Exhibit 2
AGREEMENT AND PLAN OF MERGER
dated as of
November 15, 1999
among
Catherines Stores Corporation
Charming Shoppes, Inc.
and
Rose Merger Sub, Inc.
TABLE OF CONTENTS
----------------------
PAGE
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions ....................................................1
ARTICLE 2
THE OFFER
SECTION 2.01. The Offer ....................................................6
SECTION 2.02. Company Action..................................................8
SECTION 2.03. Directors ....................................................9
ARTICLE 3
THE MERGER
SECTION 3.01. The Merger ...................................................10
SECTION 3.02. Conversion of Shares...........................................10
SECTION 3.03. Surrender and Payment. ........................................11
SECTION 3.04. Stock Options..................................................12
SECTION 3.05. Employee Stock Purchase Plan...................................12
SECTION 3.06. Adjustments ...................................................13
SECTION 3.07. Withholding Rights.............................................13
SECTION 3.08. Lost Certificates..............................................13
ARTICLE 4
THE SURVIVING CORPORATION
SECTION 4.01. Charter ...................................................13
SECTION 4.02. Bylaws ...................................................13
SECTION 4.03. Directors and Officers.........................................14
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 5.01. Corporate Existence and Power..................................14
SECTION 5.02. Corporate Authorization........................................14
SECTION 5.03. Governmental Authorization.....................................14
SECTION 5.04. Non-contravention..............................................15
SECTION 5.05. Capitalization.................................................15
PAGE
SECTION 5.06. Subsidiaries...................................................16
SECTION 5.07. SEC Filings ...................................................17
SECTION 5.08. Financial Statements...........................................18
SECTION 5.09. Disclosure Documents...........................................18
SECTION 5.10. Absence of Certain Changes.....................................19
SECTION 5.11. No Undisclosed Material Liabilities............................21
SECTION 5.12. Compliance with Laws and Court Orders..........................21
SECTION 5.13. Material Contracts.............................................22
SECTION 5.14. Non-Compete Agreements.........................................22
SECTION 5.15. Litigation ...................................................22
SECTION 5.16. Title to Properties............................................22
SECTION 5.17. Intellectual Property..........................................23
SECTION 5.18. Year 2000 Readiness............................................24
SECTION 5.19. Finders' Fees..................................................24
SECTION 5.20. Taxes ...................................................24
SECTION 5.21. Employee Benefit Plans.........................................26
SECTION 5.22. Environmental Matters..........................................29
SECTION 5.23. Other Information..............................................29
SECTION 5.24. Antitakeover Statutes and Rights Agreement.....................30
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PARENT
SECTION 6.01. Corporate Existence and Power..................................30
SECTION 6.02. Corporate Authorization........................................30
SECTION 6.03. Governmental Authorization.....................................30
SECTION 6.04. Non-contravention..............................................31
SECTION 6.05. Disclosure Documents...........................................31
SECTION 6.06. Finders' Fees..................................................31
SECTION 6.07. Financing ...................................................32
ARTICLE 7
COVENANTS OF THE COMPANY
SECTION 7.01. Conduct of the Company.........................................32
SECTION 7.02. Shareholder Meeting; Proxy Material............................34
SECTION 7.03. No Solicitation; Other Offers..................................35
SECTION 7.04. Access to Information..........................................36
SECTION 7.05. Bonus Acceleration.............................................37
PAGE
ARTICLE 8
COVENANTS OF PARENT
SECTION 8.01. Obligations of Merger Subsidiary...............................37
SECTION 8.02. Voting of Shares...............................................37
SECTION 8.03. Director and Officer Liability.................................37
ARTICLE 9
COVENANTS OF PARENT AND THE COMPANY
SECTION 9.01. Reasonable Efforts.............................................38
SECTION 9.02. Certain Filings................................................39
SECTION 9.03. Public Announcements...........................................40
SECTION 9.04. Further Assurances.............................................40
SECTION 9.05. Notices of Certain Events......................................40
SECTION 9.06. Merger Without Meeting of Shareholders.........................41
ARTICLE 10
CONDITIONS TO THE MERGER
SECTION 10.01. Conditions to Obligations of Each Party.......................41
SECTION 10.02. Conditions to the Obligations of Parent and
Merger Subsidiary..................................41
ARTICLE 11
TERMINATION
SECTION 11.01. Termination...................................................42
SECTION 11.02. Effect of Termination.........................................44
ARTICLE 12
MISCELLANEOUS
SECTION 12.01. Notices ...................................................44
SECTION 12.02. Survival of Representations and Warranties....................45
SECTION 12.03. Amendments; No Waivers........................................45
SECTION 12.04. Expenses ...................................................46
SECTION 12.05. Successors and Assigns........................................47
SECTION 12.06. Governing Law.................................................47
SECTION 12.07. Jurisdiction..................................................47
SECTION 12.08. WAIVER OF JURY TRIAL..........................................48
PAGE
SECTION 12.09. Counterparts; Effectiveness; Benefit..........................48
SECTION 12.10. Entire Agreement..............................................48
SECTION 12.11. Captions ...................................................48
SECTION 12.12. Severability..................................................48
SECTION 12.13. Specific Performance..........................................48
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of November 15, 1999 among
Catherines Stores Corporation, a Tennessee corporation (the "Company"), Charming
Shoppes, Inc., a Pennsylvania corporation ("Parent"), and Rose Merger Sub, Inc.,
a Tennessee corporation and a wholly owned subsidiary of Parent ("Merger
Subsidiary").
