or any Company Subsidiary pending
with any labor organization or group of employees of the Company
or any Company Subsidiary.
(c) Except as set forth on Schedule 3.20, there are no (i)
unfair labor practice charges, grievances or complaints pending or,
to the Company's knowledge, threatened in writing by or on behalf
of any employee or group of employees of the Company or of any
Company Subsidiary which, if resolved against the Company or any
Company Subsidiary, as the case may be, would cause a Material
Adverse Effect on the Company, or (ii) complaints, charges or
claims against the Company or any Company Subsidiary pending or, to
the Company's knowledge, threatened in writing to
be brought or filed, with any governmental entity or arbitrator
based on, arising out of, in connection with, or otherwise
relating to the employment or termination of employment of any
individual by the Company or any Company Subsidiary which, if
resolved against the Company or any Company Subsidiary, as the
case may be, would cause a Material Adverse Effect.
(d) The Company is in full compliance with the Worker
Readjustment and Notification Act, 29 U.S.C. 2101 (the "WARN
Act"), including the prompt and correct furnishing of all notices
required to be given thereunder in connection with any "plant
closing" or "mass layoff" to "affected employees,"
"representatives" and any state dislocated worker unit and local
government officials. No reduction in the notification period
under the WARN Act is being relied upon by the Company.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer and the Merger Subsidiary, jointly and severally,
represent and warrant to the Company that:
Section 4.01. Corporate Existence and Power. Each of Buyer
and Merger Subsidiary is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has all corporate powers required to carry on its
business as now conducted. Since the date of its
incorporation, Merger Subsidiary has not engaged, and will not
engage, in any activities other than in connection with or as
contemplated by this Agreement or in connection with arranging any
financing required to consummate the transactions
contemplated hereby. Buyer has heretofore delivered to the
Company true and complete copies of Buyer's and Merger
Subsidiary's certificate or articles of incorporation and bylaws as
in effect on the date hereof.
Section 4.02. Corporate Authorization. The execution,
delivery and performance by Buyer and Merger Subsidiary of this
Agreement and the consummation by Buyer and Merger Subsidiary of the
transactions contemplated hereby are within the corporate powers
of Buyer and Merger Subsidiary and have been duly authorized
by all necessary corporate action of Buyer and Merger Subsidiary.
This Agreement constitutes a valid and binding agreement of
each of Buyer and Merger Subsidiary enforceable against it in
accordance with its terms, subject to the
Enforceability Exceptions. The approval of Buyer's shareholders is
not required to execute this Agreement or consummate the Merger.
Buyer's and Merger Subsidiary's Boards of Directors have duly
authorized the Merger and the other transactions
contemplated hereby (including the Subordinated Note Purchase
Agreement and the Subordinated Note) by resolutions adopted at
meetings duly held and called.
Section 4.03. Governmental Authorization. The execution,
delivery and performance by Buyer and Merger Subsidiary of this
Agreement and the consummation by Buyer and Merger Subsidiary of the
transactions contemplated by this Agreement require no material
action by or in respect of, or filing with, any governmental
body, agency, official or authority other than (a) the filing of a
certificate of merger in accordance with New York Law, (b)
compliance with any applicable requirements of the Exchange Act,
(c) for notification pursuant to, and expiration or termination of
the waiting period under, the HSR Act, and (d) where the
failure to obtain such consents, approvals, authorizations
or permits, or to make such filings or notifications,
would not have, and would not reasonably be
expected to have, a Buyer MAE or materially interfere with or
delay the transactions contemplated hereby. As used herein, the
term "Buyer MAE" means a material adverse effect on the ability of
Buyer and Merger Subsidiary to consummate the Merger in
accordance with the terms and conditions set forth in this
Agreement.
Section 4.04. Noncontravention. The execution, delivery and
performance by Buyer and Merger Subsidiary of this Agreement and the
consummation by Buyer and Merger Subsidiary of the transactions
contemplated hereby do not and will not (a) contravene or
conflict with the certificate or articles of incorporation
or bylaws of Buyer or Merger Subsidiary, (b) assuming
compliance with the matters referred to in Section 4.03,
contravene or conflict in any material respect with any provision of
law, regulation, judgment, order or decree binding upon Buyer or any
Subsidiary of Buyer or (c) except as set forth in Schedule 4.04, and
with such exceptions as would not individually or in
the aggregate have a Buyer MAE, constitute a default under or
give rise to any right of termination, cancellation or
acceleration of any right or obligation of Buyer or any
Subsidiary of Buyer or to a loss of any benefit to which Buyer or any
Subsidiary of Buyer is entitled under any agreement, contract or
other instrument binding upon Buyer or any Subsidiary of
Buyer.
Section 4.05. Proxy Statement; Schedule 13E-3. The
Schedule 13E-3, and any amendments or supplements thereto, will,
when filed with the SEC, comply as to form in all material
respects with the applicable requirements of the Exchange Act. At
the time the Company Proxy Statement or any amendment or
supplement thereto is first mailed to stockholders of the Company and
at the time such stockholders vote on adoption of this
Agreement, the information supplied by Buyer for inclusion or
incorporation by reference in the Company Proxy Statement or the
Schedule 13E-3, as either such document may be amended or
supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not
misleading.
Section 4.06 Litigation. There is no action, suit,
investigation or proceeding pending against, or to the knowledge of
the Company threatened against, Buyer or any Subsidiary of
Buyer or any of their respective properties before any court or
arbitrator or any governmental body, agency or official which
seeks to prevent, hinder, modify or challenge the transactions
contemplated by this Agreement.
Section 4.07. Finders' Fees. There is no investment
banker, broker, finder or other intermediary which has been
retained by or is authorized to act on behalf of, Buyer or any
Buyer Subsidiary (other than the Company or any Company
Subsidiary) who might be entitled to any fee or commission from the
Company or any of its affiliates upon consummation of the
transactions contemplated by this Agreement.
