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EXHIBIT A
AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of December 2,
1997 (this "Agreement"), by and among Gart Sports Company, a Delaware
corporation ("Holdings"), Gart Bros. Sporting Goods Company, a Colorado
corporation and wholly-owned subsidiary of Holdings ("Sporting"), GB
Acquisition, Inc., a Delaware corporation and wholly-owned subsidiary of
Holdings ("Acquisition") and Sportmart, Inc., a Delaware corporation (the
"Company").
WHEREAS, Holdings, Sporting and the Company are parties to an Agreement and
Plan of Merger (the "Original Agreement"), dated as of September 28, 1997 (the
"Original Execution Date"), and such parties desire to amend and restate the
Original Agreement in its entirety as set forth herein:
WHEREAS, the Boards of Directors of Holdings, Sporting Acquisition and the
Company have each approved and deem it advisable and in the best interests of
their respective stockholders to consummate the combination of the Company and
Acquisition upon the terms and subject to the conditions of this Agreement;
WHEREAS, it is intended that the combination be accomplished by a merger of
Acquisition with and into the Company (the "Merger");
WHEREAS, each of Holdings, Sporting Acquisition and the Company intend that
the Merger will be treated as a tax free reorganization which meets the
requirements of Section 368(a)(2)(E) of the Internal Revenue Code of 1986, as
amended (the "Code");
WHEREAS, the Board of Directors of the Company has approved the
transactions contemplated by this Agreement in accordance with the provisions of
Sections 203 and 251 of the Delaware General Corporation Law (the "DGCL"), and
has resolved, subject to the terms of this Agreement, to recommend the approval
and adoption of the Merger by its stockholders;
WHEREAS, the holders (the "Company Principals") of more than 60% of the
outstanding Company Voting Stock (as herein defined) have, pursuant to a
Stockholder Agreement dated as of September 28, 1997, as amended and restated as
of the date hereof (the "Stockholder Agreement"), agreed to vote in favor of the
Merger;
WHEREAS, the Boards of Directors of Holdings, Sporting and Acquisition each
has approved the transactions contemplated by this Agreement and Green Equity
Investors, L.P. (the "Fund"), the holder of approximately 85% of the outstanding
Holdings Common Stock (as herein defined), and Holdings, as the sole stockholder
of each of Sporting and Acquisition, has each approved and adopted this
Agreement and the transactions contemplated hereby in accordance with Sections
228 and 251 of the DGCL and Sections ▇-▇▇▇-▇▇▇ and ▇-▇▇▇-▇▇▇ of the Colorado
Business Corporation Act (the "CBCA"); and
WHEREAS, this Agreement and the transactions contemplated hereby shall be
submitted to the stockholders of the Company for their adoption and approval.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions
contained in this Agreement, and in accordance with the DGCL, at the Effective
Time (as herein defined), Acquisition shall be merged with and into the Company,
the separate corporate existence of Acquisition shall thereupon cease, and the
Company shall continue as the surviving corporation (sometimes hereinafter
referred to as the "Surviving Corporation") and shall continue its corporate
existence under the laws of the State of Delaware. In accordance with the DGCL,
all of the rights, privileges, powers, immunities, purposes and franchises of
Acquisition and the Company shall vest in the Surviving Corporation and all of
the debts, liabilities,
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obligations and duties of Acquisition and the Company shall become the debts,
liabilities, obligations and duties of the Surviving Corporation.
Section 1.2 Closing. Subject to the terms and conditions of this
Agreement, the closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Altheimer & ▇▇▇▇, ▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, at 10:00 a.m., local time, on the
second business day after which all of the conditions set forth in Article VII
are first satisfied or waived ((the date of such first satisfaction or waiver
being the "Conditional Date") (provided that all such conditions continue to be
so satisfied or waived on such second business day, and if not so satisfied or
waived, the Closing shall be automatically extended from time to time until the
first subsequent business day on which all such conditions are again so
satisfied or waived, subject, however, to Section 8.1(b)), or on such other date
and at such other time and place as Holdings and the Company shall agree (the
date on which the Closing actually occurs being referred to herein as the
"Closing Date").
Section 1.3 Filing; Effective Time. On the date of the Closing, Holdings
and the Company will cause a Certificate of Merger to be properly executed and
filed pursuant to Section 251 of the DGCL. The Merger shall become effective at
such time as agreed in writing by Holdings and the Company and specified in the
Certificate of Merger (or if the parties cannot agree on a time, the Certificate
of Merger shall specify 9:15 a.m., eastern time, on the next business day
following the day of the filing of the Certificate of Merger). Such filing shall
be made contemporaneously with the Closing. When used in this Agreement, the
term "Effective Time" shall mean the date and time at which the Merger shall
become effective.
Section 1.4 Certificate of Incorporation and By-Laws of Surviving
Corporation. At the Effective Time, the Certificate of Incorporation of the
Company, as in effect immediately prior to the Effective Time, shall be amended
and restated as set forth in Exhibit A-1 hereto (the "Surviving Corporation
Charter"). The By-Laws of the Company as in effect immediately prior to the
Effective Time shall be amended and restated as of the Effective Time as set
forth in Exhibit B-1 hereto.
Section 1.5 Directors and Officers. The officers and directors of the
Surviving Corporation shall be the officers and directors of Acquisition at the
Effective Time, and shall hold office from the Effective Time until their
respective successors are duly elected or appointed and qualified in the manner
provided in the Certificate of Incorporation or By-Laws of the Surviving
Corporation or as otherwise provided by law.
Section 1.6 Certificate of Incorporation and By-Laws of Holdings. At the
Effective Time, the Certificate of Incorporation of Holdings, as in effect
immediately prior to the Effective Time, shall be amended and restated as set
forth in Exhibit A hereto (the "Holdings Charter"). The By-Laws of Holdings as
currently in effect shall be amended and restated as of the Effective Time as
set forth in Exhibit B-2 hereto.
Section 1.7 Directors of Holdings; Certain Share Treatment.
(a) The Board of Directors of Holdings at the Effective Time and for a
period of three years thereafter shall consist of seven directorships.
Initially, five of such directorships shall be the following individuals: ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
and one individual nominated by Holdings, it being understood that this list of
individuals may be supplemented or amended from time to time by Holdings prior
to the Effective Time (with the consent of the Company which shall not be
unreasonably withheld) and two of such directorships shall be filled by the two
members of the Board of Directors of the Company designated within 30 days after
the Effective Time by a majority of the persons who so constitute such Board of
Directors of the Company immediately prior to the Effective Time, each of which
seven directors shall serve until Holdings' 1998 annual meeting of stockholders.
Holdings agrees that Messrs. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ will be
nominated to serve as directors for a one year term commencing at Holdings' 1998
annual meeting of stockholders, and Holdings will use its best efforts to cause
the election thereof provided that the Company Principals own at least 75% of
the Holdings Common Stock that they receive in the Merger on the date of mailing
of Holdings' proxy materials with respect to such meeting (provided that if the
Company principals own more than 50% but less than 75% of the Holdings Common
Stock that they receive in the Merger on the date of mailing of Holdings' proxy
materials with respect to such meeting, Holdings agrees that one of Messrs.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ or ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ (in
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Holdings' discretion) will be nominated to serve as director and Holdings will
use its best efforts to cause the election thereof) and that one of them (in
Holdings' discretion) will be nominated for election as a director at Holdings'
1999 annual meeting of stockholders provided that the Company Principals own at
least 50% of the Holdings Common Stock that they receive in the Merger on the
date of mailing of Holdings' proxy materials with respect to such meeting. In
the event that either or both of Messrs. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ are
unwilling or unable to serve as a director of Holdings as provided above,
replacement nominee(s) shall be chosen by a majority in interest of the Company
Principals and Holdings will use its best efforts to cause the election thereof.
(b) For a period of 18 months from and after the Effective Time, Holdings
covenants and agrees that no merger, consolidation or other extraordinary
transaction involving holders of Holdings Common Stock, shall be entered into by
Holdings or any of its Subsidiaries unless all such holders are treated equally
with respect to their Holdings Common Stock in such transaction or unless
otherwise approved by the independent directors of Holdings.
ARTICLE II
CONVERSION OF SHARES
Section 2.1 Conversion of Shares. As of the Effective Time, by virtue of
the Merger and without any action on the part of any holder of any shares of
capital stock of the Company, Holdings, Sporting or Acquisition:
(a) Each share of Common Stock, par value $.01 per share, of the Company
("Company Voting Stock") and each share of Class A Common Stock, par value $.01
per share, of the Company ("Company Non-Voting Stock" and together with the
Company Voting Stock, the "Company Common Stock") issued and outstanding
immediately prior to the Effective Time shall be converted into, and shall
thereafter represent only, the right to receive the Conversion Number (as herein
defined) of duly issued, validly authorized, fully paid and nonassessable shares
of Common Stock, par value $.01 per share, of Holdings ("Holdings Common
Stock"). For purposes hereof, the "Conversion Number" shall mean Holdings' Share
Consideration (as defined below) divided by the Company's "Equivalent Shares
Outstanding." "Equivalent Shares Outstanding" shall mean the number of shares of
common stock (of any class) of Holdings or the Company, as the case may be,
outstanding, including the number of shares of common stock (of any class)
outstanding pursuant to any restricted stock plan, plus the number of Equivalent
Option Shares of Holdings or the Company, as applicable. "Equivalent Option
Shares" shall be the quotient of (a) the result of (i) the product of (x) the
number of shares of common stock purchasable upon exercise of outstanding
options (whether or not vested) with exercise prices less than the applicable
Closing Price of Holdings or the Company, as the case may be, multiplied by (y)
the applicable Closing Price minus (ii) the sum of the exercise prices of all
such options included in clause (i) divided by (b) the Closing Price of Holdings
or the Company, as applicable. The "Closing Price" of the Company shall be the
weighted average of the closing prices of the Company Voting Stock and the
Company Non-Voting Stock each as reported on the Nasdaq National Market. The
"Closing Price" of Holdings shall be the quotient of (a) the product of 2.636364
multiplied by the Closing Price of the Company multiplied by the Company's
Equivalent Shares Outstanding divided by (b) Holdings' Equivalent Shares
Outstanding. The Closing Price of Holdings shall be determined by a trial and
error method using multiple iterations and the same methodology used to
determine the Company's Equivalent Shares Outstanding. "Holdings Share
Consideration" shall be the product of Holdings' Equivalent Shares Outstanding
multiplied by 0.37931. All determinations with respect to the foregoing shall be
made as of the Effective Time (using the last full trading day prior thereto
with respect to the Closing Price of the Company).
(b) All shares of Company Common Stock that are owned by the Company as
treasury stock shall automatically be canceled and retired and shall cease to
exist and no cash, Holdings Common Stock, or other consideration shall be
delivered or deliverable in exchange therefor.
(c) All shares of Company Common Stock to be converted pursuant to Section
2.1(a), issued and outstanding immediately prior to the Effective Time, shall no
longer be outstanding and shall automatically be
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canceled and retired and shall cease to exist and each holder of a certificate
which immediately prior to the Effective Time represented outstanding shares of
Company Common Stock (the "Certificates") shall cease to have any rights as
stockholders of the Company, except the right to receive the consideration set
forth in Section 2.1(a) for each share of Company Common Stock held by them.
(d) Each share of Common Stock, par value $.01 per share, of Acquisition
issued and outstanding immediately prior to the Effective Time shall be
converted into one share of Common Stock, par value $.01 per share, of the
Surviving Corporation.
Section 2.2 Exchange Procedures.
(a) Holdings shall designate a bank or trust company reasonably acceptable
to the Company to act as Exchange Agent hereunder (the "Exchange Agent").
Immediately following the Effective Time, Holdings shall deliver, in trust, to
the Exchange Agent, for the benefit of the holders of shares of Company Common
Stock, for exchange in accordance with this Article II, through the Exchange
Agent, certificates evidencing the shares of Holdings Common Stock issuable
pursuant to Section 2.1 in exchange for shares of Company Common Stock (the
"Exchange Fund").
(b) As soon as practicable after the Effective Time, Holdings and the
Surviving Corporation shall cause the Exchange Agent to mail to each holder of
record of a Certificate or Certificates (i) a form of letter of transmittal
specifying that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Exchange Agent and (ii) instructions for use in surrendering such Certificates
in exchange for certificates representing shares of Holdings Common Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent, together with
such letter of transmittal, duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor (A) certificates representing that
number of whole shares of Holdings Common Stock into which the shares of Company
Common Stock represented by the surrendered Certificate have been converted at
the Effective Time pursuant to Section 2.1 hereof, (B) any dividends or other
distributions to which such holder is entitled pursuant to Section 2.3 hereof
and (C) cash in lieu of any fractional shares of Holdings Common Stock to which
such holder is entitled pursuant to Section 2.4 hereof, and the Certificate so
surrendered shall forthwith be canceled. Until surrendered as contemplated by
this Section 2.2(b), each Certificate shall be deemed from and after the
Effective Time to represent only the right to receive upon such surrender the
shares of Holdings Common Stock, cash in lieu of any fractional shares of
Holdings Common Stock in accordance with Section 2.4 hereof and any dividends or
distributions on Holdings Common Stock in accordance with Section 2.3 hereof. In
no event shall the holder of any such surrendered Certificates be entitled to
receive interest on any cash for fractional shares to be received in the Merger.
Neither the Exchange Agent nor any party hereto shall be liable to a holder of
shares of Company Common Stock for any amount paid to a public official pursuant
to any applicable abandoned property, escheat or similar law. Shares of Holdings
Common Stock to be issued in the Merger shall be issued as of, and be deemed to
be outstanding as of, the Effective Time. Holdings shall cause all such shares
of Holdings Common Stock to be duly authorized, validly issued, fully paid and
non-assessable and not subject to preemptive rights.
(c) If any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such Certificate to
be lost, stolen or destroyed and, if required by Holdings and the Surviving
Corporation, the giving by such person of an indemnity against any claim that
may be made against it with respect to such Certificate, the Exchange Agent will
issue in exchange for such lost, stolen or destroyed Certificate the applicable
certificate representing shares of Holdings Common Stock in accordance with
Section 2.1 hereof, any cash in lieu of fractional shares of Holdings Common
Stock to which the holders thereof are entitled pursuant to Section 2.4 hereof
and any dividends or other distributions to which the holders thereof are
entitled pursuant to Section 2.3 hereof.
Section 2.3 Dividends; Transfer Taxes; Withholding. No dividends or other
distributions that are declared on or after the Effective Time on Holdings
Common Stock, or are payable to the holders of record thereof who became such on
or after the Effective Time, shall be paid to any person entitled by reason of
the Merger to receive certificates representing shares of Holdings Common Stock,
and no distribution of cash consideration and no cash payment in lieu of any
fractional share of Holdings Common Stock shall be paid to
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any person pursuant to Section 2.4 hereof, until such person shall have
surrendered its Certificate(s) as provided in Section 2.2 hereof (or such person
shall have complied with Section 2.2(c) hereof). Subject to applicable law,
Holdings shall cause to be paid to each person receiving a certificate
representing such shares of Holdings Common Stock, (i) at the time of such
receipt the amount of any dividends or other distributions theretofore paid with
respect to the shares of Holdings Common Stock represented by such certificate
and having a record date on or after the Effective Time, and (ii) at the
appropriate payment date the amount of any dividends or other distributions
payable with respect to the shares of Holdings Common Stock represented by such
certificate which dividends or other distributions have a record date on or
after the Effective Time and a payment date on or subsequent to such receipt. In
no event shall the person entitled to receive such dividends or other
distributions be entitled to receive interest on such dividends or other
distributions. If any cash or certificate representing shares of Holdings Common
Stock is to be paid to or issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it shall be a
condition of such exchange that the Certificate so surrendered shall be properly
endorsed and otherwise in proper form for transfer and that the person
requesting such exchange shall pay to the Exchange Agent any transfer or other
taxes required by reason of the issuance of such certificate representing shares
of Holdings Common Stock and the distribution of such cash payment in a name
other than that of the registered holder of the Certificate so surrendered, or
shall establish to the satisfaction of the Exchange Agent that such tax has been
paid or is not applicable. Holdings, the Surviving Corporation or the Exchange
Agent shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of Company Common Stock such
amounts as Holdings, the Surviving Corporation or the Exchange Agent are
required to deduct and withhold under the Code, or any provision of state, local
or foreign tax law, with respect to the making of such payment. To the extent
that amounts are so withheld by Holdings, the Surviving Corporation or the
Exchange Agent, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the Company Common Stock in
respect of whom such deduction and withholding was made by Holdings, the
Surviving Corporation or the Exchange Agent.
Section 2.4 Fractional Shares. No certificates or scrip representing
fractional shares of Holdings Common Stock shall be issued upon the surrender
for exchange of Certificates, no dividend or distribution with respect to shares
shall be payable on or with respect to any fractional share and such fractional
share interests shall not entitle the owner thereof to vote or to any other
rights of a stockholder of Holdings. In lieu of any such fractional share of
Holdings Common Stock, Holdings shall pay to each former stockholder of the
Company who otherwise would be entitled to receive a fractional share of
Holdings Common Stock an amount in cash (without interest) rounded to the
nearest whole cent, determined by multiplying (i) the closing sales price of the
Holdings Common Stock on the Nasdaq National Market (or other principal exchange
or market in which such stock is traded) on the first day of trading thereof
following the Effective Time (the "Fractional Share Price") by (ii) the
fractional interest in a share of Holdings Common Stock to which such holder
would otherwise be entitled. Holding shall make available to the Exchange Agent,
and cause to be paid by the Exchange Agent, cash for this purpose.
Section 2.5 Return of Exchange Fund. Any portion of the certificates
representing shares of Holdings Common Stock together with any cash in lieu of
fractional shares payable pursuant to Section 2.4 hereof and any dividends or
distributions payable pursuant to Section 2.3 hereof, which remains
undistributed to the former holders of Company Common Stock for one year after
the Effective Time shall be delivered to Holdings, upon its request, and any
such former holders who have not theretofore surrendered to the Exchange Agent
their Certificate(s) in compliance with this Article II shall thereafter look
only to Holdings for payment of their claim for shares of Holdings Company
Stock, any cash in lieu of fractional shares of Holdings Common Stock and any
dividends or distributions with respect to such shares of Holdings Common Stock
(in each case, without interest thereon). The Exchange Agent shall invest any
cash included in the Exchange Fund, as directed by Holdings, on a daily basis.
Any interest and other income resulting from such investments shall be paid to
Holdings.
Section 2.6 Options.
(a) Following the Effective Time, each outstanding option to purchase
shares of Holdings Common Stock shall remain outstanding and unchanged.