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. (a) The following terms, as used herein, have
the following meanings:
"Acquisition Proposal" means any offer or proposal for, or any
indication of interest in, a merger, consolidation, share exchange, business
combination or other similar transaction involving the Company or any of its
Subsidiaries or any proposal or offer to acquire, directly or indirectly, any
equity interest in, any voting securities of, or a substantial portion of the
assets of, the Company or any of its Subsidiaries, other than the transactions
contemplated by this Agreement.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such Person.
"Benefit Arrangement" means any employment, severance or similar
contract or arrangement (whether or not written) providing for compensation,
bonus, profit-sharing, stock option, or other stock-related rights or other
forms of incentive or deferred compensation, vacation benefits, insurance
coverage (including any self-insured arrangements), health or medical benefits,
disability benefits, worker's compensation, supplemental unemployment benefits,
severance benefits and post-employment or retirement benefits (including
compensation, pension, health, medical or life insurance or other benefits) that
(i) is not an Employee Plan, (ii) is entered into, maintained, administered or
contributed to, as the case may be, by the Company or any of its Affiliates and
(iii) covers any employee or former employee of the Company or any of its
Subsidiaries.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Balance Sheet" means the consolidated balance sheet of the
Company as of January 30, 1999 and the footnotes thereto set forth in the
Company 10-K.
"Company Balance Sheet Date" means January 30, 1999.
"Company 10-K" means the Company's annual report on Form 10-K for the
fiscal year ended January 30, 1999.
"Employee Plan" means any "employee benefit plan", as defined in
Section 3(3) of ERISA, that (i) is subject to any provision of ERISA, (ii) is
maintained, administered or contributed to by the Company or any of its
Affiliates and (iii) covers any employee or former employee of the Company or
any of its Subsidiaries.
"Environmental Laws" means any federal, state, local or foreign law
(including, without limitation, common law), treaty, judicial decision,
regulation, rule, judgment, order, decree, injunction, permit or governmental
restriction or requirement or any agreement with any governmental authority or
other third party, relating to human health and safety, the environment or to
pollutants, contaminants, wastes or chemicals or any toxic, radioactive,
ignitable, corrosive, reactive or otherwise hazardous substances, wastes or
materials.
"Environmental Permits" means all permits, licenses, franchises,
certificates, approvals and other similar authorizations of governmental
authorities relating to or required by Environmental Laws and affecting, or
relating in any way to, the business of the Company or any of its Subsidiaries
as currently conducted.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"ERISA Affiliate" of any entity means any other entity that, together
with such entity, would be treated as a single employer under Section 414 of the
Code.
"First American Credit Facility" means the Amended and Restated Credit
Agreement dated as of February 27, 1998, among the Company, Catherines Stores
Corporation, Inc., Catherines of California, Inc., Catherines of Pennsylvania,
Inc., Catherines Partners, L.P., First American National Bank, individually and
in its capacity as Agent, Hibernia National Bank and Bank One, N.A., as amended
by the First Amendment to Amended and Restated Credit Agreement dated as of
January 12, 1999, and as further amended by Second Amendment to Amended and
Restated Credit Agreement dated as of June 3, 1999.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
"Intellectual Property" means domestic and foreign patents, trademarks,
servicemarks, trade names, jingles, phrases, symbols, labels, copyrights and
registrations and applications for any of the foregoing, and any other
intellectual property and proprietary information, including rights in software,
firmware, computer programs and data.