Section 4.08. Financing. Buyer has, and will have prior to
the Effective Time, sufficient funds available to pay the Merger
Consideration in respect of all of the Shares (other than Shares
owned by Buyer or any Subsidiary of Buyer) and to pay all related
fees and expenses pursuant to the Merger and this Agreement.
ARTICLE 5
COVENANTS OF THE COMPANY
The Company agrees that:
Section 5.01. Conduct of the Company.
(a) Except as set forth in Schedule 5.01 or as otherwise
contemplated herein, from the date hereof until the Effective
Time, the Company and the Company Subsidiaries shall conduct
their business in the ordinary course consistent with past
practice in all material respects and shall use their
commercially reasonable efforts to preserve intact their business
organizations and relationships with third parties and to keep
available the services of their present officers and employees in
all material respects. Without limiting the generality of the
foregoing, from the date hereof until the Effective Time and
except as set forth in Schedule 5.01:
(i) the Company will not adopt or propose any change
in its certificate of incorporation or bylaws;
(ii) the Company will not, and will not permit any
Company Subsidiary to, merge or consolidate with any other
Person or acquire a material amount of assets of any other
Person;
(iii) the Company will not, and will not permit any
Company Subsidiary to, sell, lease, license or otherwise
dispose of any material assets or property except (A)
pursuant to existing contracts or commitments and (B) in the
ordinary course consistent with past practice;
(iv) the Company will not, and will not permit any
Company Subsidiary to, agree or commit to do any of the
foregoing; and
(v) the Company will not, and will not permit any
Company Subsidiary to take or agree to commit to, take any
action that would make any representation or warranty of the
Company hereunder inaccurate in any respect at the Effective
Time.
(b) Notwithstanding anything to the contrary in this
Agreement, Buyer and Merger Subsidiary agree that (i) the Company may
pay to: (A) ▇▇▇▇▇▇▇▇▇ & Company, Inc. its fees and expenses in
accordance with the existing agreements in respect of its
fairness opinion relating to the Merger, not to exceed $250,000 in
the aggregate; and (B) to other persons fees and expenses
relating to the Merger in an amount not to exceed $250,000 in the
aggregate, and (ii) to the extent that the Company makes any of
these payments, none of the payments, individually or in the
aggregate, shall be deemed to (i) have a Material Adverse Effect on
the Company or (ii) provide to Buyer any reason not to
consummate the Merger or make an adjustment to the Per Share
Amount.
Section 5.02. Stockholder Meeting; Proxy Material. Subject
to the provisions of Section 5.04, the Company shall cause the
Company Stockholder Meeting to be duly called and held as soon as
reasonably practicable for the purpose of voting on the approval and
adoption of this Agreement and the Merger unless a vote of
stockholders of the Company is not required by New York Law.
Subject to the provisions of Section 5.04, the Directors of the
Company shall recommend approval and adoption of this Agreement and
the Merger by the Company's stockholders at the Company
Stockholder Meeting, and will include such recommendation in the
Company Proxy Statement; provided, however, that, consistent with
its fiduciary duties set forth in Section 5.04, the Board of
Directors of the Company shall be permitted to (i) not recommend to
the Company's stockholders that they give the Company
Stockholder Approval or (ii) withdraw or modify in a manner
adverse to Buyer and Merger Subsidiary its recommendation to the
Company's stockholders that they give the Company Stockholder
Approval, but in each of cases (i) and (ii) only if and to the
extent that the Company has complied with Section 5.04 and this
Section 5.02 and a Superior Proposal (as defined below) is
pending at the time the Company's Board of Directors determines to
take any such action or inaction. The Company will (i) in
connection with the Company Stockholder Meeting, promptly prepare and
file with the SEC, use commercially reasonable efforts to have
cleared by the SEC as promptly as practicable and thereafter mail to
its stockholders as promptly as practicable the Company Proxy
Statement and all other proxy materials for such Company
Stockholder Meeting and (ii) unless, to the extent permitted by the
second sentence of this Section 5.02, and subject to Section 5.04,
the Board of Directors shall not recommend to the Company's
stockholders that they give the Company Stockholder Approval or
shall have withdrawn or modified in a manner adverse to Buyer its
recommendation, use commercially reasonable efforts to solicit
proxies in favor of the approval of this Agreement and the
Merger, provided that the obligation of the Company to cause the
Company Proxy Statement and the proxy to be mailed to the
Company's stockholders is subject to the Board of Directors of the
Company having received from Jefferies & Co., Inc.
confirmation of its opinion referred to in Section 3.02 as of the
date scheduled for mailing of the Company Proxy Statement if the
Board of Directors requests such a confirmation. For purposes of
this Agreement, "Superior Proposal" means any bona fide
Acquisition Proposal, on terms that the Board of Directors of the
Company determines in its reasonable good faith judgment are more
favorable to the Company's stockholders taken as a whole than the
transactions contemplated by this Agreement and with respect to
which the Company's Board of Directors determines, in its
reasonable good faith judgment, after consultation with its
financial advisors, the Person making such Acquisition Proposal has
the financial means to consummate such Acquisition Proposal. For
purposes of this Agreement, "Acquisition Proposal" means any offer
or proposal for a merger, consolidation or tender or exchange
offer or other business combination involving the Company or
any Subsidiary of the Company or the acquisition of any substantial
debt or equity interest in, or a substantial portion of the
assets of, the Company or of any Company Subsidiary, other
than the transactions contemplated by this Agreement.
Section 5.03. Access to Information. Subject to the
provisions of Section 5.06, from the date hereof until the
Effective Time, the Company will give Buyer, its counsel,
financial advisors, auditors and other authorized representatives
full access to the offices, properties, books and records of the
Company and the Company Subsidiaries, will furnish to Buyer, its
counsel, financial advisors, auditors and other authorized
representatives such financial and operating data and other
information as such Persons may reasonably request and will
instruct the Company's employees, counsel and financial advisors to
cooperate with Buyer in its investigation of the business of the
Company and the Company Subsidiaries; provided that such access
shall be upon reasonable advance notice to the Company and during
normal business hours and shall not unreasonably interfere with the
Company's operation of its business; and provided further that
no investigation pursuant to this Section shall affect any
representation or warranty given by the Company to Buyer hereunder.