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(b) Effective at the Effective Time, Holdings hereby assumes the Company's
obligations with respect to its stock options, as follows. Not later than the
Effective Time, each option to purchase shares of Company Common Stock (each a
"Company Stock Option") which is outstanding immediately prior to the Effective
Time pursuant to any stock option plan or stock incentive plan of the Company in
effect on the Original Execution Date and which plan is identified on the
Company Disclosure Schedule (the "Company Stock Plans") shall become and
represent an option to purchase the number of shares of Holdings Common Stock (a
"Substitute Company Option"), increased to the nearest whole share, determined
by multiplying (i) the number of shares of Company Common Stock subject to such
Company Stock Option immediately prior to the Effective Time by (ii) the
Conversion Number, at an exercise price per share of Holdings Common Stock
(increased to the nearest whole cent) equal to the exercise price per share of
Company Common Stock immediately prior to the Effective Time divided by the
Conversion Number. After the Effective Time, except as provided above in this
Section 2.6, each Substitute Company Stock Option shall be exercisable upon the
same terms and conditions as were applicable to the related Company Stock Option
immediately prior to the Effective Time, and each Substitute Company Option
shall, subject to the accelerated vesting contemplated by this paragraph, be
vested to the extent provided in the related Company Stock Plan or the option
agreement with respect to the related Company Stock Option, as the case may be.
This Section 2.6 shall be subject to any contrary provision contained in the
applicable Company Stock Plan or in the option agreement with respect to any
Company Stock Option outstanding thereunder, but, subject to the other
provisions of this Agreement, prior to the Effective Time, the Company, and
after the Effective Time, Holdings shall each use its reasonable best efforts to
obtain any necessary consents of the holders of such Company Stock Options to
effect this Section 2.6. Notwithstanding anything to the contrary contained in
this Agreement, the Board of Directors of the Company (or the Compensation
Committee thereof) may, at any time prior to the Effective Time, provide for the
acceleration of the vesting of Company Stock Options and restricted shares of
Company Common Stock under the Sportmart, Inc. Restricted Stock Plan in
connection with the Merger, provided that such accelerated vesting shall only be
applicable to persons (i) whose employment with the Company (or the Surviving
Corporation) is terminated by Holdings, the Company or the Surviving Corporation
at (or in anticipation of) the Effective Time or thereafter by Holdings or the
Surviving Corporation within six months following the Effective Time or
thereafter by such persons within six months following the Effective Time under
circumstances that constitute "Good Reason" as defined under the Company
Severance Plan in effect on the Original Execution Date or (ii) who do not at
the Effective Time have at least a comparable position with Holdings and the
Surviving Corporation to the position that they had with the Company and its
Subsidiaries. Notwithstanding anything to the contrary in this Section, the
conversion of Company Stock Options pursuant to any "stock purchase plan" within
the meaning of Code section 423 to Substitute Company Options shall be made in
accordance with Code section 424(a).
(c) There shall be no restrictions on selling shares of Holdings Common
Stock acquired pursuant to Substitute Company Options, except as required by law
or pursuant to the Registration Rights Agreement referenced in Section 7.3(h)
hereof (the "Registration Rights Agreement"). If such sales are restricted by
law, the Substitute Company Options (other than any options pursuant to any
"stock purchase plan" within the meaning of Code section 423) shall remain
exercisable for a period of at least 90 days (or, if shorter, the remainder of
the term of the Substitute Company Option, without regard to early termination
provisions) after the lapsing of such restriction if such Substitute Company
Options were outstanding when the restrictions became applicable to the selling
of shares of Holdings Common Stock acquired pursuant to Substitute Company
Options.
(d) At the Effective Time, Holdings shall register under the Securities Act
on Form S-8 or another appropriate form all Substitute Company Options and all
shares of Holdings Common Stock issuable pursuant to all such Options.
Section 2.7 Closing of Transfer Books. At the Effective Time, no transfer
of shares of Company Common Stock shall thereafter be made, and the stock
transfer books of the Company shall be closed. If, after the Effective Time,
Certificates are presented to the Surviving Corporation, they shall be canceled
and exchanged as provided in this Article II.
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Section 2.8 Further Assurances. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of Acquisition and the Company acquired or to be acquired
by the Surviving Corporation as a result of, or in connection with, the Merger
or otherwise to carry out the purposes of this Agreement, the officers of the
Surviving Corporation shall be authorized to execute and deliver, in the name
and on behalf of each of Acquisition and the Company or otherwise, all such
deeds, bills of sale, assignments and assurances and to take and do, in such
names and on such behalves or otherwise, all such other actions and things as
may be necessary or desirable to vest, perfect or confirm any and all right,
title and interest in, to and under such rights, properties or assets in the
Surviving Corporation or otherwise to carry out the purposes of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Company Disclosure Schedule delivered by the
Company to Holdings in connection with the execution of the Original Agreement
(the "Company Disclosure Schedule") (each section of which qualifies the
correspondingly numbered representation and warranty and any other
representation and warranty to which the disclosure on its face relates), the
Company represents and warrants, as of the Original Execution Date and only with
respect to facts and circumstances then in existence (except with respect to
Sections 3.5, 3.7 and 3.8, which are expressly remade as of the date hereof), to
Holdings as follows:
Section 3.1 Organization and Good Standing. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the corporate power and authority to carry on its
business as it is now being conducted. The Company is duly qualified as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary, except where
the failure to be so qualified or in good standing would not have a material
adverse effect, individually or in the aggregate, on the business, financial
condition, or results of operations of the Company and its Subsidiaries taken as
a whole, or, if applicable, the ability of the Company to consummate the Merger
and the other transactions contemplated by this Agreement (a "Company Material
Adverse Effect"). For purposes of this Agreement, a "Company Material Adverse
Effect" shall not be deemed to have occurred as a result of: (i) a decline in
the actual or potential future financial performance or operations of the
Company provided that the Company has operated its business in accordance with
Section 5.1 and otherwise consistent with its past practices, (ii) losses of
employees or other matters related to the transactions contemplated hereby
(including, without limitation, the public announcement thereof), (iii) opening
of stores, or the announcement of planned store openings, by competitors or (iv)
facts and circumstances unless such facts and circumstances are of such a
fundamental and extraordinary nature that no reasonable person could dispute
that such a "material adverse change" has occurred, or (v) any effect or
consequence of, or related to, any of the Pack Boot Inventory (as defined in the
Agreement made and entered into as of November 3, 1997, by and between the
Company and Sporting (the "Pack Boot Agreement")), the Additional Ski Inventory
(as defined in the Pack Boot Agreement), or any transaction pursuant to either
the Pack Boot Agreement or the Consignment Agreement, made and entered as of
November 3, 1997, by and between the Company and Sporting (the "Consignment
Agreement"). As used in this Agreement, a "Subsidiary" of any person means
another person, an amount of the voting securities, other voting ownership or
voting partnership interests of which is sufficient to elect at least a majority
of its Board of Directors or other governing body (or, if there are no such
voting interests, 50% or more of the equity interests of which) is owned
directly or indirectly by such first person.
Section 3.2 Certificate of Incorporation and By-Laws. Complete and correct
copies of the Certificates of Incorporation and By-laws or equivalent
organizational documents, each as amended as of the Original Execution Date, of
the Company and each of its Subsidiaries have been made available to Holdings.
The Certificates of Incorporation, By-laws and equivalent organizational
documents of the Company and each of
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its Subsidiaries are in full force and effect. Neither the Company nor any of
its Subsidiaries is in violation of any provision of its Certificate of
Incorporation, By-laws or equivalent organizational documents.
Section 3.3 Capitalization.
(a) As of the Original Execution Date, the authorized capital stock of the
Company consists of 5,000,000 shares of Preferred Stock, par value $.01 per
share ("Company Preferred Stock"), 50,000,000 shares of Company Voting Stock and
50,000,000 shares of Company Non-Voting Stock. At the close of business on
September 25, 1997: (i) no shares of Company Preferred Stock were outstanding;
(ii) 5,148,833 shares of Company Voting Stock were outstanding; (iii) 7,736,680
shares of Company Non-Voting Stock were outstanding; (iv) 250,000 shares of
restricted Company Non-Voting Stock were outstanding pursuant to the Sportmart,
Inc. Restricted Stock Plan and (v) 154,581 shares of unissued Company Voting
Stock and 1,176,739 shares of unissued Company Non-Voting Stock were subject to
issuance upon the exercise of outstanding stock options listed in the Company
Disclosure Schedule. All outstanding shares of Company Common Stock are validly
issued, fully paid and nonassessable and not subject to preemptive rights. No
shares of Company Common Stock are owned by any direct or indirect Subsidiary of
the Company.
(b) Except as described in this Section 3.3 and as contemplated by this
Agreement (i) no shares of capital stock or other equity securities of the
Company are authorized, issued or outstanding, or reserved for issuance, and
there are no options, warrants or other rights (including registration rights),
agreements, arrangements or commitments of any character to which the Company or
any of its Subsidiaries is a party relating to the issued or unissued capital
stock or other equity interests of the Company or any of its Subsidiaries,
requiring the Company or any of its Subsidiaries to grant, issue or sell any
shares of the capital stock or other equity interests of the Company or any of
its Subsidiaries by sale, lease, license or otherwise; (ii) neither the Company
nor any of its Subsidiaries have any obligation, contingent or otherwise, to
repurchase, redeem or otherwise acquire any shares of the capital stock or other
equity interests of the Company or any of its Subsidiaries; (iii) neither the
Company nor any of its Subsidiaries, directly or indirectly, owns, or has agreed
to purchase or otherwise acquire, the capital stock or other equity interests
of, or any interest convertible into or exchangeable or exercisable for such
capital stock or such equity interests of, any corporation, partnership, joint
venture or other entity which would be material in value to the Company; and
(iv) there are no voting trusts, proxies or other agreements or understandings
to which the Company or any of its Subsidiaries is a party with respect to the
voting of any shares of capital stock or other equity interests of the Company
or any of its Subsidiaries.
Section 3.4 Company Subsidiaries. The Company Disclosure Schedule sets
forth a list of each Subsidiary of the Company; its authorized, issued and
outstanding capital stock or other equity interests; the percentage of such
capital stock or other equity interests owned by the Company or any Subsidiary
of the Company, and the identity of such owner; the capital stock reserved for
future issuance pursuant to outstanding options or other agreements; and the
identity of all parties to any such option or other agreement. Each Subsidiary
of the Company is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization.
Each Subsidiary of the Company has all requisite corporate power and authority
to carry on its business as it is now being conducted. Each Subsidiary of the
Company is duly qualified as a foreign corporation or organization authorized to
do business, and is in good standing, in each jurisdiction where the character
of its properties owned or held under lease or the nature of its activities
makes such qualification necessary, except where the failure to be so qualified
or in good standing would not have a Company Material Adverse Effect. All of the
outstanding shares of capital stock or other ownership interests in each of the
Company's Subsidiaries have been validly issued, and are fully paid,
nonassessable and are owned by the Company or another Subsidiary of the Company
free and clear of all pledges, claims, options, liens, charges, encumbrances and
security interests of any kind or nature whatsoever (collectively, "Liens"), and
are not subject to preemptive rights created by statute, such Subsidiary's
respective Certificate of Incorporation or By-laws or equivalent organizational
documents or any agreement to which such Subsidiary is a party.
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Section 3.5 Corporate Authority.
(a) The Company has the requisite corporate power and authority to execute
and deliver this Agreement and, subject to the approval and adoption of the
Company's stockholders with respect to this Agreement and the transactions
contemplated, to consummate the transactions contemplated hereby. The execution
and delivery by the Company of this Agreement and the consummation by the
Company of the transactions contemplated hereby have been duly authorized by its
Board of Directors and, except for the approval and adoption of the Company's
stockholders with respect to this Agreement and the transaction contemplated, no
other corporate action on the part of the Company is necessary to authorize the
execution and delivery by the Company of this Agreement and the consummation by
it of the transactions contemplated hereby. This Agreement has been duly
executed and delivered by the Company and constitutes a valid and binding
agreement of the Company and is enforceable against the Company in accordance
with its terms, except to the extent that (i) such enforcement may be subject to
any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
other laws, now or hereafter in effect, relating to or limiting creditors'
rights generally and (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defense, and to the
discretion of the court before which any proceeding therefor may be brought. The
preparation of the Proxy Statement (as herein defined) filed with the SEC was
duly authorized by the Board of Directors of the Company.
(b) Prior to execution and delivery of this Agreement, the Board of
Directors of the Company (at a meeting duly called and held) has (i) approved
this Agreement, the Merger and the other transactions contemplated hereby and
thereby (including, without limitation, the entry by the Company Principals into
the Stockholder Agreement), and such approval is sufficient to render
inapplicable to the Merger and all of such other transactions the provisions of
Section 203 of the DGCL, (ii) determined that the transactions contemplated
hereby are fair to and in the best interests of the holders of the Company
Common Stock and (iii) determined to recommend this Agreement, the Merger and
the other transactions contemplated hereby to the Company's stockholders for
approval and adoption at the stockholders meeting contemplated by Section 6.4(a)
hereof (it being understood that such determination is subject to any future
determination by the Board of Directors of the Company, in good faith and as
advised by outside counsel, that such recommendation would be inconsistent with
the fiduciary obligations of the Board of Directors of the Company under
applicable law). The affirmative vote of the holders of a majority of the
outstanding shares of Company Voting Stock is the only vote of the holders of
any class or series of the Company's capital stock necessary to approve and
adopt this Agreement.
Section 3.6 Compliance with Applicable Law. Except as set forth in the
Company Disclosure Schedule, (i) the Company and each of its Subsidiaries holds,
and is in compliance with the terms of, all permits, licenses, exemptions,
orders and approvals of all Governmental Entities (as hereinafter defined)
necessary for the conduct of their respective businesses ("Company Permits"),
except for failures to hold or to comply with such permits, licenses,
exemptions, orders and approvals which would not have a Company Material Adverse
Effect, (ii) with respect to the Company Permits, to the knowledge of the
Company no action or proceeding is pending or threatened that would reasonably
be expected to have a Company Material Adverse Effect, (iii) the business of the
Company and its Subsidiaries is being conducted in compliance with all
applicable laws, ordinances, regulations, judgments, decrees or orders
("Applicable Law") of any federal, state, local, foreign or multinational court,
arbitral tribunal, administrative agency or commission or other governmental or
regulatory authority or administrative agency or commission (a "Governmental
Entity"), except for violations or failures to so comply that would not have a
Company Material Adverse Effect, and (iv) to the knowledge of the Company, no
investigation or review by any Governmental Entity with respect to the Company
or its Subsidiaries is pending or threatened, other than, in each case, those
which would not reasonably be likely to have a Company Material Adverse Effect.
Section 3.7 Non-Contravention. Except as set forth on the Company
Disclosure Schedule, the execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, (i) result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss of a
material benefit under any loan, guarantee of indebtedness or credit agreement,
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note, bond, mortgage, indenture, lease, agreement, contract, instrument, permit,
concession, franchise, right or license (any of the foregoing, a "Contract")
applicable to the Company or any of its Subsidiaries, or result in the creation
of any Lien upon any of the properties or assets of the Company or any of its
Subsidiaries, (ii) conflict or result in any violation of any provision of the
Certificate of Incorporation or By-Laws or other equivalent organizational
document, in each case as amended, of the Company or any of its Subsidiaries, or
(iii) subject to the governmental filings referenced in clause (i) of Section
3.8, conflict with or violate any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or any of its
Subsidiaries or any of their respective properties or assets, other than, in the
case of clauses (i) and (iii), any such violations, conflicts, defaults, rights,
losses or Liens that, individually or in the aggregate, would not have a Company
Material Adverse Effect.
Section 3.8 Government Approvals; Required Consents. No filing or
registration with, or authorization, consent or approval of, any Governmental
Entity is required by or with respect to the Company or any of its Subsidiaries
in connection with the execution and delivery of this Agreement by the Company
or is necessary for the consummation of the transactions contemplated hereby
(including, without limitation, the Merger) except: (i) in connection, or in
compliance, with the provisions of the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), the Securities Act of 1933, as amended
(the "Securities Act"), the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), any state securities or "Blue Sky" law, (ii) for the filing of
a Certificate of Merger with the Secretary of State of the State of Delaware,
(iii) such consents, approvals, authorizations, permits, filings and
notifications listed in the Company Disclosure Schedule and (iv) such other
consents, orders, authorizations, registrations, declarations and filings the
failure of which to obtain or make would not, individually or in the aggregate,
have a Company Material Adverse Effect.
Section 3.9 SEC Documents and Other Reports. The Company has filed on a
timely basis all documents required to be filed prior to the Original Execution
Date by it with the Securities and Exchange Commission (the "SEC") since January
30, 1994 (the "Company SEC Documents"). Complete and correct copies of the
Company SEC Documents have been made available to Holdings. As of their
respective dates, or if amended as of the date of the last such amendment, the
Company SEC Documents complied in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and the applicable
rules and regulations promulgated thereunder and none of the Company SEC
Documents as of the date thereof contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Complete and accurate copies of the
unaudited consolidated balance sheet, consolidated statements of income,
retained earnings and cash flows (together with any supplementary information
thereto) of the Company, all as of and for the four week period ended August 31,
1997 (the "Interim Financial Information") have been provided to Holdings. The
consolidated financial statements of the Company included in the Company SEC
Documents and the Interim Financial Information fairly present, in all material
respects, the consolidated financial position of the Company and its
consolidated Subsidiaries, as of and for the respective dates thereof and the
consolidated results of their operations and their consolidated cash flows for
the respective periods then ended (subject, in the case of the unaudited
statements, to normal year-end audit adjustments and to any other adjustments
described therein) in conformity with United States generally accepted
accounting principles ("GAAP") (except, in the case of the unaudited statements,
as permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated therein or in the notes thereto).
Since February 2, 1997, the Company has not made any change in the accounting
practices or policies applied in the preparation of its financial statements,
except as may be required by GAAP.
Section 3.10 Absence of Certain Changes or Events. Except to the extent
disclosed in the Company Disclosure Schedule, since February 2, 1997 the Company
and their Subsidiaries have conducted their businesses and operations in the
ordinary and usual course consistent with past practice and there has not
occurred (i) any event, condition or occurrence having or that would reasonably
be expected to have, individually or in the aggregate, a Company Material
Adverse Effect; (ii) any damage, destruction or loss (whether or not covered by
insurance) having or which would reasonably be expected to have, individually or
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in the aggregate, a Company Material Adverse Effect; or (iii) any declaration,
setting aside or payment of any dividend or distribution of any kind by the
Company on any class of its capital stock.
Section 3.11 Actions and Proceedings. Except as set forth in the Company
Disclosure Schedule, there are no outstanding orders, judgments, injunctions,
awards or decrees of any Governmental Entity against the Company or any of its
Subsidiaries, any of their properties, assets or business, or, to the knowledge
of the Company, any of the Company's or its Subsidiaries' current or former
directors or officers or any other person whom the Company or any of its
Subsidiaries has agreed to indemnify that would reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect. Except as
set forth in the Company Disclosure Schedule, to the knowledge of the Company,
there are no actions, suits or legal, administrative, regulatory or arbitration
proceedings pending or threatened against the Company or any of its
Subsidiaries, any of their properties, assets or business, or, to the knowledge
of the Company, any of the Company's or its Subsidiaries' current or former
directors or officers or any other person whom the Company or any of its
Subsidiaries has agreed to indemnify, that would reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect. To the
Company's knowledge, there are no facts or circumstances specific to the Company
which, if known to a third party, would reasonably be expected to result in such
a suit or proceeding which could be expected to have a Company Material Adverse
Effect.