"Knowledge" means the actual knowledge of Bernard J. Wein and David
C. Forell, after reasonable inquiry.
"Lien" means, with respect to any property or asset, any mortgage,
lien, pledge, charge, security interest, encumbrance or other adverse claim of
any kind in respect of such property or asset. For purposes of this Agreement, a
Person shall be deemed to own subject to a Lien any property or asset that it
has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such property or asset.
"Material Adverse Effect" means, with respect to any Person, a material
adverse effect on (i) the condition (financial or otherwise), business,
properties, assets, liabilities or results of operations of such Person and its
Subsidiaries, taken as a whole, except to the extent resulting from (a) any
change in general economic conditions, (b) any changes affecting the retail
clothing industry or the women's wear retail industry in general, or (c) the
public announcement of this Agreement or consummation of the transactions
contemplated hereby, it being agreed that, without limiting the generality of
the foregoing, a Material Adverse Effect will not be deemed to have occurred if
the cost of remediating such material adverse effect or the reduction in net
income from the net income projected in the Company's financial plan for the
fiscal year ending January 2000 previously disclosed to Parent resulting from
such material adverse effect, individually or in the aggregate, shall not exceed
(x) $2,000,000 in the case of the Company or (y) $10,000,000 in the case of
Parent; provided that, without regard to remediation costs or any such reduction
in net income, if 20% or more of the Company's stores are not operating in the
ordinary course for any three-day period commencing on or after January 1, 2000
as a result of any Y2K related failure or other Y2K related problem, there shall
be a Material Adverse Effect with respect to the Company, or (ii) the ability of
such Person to perform its obligations under or to consummate the transactions
contemplated by this Agreement.
"Multiemployer Plan" means each Employee Plan that is a multiemployer
plan, as defined in Section 3(37) of ERISA.
"1933 Act" means the Securities Act of 1933.
"1934 Act" means the Securities Exchange Act of 1934.
"Person" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization or other
entity or organization, including a government or political subdivision or an
agency or instrumentality thereof.
"Post-Closing Tax Period" means any Tax period beginning after the
Effective Time; and, with respect to a Tax period that begins on or before the
Effective Time and ends thereafter, the portion of such Tax period beginning
after the Effective Time.
"Pre-Closing Tax Period" means any Tax period ending on or before the
Effective Time; and, with respect to a Tax period that begins on or before the
Effective Time and ends thereafter, the portion of such Tax period ending on the
Effective Time.
"SEC" means the Securities and Exchange Commission.
"Shares" means the shares of common stock, $0.01 par value, of the
Company.
"Subsidiary" means, with respect to any Person, any corporation,
partnership or other entity of which securities or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are at any time directly or
indirectly owned by such Person.
"Superior Proposal" means any bona fide, unsolicited written
Acquisition Proposal to acquire at least a majority of the outstanding Shares or
all or substantially all the assets of the Company, on terms that the Board of
Directors of the Company determines in good faith (based on, among other things,
the advice of a financial advisor of nationally recognized reputation) to be
more favorable to the Company's shareholders than the transactions contemplated
by this Agreement, taking into account all the terms and conditions of the
Acquisition Proposal, the financing therefor and after giving effect to any
revised proposal made by or on behalf of Parent prior to the end of the five
business day period referred to in Section 7.03(c).
"Tax" means (i) any tax, governmental fee or other like assessment or
charge of any kind whatsoever (including, but not limited to, withholding on
amounts paid to or by any Person), together with any interest, penalty, addition
to tax or additional amount imposed by any governmental authority (a "Taxing
Authority") responsible for the imposition of any such tax (domestic or
foreign), (ii) in the case of the Company or any of its Subsidiaries, liability
for the payment of any amount of the type described in clause (i) as a result of
being or having been before the Effective Time a member of an affiliated,
consolidated, combined or unitary group, or a party to any agreement or
arrangement, as a result of which liability of the Company or any of its
Subsidiaries to a Taxing Authority is determined or taken into account with
reference to the activities of any other Person, and (iii) liability of the
Company or any of its Subsidiaries for the payment of any amount as a result of
being party to any Tax Sharing Agreement or with respect to the payment of any
amount of the type described in (i) or (ii) as a result of any existing express
or implied agreement or arrangement (including, but not limited to, an
indemnification agreement or arrangement).
"Tax Asset" means any net operating loss, net capital loss, investment
tax credit, foreign tax credit, charitable deduction or any other credit or tax
attribute that could be carried forward or back to reduce Taxes (including
without limitation deductions and credits related to alternative minimum Taxes).