Section 5.04. Other Offers From the date hereof until the
termination hereof, the Company and the Company Subsidiaries and the
officers, directors, employees or other agents of the Company and the
Company Subsidiaries will not (i) solicit or initiate any inquiries
or proposals that constitute, or reasonably would be expected to
lead to, any Acquisition Proposal or (ii) engage in negotiations
with, or disclose any nonpublic information relating to the Company
or any Company Subsidiary or afford access to the properties, books
or records of the Company or any Company Subsidiary, to any
Person (or any of its agents or representatives) that the Company
believes may be considering making, or has made, an Acquisition
Proposal, provided that nothing contained in this Section 5.04 shall
(A) prevent the Company from furnishing nonpublic information to,
or entering into negotiations with, any Person in connection with an
unsolicited Acquisition Proposal received from such Person so
long as prior to furnishing nonpublic information to, or entering
into negotiations with, such Person, (1) the Company receives
from such Person an executed confidentiality agreement with terms no
less favorable to the Company than those contained in the
Confidentiality Agreement (as defined below), (2) the Board of
Directors has reasonably concluded that such Acquisition Proposal may
constitute a Superior Proposal and (3) the Company has
otherwise complied with this Section 5.04 or (B) prevent the
Company and the Company Subsidiaries from taking actions in the
ordinary course of business consistent with past practice and not in
connection with any Acquisition Proposal. The Company will notify
Buyer as soon as possible, but in any event within 24 hours,
after receipt of any Acquisition Proposal or any request for
nonpublic information relating to the Company or any Company
Subsidiary or for access to the properties, books or records of the
Company or any Company Subsidiary by any Person that the Company
believes may be considering making, or has made, an Acquisition
Proposal. Such notice to Buyer shall indicate the identity of the
Person making the Acquisition Proposal or request and in reasonable
detail the terms thereof. If the financial or other material terms
of such Acquisition Proposal are modified in any material respect,
then the Company shall notify Buyer as soon as possible, and in any
event within 24 hours. The Company will immediately cease and cause
its advisors and agents to cease any and all existing activities,
discussions or negotiations regarding an Acquisition Proposal with
any parties previously contacted; provided that the Company may inform
such parties that this Agreement has been entered into and that the
previously disclosed exploration of strategic alternatives process has
been terminated. Nothing contained in this Agreement shall prohibit
the Board of Directors of the Company from (i) taking and
disclosing to the Company's shareholders a position with respect to
a tender offer for the Shares by a third party pursuant to Rules
14d-9 and 14e-2 promulgated under the Exchange Act, (ii) making
such disclosure to the Company's shareholders as, in the judgment of
the Board of Directors of the Company, based on the advice of
outside counsel, is required under applicable law or under the
rules of the NASDAQ Stock Market or (iii) responding to any
unsolicited proposal or inquiry solely by advising the person making
such proposal or inquiry of the terms of this Section 5.04.
From the date hereof until the termination hereof, the Company
(i) shall not terminate, amend, modify or waive any provision
of any confidentiality or standstill agreement (other than any
entered into in the ordinary course of business not in connection
with any Acquisition Proposal and other than as permitted under
the proviso to the first sentence of this Section 5.04) to which it
or any of its Subsidiaries is a party and (ii) shall enforce, to
the fullest extent permitted under applicable law, the provisions
of any such agreement, including, without
limitation, by seeking to obtain injunctions to prevent breaches
thereof that are known to it and specific performance thereof.
Section 5.05. Estoppel Certificates. The Company will
undertake commercially reasonable efforts to obtain from the
lessor under each lease listed in Schedule 3.19 an estoppel
certificate certifying (i) that to the knowledge of such lessor
there exists no event or circumstance that constitutes, or which
with the giving of notice or the passage of time would
constitute, an event of default under the lease; (ii) that the
lessee under the lease is current in its rent obligations
thereunder; and (iii) that the material terms of the lease are as
described in Schedule 3.19.
Section 5.06. Confidentiality Agreement. The terms and
conditions of the Confidentiality Agreement by and between Buyer and
the Company dated November 5, 1998 (the "Confidentiality
Agreement") are incorporated herein by reference and shall apply to
all information relating to the Company and the Company
Subsidiaries provided to Buyer before the execution of this
Agreement and to all information relating to the Company and the
Company Subsidiaries provided to Buyer after the execution of
this Agreement, including, without limitation, pursuant to
Section 5.03 hereof.
Section 5.07. Pre-Closing Balance Sheet. The Company shall
prepare and deliver to Buyer, as soon as reasonably practicable and
in any event not less than five days prior to the scheduled
Effective Time, a consolidated balance sheet of the Company and the
Company Subsidiaries dated as of January 31, 1999 and
satisfying the requirement of this Section 5.07(the "Pre-Closing
Balance Sheet"). If the Effective Time occurs on or before
March 15, 1999, then the Pre-Closing Balance Sheet may be
unaudited, and (unless audited by PricewaterhouseCoopers LLP)
shall be accompanied by a certificate executed by the Chief
Financial Officer and by the Executive Vice President and
Secretary of the Company certifying that such Pre-Closing Balance
Sheet is correct and complete in all materials respects and
prepared in accordance with generally accepted accounting
principles consistently applied, except as set forth on Schedule
5.07. If the Effective Time occurs after March 15, 1999, then the
Pre-Closing Balance Sheet shall be audited by
PricewaterhouseCoopers LLP and shall be prepared in accordance
with generally accepted accounting principles consistently
applied, except as set forth on Schedule 5.07, and provided that
notwithstanding Schedule 5.07, inventory shrink shall be actual.
ARTICLE 6
COVENANTS OF BUYER
Buyer agrees that:
Section 6.01. Obligations of Merger Subsidiary. Buyer will
take any and all action necessary to cause Merger Subsidiary to
perform its obligations under this Agreement.