Section 3.12 Contracts. Each Contract entered into by the Company or any
of its Subsidiaries is valid, binding and enforceable and in full force and
effect, except where failure to be valid, binding and enforceable and in full
force and effect would not reasonably be expected to have a Company Material
Adverse Effect and there are no defaults by the Company or any of its
Subsidiaries or, to the knowledge of the Company, another party thereto,
thereunder, except those defaults that would not reasonably be expected to have
a Company Material Adverse Effect. Except as set forth in the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries is a party to or bound
by any non-competition agreement or any other agreement or obligation which
purports to limit in any material respect the manner in which, or the localities
in which, the Company or any such Subsidiary is entitled to conduct all or any
material portion of the business of the Company and its Subsidiaries taken as a
whole. All Contracts which are material to the business, financial condition,
results of operations or prospects of the Company and its Subsidiaries taken as
a whole, are listed in the Company Disclosure Schedule.
Section 3.13 Taxes.
(a) As used in this Agreement, the following terms shall have the following
meanings: the term "Taxes" means all federal, state, local, foreign and other
net income, gross income, gross receipts, sales use, ad valorem, transfer,
franchise, profits, license, lease, service, service use, withholding, payroll,
estimated, employment, excise, severance, stamp, occupation, premium, property,
windfall profits, customs, duties or other taxes, fees, assessments or charges
of any kind whatsoever, together with any interest any penalties, additions to
tax or additional amounts with respect thereto; and the term "Returns" means all
returns, declarations, reports, statements and other documents required to be
filed in respect of Taxes. All citations to the Code, or to the Treasury
Regulations promulgated thereunder, shall include any amendments or any
substitute or successor provisions thereto.
(b) There have been properly completed and filed on a timely basis and in
correct form all Returns required to be filed by the Company and any of its
Subsidiaries. As of the time of filing, the Returns correctly reflected the
facts regarding the income, business, assets, operations, activities, status or
other matters of the Company or such Subsidiary or any other information
required to be shown thereon. An extension of time within which to file any
Return which has not been filed has not been requested or granted.
(c) With respect to all amounts in respect of Taxes imposed upon the
Company and any of its Subsidiaries, or for which the Company or any of its
Subsidiaries is or could be liable, whether to taxing authorities (as, for
example, under law) or to other persons or entities (as, for example, under tax
allocation agreements), with respect to all taxable periods or portions of
periods ending on or before the Closing Date, all applicable tax laws and
agreements have been fully complied with, and all amounts required to be paid by
the Company or any of its Subsidiaries, to taxing authorities or others, on or
before the Original Execution Date have been paid.
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(d) No issues have been raised (and are currently pending) by any taxing
authority in connection with any of the Returns filed by the Company or any of
its Subsidiaries. No waivers of statutes of limitation with respect to such
Returns have been given by or requested from the Company or any of its
Subsidiaries. The Company Disclosure Schedule sets forth (i) the taxable years
of each of the Company and its Subsidiaries as to which the respective statutes
of limitations with respect to Taxes have not expired, and (ii) with respect to
such taxable years sets forth those years for which examinations have been
completed, those years for which examinations are presently being conducted,
those years for which examinations have not been initiated, and those years for
which required Returns have not yet been filed. All deficiencies asserted or
assessments made as a result of any examinations have been fully paid, or are
fully reflected as a liability in the financial statements contained in the
Company SEC Documents or are being contested in good faith and an adequate
reserve therefor has been established and is fully reflected in the financial
statements.
(e) Neither the Company nor any of its Subsidiaries is a party to or bound
by any tax indemnity, tax sharing or tax allocation agreement.
(f) Neither the Company nor any of its Subsidiaries has agreed to make, and
is not required to make, any adjustment under section 481(a) of the Code by
reason of a change in accounting method or otherwise.
(g) Neither the Company nor any of its Subsidiaries is a party to any
agreement, contract, arrangement or plan that has resulted or would result,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code.
(h) The unpaid Taxes of the Company and its Subsidiaries do not exceed (and
at the Effective Time will not exceed) the reserve for tax liability with
respect to the Company and its Subsidiaries (excluding any reserve for deferred
Taxes to the extent such reserve reflects timing differences between book and
tax income) set forth or included in the latest consolidated financial
statements included in the Company SEC Documents as adjusted in accordance with
the past practices of the Company and its Subsidiaries for items of income,
gain, loss, and expense arising and accruals and transactions occurring after
the latest balance sheet date in such Company SEC Documents.
(i) The transactions contemplated herein will not result in restorations
into income of amounts deferred under the consolidated return regulations, such
as those relating to intercompany transactions, excess loss accounts, and the
like.
(j) The transactions contemplated herein are not subject to any tax
withholding provisions of law or regulations other than with respect to foreign
shareholders.
(k) No breach of any of the foregoing representations and warranties in
this Section 3.13 shall be deemed to exist unless such breach would have a
Company Material Adverse Effect.
(l) To the knowledge of the Company there is no plan or intention on the
part of the Company's stockholders to sell, exchange or otherwise dispose of a
number of shares of Holdings Common Stock received by them for shares of Company
Common Stock pursuant to the Merger, nor to enter into any puts, calls,
straddles, spreads or similar transactions, that would reduce the Company's
stockholders' ownership for U.S. federal income tax purposes of Holdings Common
Stock to a number of shares having a value, as of the Effective Time, of less
than 50 percent of the value of all of the formerly outstanding stock of the
Company as of the same date. For purposes of this representation, shares of
Company Common Stock surrendered by dissenters or exchange for case in lieu of
fractional shares of Holdings Common Stock are treated as outstanding shares of
Company Common Stock at the Effective Time. Moreover, shares of Company Common
Stock and shares of Holdings Common Stock held by the Company's stockholders and
otherwise sold, redeemed or disposed of prior to or subsequent to the Merger
will be considered in making this representation.
(m) At the Effective Time, the fair market value of the assets of the
Company will exceed the sum of its liabilities, plus the amount of liabilities,
if any, to which such assets are subject.
Section 3.14 Title to Properties; Encumbrances. Except as described in the
following sentence, each of the Company and its Subsidiaries has good, valid
and, in the case of real property, marketable title to, or a
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valid leasehold interest in, all of its material properties and assets (real,
personal, tangible and intangible), including, without limitation, all such
properties and assets reflected in the consolidated balance sheet of the Company
and its Subsidiaries as of February 2, 1997 included in the Company SEC
Documents (except for properties and assets disposed of in the ordinary course
of business and consistent with past practices since such date), except for such
title or interest the failure of which to have would not have, individually or
in the aggregate, a Company Material Adverse Effect. None of such properties or
assets are subject to any Liens (whether absolute, accrued, contingent or
otherwise), except (i) as set forth in the Company Disclosure Schedule or (ii)
imperfections of title and Liens, if any, which do not detract from the value of
the property or assets subject thereto in a manner material to the Company and
do not materially impair the business or operations of the Company and its
Subsidiaries taken as a whole.
Section 3.15 Intellectual Property. The Company and its Subsidiaries own
or have a valid license to use all inventions, patents, trademarks, service
marks, trade names, copyrights, trade secrets, technology and know-how, software
and other intellectual property rights (collectively, the "Company Intellectual
Property") necessary to carry on their respective businesses as currently
conducted except where the failure to own or have a valid license to use such
would not have a Company Material Adverse Effect; and neither the Company nor
any such Subsidiary has received any notice of infringement of or conflict with,
and, to the Company's knowledge, there are no infringements of or conflicts
with, the rights of others with respect to the use of any of the Company
Intellectual Property that, in either such case, has had or would reasonably be
expected to have a Company Material Adverse Effect.
Section 3.16 Information in Disclosure Documents and Registration
Statement. None of the information supplied or to be supplied by the Company for
inclusion in (i) the Registration Statement to be filed with the SEC on Form S-4
under the Securities Act (the "Registration Statement") for the purpose of
registering the shares of Holdings Common Stock to be issued in connection with
the Merger (the "Share Issuance") or (ii) the proxy statement/prospectus to be
distributed in connection with the Company's meeting of stockholders to vote
upon this Agreement and the transactions contemplated hereby (the "Proxy
Statement") will, at the time the Registration Statement becomes effective, at
the time of the initial mailing of the Proxy Statement and any amendments or
supplements thereto or at the time of the meeting of stockholders of the Company
to be held in connection with the Merger, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy Statement and
any amendments or supplements thereto will, at their respective times of
mailing, comply as to form in all material respects with the applicable
requirements of the Exchange Act, and the rules and regulations promulgated
thereunder. Notwithstanding the foregoing, the Company makes no representations
with respect to any statement in the foregoing documents based upon and
conforming to information supplied by Holdings for inclusion therein.
Section 3.17 Employee Benefit Plans; ERISA.
(a) None of the Company, any of its Subsidiaries or any affiliate of the
Company or any of its Subsidiaries as determined under Code section 414(b), (c),
(m) or (o) ("Company ERISA Affiliate") maintains, administers or contributes to,
or has any liability with respect to, nor do the employees of the Company, its
Subsidiaries or any Company ERISA Affiliate receive or expect to receive as a
condition of employment, benefits pursuant to:
(A) any employee benefit plan (as defined in section 3(3) of ERISA) (each
such plan, a "Company Plan"), including, without limitation, any multiemployer
plan (as defined in section 3(37) of ERISA) ("Multiemployer Plan"); or
(B) any bonus, deferred compensation, performance compensation, stock
purchase, stock option, stock appreciation, severance, salary continuation,
vacation, sick leave, holiday pay, fringe benefit, personnel policy,
reimbursement program, incentive, insurance, welfare or similar plan, program,
policy or arrangement (each such plan, a "Company Benefit Plan"); other than
those Company Plans and Company Benefit Plans listed in the Company Disclosure
Schedule. Except as required by section 4980B of the Code, none of the Company,
any of its Subsidiaries or any Company ERISA Affiliate has promised any former
employee or other
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individual not employed by the Company, any of its Subsidiaries or any Company
ERISA Affiliate medical or other benefit coverage and none of the Company, any
of its Subsidiaries or any Company ERISA Affiliate maintains or contributes to
any plan, program, policy or arrangement providing medical or life insurance
benefits to former employees, their spouses or dependents or any other
individual not employed by the Company, any of its Subsidiaries or any Company
ERISA Affiliate. No Company Plan or Company Benefit Plan has any provision which
could increase or accelerate benefits or increase the liability of the Company
or any of its Subsidiaries as a result of any transaction contemplated by this
Agreement.
(b) All Company Plans and Company Benefit Plans which are not Multiemployer
Plans and any related trust agreements or annuity contracts (or any related
trust instruments) comply with and are and have been operated in accordance with
each applicable provision of ERISA and the Code in all material respects. Each
Company Plan, as amended to date, which is not a Multiemployer Plan, that is
intended to be qualified under sections 401(a) and 501(a) of the Code has been
determined to be so qualified by the IRS, has been submitted to the IRS for a
determination with respect to such qualified status, or the remedial amendment
period with respect to such Company Plan will not have expired prior to the
Effective Time, and no event has occurred, either by reason of any action or
failure to act, which would cause the loss of any such qualification.
(c) Neither any Company Plan fiduciary nor any Company Plan (excluding each
Multiemployer Plan and its fiduciaries) has engaged in any transaction in
violation of section 406 of ERISA or any "prohibited transaction" (as defined in
section 4975(c)(1) of the Code) unless exempt under section 408 of ERISA or
section 4975 of the Code and there has been no "reportable event" (as defined in
section 4043 of ERISA), with respect to any Company Plan which is not a
Multiemployer Plan, for which the 30-day notice requirement has not been waived.
None of the Company, any of its Subsidiaries or any Company ERISA Affiliate has
incurred or suffered to exist any "accumulated funding deficiency" (as defined
in section 302 of ERISA) whether or not waived by the IRS, involving any Company
Plan subject to section 412 of the Code or Part 3 of Subtitle B of Title I of
ERISA. No withdrawals have occurred so as to cause any Company Plan to become
subject to the provisions of section 4063 of ERISA, and none of the Company, any
of its Subsidiaries or any Company ERISA Affiliate has ceased making
contributions to any employee benefit plan subject to section 4064(a) of ERISA
to which the Company, any of its Subsidiaries or any Company ERISA Affiliate
made contributions during the six (6) years prior to the Original Execution Date
or ceased operations at a facility so as to become subject to section 4062(e) of
ERISA. Full payment has been made of all amounts which the Company, any of its
Subsidiaries or any Company ERISA Affiliate is required or committed to pay to
each of the Company Plans and Company Benefit Plans prior to or as of the
Effective Time.
(d) True and complete copies of each Company Plan, Company Benefit Plan,
related trust agreements, annuity contracts, determination letters, the most
recent determination letter request, summary plan descriptions, annual reports
on Form 5500, Form 990, actuarial reports and PBGC Forms 1 for the most recent
three (3) plan years, and each plan, agreement, instrument and commitment
referred to herein has been previously furnished to Holdings. The annual reports
on Form 5500 and Form 990 and actuarial statements furnished to the Company
fully and accurately set forth the financial and actuarial condition of the
respective Company Plan or Company Benefit Plan, as may be applicable.
(e) The aggregate present value of all accrued benefits, including the
maximum value of all subsidized benefits, pursuant to each Company Plan subject
to Title IV of ERISA, determined on the basis of current participation and
projected compensation for active participants, and earnings, mortality and
other actuarial assumptions set forth in the most recent actuarial report for
Company Plan does not exceed the current fair market value of Company Plan's
assets.
(f) None of the Company, any of its Subsidiaries or any Company ERISA
Affiliate has incurred any liability to the PBGC, including as a result of the
voluntary or involuntary termination of any Company Plan which is subject to
Title IV of ERISA. There is currently no active filing by the Company, its
Subsidiaries or any Company ERISA Affiliate with the PBGC (and no proceeding has
been commenced by the PBGC and no condition exists, and no event has occurred,
that could constitute grounds for the termination of any Company Plan by the
PBGC) to terminate any Company Plan which is subject to Title IV of ERISA and
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which has been maintained or funded, in whole or in part, by the Company, its
Subsidiaries or any Company ERISA Affiliate.
(g) To the knowledge of the Company or its Subsidiaries, there are no
pending or threatened claims by or on behalf of any of Company Plans or Company
Benefit Plans by any employee or beneficiary covered under any Company Plans or
Company Benefit Plans or otherwise involving any Company Plan or Company Benefit
Plan (other than routine claims for benefits).
(h) With respect to each Company Plan which is a Multiemployer Plan
covering employees of the Company, any of its Subsidiaries or any Company ERISA
Affiliate: (i) none of the Company, such Subsidiary or such Company ERISA
Affiliate would incur any withdrawal liability on a complete withdrawal from
each such Company Plan as of the Effective Date, under applicable laws and
conditions of each such Company Plan and the applicable provisions of law; (ii)
none of the Company, its Subsidiaries or any Company ERISA Affiliate has made or
suffered a "complete withdrawal" or a "partial withdrawal", as such terms are
respectively defined in sections 4203 and 4205 of ERISA; (iii) none of the
Company, its Subsidiaries or any Company ERISA Affiliate has any contingent
liability under section 4204 of ERISA; and (iv) no such Company Plan is in
reorganization as defined in section 4241 of ERISA and no circumstances exist
which present a material risk of any such Company Plan going into
reorganization.
(i) With respect to employees of the Company and its Subsidiaries, the
Company and its Subsidiaries are and have been in compliance with all applicable
laws respecting employment and employment practices, terms and conditions of
employment and wages and hours, including, without limitation, any such laws
respecting employment discrimination, occupational safety and health, and unfair
labor practices.
(j) No breach of any of the foregoing representations and warranties in
this Section 3.17 shall be deemed to exist unless such breach would have a
Company Material Adverse Effect.
Section 3.18 Environmental Matters. Except as set forth in the Company
Disclosure Schedule, the Company and its Subsidiaries are and at all times have
been, and all real property currently or, to the Company's knowledge,
previously, owned, leased, occupied, used by or under the control of the Company
or any of its Subsidiaries and all operations or activities of the Company and
its Subsidiaries (including, without limitation, those conducted on or taking
place at any of such real property) are and, to the knowledge of the Company, at
all times have been, in compliance with and not subject to any liability or
obligation under any Environmental Law or Environmental Permit except where any
of the foregoing would not have a Company Material Adverse Effect. As used in
this Agreement: "Environmental Laws" means all applicable federal, state or
local laws, rules, regulations or principles of common law relating to
protection of health and safety, pollution, and environmental matters of any
kind whatsoever, including with respect to the storage, treatment, generation,
transportation, spillage, discharge, leakage or other release or threatened
release of any material, substance or waste of any kind whatsoever; and
"Environmental Permits" means any permits, licenses, notifications, consents or
approvals required under any Environmental Law. There is no condition or
circumstance regarding the Company or any of its Subsidiaries or their business
or any such real property or the operations or activities conducted thereon,
which may give rise to a violation of, or liability or obligation under, any
Environmental Law or Environmental Permit which would have a Company Material
Adverse Effect. Neither the Company, any of its Subsidiaries nor, to the
knowledge of the Company, any Person, the acts or omissions of which may be
attributable to, the responsibility of, or be the basis of a liability to, the
Company, has, or has arranged to have, any material, substance or waste
generated, released, treated, stored or disposed of at, or transported to, any
facility or property the remediation or cleanup of which, or the response costs
related thereto, could become or result in a Company Material Adverse Effect.
There are no allegations, claims, demands, citations, notices of violation, or
orders of noncompliance made against, issued to or received by the Company
relating or pursuant to any Environmental Law or Environmental Permit except
those which have been corrected or complied with or which are not material to
the Company, and to the knowledge of the Company no such allegation, claim,
demand, citation, notice of violation or order of noncompliance is threatened,
imminent or likely. No breach of any of the foregoing representations and
warranties in this Section 3.18 shall be deemed to exist unless such breach
would have a Company Material Adverse Effect.