Section 6.02. Director and Officer Liability. For seven
years after the Effective Time, Buyer will, and will cause the
Surviving Corporation to, (i) indemnify and hold harmless the
present and former officers, directors and employees of the Company
against all costs and expenses (including attorneys' fees and
expenses), losses, claims, damages or liabilities of any kind or
nature in respect of acts or omissions occurring prior to the
Effective Time (including, without limitation, in respect of acts or
omissions in connection with this Agreement and the
transactions contemplated hereby) to the fullest extent permitted
under the Company's certificate of incorporation and bylaws and
(ii) to the fullest extent permitted under applicable law,
advance to such Persons fees and expenses incurred in defending any
action or suit with respect to which indemnity may be
available under the Company's certificate of incorporation or
bylaws upon receipt from each such Person to whom fees and
expenses are advanced of an undertaking reasonably satisfactory to
Buyer to repay such advances if it is ultimately determined that
such Person is not entitled to indemnification. In the event any
claim or claims are asserted or made within such sevenyear period,
all rights to indemnification in respect of any such claim or claims
shall continue until disposition of any and all such claims. Any
determination required to be made with respect to whether any of the
foregoing Persons is entitled to indemnification as set forth
above shall be made by independent legal counsel selected mutually by
such Person and Buyer. For seven years after the Effective Time, Buyer
will use commercially reasonable efforts to provide officers' and
directors' liability insurance and fiduciary liability insurance in
respect of acts or omissions occurring on or prior to the Effective
Time covering each such Person currently covered by the Company's
officers' and directors' liability insurance policy and fiduciary liability
insurance policy on terms with respect to coverage and amount no
less favorable in any material respect than those of such
policies in effect on the date hereof. Buyer may satisfy such
obligation by purchasing officer's and directors' liability and
fiduciary liability run-off coverage for such seven-year period.
During such seven-year period, Buyer shall not cause or permit any
amendment or other change to the articles of incorporation or bylaws
of the Surviving Corporation which would adversely affect the
indemnification rights of former officers, directors and
employees of the Company, except to the extent any such amendment may
be required by applicable law. In the event that Buyer or the
Surviving Corporation or any of their respective successors or
assigns (i) consolidates with or merges into any other Person and
shall not be the continuing or surviving corporation or entity
of such consolidation or merger or (ii) transfers all or
substantially all of its properties and assets to any person,
then, and in each such case, proper provision shall be made so
that the successors and assigns of Buyer or the Surviving
Corporation, as the case may be, shall assume all of the
obligations set forth in this Section 6.02.
Section 6.03. Employment Agreements. From and after the
Effective Time, Buyer shall, and shall cause the Surviving
Corporation and its Subsidiaries to, honor in accordance with
their terms, the employment contracts (including without
limitation the severance provisions therein) listed in Schedule
3.20 between the Company or one of the Company Subsidiaries and
certain current or former directors, officers or employees
thereof (true and correct copies of which have been delivered by
the Company to Buyer).
Section 6.04. Standstill. If this Agreement is terminated
by the Company pursuant to and in accordance with Section
9.01(e), Buyer shall not purchase any Shares for a period of one
year following such termination without the prior written consent
of the Company.
Section 6.05. Transitory Nature of Merger Subsidiary.
Buyer acknowledges that the Company has agreed to the structure of
the merger on the basis that the transaction will be treated for
federal income tax purposes as an acquisition by Buyer of the stock
of the Company from the Company's shareholders.
Section 6.06. Buyer's Environmental Report. Buyer shall
use commercially reasonable efforts to cause Geologic Services
Corporation to prepare and deliver to Buyer as soon as reasonably
possible a Phase II environmental report covering all of the real
property identified in Schedule 3.17, which report shall include
an estimate as to the cost of remediating all Environmental
Liabilities with respect to such properties. Buyer shall deliver a
copy of such report to the Company not later than two business days
following Buyer's receipt thereof.
ARTICLE 7
COVENANTS OF BUYER AND THE COMPANY
The parties hereto agree that:
Section 7.01. Commercially Reasonable Efforts; SEC Filings.
Each of the parties hereto agrees to use its commercially
reasonable efforts to take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by
this Agreement in the most expeditious manner practicable,
including but not limited to the satisfaction of all conditions to
0the Merger and seeking to remove promptly any injunction or other
legal barrier that may prevent or delay such consummation. Each of
the parties shall promptly notify the other whenever a consent is
obtained and shall keep the other informed as to the progress in
obtaining such consents. The Company and Buyer will promptly
prepare and file with the SEC, and thereafter mail to the
stockholders of the Company as promptly as practicable the Company
Proxy Statement and all other proxy materials for the Company
Stockholder Meeting. The Company Proxy Statement will include
therein the information required to be provided to the Company's
stockholders by Rule 13e-3(e) under the Exchange Act.
Section 7.02. Public Announcements. Buyer and the
Company agree that the press release set forth in Exhibit 7.02
hereto shall be released to the public immediately upon execution
hereof. Buyer and the Company will consult with each other
before issuing any other press release or making any other public
statement with respect to this Agreement and the transactions
contemplated hereby and, except as may be required by applicable law
or any listing agreement with any national quotation system, will
not issue any such press release or make any such public statement
prior to such consultation.
Section 7.03. Further Assurances. At and after the
Effective Time, the officers and directors of the Surviving
Corporation will be authorized to execute and deliver, in the
name and on behalf of the Company or Merger Subsidiary, any
deeds, bills of sale, assignments or assurances and to take and do,
in the name and on behalf of the Company or Merger
Subsidiary, any other actions and things to vest, perfect or
confirm of record or otherwise in the Surviving Corporation any and
all right, title and interest in, to and under any of the rights,
properties or assets of the Company acquired or to be acquired by
the Surviving Corporation as a result of, or in connection with,
the Merger.
Section 7.04. Notices of Certain Events. The parties shall
promptly notify each other of:
(a) any notice or other communication from any Person alleging
that the consent of such Person is or may be required in connection with
the transactions contemplated by this Agreement;
(b) any notice or other communication from any governmental
or regulatory agency or authority in connection with the transactions
contemplated by this Agreement; and
(c) the occurrence, or threatened occurrence, of any fact or
circumstance that would cause or constitute, or would be reasonably likely
to cause or constitute, a material breach of any of its representations
and warranties set forth herein.
ARTICLE 8
CLOSING; CONDITIONS TO THE MERGER
Section 8.01. Closing. The closing of the transactions
contemplated hereby shall take place at the offices of ▇▇▇▇▇▇▇
Berlin Shereff ▇▇▇▇▇▇▇▇, LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or at such other location as the parties may
agree in writing.
Section 8.02. Conditions to the Obligations of Each Party. The
obligations of the Company, Buyer and Merger Subsidiary to
consummate the Merger are subject to the satisfaction of the
following conditions:
(a) if required by New York Law, this Agreement shall have
been adopted by the stockholders of the Company in accordance with
such Law;
(b) no provision of any applicable law or regulation and no
judgment, injunction, order or decree shall prohibit the consummation
of the Merger;
(c) the governmental and third party notices, authorizations,
consents, orders or approvals set forth on Schedule 8.02 shall have been
obtained and be in effect; and
(d) (i) no federal, state or foreign court, arbitrator
or governmental body, agency, or official shall have issued any order,
and there shall not have been adopted or promulgated any statute, rule
or regulation, prohibiting the consummation of the Merger or,
except for orders, statutes, rules and regulations of general effect,
limiting or restricting Buyer's conduct or operation of the business
of the Company after the Merger in a manner that would have a Material
Adverse Effect, and (ii) no proceeding seeking to prohibit, alter,
prevent or materially delay the Merger shall have been instituted by any
governmental agency or authority before any court, arbitrator or
governmental body, agency or official and be pending.
Section 8.03. Conditions to the Obligations of Buyer and
Merger Subsidiary. The obligations of Buyer and Merger
Subsidiary to consummate the Merger are subject to the
satisfaction of the following further conditions:
(a) No Material Adverse Effect shall have
occurred and be continuing as a result of either (i) the breach by
the Company of any of the representations and warranties of the Company
contained in this Agreement (disregarding all exceptions therein for
materiality and Material Adverse Effect), or (ii) the failure of the
Company to have performed its obligations required hereunder, and Buyer
shall have received a certificate signed by an executive officer on
behalf of the Company to the foregoing effect;
(b) The amount of the Closing Environmental Liabilities
shall have been definitively resolved in accordance herewith, and shall
not be greater than $750,000;
(c) Buyer shall have received from the Company the Pre-Closing
Balance Sheet and all accompanying certifications and/or reports
required pursuant to Section 5.07 showing that as of the date of such
Pre-Closing Balance Sheet the Net Assets of the Company are not less
than negative $1,000,000; and
(d) Buyer shall have received all customary documents it may
reasonably request relating to the existence of the Company and the
authority of the Company for this Agreement, all in form and substance
reasonably satisfactory to Buyer.
Section 8.04. Conditions to the Obligations of the Company. The
obligations of the Company to consummate the Merger are subject
to the satisfaction of the following further conditions:
(a) no Buyer MAE shall have occurred and be
continuing as a result of either (i) the breach by
Buyer or Merger Subsidiary of any of the
representations and warranties of Buyer contained in
this Agreement (disregarding the exceptions therein for
materiality and Buyer MAE) or (ii) the failure of Buyer or
Buyer Subsidiary to have performed its obligations
required hereunder, and the Company shall have received a
certificate signed by an executive officer on behalf of
Buyer to the foregoing effect; and
(b) the Company shall have received all customary
documents it may reasonably request relating to the
existence of Buyer or Merger Subsidiary and the
authority of Buyer or Merger Subsidiary for this
Agreement, all in form and substance reasonably
satisfactory to the Company.
ARTICLE 9
TERMINATION
Section 9.01. Termination. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the
Effective Time (notwithstanding any approval of this Agreement
by the stockholders of the company):
(a) by mutual written consent of the Company and Buyer;
(b) by either the Company or Buyer if, at the
Company Stockholder Meeting (including any postponement or
adjournment thereof), the Merger and the other
transactions contemplated hereby that require such
approval shall fail to be approved and adopted by the
affirmative vote specified herein;
(c) by either the Company or Buyer, if the Merger has
not been consummated by April 30, 1999; provided, however,
that no party that has materially breached its obligations
hereunder shall be entitled to terminate this Agreement
under this subsection;
(d) by either the Company or Buyer (so long as
such party has complied in all material respects with
its obligations under Section 7.01), if there shall be
any law or regulation that makes consummation of the
Merger illegal, or if any judgment, injunction, order or
decree enjoining Buyer or the Company from
consummating the Merger is entered and such judgment,
injunction, order or decree shall become final and
nonappealable;
(e) by the Company (provided that at the time
Buyer would not be entitled to terminate this Agreement
under Section 9.01(f) or 9.01(g) disregarding the
notice provisions therein) if a Buyer MAE has occurred as
a result of either (i) the breach by Buyer of any of the
representations and warranties of Buyer contained in
this Agreement (disregarding the exceptions therein for
materiality and Buyer MAE) or (ii) the failure of Buyer
or Merger Subsidiary to have performed its
obligations required hereunder (including without
limitation a failure to consummate the Merger when and as
required pursuant to and in accordance with this
Agreement), and Buyer does not cure, or proceed in good
faith to cure, such breach within ten business days
after the Company delivers written notice thereof;
(f) by Buyer (provided that at the time the Company would not
be entitled to terminate this Agreement under Section 9.01(e)
disregarding the notice provisions therein) if a Material Adverse
Effect has occurred as a result of either (i) the breach by the
Company of any of the representations and warranties of the Company