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Section 3.19 Labor Matters. With respect to employees of the Company and
its Subsidiaries: (i) to the knowledge of the Company there is no pending or
threatened unfair labor practice charges or employee grievance charges; (ii)
there is no request for union representation, labor strike, dispute, slowdown or
stoppage actually pending or, to the knowledge of the Company, threatened
against the Company, and there has been no such event during the 18 months
preceding the Original Execution Date; (iii) the Company is not a party to any
collective bargaining agreements; and (iv) except as set out in the Company
Disclosure Schedule, the employment of each of the Company's employees is
terminable at will without cost to the Company except for payments required
under the Company Plans and Company Benefit Plans and payment of accrued
salaries or wages and vacation pay. No employee or former employee has any right
to be rehired by the Company prior to the Company's hiring a person not
previously employed by the Company. The Company is and, since February 2, 1997
has been, in compliance in all material respects with all applicable laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, including, without limitation, any such laws
respecting employment discrimination, occupational safety and health, and unfair
labor practices, except where such failure to comply would not have a Company
Material Adverse Effect. The Company is not delinquent in payments to any of its
employees for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed by them or any amounts required to be
reimbursed to such employees.
Section 3.20 Affiliate Transactions. Except as set forth in the Company
Disclosure Schedule or as contemplated by the transactions contemplated hereby,
since January 1, 1996, there are no material undischarged Contracts or other
material transactions between the Company or any of its Subsidiaries, on the one
hand, and any (i) officer or director of the Company or any of its Subsidiaries,
(ii) record or beneficial owner of five percent or more of the voting securities
of the Company or (iii) affiliate (as such term is defined in Regulation 12b-2
promulgated under the Exchange Act) of any such officer, director or beneficial
owner, on the other hand (each person described in clauses (i), (ii) and (iii),
a "Related Party").
Section 3.21 Real Estate.
(a) Owned Real Estate. All material real estate owned by the Company (the
"Company Real Estate") is owned in fee simple title, subject only to real estate
taxes not delinquent and to covenants, conditions, restrictions and easements
which are of record and minor irregularities or imperfections of title which do
not in the aggregate materially detract from the value of the Company Real
Estate or interfere with the Company's use or occupancy thereof. Except as set
forth in the Company Disclosure Schedule, none of the Company Real Estate is
subject to any leases or tenancies.
(b) Leased Premises. All real estate leased by the Company (the "Company
Leased Premises") is leased pursuant to written leases, and the Company has
provided to Holdings the original lease and any material amendments thereto and
has otherwise made available to Holdings its records regarding the Company
Leased Premises. To the Company's knowledge, the Company is not in default under
any material term of any agreement relating to the Company Leased Premises nor,
to the Company's knowledge, is any other party thereto in default thereunder,
which in any case would have a Company Material Adverse Effect.
(c) Condemnation. There are no condemnation proceedings pending or, to the
Company's knowledge, threatened with respect to any portion of the Company Real
Estate or the Company Leased Premises.
(d) Condition of Buildings. To the knowledge of the Company, the buildings
and other facilities located on the Company Real Estate and the Company Leased
Premises are free of any patent structural or engineering defects and, to the
Company's knowledge, are free of any latent structural or engineering defects.
Section 3.22 Brokers. Except for fees, commissions and expenses payable to
its financial advisors, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Company Limited and to Houlihan, Lokey,
▇▇▇▇▇▇ & Zukin with respect to its work in connection with rendering a fairness
opinion with respect to the transactions contemplated by this Agreement, no
broker, finder or financial advisor retained by the Company is entitled to any
brokerage, finder's or other fee or commission from the Company in connection
with the transactions contemplated by this Agreement.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF HOLDINGS, SPORTING AND ACQUISITION
Except as set forth in the Holdings Disclosure Schedule delivered by
Holdings to the Company in connection with the execution of the Original
Agreement (the "Holdings Disclosure Schedule") (each section of which qualifies
the correspondingly numbered representation and warranty and any other
representations and warranties to which the disclosure on its face relates),
Holdings, Sporting and Acquisition each represents and warrants, as of the
Original Execution Date and only with respect to facts and circumstances then in
existence (except with respect to Acquisition, including as a Subsidiary of
Holdings, as to which all such representations and warranties are expressly made
as the date hereof and except with respect to Sections 4.5, 4.7, 4.8, 4.13(k)
and 4.23, which are expressly remade as of the date hereof), to the Company as
follows:
Section 4.1 Organization and Good Standing. Each of Holdings and
Acquisition is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the corporate power and
authority to carry on its business as it is now being conducted. Holdings is
duly qualified as a foreign corporation to do business, and is in good standing,
in each jurisdiction where the character of its properties owned or held under
lease or the nature of its activities makes such qualification necessary, except
where the failure to be so qualified or in good standing would not have a
material adverse effect, individually or in the aggregate, on the business,
financial condition or results of operations of Holdings and its Subsidiaries
taken as a whole, or, if applicable, the ability of Holdings or Acquisition to
consummate the Merger and the other transactions contemplated by this Agreement
(a "Holdings Material Adverse Effect"). For purposes of this Agreement, a
"Holdings Material Adverse Effect" shall not be deemed to have occurred as a
result of (i) opening of stores, or the announcement of planned store openings,
by competitors or (ii) facts and circumstances unless such facts and
circumstances are of such a fundamental and extraordinary nature that no
reasonable person could dispute that such a "material adverse change" has
occurred. Holdings sole assets are the capital stock of Sporting and
Acquisition. Sporting and Acquisition are Holdings' sole direct Subsidiaries and
Holdings owns 100% of the capital stock of each of Sporting and Acquisition.
Section 4.2 Certificate of Incorporation and By-Laws. Complete and correct
copies of the Certificates of Incorporation and By-laws or equivalent
organizational documents, each as amended to date, of Holdings and each of its
Subsidiaries have been made available to the Company. The Certificates of
Incorporation, By-laws and equivalent organizational documents of Holdings and
each of its Subsidiaries are in full force and effect. Neither Holdings nor any
of its Subsidiaries is in violation of any provision of its Certificate of
Incorporation, By-laws or equivalent organizational documents.
Section 4.3 Capitalization.
(a) As of the Original Execution Date, the authorized capital stock of
Holdings consisted of 1,000,000 shares of Preferred Stock, par value $.01 per
share ("Holdings Preferred Stock"), and 5,000,000 shares of Common Stock, par
value $.01 per share ("Holdings Common Stock"). As of the date hereof, the
authorized capital stock of Holdings consists of 1,000,000 shares of Holdings
Preferred Stock and 8,000,000 shares of Holdings Common Stock. At the close of
business on September 25, 1997, (i) no shares of Holdings Preferred Stock were
outstanding, (ii) 2,749,447 shares of Holdings Common Stock were outstanding and
(iii) 200,650 shares of unissued Holdings Common Stock were subject to issuance
upon the exercise of outstanding stock options listed in the Holdings Disclosure
Schedule. All outstanding shares of Holdings Common Stock are validly issued,
fully paid and nonassessable and not subject to preemptive rights.
(b) As of the Original Execution Date, the authorized capital stock of
Sporting consisted of 1,000 shares of Common Stock, no par value ("Sporting
Common Stock"). At the close of business on September 25, 1997, all 1,000 shares
of Sporting Common Stock were outstanding and held by Holdings. All outstanding
shares of Sporting Common Stock are validly issued, fully paid and nonassessable
and not subject to preemptive rights.
(c) As of the date hereof, the authorized capital stock of Acquisition
consists of 1,000 shares of Common Stock, $.01 par value ("Acquisition Common
Stock"). At the close of business on the date hereof,
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all 1,000 shares of Acquisition Common Stock were outstanding and held by
Holdings. All outstanding shares of Acquisition Common Stock are validly issued,
fully paid and nonassessable and not subject to preemptive rights. Acquisition
is newly-formed and has conducted no business except in connection with the
Merger.
(d) Except as described in this Section 4.3 and as contemplated by this
Agreement: (i) no shares of capital stock or other equity securities of
Holdings, Sporting or Acquisition are authorized, issued or outstanding, or
reserved for issuance and there are no options, warrants or other rights
(including registration rights), agreements, arrangements or commitments of any
character to which Holdings or any of its Subsidiaries is a party relating to
the issued or unissued capital stock or other equity interests of Holdings or
any of its Subsidiaries, requiring Holdings or any of its Subsidiaries to grant,
issue or sell any shares of the capital stock or other equity interests of
Holdings or any of its Subsidiaries by sale, lease, license or otherwise; (ii)
neither Holdings nor any of its Subsidiaries have any obligation, contingent or
otherwise, to repurchase, redeem or otherwise acquire any shares of the capital
stock or other equity interests of Holdings or any of its Subsidiaries; (iii)
neither Holdings nor any of its Subsidiaries, directly or indirectly, owns, or
has agreed to purchase or otherwise acquire, the capital stock or other equity
interests of, or any interest convertible into or exchangeable or exercisable
for such capital stock or such equity interests of, any corporation,
partnership, joint venture or other entity which would be material in value to
Holdings; and (iv) there are no voting trusts, proxies or other agreements or
understandings to which Holdings or any of its Subsidiaries is a party with
respect to the voting of any shares of capital stock or other equity interests
of Holdings or any of its Subsidiaries.
Section 4.4 Holdings Subsidiaries. The Holdings Disclosure Schedule sets
forth a list of each Subsidiary of Holdings; its authorized, issued and
outstanding capital stock or other equity interests; the percentage of such
capital stock or other equity interests owned by Holdings or any Subsidiary of
Holdings, and the identity of such owner; the capital stock reserved for future
issuance pursuant to outstanding options or other agreements; and the identity
of all parties to any such option or other agreement. Each Subsidiary of
Holdings is a corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation or organization. Each
Subsidiary of Holdings has all requisite corporate power and authority to carry
on its business as it is now being conducted. Each Subsidiary of Holdings is
duly qualified as a foreign corporation or organization authorized to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned or held under lease or the nature of its activities makes
such qualification necessary, except where the failure to be so qualified or in
good standing would not have a Holdings Material Adverse Effect. All of the
outstanding shares of capital stock or other ownership interests in each of
Holdings' Subsidiaries have been validly issued, and are fully paid,
nonassessable and are owned by Holdings or another Subsidiary of Holdings free
and clear of all Liens, and are not subject to preemptive rights created by
statute, such Subsidiary's respective Certificate of Incorporation or By-laws or
any agreement to which such Subsidiary is a party.
Section 4.5 Corporate Authority.
(a) Each of Holdings, Sporting and Acquisition has the requisite corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Holdings, Sporting and Acquisition and the consummation by Holdings, Sporting
and Acquisition of the transactions contemplated hereby have been duly
authorized by their respective Board of Directors and stockholders and no other
corporate action on the part of Holdings, Sporting or Acquisition is necessary
to authorize the execution and delivery by Holdings, Sporting and Acquisition of
this Agreement and the consummation by them of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by Holdings,
Sporting and Acquisition and constitutes a valid and binding agreement of
Holdings, Sporting and Acquisition and is enforceable against Holdings, Sporting
and Acquisition in accordance with its terms, except to the extent that (i) such
enforcement may be subject to any bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other laws, now or hereafter in effect,
relating to or limiting creditors' rights generally and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defense, and to the discretion of the court before which
any proceeding therefor may be brought. The preparation of the Registration
Statement to be filed with the SEC has been duly authorized by the Board of
Directors of Holdings.
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(b) Prior to the execution and delivery of this Agreement, the Boards of
Directors of Holdings, Sporting and Acquisition have (i) approved this Agreement
and the Merger and the other transactions contemplated hereby, (ii) determined
that the transactions contemplated hereby are fair to and in the best interests
of the Holdings and the holders of Holdings Common Stock and (iii) determined to
recommend this Agreement, the Merger and the other transactions contemplated
hereby to their respective stockholders for approval and adoption. This
Agreement and the transactions contemplated hereby have been duly approved and
adopted by the affirmative vote of the holders of a majority of the outstanding
shares of Holdings Common Stock and by the sole stockholder of each of Sporting
and Acquisition in accordance with Sections 228 and 251 of the DGCL and Sections
▇-▇▇▇-▇▇▇ and ▇-▇▇▇-▇▇▇ of the CBCA, as applicable, and no further vote of the
holders of any class or series of Holdings', Sporting's or Acquisition's capital
stock is necessary to approve, adopt and consummate this Agreement or the
transactions contemplated hereby. Holdings, Sporting and Acquisition covenant
and agree to timely provide any and all notices and other information and to
take any other action pursuant to the DGCL and the CBCA, as applicable, that may
be required as a result of such approvals.
Section 4.6 Compliance with Applicable Law. Except as disclosed in the
Holdings Disclosure Schedule, (i) each of Holdings and its Subsidiaries holds,
and is in compliance with the terms of, all permits, licenses, exemptions,
orders and approvals of all Governmental Entities necessary for the conduct of
their respective businesses ("Holdings Permits"), except for failures to hold or
to comply with such permits, licenses, exemptions, orders and approvals which
would not have a Holdings Material Adverse Effect, (ii) with respect to the
Holdings Permits, to the knowledge of Holdings no action or proceeding is
pending that would reasonably be expected to have a Holdings Material Adverse
Effect, (iii) the business of Holdings and its Subsidiaries is being conducted
in compliance with all Applicable Laws, except for violations or failures to so
comply that would not have a Holdings Material Adverse Effect, and (iv) to the
knowledge of Holdings, no investigation or review by any Governmental Entity
with respect to Holdings or its Subsidiaries is pending or threatened, other
than, in each case, those which would not reasonably be likely to have a
Holdings Material Adverse Effect.
Section 4.7 Non-contravention. Except as set forth on the Holdings
Disclosure Schedule, the execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, (i) result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss of a
material benefit under any Contract applicable to Holdings or any of its
Subsidiaries, or result in the creation of any Lien upon any of the properties
or assets of Holdings or any of its Subsidiaries, (ii) conflict or result in any
violation of any provision of the Certificate of Incorporation or By-Laws or
other equivalent organizational document, in each case as amended, of Holdings
or any of its Subsidiaries, (iii) subject to the governmental filings referenced
in clause (i) of Section 4.8, conflict with or violate any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Holdings or
any of its Subsidiaries or any of their respective properties or assets, other
than, in the case of clauses (i) and (iii), any such violations, conflicts,
defaults, rights, losses or Liens that, individually or in the aggregate, would
not have a Holdings Material Adverse Effect.
Section 4.8 Government Approvals; Required Consents. No filing or
registration with, or authorization, consent or approval of, any Governmental
Entity is required by or with respect to Holdings or any of its Subsidiaries in
connection with the execution and delivery of this Agreement by Holdings,
Sporting or Acquisition or is necessary for the consummation of the transactions
contemplated hereby (including, without limitation, the Merger) except: (i) in
connection, or in compliance, with the provisions of the HSR Act, the Securities
Act, the Exchange Act, any state securities or "Blue Sky" law, (ii) for the
filing of a Certificate of Merger with the Secretary of State of the State of
Delaware, (iii) for the filing of the Holdings Charter and the Surviving
Corporation Charter with the Secretary of State of the State of Delaware, (iv)
such consents, approvals, authorizations, permits, filings and notifications
listed in the Holdings Disclosure Schedule and (v) such other consents, orders,
authorizations, registrations, declarations and filings the failure of which to
obtain or make would not, individually or in the aggregate, have a Holdings
Material Adverse Effect.
Section 4.9 Financial Statements and Other Documents. The Holdings
Disclosure Schedule contains complete and accurate copies of the audited
consolidated balance sheets, consolidated statements of income,
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retained earnings and cash flows and notes to consolidated financial statements
(together with any supplementary information thereto) of Holdings, all as of and
for the fiscal years ended December 31, 1994, January 6, 1996 and January 4,
1997. The Holdings Disclosure Schedule also contains complete and accurate
copies of the unaudited consolidated balance sheets, consolidated statements of
income, retained earnings and cash flows (together with any supplementary
information thereto) for the quarterly periods with respect to the fiscal years
ended January 6, 1996 and January 4, 1997. The Holdings Disclosure Schedule also
contains complete and accurate copies of the unaudited consolidated balance
sheet, consolidated statements of income, retained earnings and cash flows
(together with any supplementary information thereto) of Holdings, all as of and
for the first and second fiscal quarters of 1997 and the four week period ended
August 2, 1997 (all of the foregoing financial statements, collectively, the
"Holdings Financial Statements"). The Holdings Financial Statements fairly
present, in all material respects, the consolidated financial position of
Holdings and its consolidated Subsidiaries, as of and for the respective dates
thereof and the consolidated results of their operations and their consolidated
cash flows for the respective periods then ended (subject, in the case of the
unaudited statements, to normal year-end audit adjustments and to any other
adjustments described therein) in conformity with GAAP (except, in the case of
the unaudited statements, for the omission of normal and customary footnote
disclosures required by GAAP, none of which would materially affect such
Financial Statements) applied on a consistent basis during the periods involved
(except as may be indicated therein or in the notes thereto). Since January 4,
1997, Holdings has not made any change in the accounting practices or policies
applied in the preparation of its financial statements, except as may be
required by GAAP. Holdings' draft registration statement on Form S-1 dated
September 5, 1997 does not contain any material misstatement or omission which
would make the statements made therein, in light of the circumstances under
which they were made, materially misleading with respect to the historical
description of Holdings' business and operations described therein.
Section 4.10 Absence of Certain Changes or Events. Except to the extent
disclosed in the Holdings Disclosure Schedule, since January 4, 1997 Holdings
and its Subsidiaries have conducted their businesses and operations in the
ordinary and usual course consistent with past practice and there has not
occurred (i) any event, condition or occurrence having or that would reasonably
be expected to have, individually or in the aggregate, a Holdings Material
Adverse Effect; (ii) any damage, destruction or loss (whether or not covered by
insurance) having or which would reasonably be expected to have, individually or
in the aggregate, a Holdings Material Adverse Effect; or (iii) any declaration,
setting aside or payment of any dividend or distribution of any kind by Holdings
on any class of its capital stock.
Section 4.11 Actions and Proceedings. Except as set forth in the Holdings
Disclosure Schedule, there are no outstanding orders, judgments, injunctions,
awards or decrees of any Governmental Entity against Holdings or any of its
Subsidiaries, any of their properties, assets or business, or, to the knowledge
of Holdings, any of Holdings' or its Subsidiaries' current or former directors
or officers or any other person whom Holdings or any of its Subsidiaries has
agreed to indemnify, that would reasonably be expected to have, individually or
in the aggregate, a Holdings Material Adverse Effect. Except as set forth in the
Holdings Disclosure Schedule, to the knowledge of Holdings, there are no
actions, suits or legal, administrative, regulatory or arbitration proceedings
pending or, threatened against Holdings or any of its Subsidiaries, any of their
properties, assets or business, or, to the knowledge of Holdings, any of
Holdings' or its Subsidiaries' current or former directors or officers or any
other person whom Holdings or any of its Subsidiaries has agreed to indemnify,
that would reasonably be expected to have, individually or in the aggregate, a
Holdings Material Adverse Effect. To the knowledge of Holdings, there are no
facts or circumstances specific to Holdings which if known to a third party
would reasonably be expected to result in such a suit or proceeding which could
be expected to have a Holdings Material Adverse Effect.