contained in this Agreement (disregarding the exceptions therein
for materiality and Material Adverse Effect) or (ii) the failure
of the Company to have performed its obligations required hereunder,
and the Company does not cure, or proceed in good faith to cure,
such breach within ten business days after Buyer delivers written
notice thereof;
(g) by Buyer if either (i) the Company ceases to conduct normal
retail operations at two or more of its currently existing store
locations (other than a cessation of such retail operations at the
Company's store locations no. 167 and/or 168 resulting from the
termination of the leases for such locations solely be action of the
landlord therefor), (ii) the Pre-Closing Balance Sheet to be
delivered by the Company to Buyer as provided in Section 8.03(c)
shows that the Net Assets of the Company are less than
negative $1,000,000, or (iii) the Closing Environmental Liabilities
are greater than $750,000;
(h) by the Company, if prior to the Company Stockholder
Meeting, the Board of Directors of the Company shall have failed
to recommend or shall have withdrawn or modified or changed in a
manner adverse to Buyer its approval or recommendation of this
Agreement or the Merger or shall have failed to include its
recommendation in favor of the Merger in the Company Proxy
Statement or shall have recommended or approved or endorsed a
Superior Proposal (provided that the determination by the Board
of Directors that an Acquisition Proposal constitutes a Superior
Proposal for purposes of Section 5.04 shall not be treated as
recommending, approving or endorsing a Superior Proposal), or
the Company shall have entered into a definitive agreement or a
letter of intent or similar agreement (which shall not include a
confidentiality/standstill agreement permitted by Section 5.04)
providing for a Superior Proposal with a Person other than
Buyer or its Subsidiaries, in each case in accordance with and to
the extent permitted by Section 5.02; provided that the Company
shall have made the payment referred to in Section 9.02(b) hereof;
(i) by Buyer if the Board of Directors of the Company shall
have failed to recommend or shall have withdrawn, or modified or
changed in a manner adverse to Buyer its approval or recommendation
of this Agreement or the Merger or shall have failed to include its
recommendation in favor of the Merger in the Company Proxy
Statement or shall have recommended or approved or endorsed a
Superior Proposal (provided that the determination by the Board of
Directors that an Acquisition Proposal constitutes a Superior
Proposal for purposes of Section 5.04 shall not be treated as
recommending, approving or endorsing a Superior
Proposal), or the Company shall have entered into a
definitive agreement or a letter of intent or similar
agreement (which shall not include a
confidentiality/standstill agreement permitted by Section
5.04) providing for a Superior Proposal with a Person
other than Buyer or its Subsidiaries;
(j) by Buyer (provided that at the time
the Company would not be entitled to terminate this
Agreement under Section 9.01(e) disregarding the notice
provisions thereof) if the Company elects not to cause the
Company Proxy Statement and Proxy to be mailed to the
Company's stockholders pursuant to the proviso to the
third sentence of Section 5.02;
(k) by the Company (provided that at the
time Buyer would not be entitled to terminate this
Agreement under Sections 9.02(f) or 9.02(g)
disregarding the notice provisions therein) if the Company
elects not to cause the Company Proxy Statement and
Proxy to be mailed to the Company's stockholders
pursuant to the proviso to the third sentence of Section
5.02; or
(l) by the Company, if the Pre-Closing
Balance Sheet to be delivered by the Company to Buyer
as provided in Section 8.03(c) shows that the Net Assets
of the Company are greater than $7,000,000.
The party desiring to terminate this Agreement pursuant to this
Section 9.01 shall give written notice of such termination to the
other party in accordance with Section 10.01.
Section 9.02. Effect of Termination.
(a) If this Agreement is terminated pursuant to Section
9.01, this Agreement shall become void and of no effect with no
liability on the part of any party hereto, except that the
agreements contained in this Section 9.02 and in Section 10.04
shall survive the termination hereof.
(b) In the event that (i) an Acquisition Proposal shall
have been made known to the Company or any Company Subsidiary, or has
been made directly to its stockholders generally or any person
shall have publicly announced an intention (whether or not
conditional) to make an Acquisition Proposal and thereafter
Company Stockholder Approval is not obtained or (ii) this
Agreement is terminated by Buyer pursuant to Section 9.01(i) or
by the Company pursuant to Section 9.01(l), then the Company will
promptly, but in no event later than two days after the date of
such termination, pay Buyer a fee equal to $2,000,000 (the
"Termination Fee"), payable by wire transfer of same day funds,
plus upon Buyer's request all reasonable and documented out-of
pocket expenses incurred by Buyer in connection with this
Agreement and the transactions contemplated hereby in an amount (as
to such expenses) not to exceed $300,000, which payments will be in
addition to any Termination Fee that may be payable. In
the event that this Agreement is terminated by Buyer pursuant to
Section 9.01(f), then the Company will promptly, but in no event
later than two days after the date of such termination, pay
Buyer, upon Buyer's request, all reasonable and documented out-of
pocket expenses incurred by Buyer in connection with this
Agreement and the transactions contemplated hereby in an amount not
to exceed $300,000. Notwithstanding any other provision herein,
no Termination Fee or any out-of-pocket expenses will be
payable under this Section 9.02(b) (i) if Buyer shall have
materially breached any representation, warranty or covenant
applicable to it hereunder and such breach shall have given rise to
a right of termination on the part of the Company pursuant to Section
9.01(e) (disregarding the notice provision therein), or
(ii) for any reason other than the specific circumstances set
forth in this Section 9.02(b). The Company acknowledges that the
agreements contained in this Section 9.02(b) are an integral part of
the transactions contemplated by this Agreement, and that, without
these agreements, Buyer would not enter into this Agreement;
accordingly, if the Company fails promptly to pay the amount due
pursuant to this Section 9.02(b), and, in order to
obtain such payment, Buyer commences a suit which results in a
judgment against the Company for the fee set forth in this
Section 9.02(b), the Company will pay to Buyer its reasonable
costs and expenses (including attorneys' fees and expenses) in
connection with such suit, together with interest on the amount of
the fee at the prime rate of Citibank, N.A. in effect on the date
such payment was required to be made.