Section 4.12 Contracts. Each Contract entered into by Holdings or any of
its Subsidiaries is valid, binding and enforceable and in full force and effect,
except where failure to be valid, binding and enforceable and in full force and
effect would not reasonably be expected to have a Holdings Material Adverse
Effect and there are no defaults by Holdings or any of its Subsidiaries or, to
the knowledge of Holdings, another party thereto, thereunder, except those
defaults that would not reasonably be expected to have a Holdings Material
Adverse Effect. Except as set forth in the Holdings Disclosure Schedule, neither
Holdings nor any of its
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Subsidiaries is a party to or bound by any non-competition agreement or any
other agreement or obligation which purports to limit in any material respect
the manner in which, or the localities in which, Holdings or any such Subsidiary
is entitled to conduct all or any material portion of the business of Holdings
and its Subsidiaries taken as a whole. All Contracts which are material to the
business, financial condition, results of operations or prospects of Holdings
and its Subsidiaries taken as a whole, are listed in the Holdings Disclosure
Schedule.
Section 4.13 Taxes.
(a) There have been properly completed and filed on a timely basis and in
correct form all Returns required to be filed by Holdings and any of its
Subsidiaries. As of the time of filing, the Returns correctly reflected the
facts regarding the income, business, assets, operations, activities, status or
other matters of Holdings or its Subsidiary or any other information required to
be shown thereon. An extension of time within which to file any Return which has
not been filed has not been requested or granted.
(b) With respect to all amounts in respect of Taxes imposed upon Holdings
and any of its Subsidiaries, or for which Holdings or any of its Subsidiaries is
or could be liable, whether to taxing authorities (as, for example, under law)
or to other persons or entities (as, for example, under tax allocation
agreements), with respect to all taxable periods or portions of periods ending
on or before the Closing Date, all applicable tax laws and agreements have been
fully complied with, and all amounts required to be paid by Holdings or any of
its Subsidiaries, to taxing authorities or others, on or before the Original
Execution Date have been paid.
(c) Except as set forth in the Holdings Disclosure Schedule, no issues have
been raised (and are currently pending) by any taxing authority in connection
with any of the Returns filed by Holdings or any of its Subsidiaries. No waivers
of statutes of limitation with respect to such Returns have been given by or
requested from Holdings or any of its Subsidiaries. The Holdings Disclosure
Schedule sets forth (i) the taxable years of Holdings and its Subsidiaries as to
which the respective statutes of limitations with respect to Taxes have not
expired, and (ii) with respect to such taxable years sets forth those years for
which examinations have been completed, those years for which examinations are
presently being conducted, those years for which examinations have not been
initiated, and those years for which required Returns have not yet been filed.
All deficiencies asserted or assessments made as a result of any examinations
have been fully paid, or are fully reflected as a liability in the Holdings
Financial Statements or are being contested in good faith and an adequate
reserve therefor has been established and is fully reflected in the Holdings
Financial Statements.
(d) Except as set forth in the Holdings Disclosure Schedule, neither
Holdings nor any of its Subsidiaries is a party to or bound by any tax
indemnity, tax sharing or tax allocation agreement.
(e) Neither Holdings nor any of its Subsidiaries has agreed to make, and is
not required to make, any adjustment under section 481(a) of the Code by reason
of a change in accounting method or otherwise.
(f) Neither Holdings nor any of its Subsidiaries is a party to any
agreement, contract, arrangement or plan that has resulted or would result,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of section 280G of the Code.
(g) The unpaid Taxes of Holdings and its Subsidiaries do not exceed (and at
the Effective Time will not exceed) the reserve for tax liability with respect
to Holdings and its Subsidiaries (excluding any reserve for deferred Taxes to
the extent such reserve reflects timing differences between book and tax income)
set forth or included in the latest Holdings Financial Statements as adjusted in
accordance with the past practices of Holdings and its Subsidiaries for items of
income, gain, loss and expense arising and accruals and transactions occurring
after the latest balance sheet date in such Holdings Financial Statements.
(h) The transactions contemplated herein will not result in restorations
into income of amounts deferred under the consolidated return regulations, such
as those relating to intercompany transactions, excess loss accounts, and the
like.
(i) The transactions contemplated herein are not subject to any tax
withholding provisions of law or regulations other than with respect to foreign
shareholders.
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(j) No breach of any of the representations and warranties contained in
paragraphs (a) through (i) of this Section 4.13 shall be deemed to exist unless
such breach would have a Holdings Material Adverse Effect.
(k) Until April 20, 1994, Holdings was a wholly-owned, indirect subsidiary
of TCH Corporation, a Delaware corporation, which became Thrifty Payless
Holdings, Inc., a Delaware corporation ("Thrifty"). Effective December 12, 1996,
Thrifty was merged with and into Rite Aid Corporation, a Delaware corporation,
pursuant to Section 251 of the DGCL. Each of Holdings, Sporting and Acquisition
represents, warrants and agrees that Holdings is in control of each of Sporting
and Acquisition within the meaning of Section 368(c) of the Code and that each
of Holdings, Sporting and Acquisition has not and will not, and that the
Surviving Corporation will not (and the Surviving Corporation hereby agrees that
it will not), take, or permit any of their Subsidiaries to take, any action that
would cause the Merger not to be a tax-free reorganization under Section
368(a)(2)(E) of the Code, including, without limitation, by reason of any
violation of the continuity-of-proprietary-interest doctrine or the
continuity-of-business-enterprise doctrine, or a merger of the Company with and
into another corporation or entity with such other corporation or entity
surviving the merger, if such merger would cause the Merger not to be a tax-free
reorganization under Section 368(a)(2)(E) of the Code. Each of Holdings,
Sporting and Acquisition represent and warrant that they have no plan or
intention to effect a merger of the Company with an into another corporation or
entity with such other corporation or entity surviving such merger.
Notwithstanding anything in this Agreement to the contrary, this Section 4.13(k)
shall survive the Closing and shall apply without regard to any disclosure on
the Holdings Disclosure Schedule or otherwise made on behalf of Holdings.
Stockholders of the Company are each third party beneficiaries of this Section
4.13(k) and may seek relief for breach hereof in their own names.
(l) Holdings will not make any extraordinary dividend payments to its
stockholders prior to the Effective Time, or in contemplation of the Merger.
(m) At the Effective Time, the fair market value of the assets of each of
Holdings, Sporting and Acquisition will exceed the sum of its liabilities, plus
the amount of liabilities of others, if any, to which such assets are subject.
Section 4.14 Title to Properties; Encumbrances. Except as described in the
following sentence, each of Holdings and its Subsidiaries has good, valid and,
in the case of real property, marketable title to, or a valid leasehold interest
in, all of its material properties and assets (real, personal, tangible and
intangible), including, without limitation, all such properties and assets
reflected in the consolidated balance sheet of Holdings and its Subsidiaries as
of January 4, 1997 included in the Holdings Financial Statements (except for
properties and assets disposed of in the ordinary course of business and
consistent with past practices since that date), except for such title or
interest the failure of which to have would not have, individually or in the
aggregate, a Holdings Material Adverse Effect. None of such properties or assets
are subject to any Liens (whether absolute, accrued, contingent or otherwise),
except (i) as set forth in the Holdings Disclosure Schedule or (ii)
imperfections of title and Liens, if any, which do not detract from the value of
the property or assets subject thereto in a manner material to Holdings and do
not materially impair the business or operations of Holdings and its
Subsidiaries taken as a whole.
Section 4.15 Intellectual Property. Holdings and its Subsidiaries own or
have a valid license to use all inventions, patents, trademarks, service marks,
trade names, copyrights, trade secrets, technology and know-how, software and
other intellectual property rights (collectively, the "Holdings Intellectual
Property") necessary to carry on their respective businesses as currently
conducted except where the failure to own or have a valid license to use such
would not have a Holdings Material Adverse Effect; and neither Holdings nor any
such Subsidiary has received any notice of infringement of or conflict with,
and, to Holdings' knowledge, there are no infringements of or conflicts with,
the rights of others with respect to the use of any of the Holdings Intellectual
Property that, in either such case, has had or would reasonably be expected to
have, individually or in the aggregate, a Holdings Material Adverse Effect.
Section 4.16 Information in Registration Statement. None of the
information supplied or to be supplied by Holdings for inclusion in the
Registration Statement will at the time it becomes effective, at the time of the
initial mailing of the Proxy Statement and any amendments or supplements thereto
or at the time of the meeting of the Company's stockholders contemplated by this
Agreement contain any untrue statement of a
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material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Registration
Statement, as of its effective date, will comply as to form in all material
respects with the requirements of the Securities Act, and the rules and
regulations promulgated thereunder. Notwithstanding the foregoing, Holdings
makes no representations with respect to any statement in the foregoing
documents based upon and conforming to information supplied by the Company for
inclusion therein.
Section 4.17 Employee Benefit Plans; ERISA.
(a) None of Holdings, any of its Subsidiaries or any affiliate of Holdings
or any of its Subsidiaries as determined under Code section 414(b), (c), (m) or
(o) ("Holdings ERISA Affiliate") maintains, administers or contributes to, or
has any liability with respect to, nor do the employees of Holdings, its
Subsidiaries or any Holdings ERISA Affiliate receive or expect to receive as a
condition of employment, benefits pursuant to:
(A) any employee benefit plan (as defined in section 3(3) of ERISA) (each
such plan, a "Holdings Plan"), including, without limitation, any Multiemployer
Plan; or
(B) any bonus, deferred compensation, performance compensation, stock
purchase, stock option, stock appreciation, severance, salary continuation,
vacation, sick leave, holiday pay, fringe benefit, personnel policy,
reimbursement program, incentive, insurance, welfare or similar plan, program,
policy or arrangement (each such plan, a "Holdings Benefit Plan");
other than those Holdings Plans and Holdings Benefit Plans listed in the
Holdings Disclosure Schedule. Except as required by section 4980B of the Code,
none of Holdings, any of its Subsidiaries or any Holdings ERISA Affiliate has
promised any former employee or other individual not employed by Holdings, any
of its Subsidiaries or any Holdings ERISA Affiliate medical or other benefit
coverage and none of Holdings, any of its Subsidiaries or any Holdings ERISA
Affiliate maintains or contributes to any plan, program, policy or arrangement
providing medical or life insurance benefits to former employees, their spouses
or dependents or any other individual not employed by Holdings, any of its
Subsidiaries or any Holdings ERISA Affiliate. No Holdings Plan or Holdings
Benefit Plan has any provision which could increase or accelerate benefits or
increase the liability of Holdings or any of its Subsidiaries as a result of any
transaction contemplated by this Agreement.
(b) All Holdings Plans and Holdings Benefit Plans which are not
Multiemployer Plans and any related trust agreements or annuity contracts (or
any related trust instruments) comply with and are and have been operated in
accordance with each applicable provision of ERISA and the Code in all material
respects. Each Holdings Plan, as amended to date, which is not a Multiemployer
Plan, that is intended to be qualified under sections 401(a) and 501(a) of the
Code has been determined to be so qualified by the IRS, has been submitted to
the IRS for a determination with respect to such qualified status, or the
remedial amendment period with respect to such Holdings Plan will not have
expired prior to the Effective Time, and no event has occurred, either by reason
of any action or failure to act, which would cause the loss of any such
qualification.
(c) Neither any Holdings Plan fiduciary nor any Holdings Plan (excluding
each Multiemployer Plan and its fiduciaries) has engaged in any transaction in
violation of section 406 of ERISA or any "prohibited transaction" (as defined in
section 4975(c)(1) of the Code) unless exempt under section 408 of ERISA or
section 4975 of the Code and there has been no "reportable event" (as defined in
section 4043 of ERISA),with respect to any Holdings Plan which is not a
Multiemployer Plan, for which the 30-day notice requirement has not been waived.
None of Holdings, any of its Subsidiaries or any Holdings ERISA Affiliate has
incurred or suffered to exist any "accumulated funding deficiency" (as defined
in section 302 of ERISA) whether or not waived by the IRS, involving any
Holdings Plan subject to section 412 of the Code or Part 3 of Subtitle B of
Title I of ERISA. No withdrawals have occurred so as to cause any Holdings Plan
to become subject to the provisions of section 4063 of ERISA, and none of
Holdings, any of its Subsidiaries or any Holdings ERISA Affiliate has ceased
making contributions to any employee benefit plan subject to section 4064(a) of
ERISA to which Holdings, any of its Subsidiaries or any Holdings ERISA Affiliate
made contributions during the six (6) years prior to the Original Execution Date
or ceased operations at a facility so as to become subject to
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section 4062(e) of ERISA. Full payment has been made of all amounts which
Holdings, any of its Subsidiaries or any Holdings ERISA Affiliate is required or
committed to pay to each of the Holdings Plans and Holdings Benefit Plans prior
to or as of the Effective Time.
(d) True and complete copies of each Holdings Plan, Holdings Benefit Plan,
related trust agreements, annuity contracts, determination letters, the most
recent determination letter request, summary plan descriptions, annual reports
on Form 5500, Form 990, actuarial reports and PBGC Forms 1 for the most recent
three (3) plan years, and each plan, agreement, instrument and commitment
referred to herein has been previously furnished to the Company. The annual
reports on Form 5500 and Form 990 and actuarial statements furnished to the
Company fully and accurately set forth the financial and actuarial condition of
the respective Holdings Plan or Holdings Benefit Plan, as may be applicable.
(e) The aggregate present value of all accrued benefits, including the
maximum value of all subsidized benefits, pursuant to each Holdings Plan subject
to Title IV of ERISA, determined on the basis of current participation and
projected compensation for active participants, and earnings, mortality and
other actuarial assumptions set forth in the most recent actuarial report for
Holdings Plan does not exceed the current fair market value of Holdings Plan's
assets.
(f) None of Holdings, any of its Subsidiaries or any Holdings ERISA
Affiliate has incurred any liability to the PBGC, including as a result of the
voluntary or involuntary termination of any Holdings Plan which is subject to
Title IV of ERISA. There is currently no active filing by Holdings, its
Subsidiaries or any Holdings ERISA Affiliate with the PBGC (and no proceeding
has been commenced by the PBGC and no condition exists, and no event has
occurred, that could constitute grounds for the termination of any Holdings Plan
by the PBGC) to terminate any Holdings Plan which is subject to Title IV of
ERISA and which has been maintained or funded, in whole or in part, by Holdings,
its Subsidiaries or any Holdings ERISA Affiliate.
(g) To the knowledge of Holdings or its Subsidiaries, there are no pending
or threatened claims by or on behalf of any of Holdings Plans or Holdings
Benefit Plans by any employee or beneficiary covered under any Holdings Plans or
Holdings Benefit Plans or otherwise involving any Holdings Plan or Holdings
Benefit Plan (other than routine claims for benefits).
(h) With respect to each Holdings Plan which is a Multiemployer Plan
covering employees of Holdings, any of its Subsidiaries or any Holdings ERISA
Affiliate: (i) none of Holdings, such Subsidiary or such Holdings ERISA
Affiliate would incur any withdrawal liability on a complete withdrawal from
each such Holdings Plan as of the Effective Date, under applicable laws and
conditions of each such Holdings Plan and the applicable provisions of law; (ii)
none of Holdings, its Subsidiaries or any Holdings ERISA Affiliate has made or
suffered a "complete withdrawal" or a "partial withdrawal", as such terms are
respectively defined in sections 4203 and 4205 of ERISA; (iii) none of Holdings,
its Subsidiaries or any Holdings ERISA Affiliate has any contingent liability
under section 4204 of ERISA; and (iv) no such Holdings Plan is in reorganization
as defined in section 4241 of ERISA and no circumstances exist which present a
material risk of any such Holdings Plan going into reorganization.
(i) With respect to employees of Holdings and its Subsidiaries, Holdings
and its Subsidiaries are and have been in compliance with all applicable laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, including, without limitation, any such laws
respecting employment discrimination, occupational safety and health, and unfair
labor practices.
(j) No breach of any of the foregoing representations and warranties in
this Section 4.17 shall be deemed to exist unless such breach would have a
Holdings Material Adverse Effect.
4.18 Environmental Matters. Except as set forth on the Holdings Disclosure
Schedule, Holdings and its Subsidiaries are and at all times have been, and all
real property currently or, to Holdings knowledge, previously, owned, leased,
occupied, used by or under the control of Holdings or any of its Subsidiaries
and all operations or activities of Holdings and its Subsidiaries (including,
without limitation, those conducted on or taking place at any of such real
property) are and, to the knowledge of Holdings, at all times have been, in
compliance with and not subject to any liability or obligation under any
Environmental Law or Environmental Permit except where any of the foregoing
would not have a Holdings Material Adverse Effect. There is no
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condition or circumstance regarding Holdings or any of its Subsidiaries or its
business or any such real property or the operations or activities conducted
thereon, which may give rise to a violation of, or liability or obligation
under, any Environmental Law or Environmental Permit which would have a Holdings
Material Adverse Effect. Neither Holdings, any of its Subsidiaries nor, to the
knowledge of Holdings, any Person, the acts or omissions of which may be
attributable to, the responsibility of, or be the basis of a liability to,
Holdings, has, or has arranged to have, any material, substance or waste
generated, released, treated, stored or disposed of at, or transported to, any
facility or property the remediation or cleanup of which, or the response costs
related thereto, could become or result in a Holdings Material Adverse Effect.
There are no allegations, claims, demands, citations, notices of violation, or
orders of noncompliance made against, issued to or received by Holdings relating
or pursuant to any Environmental Law or Environmental Permit except those which
have been corrected or complied with or are not material to Holdings, and to the
knowledge of Holdings no such allegation, claim, demand, citation, notice of
violation or order of noncompliance is threatened, imminent or likely. No breach
of any of the foregoing representations and warranties contained in this Section
4.18 shall be deemed to exist unless such breach would have a Holdings Material
Adverse Effect.
Section 4.19 Labor Matters. With respect to employees of Holdings and its
Subsidiaries: (and the following references to Holdings are deemed to include
the Subsidiaries): (i) to the knowledge of Holdings, there is no pending or
threatened unfair labor practice charges or employee grievance charges; (ii)
there is no request for union representation, labor strike, dispute, slowdown or
stoppage actually pending or, to the knowledge of Holdings, threatened against
Holdings, and there has been no such event during the 18 months preceding the
Original Execution Date; (iii) Holdings is not a party to any collective
bargaining agreements; and (iv) except as set out in the Holdings Disclosure
Schedule, the employment of each of Holdings' employees is terminable at will
without cost to Holdings except for payments required under the Holdings Plans
and Holdings Benefit Plans and payment of accrued salaries or wages and vacation
pay. No employee or former employee has any right to be rehired by Holdings
prior to Holdings' hiring a person not previously employed by Holdings. Holdings
is and, since January 4, 1997 has been, in compliance in all material respects
with all applicable laws respecting employment and employment practices, terms
and conditions of employment and wages and hours, including, without limitation,
any such laws respecting employment discrimination, occupational safety and
health, and unfair labor practices, except where such failure to comply would
not have a Holdings Material Adverse Effect. Holdings is not delinquent in
payments to any of its employees for any wages, salaries, commissions, bonuses
or other direct compensation for any services performed by them or any amounts
required to be reimbursed to such employees.
Section 4.20 Affiliate Transactions. Except as set forth in the Holdings
Disclosure Schedule or as contemplated by the transactions contemplated hereby,
since January 1, 1996, there are no material undischarged Contracts or other
material transactions between Holdings or any of its Subsidiaries, on the one
hand, and any (i) officer or director of Holdings or any of its Subsidiaries,
(ii) record or beneficial owner of five percent or more of the voting securities
of Holdings or (iii) affiliate (as such term is defined in Regulation 12b-2
promulgated under the Exchange Act) of any such officer, director or beneficial
owner, on the other hand.
Section 4.21 Real Estate.
(a) Owned Real Estate. All material real estate owned by Holdings and its
Subsidiaries (the "Holdings Real Estate") is owned in fee simple title, subject
only to real estate taxes not delinquent and to covenants, conditions,
restrictions and easements which are of record and minor irregularities or
imperfections of title which do not in the aggregate materially detract from the
value of the Holdings Real Estate or interfere with Holdings' use or occupancy
thereof. Except as set forth in the Holdings Disclosure Schedule, none of the
Holdings' Real Estate is subject to any leases or tenancies.
(b) Leased Premises. Except as set forth in the Holdings Disclosure
Schedule, all real estate leased by Holdings and its Subsidiaries (the "Holdings
Leased Premises") is leased pursuant to written leases, and Holdings has
provided to the Company the original lease and any material amendments thereto
and has otherwise made available to the Company its records regarding the
Holdings Leased Premises. To Holdings' knowledge, Holdings is not in default
under any material term of any agreement relating to the Holdings
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Leased Premises nor, to Holdings' knowledge, is any other party thereto in
default thereunder which in any case would have a Holdings Material Adverse
Effect.
(c) Condemnation. There are no condemnation proceedings pending or, to
Holdings' knowledge, threatened with respect to any portion of the Holdings Real
Estate or the Holdings Leased Premises.
(d) Condition of Buildings. To the knowledge of Holdings, the buildings and
other facilities located on the Holdings Real Estate and the Holdings Leased
Premises are free of any patent structural or engineering defects and, to
Holdings' knowledge, are free of any latent structural or engineering defects.
Section 4.22 Brokers. Except for fees, commissions and expenses payable to
its financial advisors, ▇▇▇▇▇▇▇ ▇▇▇▇▇ & Associates, L.P., ▇▇▇▇ ▇▇▇▇▇▇▇▇
Incorporated and ▇▇▇▇▇▇▇ ▇▇▇▇▇ & Co., no broker, finder or financial adviser is
entitled to any brokerage, finder's or other fee or commission from the Company
or Holdings in connection with the transactions contemplated by this Agreement.
Section 4.23 Solvency. At the Effective Time and after giving effect to
any changes in the Surviving Corporation's assets and liabilities as a result of
the Merger and any financing (or re-financing) incurred in connection therewith
or related thereto and the use of proceeds therefrom, the Surviving Corporation
will not: (i) be insolvent either because its financial condition is such that
the sum of its debts is greater than the fair value of its assets or because the
present fair salable value of its assets will be less than the amount required
to pay its probable liability on its debts (including any legal liability
whether matured or unmatured, liquidated, absolute, fixed, or contingent with
any contingent liability evaluated in light of all the facts and circumstances
existing at the time of such valuation as the amount that can reasonably be
expected to become an actual or matured liability) as they become absolute and
matured: (ii) have unreasonably small capital with which to continue as a going
concern and will not lack sufficient capital for its needs and anticipated
needs; or (iii) have incurred or plan to incur debts beyond its ability to pay
as such debts become absolute and matured. For the purpose of the representation
and warranty contained in this Section 4.23, Holdings, Sporting and Acquisition
shall be entitled to assume that the representations and warranties of the
Company regarding its liabilities and the liabilities of its Subsidiaries are
true and correct in all material respects and that there has been and will be no
material change in the aggregate of the assets or liabilities of the Company
after the date hereof except to the extent Holdings, Sporting and Acquisition
have knowledge to the contrary.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
Section 5.1 Conduct of Business by the Company Pending the Merger. Prior
to the Effective Time, unless Holdings shall otherwise agree in writing (which
agreement shall not be unreasonably withheld) or as otherwise expressly
contemplated by this Agreement, including, without limitation, Article III
hereof, or as set forth in Section 5.1 of the Company Disclosure Schedule, the
Company shall conduct, and cause each of its Subsidiaries to conduct, its
business only in the ordinary and usual course consistent in all material
respects with past practice, and, subject to the remainder of this Section 5.1,
the Company shall use, and cause each of its Subsidiaries to use, its reasonable
efforts to preserve intact the present business organization, keep available the
services of its present officers and key employees, and preserve their existing
business relationships. The Company shall promptly give Holdings written notice
of the existence or occurrence of any condition which might reasonably be
expected to prevent the consummation of the transactions contemplated hereby.
Without limiting the generality of the foregoing, unless Holdings shall
otherwise agree in writing (which agreement shall not be unreasonably withheld),
or as otherwise expressly contemplated by this Agreement or as set forth in
Section 5.1 of the Company Disclosure Schedule, prior to the Effective Time the
Company shall not, nor shall it permit any of its Subsidiaries to:
(a)(i) amend its Certificate of Incorporation, as amended, By-Laws or other
organizational documents, (ii) split, combine or reclassify any shares of its
outstanding capital stock, (iii) declare, set aside or pay any dividend or other
distribution payable in cash, stock or property, or (iv) directly or indirectly
redeem or otherwise acquire any shares of its capital stock or shares of the
capital stock of any of its Subsidiaries;
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(b) authorize for issuance, issue (except upon the exercise of outstanding
stock options) or sell or agree to issue or sell any shares of, or rights to
acquire or convertible into any shares of, its capital stock or shares of the
capital stock of any of its Subsidiaries (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to purchase or
otherwise), including the granting of options pursuant to the Company's Stock
Plans other than grants of options to newly appointed store-level managers in
the ordinary course of business and consistent with past practice;
(c)(i) merge, combine or consolidate with another entity, (ii) acquire or
purchase an equity interest in or a substantial portion of the assets of another
corporation, partnership or other business organization or otherwise acquire any
assets outside the ordinary course of business and consistent with past practice
and not to exceed $25,000 or otherwise enter into any material contract,
commitment or transaction either outside the ordinary course of business and
consistent with past practice or exceeding $25,000 individually and $250,000 in
the aggregate (provided that such dollar limitations do not apply to a contract
that allows the Company to terminate within 30 days or less at no cost) or (iii)
sell, lease, license, waive, release, transfer, encumber or otherwise dispose of
any of its material assets (x) to a Related Party, (y) other than in the
ordinary course of business and consistent with past practices and not to exceed
$350,000 in the aggregate other than as described on Schedule 5.1(c), or (z)
sales of inventory in the ordinary course of business consistent with past
practice;
(d) (i) incur, assume or prepay any material indebtedness or any other
material liabilities other than accounts payable, payments under bank credit
facilities existing on the Original Execution Date and obligations relating to
the acquisition of inventory, in each case in the ordinary course of business
and consistent with past practice, (ii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
the obligations of any other person other than a Subsidiary of the Company or
(iii) make any loans, advances or capital contributions to, or investments in,
(x) any other person except to satisfy legal or contractual obligations
(existing on the Original Execution Date) of any Subsidiary of the Company, (y)
a Related Party except in a manner consistent with past practice with respect to
the "due to/due from related party" account contained in the Company's financial
statements described in Section 3.9 or (z) any other person other than in the
ordinary course of business and consistent with past practices and not to exceed
$25,000 individually other than as described on Schedule 5.1(d);
(e) pay, satisfy, discharge or settle any material claim, liabilities or
obligations (absolute, accrued, contingent or otherwise), other than those (i)
reflected or reserved against in the Company's August 31, 1997 financial
statements (and the notes thereto) described in Section 3.9 but in no event in
an amount greater than $250,000 individually or $350,000 in the aggregate, (ii)
incurred in the ordinary course of business consistent with past practice, or
(iii) which are legally or contractually required to be paid, discharged or
satisfied;
(f) modify or amend, or waive any benefit of, any non-competition agreement
to which the Company or any of its Subsidiaries is a party;
(g) enter into any new transaction of the type described in Section 3.20 or
modify or amend, extend the due date of any payment with respect to, or waive
any benefit of, any existing transaction described in Section 3.20 except with
respect to transactions with officers and directors as set forth in Section 3.20
of the Company Disclosure Schedule, pursuant to Company Plans or Company Benefit
Plans and rights of officers and directors pursuant to the Company's certificate
of incorporation and by-laws and insurance policies of the Company or any of its
Subsidiaries;
(h) authorize or make capital expenditures, other than (x) for repair and
maintenance, (y) as set forth on Schedule 5.1, or (z) or otherwise not to exceed
$100,000 in the aggregate;
(i) enter into any new lease or purchase of real estate or any material
computer system (or any material components thereof) except for (i) renewal of
existing real estate leases (except for the leases described in Section 3.20)
and (ii) purchases of computer equipment as set forth on Schedule 5.1 or
otherwise not to exceed $100,000 in the aggregate;
(j) permit any insurance policy naming the Company or any Subsidiary of the
Company as a beneficiary or a loss payee to be canceled or terminated other than
in the ordinary course of business and provided that
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replacement policies which the Company deems to be commercially appropriate
under all relevant circumstances are obtainable for such canceled or terminated
policies, provided the Company may renew any existing insurance policy in the
ordinary course of business and consistent with past practices for the
applicable renewal period;
(k)(i) adopt, enter into, terminate or amend in any material respect
(except as may be required by applicable law) any plan for the current or future
benefit or welfare of any director or officer, (ii) increase in any manner the
compensation or fringe benefits of, or pay any bonus to, any director, officer
or employee or (iii) except as contemplated by this Agreement, take any action
to or in any other way secure, or to accelerate or otherwise remove restrictions
with respect to, the payment of compensation or benefits under any employee
plan, agreement, contract, arrangement or other Company Plan other than in the
ordinary course of business, or (iv) hire any new employee at the Company's
corporate office with annual compensation in excess of $40,000;
(l) make any significant change in its accounting or tax policies or
procedures and shall not reverse the amount of any existing reserves unless
necessary to prevent a covenant default under the Credit Agreement, dated as of
September 6, 1996, as subsequently amended, among the Company, BT Commercial
Corporation, as agent, and the lenders identified therein (the "Credit
Agreement"), except in each case as required by law or to comply with GAAP; or
(m) enter into any contract, agreement, commitment or arrangement with
respect to any of the foregoing; provided however, that this Section 5.1 shall
not prohibit the Company nor any of its Subsidiaries from entering into and
performing the Pack Boot Agreement or the Consignment Agreement.
Any action permitted under any exception to a prohibition in this Section 5.1
shall not be prohibited by any other general prohibition in this Section 5.1.
Section 5.2 Conduct of Business by Holdings Pending the Merger. Prior to
the Effective Time, unless the Company shall otherwise agree in writing (which
agreement shall not be unreasonably withheld), or as otherwise expressly
contemplated by this Agreement, including, without limitation, Article IV
hereof, or as set forth in Section 5.2 of the Holdings Disclosure Schedule,
Holdings shall conduct, and cause each of its Subsidiaries to conduct, its
business only in the ordinary and usual course consistent in all material
respects with past practice, and Holdings shall use, and cause each of its
Subsidiaries to use, its reasonable efforts to preserve intact the present
business organization, keep available the services of its present officers and
key employees, and preserve their existing business relationships. Holdings
shall promptly give the Company written notice of the existence or occurrence of
any condition which might reasonably be expected to prevent the consummation of
the transactions contemplated hereby. Without limiting the generality of the
foregoing, unless the Company shall otherwise agree in writing (which agreement
shall not be unreasonably withheld), or as otherwise expressly contemplated by
this Agreement or as set forth in Section 5.2 of the Holdings Disclosure
Schedule, prior to the Effective Time Holdings shall not, nor shall it permit
any of its Subsidiaries to:
(a)(i) except for the filing of the Holdings Charter and the Acquisition
Charter, amend its Certificate of Incorporation, as amended, By-Laws or other
organizational documents, (ii) split, combine or reclassify any shares of its
outstanding capital stock unless all share numbers contained in or contemplated
by this Agreement shall be correspondingly adjusted, (iii) declare, set aside or
pay any dividend or other distribution payable in cash, stock or property, or
(iv) directly or indirectly redeem or otherwise acquire any shares of its
capital stock or shares of the capital stock of any of its Subsidiaries;
(b) authorize for issuance, issue (except upon the exercise of outstanding
stock options) or sell or agree to issue or sell any shares of, or rights to
acquire or convertible into any shares of, its capital stock or shares of the
capital stock of any of its Subsidiaries (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to purchase or
otherwise), except for the granting of options to purchase up to a number of
shares of Holdings Common Stock pursuant to any stock option plan equal to the
number of outstanding Substitute Company Options with an exercise price above
the Closing Price of the Company
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outstanding on the Effective Date divided by 0.275 and such options shall not
exceed 150,000 without the consent of the Company, which consent shall not be
unreasonably withheld;
(c)(i) merge, combine or consolidate with another entity, (ii) acquire or
purchase an equity interest in or a substantial portion of the assets of another
corporation, partnership or other business organization or otherwise acquire any
assets outside the ordinary course of business and consistent with past practice
or otherwise enter into any material contract, commitment or transaction outside
the ordinary course of business and consistent with past practice or (iii) sell,
lease, license, waive, release, transfer, encumber or otherwise dispose of any
of its material assets outside the ordinary course of business and consistent
with past practice;
(d)(i) incur, assume or prepay any material indebtedness or any other
material liabilities other than in each case in the ordinary course of business
and consistent with past practice, (ii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
the obligations of any other person other than a Subsidiary of Holdings, in each
case other than in the ordinary course of business and consistent with past
practice or (iii) make any loans, advances or capital contributions to, or
investments in, any other person, other than to any Subsidiary of Holdings;
(e) pay, satisfy, discharge or settle any material claim, liabilities or
obligations (absolute, accrued, contingent or otherwise), other than either in
the ordinary course of business and consistent with past practice or pursuant to
mandatory terms of any Holdings Contract in effect on the Original Execution
Date;
(f) modify or amend, or waive any benefit of, any non-competition agreement
to which Holdings or any of its Subsidiaries is a party;
(g) permit any insurance policy naming Holdings or any Subsidiary of
Holdings as a beneficiary or a loss payee to be canceled or terminated other
than in the ordinary course of business and provided that replacement policies
which the Company deems to be commercially appropriate under all relevant
circumstances are obtainable for such canceled or terminated policies;
(h) make any significant change in its accounting or tax policies or
procedures and shall not reverse the amount of any existing reserves, except as
required by law or to comply with GAAP;
(i) acquire any shares of capital stock of the Company; or
(j) enter into any contract, agreement, commitment or arrangement with
respect to any of the foregoing; provided however, that this Section 5.2 shall
not prohibit Holdings nor any of its Subsidiaries from entering into and
performing the Pack Boot Agreement or the Consignment Agreement.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Access and Information.
(a) Each party hereto shall (and shall cause its Subsidiaries and its and
their respective officers, directors, employees, auditors and agents to) afford
to the other party and to such other party's officers, employees, financial
advisors, legal counsel, accountants, consultants and other representatives
(except to the extent not permitted under applicable law as advised by counsel
and except as may be limited by any confidentiality obligation contained in any
contract with a third party) reasonable access during normal business hours
throughout the period prior to the Effective Time to all of its books and
records and its properties, plants and personnel and, during such period, shall
furnish promptly to the other party a copy of each report, schedule and other
document filed or received by it pursuant to the requirements of federal
securities laws. The Company agrees to cooperate reasonably with Holdings with
respect to transition activities prior to the Effective Date, provided that such
activities do not cause any unreasonable interference with the operation of the
Company's business. The Company agrees to provide to Holdings promptly following
the date hereof a true and complete list, as of a current date, of all employees
who are employed by the Company at the Company's headquarters and all other
employees above the store manager level, such list to
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include such employees' salaries, wages, other significant compensation (other
than benefits under the Plans and Employee Benefit Plans), dates of employment
and positions.
(b) Unless otherwise required by law, each party hereto agrees that it
shall hold in confidence all non-public information so acquired in accordance
with the terms of the confidentiality agreements between the Company and
Holdings, dated July 31, 1997.
Section 6.2 No Solicitation.
(a) Prior to the Effective Time, the Company agrees that neither it, any of
its respective Subsidiaries or affiliates, nor any of the respective directors,
executive officers, agents or representatives of the foregoing, will, directly
or indirectly, (i) solicit, initiate or encourage (including by way of
furnishing information) any inquiries or the making of any proposal with respect
to any merger, consolidation or other business combination involving the Company
or any Subsidiary of the Company or the acquisition of all or any significant
part of the assets or capital stock (including but not limited to a majority
voting interest) of the Company or any Subsidiary of the Company (an
"Acquisition Transaction") or (ii) negotiate or otherwise engage in discussions
with any person (other than Holdings and its representatives) with respect to
any Acquisition Transaction, or which may reasonably be expected to lead to a
proposal for an Acquisition Transaction, or enter into any agreement,
arrangement or understanding (including any letter of intent, agreement in
principle or similar agreement) with respect to any such Acquisition
Transaction; provided, however, that, the Company may, in response to a proposal
or inquiry unsolicited after the Original Execution Date, furnish information
to, negotiate or otherwise engage in discussions with any person (pursuant to a
customary confidentiality agreement) which makes or indicates in writing an
intention or desire to make, and with respect to whom the Board of Directors of
the Company has concluded in good faith after consultation with its financial
advisor is reasonably capable of making, a Superior Proposal (as herein
defined), if the Board of Directors of the Company determines in good faith,
after consultation with its outside counsel, that the failure to take such
action would be inconsistent with the fiduciary duties of the Board of Directors
of the Company under applicable law and such proposed Acquisition Transaction
was not solicited by it in, or did not otherwise result from a, breach of this
Section 6.2 and subject to compliance with the other provisions of this Section
6.2; and provided further that notwithstanding anything to the contrary herein
contained, the Board of Directors of the Company may take and disclose to the
Company's stockholders a position contemplated by Rule 14e-2 promulgated under
the Exchange Act, comply with Rule 14d-9 thereunder and make all other
disclosures required by applicable law. Any of the foregoing to the contrary
notwithstanding, the Company may engage in discussions with or provide
information to any person or group that has made a proposal unsolicited after
the Original Execution Date with respect to an Acquisition Transaction for the
limited purpose of determining whether such proposal is, or could lead to, a
Superior Proposal.