(c) In the event that this Agreement is terminated by the
Company pursuant to Section 9.01(e), then Buyer will promptly, but
in no event later than two days after the date of such event, pay
the Company a fee equal to $2,000,000 (the "Company
Termination Fee"), plus upon the Company's request all reasonable and
documented out-of-pocket expenses incurred by the Company in
connection with this Agreement and the transactions contemplated
hereby and thereby in an amount (as to such expenses) not to
exceed $300,000, which payments shall be made in addition to any
Company Termination Fee that may be payable. Notwithstanding any
other provision herein, no Company Termination Fee or any out-of
pocket expenses will be payable under this Section 9.02(c) to the
Company (i) if the Company shall have materially breached any
representation, warranty or covenant applicable to it hereunder and
such breach shall have given rise to a right of termination on the
part of Buyer pursuant to Section 9.01(f) (disregarding the notice
provisions therein) or if Buyer shall be entitled to
terminate this Agreement pursuant to Section 9.01(g) or (ii) for any
reason other than the specific circumstances set forth in
this Section 9.02(c). Buyer acknowledges that the agreements
contained in this Section 9.02(c) are an integral part of the
transactions contemplated by this Agreement, and that, without
these agreements, the Company would not enter into this
Agreement; accordingly, if Buyer fails promptly to pay the amount due
pursuant to this Section 9.02(c), and, in order to obtain such
payment, the Company commences a suit which results in a judgment
against Buyer for the fee set forth in this Section
9.02(c), Buyer will pay to the Company its reasonable costs and
expenses (including attorneys' fees and expenses) in connection
with such suit, together with interest on the amount of the fee at
the prime rate of Citibank N.A. in effect on the date such payment
was required to be made.
(d) If any Company Termination Fee is payable pursuant to
Section 9.02(c), Buyer in its discretion may satisfy its
obligation to pay such Company Termination Fee (and any Company
expenses) by offsetting, in whole or in part, the obligations of the
Company to Buyer under that certain Subordinated Convertible Note
Purchase Agreement between Buyer, as lender, and the Company,
as borrower, dated as of even date herewith (the "Note Agreement").
ARTICLE 10
MISCELLANEOUS
Section 10.01. Notices. All notices, requests and other
communications given or made pursuant hereto to any party
hereunder shall be in writing (including facsimile or similar
writing) and shall be given:
if to Buyer or Merger Subsidiary, to:
Phar Mor, Inc.
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: General Counsel
Facsimile: 330 -740-2985
with a copy to:
▇▇▇▇▇▇▇ Berlin Shereff ▇▇▇▇▇▇▇▇, LLP
▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇.▇.,
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
if to the Company, to:
Pharmhouse Corp.
▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: President
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ LLP
▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
and to:
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
or such other address or facsimile numbers as such party may
hereafter specify for the purpose by notice to the other parties
hereto. Each such notice, request or other communication shall
be effective (a) if given by facsimile, when such facsimile is
transmitted to the facsimile number specified in this Section and the
appropriate facsimile confirmation is received, or (b) if given by
any other means, when delivered at the address specified in this
Section.
Section 10.02. Survival. The representations and
warranties contained herein and in any certificate or other
writing delivered pursuant hereto shall not survive the Effective
Time or the termination of this Agreement. All covenants and
agreements contained herein which by their terms are to be
performed in whole or in part after the Effective Time shall
survive the Effective Time and be enforceable in accordance with
their terms.
Section 10.03. Amendments; No Waivers. (a) Any provision of
this Agreement may be amended or waived prior to the Effective Time
if, and only if, such amendment or waiver is in writing and signed,
in the case of an amendment, by the Company, Buyer and Merger
Subsidiary or in the case of a waiver, by the party against
whom the waiver is to be effective, provided that after the
adoption of this Agreement by the stockholders of the Company,
no such amendment or waiver shall, without the further approval of
such stockholders, alter or change (i) the amount or kind of
consideration to be received in exchange for any shares of capital
stock of the Company or (ii) any of the terms or conditions of
this Agreement if such alteration or change would adversely affect
the holders of any shares of capital stock of the Company.
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor
shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by
law.
Section 10.04. Expenses. Except as expressly provided in
Sections 9.02 and 10.10(c), all costs and expenses incurred in
connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such cost or expense.
Section 10.05. Successors and Assigns. The provisions of
this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, provided
that no party may assign, delegate or otherwise transfer any of its
rights or obligations under this Agreement without the prior written
consent of each of the other parties hereto.
Section 10.06. Counterparts; Effectiveness. This
Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto
shall have received counterparts hereof signed by all of the
other parties hereto.
Section 10.07. Parties in Interest. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto,
and nothing in this Agreement, express or implied, is intended to
confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement, except for Sections
6.02, 6.03 and 10.08 (which are also intended to be for the benefit
of the persons provided for therein and may also be enforced by such
persons).
Section 10.08. No Personal Liability. Neither this
Agreement nor any certificate delivered hereunder shall create or be
deemed to create or permit any personal liability or
obligation on the part of any direct or indirect stockholder of any
party hereto except the Buyer.
Section 10.09. Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the
State of New York without reference to conflicts of laws
principles applied in such State.
Section 10.10. Jurisdiction; Jury Trial Waiver. (a) Except as
expressly set forth in Section 10.10(c) or Section 10.10(d),
any suit, action or proceeding seeking to enforce any provision of,
or based on any matter arising out of or in connection with this
Agreement or the transactions contemplated hereby shall be brought
in any federal court located in the Southern District of the State
of New York or any New York state court sitting in New York City, and
each of the parties hereto hereby consents to the exclusive
jurisdiction of such courts (and of the appropriate appellate
courts therefrom) in any such suit, action or
proceeding and waives any objection to venue laid therein.
Process in any such suit, action or proceeding may be served on any
party anywhere in the world, whether within or without the State
of New York. Without limiting the generality of the foregoing,
each party hereto agrees that service of process upon such party
may be made at the address referred to in Section 10.01, and if
made in accordance with the provision of Section 10.01, shall be
deemed effective service of process upon such party.