(b) Except as would be inconsistent with the fiduciary duties of the
Company's Board of Directors under applicable law, the Company agrees that, as
of the Original Execution Date, it, its Subsidiaries and affiliates, and the
respective directors, executive officers, agents and representatives of the
foregoing, shall immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any person (other than Holdings and
its representatives) conducted heretofore with respect to any Acquisition
Transaction. The Company agrees to promptly advise Holdings, its Subsidiaries or
affiliates, of any inquiries or proposals received by, any such information
requested from, or any negotiations or discussions sought to be initiated or
continued with, the Company, its Subsidiaries or affiliates, or any of the
respective directors, executive officers, agents or representatives of the
foregoing, in each case from a person (other than Holdings and its
representatives) with respect to an Acquisition Transaction, and a reasonable
summary of the terms thereof, including the identity of such third party (unless
disclosing the identity of such third party would violate the terms of any
confidentiality or similar agreement binding on the Company and entered into on
or prior to September 19, 1997), including any financing arrangement or
commitment in connection therewith, and, except as otherwise would be
inconsistent with the fiduciary duties of the Company's Board of Directors under
applicable law, to update on an ongoing basis or upon Holdings' reasonable
request, the status thereof, as well as any actions taken or other developments
pursuant to this Section 6.2. As used herein, "Superior Proposal" means a bona
fide, written proposal or offer made by any person (or group) (other than
Holdings or any of its Subsidiaries) with respect to an Acquisition Transaction
on terms which the Board of Directors of the
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Company determines in good faith, based on the advice of independent financial
advisors and legal counsel, to be more favorable to the Company and its
stockholders than the transactions contemplated hereby (including taking into
account the financing thereof).
Section 6.3 Registration Statement. As soon as practicable, Holdings and
the Company shall in consultation with each other prepare and file with the SEC
the Proxy Statement in preliminary form and the Registration Statement. The
Company and Holdings shall each use its reasonable best efforts to have the
Proxy Statement cleared by the SEC and the Registration Statement declared
effective as soon as practicable. The Company shall furnish Holdings with all
information concerning the Company and the holders of its capital stock and
shall take such other action as Holdings may reasonably request in connection
with the Registration Statement and the Share Issuance. If at any time prior to
the Effective Time any event or circumstance relating to the Company, any
Subsidiary of the Company, Holdings, any Subsidiary of Holdings, or any of their
respective officers or directors, should be discovered by such party which
should be set forth in an amendment or a supplement to the Registration
Statement or Proxy Statement, such party shall promptly inform the other thereof
and take appropriate action in respect thereof.
Section 6.4 Proxy Statement; Stockholder Approval.
(a) The Company, acting through its Board of Directors, shall, subject to
and in accordance with applicable law and its Certificate of Incorporation, as
amended, and its By-Laws, promptly and duly call, give notice of, convene and
hold as soon as practicable following the date upon which the Registration
Statement becomes effective a meeting of the holders of Company Common Stock for
the purpose of voting to approve and adopt this Agreement and the transactions
contemplated hereby, and, (i) except as the Board of Directors of the Company
determines, in good faith and as advised by outside counsel, would be
inconsistent with the fiduciary duties of the Board of Directors of the Company
under applicable law, and subject to the second proviso of Section 6.2(a),
recommend approval and adoption of this Agreement and the transactions
contemplated hereby, by the stockholders of the Company and include in the Proxy
Statement such recommendation and (ii) except as the Board of Directors of the
Company determines, in good faith and as advised by outside counsel, would be
inconsistent with the fiduciary duties of the Board of Directors of the Company
under applicable law and subject to the second proviso of Section 6.2(a), take
all reasonable action to solicit and obtain such approval; provided, however
that neither the Company's Board of Directors nor any committee thereof may
either (i) withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to Holdings, the approval or recommendation of the Merger or this
Agreement, or (ii) approve or recommend, or propose publicly to approve or
recommend, any Acquisition Transaction (other than the Merger), in the case of
clauses (i) and (ii) next above until the sixth business day following Holdings'
receipt of written notice advising Holdings that the Company's Board of
Directors has received a Superior Proposal, specifying the material terms and
conditions thereof and identifying the person making such Superior Proposal.
(b) The Company shall, as promptly as practicable (or at such other time as
may be mutually agreed by the Company and Holdings), cause the definitive Proxy
Statement/Prospectus to be mailed to the stockholders of the Company and
Holdings.
Section 6.5 Compliance with the Securities Act.
(a) At least 30 days prior to the Effective Time, the Company shall cause
to be delivered to Holdings a list identifying all persons who are Affiliates of
the Company.
(b) The Company shall use its reasonable best efforts to cause each person
who is identified as one of its Affiliates in its list referred to in Section
6.5(a) above to deliver to Holdings, at least 10 days prior to the Effective
Time, a written agreement, in the form attached hereto as Exhibit 6.5(b).
Section 6.6 Reasonable Best Efforts.
(a) Subject to the terms and conditions herein provided and applicable
legal requirements, each of the parties hereto agrees to use its reasonable best
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, and to assist and cooperate with the other parties hereto in doing, as
promptly as practicable,
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all things (not, in the case of the Company, inconsistent with the fiduciary
duties of its Board of Directors) necessary, proper or advisable (i) under
applicable laws and regulations and otherwise to ensure that the conditions set
forth in Article VII are satisfied and to consummate and make effective the
transactions contemplated by this Agreement, and to obtain as promptly as
practicable all consents, waivers, approvals, authorizations or permits of, or
registration or filing with or notification to (any of the foregoing being a
"Consent"), of any Governmental Entity, including, without limitation, under the
HSR Act (it being agreed that Holdings shall cause to be taken all necessary
action by the Fund, its control persons and Holdings' "ultimate parent entity"
with respect to such Consents and the Company shall cause to be taken all
necessary action by the Company Principals with respect to such Consents), (ii)
to obtain the consent of its independent auditors to the use of its historical
opinion covering the financial statements to be included in the Registration
Statement and (iii) to attempt to obtain third party consents mutually agreed to
be desirable in connection with the Merger.
(b) In furtherance of the foregoing, at the Closing, Holdings shall enter
into the Registration Rights Agreement (and cause the Fund to enter into the
Registration Rights Agreement) and Sporting and the Surviving Corporation shall
enter into the consulting agreements referenced in Section 7.3(i). In addition,
in connection therewith, it is agreed that Holdings may enter into a
registration rights agreement with the Fund provided such agreement with the
Fund shall not cause Holdings to be in breach of the Registration Rights
Agreement or materially adversely effect the benefits to the Shareholders (as
defined in the Registration Rights Agreement), thereunder.
(c) Each party hereto shall promptly inform the other of any material
communication from the United States Federal Trade Commission, the Department of
Justice, or any other Governmental Entity regarding any of the transactions
contemplated by this Agreement. After consultation with the other party, such
party will make an appropriate response in compliance with such request.
Section 6.7 Employee Benefits. During the one-year period immediately
following the Effective Time, Holdings and the Surviving Corporation shall cause
to be provided each of the employees who was employed by the Company or any of
its Subsidiaries at the Effective Time and continue employment with the
Surviving Corporation or any affiliate of the Surviving Corporation ("Employee")
benefits (including, without limitations, benefits under each Company Plan and
Company Benefit Plan (including benefits related to termination of employment))
which, taken as a whole, are no less favorable to the Employee than the benefits
provided the Employee by the Company and its Subsidiaries immediately prior to
the Effective Time unless any of the benefits provided to comparable employees
by Sporting would be significantly more favorable to the Employee in which event
such more favorable benefits will be provided to the Employee as soon as
reasonably practicable. Each of Sporting and the Surviving Corporation and its
affiliates shall credit Employees with any amounts paid for the calendar year
under the Company's medical and dental plans prior to the transition to a new
medical or dental program toward satisfaction of the applicable deductible
amounts and copayment and deductible maximums under any new medical or dental
program. With respect to each Employee, each of Sporting and the Surviving
Corporation and its affiliates shall treat service treated by the Company or its
Subsidiaries as service with the Company or its Subsidiaries as service with
each of Sporting and the Surviving Corporation or its affiliates for purposes of
employee benefits and fringe benefits, including, without limitation, vacation
benefits, waiting periods, vesting requirements and pre-existing conditions
limitations. The Company, prior to the Effective Time, and Holdings and the
Surviving Corporation, from and after the Effective Time, shall make the
severance payments set forth on Schedule 6.7 to the extent that such payments
have been accurately calculated pursuant to the terms of the Company's Severance
Plan, including consistent with any discretion of the committee administering
such plan, all of which have been approved by such committee as of the Original
Execution Date.
Section 6.8 Public Announcements. Each of Holdings and the Company agrees
that, except as may be required by applicable law as advised by counsel, it will
not issue any press release or otherwise make any public statement with respect
to this Agreement (including the Exhibits hereto) or the transactions
contemplated hereby (or thereby) without having consulted with the other party.
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Section 6.9 Directors' and Officers' Indemnification and Insurance.
(a) Holdings, Sporting and the Company agree that all rights to
indemnification, exculpation, advancement of expenses and the like now existing
in favor of any director or officer of the Company and its Subsidiaries (the
"Indemnified Parties") as provided in their respective charters or by-laws, or
in an agreement between an Indemnified Party and the Company or one of its
Subsidiaries set forth in Section 6.9 of the Company Disclosure Schedule, are
contract rights and shall survive the Merger. In addition, and without limiting
the foregoing, Holdings, Sporting and the Surviving Corporation shall indemnify
all Indemnified Parties to the fullest extent permitted by applicable law with
respect to all acts and omissions arising out of such individuals' services as
officers, directors, employees or agents of the Company or any of its
Subsidiaries or as trustees or fiduciaries of any plan for the benefit of
employees, or otherwise on behalf of, the Company or any of its Subsidiaries,
occurring at or prior to the Effective Time including, without limitation, the
transactions contemplated by this Agreement. Without limitation of the
foregoing, in the event any such Indemnified Party is or becomes involved in any
capacity in any action, proceeding or investigation in connection with any
matter, including, without limitation, the transactions contemplated by this
Agreement, occurring at or prior to, and including, the Effective Time,
Holdings, Sporting and the Surviving Corporation will pay as incurred such
Indemnified Party's legal and other expenses (including the cost of any
investigation and preparation) incurred in connection therewith so long as such
party shall enter into an undertaking with Holdings, Sporting and the Surviving
Corporation to reimburse Holdings, Sporting and the Surviving Corporation, to
the extent required by applicable law, for all amounts advanced if a court of
competent jurisdiction shall ultimately determine, in a judgment which is not
subject to appeal or review, that indemnification of such Indemnified Party is
prohibited by applicable law. Holdings, Sporting and the Surviving Corporation
shall pay all expenses, including reasonable attorneys' fees, that may be
incurred by any Indemnified Party in enforcing the indemnity and other
obligations provided for in this Section 6.9.
(b) Holdings, Sporting and the Surviving Corporation shall cause to be
maintained in effect for six years from the Effective Time the current policies
of the directors' and officers' liability insurance maintained by the Company;
provided that Holdings, Sporting and the Surviving Corporation may substitute
therefor policies of at least the same coverage containing terms and conditions
which are no less advantageous to the Indemnified Parties and provided that such
substitution shall not result in any gaps or lapses in coverage with respect to
matters occurring prior to the Effective Time; and provided, further, that
Holdings, Sporting and the Surviving Corporation shall not be required to pay an
annual premium in excess of 200% of the last annual premium paid by the Company
prior to the Original Execution Date (which premium is disclosed in Section 6.9
of the Company Disclosure Schedule) and if Holdings, Sporting and the Surviving
Corporation are unable to obtain the insurance required by this Section 6.9(b)
they shall obtain as much comparable insurance as possible for an annual premium
equal to such maximum amount.
Section 6.10 Expenses. Each party hereto shall bear its own costs and
expenses in connection with this Agreement and the transactions contemplated
hereby; in particular Holdings and the Company will share equally the expenses
incurred in connection with (i) filings under HSR and any other antitrust laws
and (ii) preparing, printing and distributing the Proxy Statement and the
Registration Statement (but, not including any such expenses incurred prior to
the Original Execution Date).
Section 6.11 Listing Application; 1934 Act Registration. The Company and
Holdings shall each use its reasonable best efforts to cause the shares of
Holdings Common Stock to be issued pursuant to this Agreement in the Merger to
be listed for trading on the Nasdaq National Market at the time of such issuance
and the Holdings Common Stock to be designated as a national market system
security by the Nasdaq National Market at the effective date of the Merger.
Holdings shall not file or permit to become effective any registration under
Section 12 of the Securities Exchange Act of 1934, as amended (the "1934 Act"),
prior to the deemed registration of the Holdings Common Stock under the 1934 Act
(the "1934 Act Registration") pursuant to Rule 12g-3(a) as a result of the
consummation of the Merger.
Section 6.12 Supplemental Disclosure. The Company shall give prompt notice
to Holdings, and Holdings shall give prompt notice to the Company, of (i) the
occurrence, or non-occurrence, of any event the occurrence, or non-occurrence,
of which would be likely to cause (x) any representation or warranty contained
in this Agreement to be untrue or inaccurate in any material respect or (y) any
covenant, condition or
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agreement contained in this Agreement not to be complied with or satisfied in
any material respect and (ii) any failure of the Company or Holdings, as the
case may be, to comply with in any material respect any covenant or agreement to
be complied with by it hereunder. Each of the parties hereto shall deliver an
updated Company Disclosure Schedule or updated Holdings Disclosure Schedule, as
the case may be, on the 15th day of each fiscal month until the Effective Time,
providing updated disclosure through the end of the preceding fiscal month. The
updated Company Disclosure Schedules and updated Holdings Disclosure Schedules
shall not be deemed to amend the Company Disclosure Schedule or the Holdings
Disclosure Schedule, as the case may be, and the delivery of any notice and
updated Company Disclosure Schedules and Holdings Disclosure Schedules pursuant
to this Section 6.12 shall not have any effect for the purpose of determining
the satisfaction of the conditions set forth in Article VII of this Agreement or
the right to terminate this Agreement pursuant to Article VIII of this Agreement
or otherwise limit or affect the remedies available hereunder to any party. In
addition, the Company shall deliver to Holdings a certificate signed on behalf
of the Company by the chief executive officer and the chief financial officer of
the Company on or prior to the 15th day of each fiscal month until the Effective
Time certifying as to the Company's compliance with the requirements of Section
8.1(g) for the relevant preceding date specified in clause (iii) of Section
8.1(g) and attaching calculations in reasonable detail demonstrating such
compliance in the case of clauses (ii) or (iii), as applicable, of Section
8.1(g).
Section 6.13 Store Names. Holdings affirms as of (i) the Original
Execution Date, that it had no, (ii) the date hereof, that it has no, and (iii)
the Closing, it will not have any, present intention to change the names of any
of the Company's present stores other than in the Seattle, Washington and
Portland, Oregon metropolitan areas, and agrees that for a period of two years
from the Effective Time, Holdings will not, and will not permit its Subsidiaries
to, change the names of the Company's present stores in the Chicago, Illinois
metropolitan area; provided, that Holdings' obligations under this Section 6.13
shall cease upon a significant change in the ownership of Holdings and are
generally subject to Holdings' Board of Directors' fiduciary duties.
Section 6.14 Tax Returns. After the Effective Time, the Company authorizes
Holdings and the Surviving Corporation to prepare and file all tax returns on
behalf of the Company covering any period prior to the Effective time, subject,
however, to Section 4.13(k) hereof.
Section 6.15 Purchase Accounting. Each of the parties hereto acknowledges
that the Merger will be accounted for under the purchase method of accounting.
Section 6.16 Stock Legending. The Company agrees to cooperate fully in the
legending of certain certificates representing shares of Company Common Stock as
contemplated by the Stockholder Agreement of even date herewith by and among
Holdings and the stockholders of the Company signatory thereto.
Section 6.17 Stay Bonus Program. Notwithstanding anything to the contrary
in this Agreement, the Company shall implement a "stay bonus" program consistent
with the recommendations of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Incorporated, such program to be
implemented as soon as practicable.
Section 6.18 Time of the Essence. All parties hereto acknowledge that time
is of the essence to the performance of this Agreement.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 7.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction or waiver at or prior to the Closing Date of the
following conditions:
(a) Stockholder Approval. This Agreement and the transactions contemplated
hereby shall have been approved and adopted by the requisite vote (as described
in Section 3.5) of the stockholders of the Company in accordance with applicable
law.
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(b) HSR and Other Regulatory Approvals. All applicable waiting periods (and
any extension thereof) applicable to the consummation of the Merger and the
transactions contemplated hereby under the HSR Act shall have expired or been
terminated. All other authorizations, consents, orders, declarations or
approvals of, or filings with, or terminations or expirations of waiting periods
imposed by, any Governmental Entity, which the failure to obtain, make or occur
would have a Holdings Material Adverse Effect, assuming the Merger had taken
place, shall have been obtained, shall have been made or shall have occurred.
(c) Registration Statement. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act. No stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and no proceedings for that purpose shall have been initiated
by the SEC. The Holdings Common Stock shall be designated a Nasdaq National
Market System security and the shares of Holdings Common Stock issuable in
accordance with the Merger and upon exercise of Substitute Company Options shall
be listed for trading on the Nasdaq National Market and no action other than the
1934 Act Registration shall be required with respect to such designation and
listing.
(d) No Injunction. No Governmental Entity having jurisdiction over the
Company or Holdings, or any of their respective Subsidiaries, shall have
enacted, issued, promulgated, enforced or entered any law, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is then in effect and has the effect of making
the Merger illegal or otherwise prohibiting consummation of the Merger.
(e) Litigation. There shall not have been instituted or be pending any
suit, action or proceeding by any Governmental Entity as a result of this
Agreement or any of the transactions contemplated hereby which questions the
validity or legality of the transactions contemplated by this Agreement and
which, if such Governmental Entity were to prevail, would reasonably be expected
to have a Holdings Material Adverse Effect, assuming the Merger had taken place.
Section 7.2 Conditions to Obligations of Holdings and Acquisition to
Effect the Merger. The obligations of Holdings and Acquisition to effect the
Merger shall be subject to the satisfaction at or prior to the Effective Time of
the following additional conditions, unless waived in writing by Holdings:
(a) Representations and Warranties. The representations and warranties of
the Company contained in this Agreement which are qualified by reference to
Company Material Adverse Effect shall be true and correct and the
representations and warranties of the Company that are not so qualified shall be
true and correct except where the failure to be true and correct would not have
a Company Material Adverse Effect, in each case as of the Effective Time as
though made at and as of the Effective Time, and Holdings shall have received a
certificate signed on behalf of the Company by the chief executive officer and
the chief financial officer of the Company to such effect (provided that no
authorization, consent or approval of any person (other than as contemplated by
Section 7.1 hereof) in connection with the transactions contemplated hereby, nor
the failure to obtain any of the foregoing or satisfy any conditions imposed
incident to the giving of any consent, nor any violation, default, right of
termination, cancellation or acceleration, or loss of benefit or creation of any
Lien arising in connection with, or as a result of, any of the foregoing, shall,
or shall be deemed to, give rise to a failure of the foregoing condition).