(b) Each party hereto hereby waives all rights to trial by
jury in any action or proceeding instituted by either of them
against the other which pertains directly or indirectly to this
Agreement, the Merger, any alleged tortious conduct by any party, or
in any way, directly or indirectly, arises out of or relates to the
relationship among the parties hereto. The prevailing party in any
such suit, action or proceeding shall be entitled to recover all
reasonable costs incurred in connection therewith including,
without limitation, attorneys' fees.
(c) In the event that Buyer terminates this Agreement
pursuant to Section 9.01(f) and the Company disputes such
termination, the Company, by written notice delivered to Buyer
within five days of such termination, may require that such
dispute be submitted to binding arbitration in accordance with
this Section 10.10(c). Such arbitration shall be held in
Youngstown, Ohio in accordance with the CPR Rules for
Nonadministered Arbitration of Business Disputes (the "CPR
Rules"), except as expressly modified by the provisions hereof. The
arbitration shall be governed by the United States
Arbitration Act, 9 U.S.C. 1-16, notwithstanding the choice of law
provision of Section 10.09. There shall be one arbitrator, who
shall be jointly selected by Buyer and Company; provided, however,
that if the arbitrator has not been selected within 15 days after
a matter is submitted to arbitration, then the arbitrator
shall be selected in accordance with the CPR Rules. The arbitrator
shall be disinterested in the subject matter of the dispute, shall
not have been employed or engaged by either party within the
past five years and shall have appropriate qualifications and
experience with respect to arbitrations of business disputes. The
prevailing party in the arbitration shall be entitled to recover all
reasonable costs incurred thereby in connection with such
arbitration proceeding, including without limitation reasonable
attorneys' fees. Notwithstanding any other provision hereof,
the sole question that may be submitted to arbitration pursuant
to this Agreement is whether Buyer's termination of this Agreement
pursuant to Section 9.01(f) was or was not justified.
(d) In the event that the Company disputes the amount of
the Closing Environmental Liabilities as provided in Section
3.17(c), such dispute shall be resolved as provided in this
Section 10.10(d). The Company shall have 20 days following
delivery of its dispute notice pursuant to Section 3.17(c) to
engage (at the Company's sole cost and expense) an environmental
consultant to prepare a Phase II report as to the properties
identified on Schedule 3.17 (which report shall include an
estimate as to the cost of remediating all Environmental
Liabilities with respect to such properties) and to deliver a
copy of such report to Buyer. If the Company shall fail to
deliver a copy of such report to Buyer within such 20-day period,
then the Closing Environmental Liabilities shall be as determined by
reference to Buyer's environmental report. If the Company
delivers such environmental report to Buyer within such 20-day
period and it indicates that the estimated cost to remediate all
Environmental Liabilities of the Company with respect to the real
property locations identified on Scheduled 3.17 is not more than
$100,000 less than the remediation cost estimate submitted by
Buyer's environmental consultant with respect to such properties,
then the Closing Environmental Liabilities shall equal the
average of the respective remediation cost estimates submitted by
Buyer's environmental consultant and the Company's environmental
consultant. If the Company delivers such environmental report to
Buyer within such 20-day period and it indicates that the
estimated cost to remediate all Environmental Liabilities of the
Company with respect to the real property locations identified on
Scheduled 3.17 is at least $100,000 less than the remediation
cost estimate submitted by Buyer's environmental consultant with
respect to such properties, then Buyer and the Company shall
direct their respective environmental consultants to select a
third environmental consultant (at the joint cost and expense of
Buyer and the Company) to prepare a Phase II report as to the
properties identified in Schedule 3.17 (which report shall
include an estimate as to the cost of remediating all
Environmental Liabilities with respect to such properties) and to
deliver a copy of such report to Buyer and the Company as soon as
reasonably practicable. In such event, the Closing Environmental
Liabilities shall equal the remediation cost estimate submitted by
the third environmental consultant, whose decision shall be final
and binding for all purposes hereof.
Section 10.11. Specific Performance. The parties hereto
agree that irreparable damage would occur in the event any
provision of this Agreement was not performed in accordance with
the terms hereof and that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions of this
Agreement in any federal court located in the Southern District of
the State of New York or any New York state court sitting in New
York City, in addition to any remedy to which they are entitled
at law or in equity.
Section 10.12. Interpretation. When a reference is made in
this Agreement to a Section or Schedule, such reference shall be to
a Section of or a Schedule to this Agreement unless otherwise
indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. Whenever
the words "include," "includes" or "including" are used in this
Agreement they shall be deemed to be followed by the
words "without limitation." The phrases "the date of this
Agreement," "the date hereof," and terms of similar import,
unless the context otherwise requires, shall be deemed to refer to
December 17, 1998.
Section 10.13. Entire Agreement; Schedules. This
Agreement, the Confidentiality Agreement and the Note Agreement
constitute the entire agreement among the parties with respect to the
subject matter hereof and supersedes all prior written and oral
and all contemporaneous oral agreements and understandings with
respect to the subject matter hereof. Each party
acknowledges and agrees that no other party hereto makes any
representations or warranties, whether express or implied, other
than the express representations and warranties contained herein or
in the certificates to be delivered at the Effective Time. The
fact that any item of information is disclosed in any Schedule
to this Agreement shall not be construed to mean that such
information is required to be disclosed by this Agreement. Such
information and the dollar thresholds set forth herein shall not be
used as a basis for interpreting the terms "material" or "Material
Adverse Effect" or other similar terms in this Agreement. A
matter set forth in one section of the Schedules need not be set
forth in any other Section or Schedule so long as its relevance to
the latter Section or Schedule is reasonably clear.
Section 10.14. Severability. If any term or other
provision of this Agreement is determined to be invalid, illegal or
incapable of being enforced by any rule of law, or public policy,
all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic
or legal substance of the transactions contemplated herein is
not affected in any manner materially adverse to any party hereto.
Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in
a mutually acceptable manner.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
PHARMHOUSE CORP.
By:/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President
PHAR MOR, INC.
By:/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Chief Admin. Officer
PHARMACY ACQUISITION CORP.
By:/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Sr. V.P.