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all material obligations required to be
performed by it under this Agreement at or prior to the Effective Time, and
Holdings shall have received a certificate signed on behalf of the Company by
the chief executive officer and the chief financial officer of the Company to
such effect (provided that no authorization, consent or approval of any person
(other than as contemplated by Section 7.1 hereof) in connection with the
transactions contemplated hereby, nor the failure to obtain any of the foregoing
or satisfy any conditions imposed incident to the giving of any consent, nor any
violation, default, right of termination, cancellation or acceleration, or loss
of benefit or creation of any Lien arising in connection with, or as a result
of, any of the foregoing, shall, or shall be deemed to, give rise to a failure
of the foregoing condition).
(c) Material Adverse Change. Since the date of this Agreement, there shall
have been no event or occurrence which has had, or would reasonably be expected
to have, a Company Material Adverse Effect, and
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Holdings shall have received a certificate signed on behalf of the Company by
the chief executive officer and the chief financial officer of the Company to
such effect (provided that no authorization, consent or approval of any person
(other than as contemplated by Section 7.1 hereof) in connection with the
transactions contemplated hereby, nor the failure to obtain any of the foregoing
or satisfy any conditions imposed incident to the giving of any consent, nor any
violation, default, right of termination, cancellation or acceleration, or loss
of benefit or creation of any Lien arising in connection with, or as a result
of, any of the foregoing, shall, or shall be deemed to, give rise to a failure
of the foregoing condition).
(d) [intentionally deleted]
(e) Legal Opinion. Holdings shall have received an opinion of counsel from
outside counsel to the Company reasonably acceptable to Holdings in form and
substance reasonably satisfactory to Holdings.
(f) Related Party Transactions. All amounts due and payable by any Company
Principal to the Company or any of its Subsidiaries pursuant to or in connection
with any transactions described in Section 3.20, or otherwise due and payable by
any Company Principal, shall have been paid to the Company, and Item 7 on
Section 3.20 of the Company Disclosure Schedule shall have been terminated in
writing by the partnerships referenced therein, and any other similar items
involving any of the Company Principals which were required to be set forth on
Section 3.20 of the Company Disclosure Schedule on the Original Execution Date
but were not so disclosed (including by cross-reference) (but not including any
matters pursuant to Company Plans, Company Benefit Plans and rights of officers
and directors pursuant to the Company's certificate of incorporation and by-laws
and insurance policies of the Company or any of its Subsidiaries) shall have
been terminated in writing. Without implication that the contrary would
otherwise be true, any items cross-referenced on Section 3.20 of the Company
Disclosure Schedule and any items deemed disclosed on such Section 3.20 pursuant
to the lead-in to Article III shall be deemed disclosed on such Section 3.20 for
purposes of this Section 7.2(f).
Section 7.3 Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following additional
conditions, unless waived in writing by the Company:
(a) Representations and Warranties. The representations and warranties of
Holdings, Sporting and Acquisition contained in this Agreement which are
qualified by reference to Holdings Material Adverse Effect shall be true and
correct, the representations and warranties of Holdings, Sporting and
Acquisition that are not so qualified shall be true and correct except where the
failure to be true and correct would not in the aggregate have a Holdings
Material Adverse Effect, and the representations and warranties contained in
Sections 4.13, 4.23 and 6.13 shall be true and correct, in each case as of the
Effective Time as though made on and as of the Effective Time, and the Company
shall have received a certificate signed on behalf of Holdings, Sporting and
Acquisition by their respective chief executive officers and chief financial
officers to such effect.
(b) Performance of Obligations of Holdings, Sporting and
Acquisition. Holdings, Sporting and Acquisition shall each have performed in all
material respects all material obligations required to be performed by it under
this Agreement at or prior to the Effective Time, and the Company shall have
received a certificate signed on behalf of Holdings, Sporting and Acquisition by
their respective chief executive officers and chief financial officers to such
effect.
(c) Material Adverse Change. Since the date of this Agreement, there shall
have been no event or circumstance which has had, or would reasonably be
expected to have, a Holdings Material Adverse Effect; and the Company shall have
received a certificate on behalf of Holdings, Sporting and Acquisition by their
respective chief executive officers and chief financial officers to such effect.
(d) Holdings Charter, and Surviving Corporation Charter. The Holdings
Charter and the Surviving Corporation Charter shall each have been filed with
the Secretary of State of the State of Delaware.
(e) Material Consents. [intentionally deleted]
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(f) Legal Opinion. The Company shall have received an opinion of counsel
from ▇▇▇▇▇▇▇▇▇▇ Hyatt ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇, P.C. in form and substance reasonably
satisfactory to the Company.
(g) Tax Opinion of Counsel. The Company shall have received an opinion of
its outside counsel in form and substance reasonably acceptable to the Company,
to the effect that the transactions contemplated by this Agreement will be tax
free. Holdings, Sporting and Acquisition shall cooperate with the Company's
counsel and other advisors in the investigation of factual and other matters
necessary or appropriate in granting or withholding such opinion.
(h) Registration Rights Agreement. Holdings and the Fund shall enter into
the Registration Rights Agreement with each of the persons to be parties thereto
in the form attached hereto as Exhibit C.
(i) Consulting Agreements. Sporting and the Surviving Corporation shall
have entered into consulting agreements with each of Messrs. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
and ▇▇▇▇▇▇▇▇▇▇ in the form attached hereto as Exhibit D.
ARTICLE VIII
TERMINATION
Section 8.1 Termination. This Agreement may be terminated, and the Merger
and the other transactions contemplated hereby may be abandoned, at any time
prior to the Effective Time, whether before or after approval by the
stockholders of the Company or Holdings:
(a) by mutual written consent of Holdings and the Company;
(b) by either Holdings or the Company, if the Merger shall not have been
consummated on or before May 31, 1998 (unless, in the case of any such
termination pursuant to this Section 8.1(b), the failure of such event to occur
shall have been caused by the action or failure to act of the party seeking to
terminate this Agreement, which action or failure to act constitutes a breach of
such party's obligations under this Agreement);
(c) by either Holdings or the Company, if any permanent injunction, order,
decree or ruling by any Governmental Entity of competent jurisdiction preventing
the consummation of the Merger shall have become final and nonappealable;
provided, however, that the party seeking to terminate this Agreement pursuant
to this Section 8.1(c) shall have used its reasonable best efforts to remove
such injunction or overturn such action;
(d) by Holdings, if (i) there has been a breach by the Company of any of
its representations or warranties set forth in this Agreement the effect of
which is a Company Material Adverse Effect or a breach by the Company in any
material respect of any of its material covenants and agreements set forth in
this Agreement, in either case which breach is not curable or, if curable, is
not cured within 30 days after written notice of such breach is given by
Holdings to the Company, (provided that no authorization, consent or approval of
any person (other than as contemplated by Section 7.1 hereof) in connection with
the transactions contemplated hereby, nor the failure to obtain any of the
foregoing or satisfy any conditions imposed incident to the giving of any
consent, nor any violation, default, right of termination, cancellation or
acceleration, or loss of benefit or creation of any Lien arising in connection
with, or as a result of, any of the foregoing, shall, or shall be deemed to,
give rise to such a right of termination), (ii) the Board of Directors of the
Company (x) fails to recommend the approval and adoption of this Agreement and
the transactions contemplated hereby to the Company's stockholders in accordance
with Section 6.4 hereof, or (y) withdraws or amends or modifies in a manner
adverse to Holdings its recommendation or approval in respect of this Agreement
or the transactions contemplated hereby, or (iii) (a) the Company through any of
its directors or executive officers so expressly authorized to act by the Board
of Directors shall willfully take any of the actions proscribed by Sections 6.2
or 6.4, or (b) any of the Company's directors, officers, employees, agents or
representatives of the foregoing shall take any of the actions proscribed by
Sections 6.2 or 6.4 and the Company shall not, within 24 hours of the giving of
written notice to the Company to do so by Holdings, disavow such action and use
all reasonable efforts to cause such action to be terminated, unwound, abandoned
or otherwise negated;
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(e) by the Company if the Board of Directors of the Company shall
determine, in good faith and after consultation with its financial advisor and
outside counsel, that a proposal for an Acquisition Transaction constitutes a
Superior Proposal;
(f) by the Company, if there has been a breach by Holdings, Sporting or
Acquisition of any of its representations or warranties set forth in this
Agreement the effect of which is a Holdings Material Adverse Effect or a breach
by Holdings, Sporting or Acquisition in any material respect of any of its
material covenants and agreements set forth in this Agreement, in either case,
which breach is not curable or, if curable, is not cured within 30 days after
written notice of such breach is given by the Company to Holdings; and
(g) by Holdings if (i) any event has occurred that has had, or would
reasonably be expected to have, a Company Material Adverse Effect, (ii) prior to
the Conditional Date and (a) prior to February 1, 1998, the Company's Net Worth
falls below $70 million, or (b) after February 1, 1998, the Company's Net Worth
falls below $67.5 million, as, in each case, the term "Net Worth" is calculated
under the Credit Agreement as in effect on the Original Execution Date,
provided, however, that such Net Worth calculation shall be made without taking
into account amounts increasing or decreasing Net Worth pertaining, or with
respect, to (r) any of the Pack Boot Inventory (as defined in the Pack Boot
Agreement), the Additional Ski Inventory (as defined in the Pack Boot Agreement)
or any transaction pursuant to the Pack Boot Agreement or the Consignment
Agreement, (s) any charge to establish a LIFO reserve, (t) any severance, bonus
or other change-in-control related items paid or incurred in connection with the
Merger, (u) costs and expenses in connection with the Company's efforts to
engage in any extraordinary transaction, including, without limitation, the
Merger (capped in the event of any such transactions other than the Merger at
$200,000), (v) any expenses associated with the termination of any contract, or
the obtaining of any consent, in connection with the Merger or the transactions
contemplated thereby, (w) any reversal into income of the Company's inventory
reserve for obsolescence, (x) any reversal into income for any unused or
unallocated portion of the reserve established in the 1996 fiscal year
pertaining to the decision to exit the Canadian market, (y) any increase to the
reserve previously established for the River North property, or (z) any after
tax impact of any change in the Company's valuation reserve for its deferred tax
assets and the loss of any deferred tax benefit resulting from the failure to
tax-effect any operational loss; and, provided, further, that in making such Net
Worth calculation, Net Worth shall be increased by the amount of expenses
incurred, in the fiscal year ended February 1, 1998 (up to $739,000 pre-tax),
that would not have been incurred if the Company's forecasted plan to reduce
operational expenses in such fiscal year had been adhered to, (iii) prior to
February 2, 1998, the sum of the Company's long term debt (including current and
long-term capital lease obligations), short term debt, Accounts Payable (meaning
as of each determination date, all amounts due for trade merchandise and such
other liabilities consistently classified as "Accounts Payable" in the current
liabilities of the SEC Financial Statements as defined below) and Accrued
Liabilities (meaning as of each determination date, all amounts accrued for
taxes, salaries and wages, interest, rent, utilities, advertising, insurance and
such other current liabilities consistently classified as "Accrued Expenses" in
the current liabilities of the SEC Financial Statements, but excluding all
amounts recorded and classified as "Reserve for Store Closings") calculated in
accordance with GAAP applied on a basis consistent with past practice and the
audited financial statements for the year ended February 2, 1997 included in the
Company's Form 10-K and the interim financial statements for the quarterly
periods ending May 4, 1997 and August 3, 1997, included in the Company's Form
10-Q) (the "SEC Financial Statements") shall exceed the following amounts as of
any of the following dates occurring prior to the Conditional Date: $163,328,000
at October 5, 1997; $178,008,000 at November 2, 1997; $194,212,000 at November
30, 1997; $155,880,000 at January 4, 1998; or $154,265,000 at February 1, 1998;
provided, however, that any amounts paid or accrued in such fiscal year ended
February 1, 1998 and specified in subclauses (r), (s), (t), (u) or (v) above
shall not be taken into account in determining Accounts Payable, short term debt
or Accrued Liabilities, as the case may be, for purposes of this clause (iii).
Section 8.2 Effect of Termination.
(a) If: (i) an Acquisition Transaction (a "Competing Acquisition
Transaction") shall have been made known to the Company or any of its
Subsidiaries or has been proposed directly to its stockholders generally or any
person shall have publicly announced an intention (whether or not conditional)
to enter into an
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Acquisition Transaction and thereafter the approval of the Merger by the
Company's stockholders is not obtained; or (ii) the Company terminates this
Agreement pursuant to Section 8.1(e); and the Company enters into a definitive
agreement with any person or entity with respect to such Competing Acquisition
Transaction or the Acquisition Transaction which gave rise to such termination
pursuant to Section 8.1(e) (or any revision of such Acquisition Transaction), as
the case may be, within nine months after the termination of this Agreement or
such Competing Acquisition Transaction or the Acquisition Transaction which gave
rise to such termination pursuant to Section 8.1(e) is consummated within nine
months after the termination of this Agreement, then within two business days
after entering into such definitive agreement or after such consummation, the
Company shall pay Holdings a fee (the "Alternative Proposal Fee") in cash equal
to $2.5 million. The Alternative Proposal Fee shall also be payable within two
business days of Holdings' termination of this Agreement pursuant to Section 8.1
(d)(iii). In no event shall more than one Alternative Proposal Fee be payable to
Holdings.
(b) In the event of termination of this Agreement pursuant to this Article
VIII, the Merger shall be deemed abandoned and this Agreement shall forthwith
become void, except that the provisions of Section 6.1(b), Section 6.10 and this
Section 8.2 shall survive any termination of this Agreement; provided, however,
that nothing in this Agreement shall relieve any party from liability for any
material breach of this Agreement.
Section 8.3 Authority for Termination. Any termination of this Agreement
pursuant to Section 8.1 may only be made pursuant to the approval of the board
of directors of the applicable party.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Amendment and Modification. At any time prior to the Effective
Time, this Agreement may be amended, modified or supplemented only by written
agreement (referring specifically to this Agreement) of Holdings and the Company
with respect to any of the terms contained herein; provided, however, that no
such amendment, modification or supplementation shall be made which under
applicable law requires the approval of stockholders of the Company or Holdings,
without the further approval of such stockholders.
Section 9.2 Waiver. At any time prior to the Effective Time, Holdings, on
the one hand, and the Company, on the other hand, may (i) extend the time for
the performance of any of the obligations or other acts of the other, (ii) waive
any inaccuracies in the representations and warranties of the other contained
herein or in any documents delivered pursuant hereto and (iii) waive compliance
by the other with any of the agreements or conditions contained herein which may
legally be waived. Any such extension or waiver shall be valid only if set forth
in an instrument in writing specifically referring to this Agreement and signed
on behalf of such party.
Section 9.3 Survivability. Except as provided in this Agreement with
respect to Holdings, Sporting and Acquisition, the respective representations
and warranties of Holdings, Sporting and Acquisition, on the one hand, and the
Company, on the other hand, and the covenants and agreements of the Company
contained herein or in any certificates or other documents delivered prior to or
as of the Effective Time shall not survive beyond the Effective Time. The
covenants and agreements contained herein or in any certificate or other
documents delivered prior to or as of the Effective Time of Holdings, Sporting
and Acquisition (or the Surviving Corporation as the case may be) shall survive
the Effective Time (including, without limitation, any such covenants and
agreements contained in Section 4.13(k) hereof).
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Section 9.4 Notices. All notices and other communications hereunder shall
be in writing and shall be delivered personally or by next-day courier or
telecopied with confirmation of receipt, to the parties at the addresses
specified below (or at such other address for a party as shall be specified by
like notice; provided that notices of a change of address shall be effective
only upon receipt thereof). Any such notice shall be effective upon receipt, if
personally delivered or telecopied, or one day after delivery to a courier for
next-day delivery.
If to Holdings, Sporting or Acquisition to:
Gart Sports Company
▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to:
▇▇▇▇▇▇▇ ▇▇▇▇▇ & Partners, L.P.
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
and
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Company, to:
Sportmart, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to:
Altheimer & ▇▇▇▇
▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
and:
▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Section 9.5 Descriptive Headings; Interpretation. The headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. References in this
Agreement to Sections, Exhibits or Articles mean a Section, Exhibit or Article
of this Agreement unless otherwise indicated. References to this Agreement shall
be deemed to include the Exhibits
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hereto, unless the context otherwise requires. The term "Person" shall mean and
include an individual, a partnership, a joint venture, a corporation, a trust, a
Governmental Entity, an unincorporated organization and any other entity of or
any fund.
Section 9.6 Entire Agreement; Assignment. This Agreement (including the
Exhibits and other documents and instruments referred to herein), together with
the Confidentiality Agreement, constitute the entire agreement and supersede all
other prior agreements and understandings, both written and oral, among the
parties or any of them, with respect to the subject matter hereof. Except for
the provisions of Sections 1.7, 4.13(k) and 6.13 (each of which shall be
expressly for the benefit of the stockholders of the Company immediately prior
to the Effective Time) and Sections 6.7 (which shall expressly be for the
benefit of the Employees) and 6.9 (which shall be expressly for the benefit of
the Indemnified Parties), all of which provisions shall survive the Closing,
this Agreement is not intended to confer upon any person not a party hereto any
rights or remedies hereunder. This Agreement shall not be assigned by operation
of law or otherwise. Any damages payable to stockholders of the Company for
breach of this Agreement shall be payable in voting common stock of Holdings
(valued at the price determined under Section 2.4(i)) to the extent necessary to
assure qualification of the Merger as a tax-free reorganization under section
368(a)(2)(E) of the Code.
Section 9.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without giving
effect to the provisions thereof relating to conflicts of law.
Section 9.8 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Delaware or in Delaware state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any federal court located in the State of Delaware or
any Delaware state court in the event any dispute arises out of this Agreement
or any of the transactions contemplated by this Agreement, (b) agrees that it
will not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court and (c) agrees that it will not bring any
action relating to this Agreement or any of the transactions contemplated by
this Agreement in any court other than a federal or state court sitting in the
State of Delaware.
Section 9.9 Severability. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in any
respect against a party hereto, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby and such invalidity, illegality or unenforceability shall only
apply as to such party in the specific jurisdiction where such judgment shall be
made.
Section 9.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
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IN WITNESS WHEREFORE, each of Holdings, Sporting, Acquisition and the
Company has caused this Agreement to be executed on its behalf by its officers
thereunto duly authorized, all as of the date first above written.
GART SPORTS COMPANY
By: ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: President and Chief
Executive Officer
GART BROS. SPORTING GOODS COMPANY
By: ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: President and Chief
Executive Officer
GB ACQUISITION, INC.
By: ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: President and Chief
Executive Officer
SPORTMART, INC.
By: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: CEO
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