"Tennessee Law" means the Tennessee Business Corporation Act.
"Title IV Plan" means an Employee Plan subject to Title IV of ERISA
other than any Multiemployer Plan.
Any reference in this Agreement to a statute shall be to such statute,
as amended from time to time, and to the rules and regulations promulgated
thereunder.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
- ------- ----------
Antitrust Law......................................... 9.01
Certificates.......................................... 3.03
Company............................................... 5.22
Company Disclosure Documents.......................... 5.09
Company Proxy Statement............................... 5.09
Company SEC Documents................................. 5.07
Company Securities.................................... 5.05
Company Subsidiary Securities......................... 5.06
Company Shareholder Meeting........................... 7.02
Company's Reasonable Expenses......................... 12.04
- ------- ----------
------ ----------
Confidentiality Agreement............................. 7.04
DOJ................................................... 9.01
Effective Time........................................ 3.01
ESPP.................................................. 3.05
Exchange Agent........................................ 3.03
FTC................................................... 9.01
GAAP.................................................. 5.08
Indemnified Person.................................... 8.03
Merger................................................ 3.01
Merger Consideration.................................. 3.02
Minimum Condition..................................... 2.01
Offer................................................. 2.01
Offer Documents....................................... 2.01
Parent's Reasonable Expenses.......................... 12.04
Preferred Stock....................................... 5.05
Returns............................................... 5.20
Schedule 14D-1........................................ 2.01
Schedule 14D-9........................................ 2.02
Surviving Corporation................................. 3.01
System................................................ 5.18
Subsidiaries.......................................... 5.22
Year 2000 Ready....................................... 5.18
ARTICLE 2
THE OFFER
SECTION 2.01. The Offer. (a) Provided that nothing shall have occurred that
would result in a failure to satisfy any of the conditions set forth in Annex I
hereto, as promptly as practicable after the date hereof, but in no event later
than five business days following the public announcement of the terms of this
Agreement, Merger Subsidiary shall commence an offer (the "Offer") to purchase
all of the outstanding Shares at a price of $21.00 per Share, net to the seller
in cash. The Offer shall be subject to the condition that there shall be validly
tendered in accordance with the terms of the Offer, immediately prior to the
expiration date of the Offer and not withdrawn, a number of Shares that,
together with the Shares then owned by Parent and its Subsidiaries, represents
at least a majority of the Shares outstanding on a fully-diluted basis (the
"Minimum Condition") and to the other conditions set forth in Annex I hereto.
Merger Subsidiary expressly reserves the right to waive the Minimum Condition or
any of the other conditions to the Offer and to make any change in the terms or
conditions of the Offer; provided that no change may be made that changes the
form of consideration to be paid, decreases the price per Share or the number of
Shares sought in the Offer or imposes conditions to the Offer which are broader
than or in addition to those set forth in Annex I. The initial scheduled
expiration date of the Offer is January 6, 2000. Notwithstanding the foregoing,
without the consent of the Company, Merger Subsidiary shall have the right to
extend the Offer (i) from time to time if, at the scheduled or extended
expiration date of the Offer, any of the conditions to the Offer shall not have
been satisfied or waived, until such conditions are satisfied or waived;
provided that if any of the conditions to the Offer is not satisfied or waived
on any scheduled expiration date of the Offer, Merger Subsidiary shall extend
the Offer, if such condition or conditions could reasonably be expected to be
satisfied, for one additional period of 20 business days, (ii) for any period
required by any rule, regulation, interpretation or position of the SEC or the
staff thereof applicable to the Offer or any period required by applicable law
and (iii) on one or more occasions (all such occasions aggregating not more than
10 business days) beyond the latest expiration date that would otherwise be
permitted under clause (i) or (ii) of this sentence, if, on such expiration
date, the number of Shares tendered (and not withdrawn) pursuant to the Offer,
together with the Shares then owned by Parent, represents less than 90% of the
outstanding Shares on a fully-diluted basis. Subject to the foregoing and to the
terms and conditions of the Offer, Merger Subsidiary shall, and Parent shall
cause it to, accept for payment and pay for, as promptly as practicable after
the expiration of the Offer, all Shares properly tendered and not withdrawn
pursuant to the Offer.
(b) As soon as practicable on the date of commencement of the Offer,
Parent and Merger Subsidiary shall file with the SEC a Tender Offer Statement on
Schedule 14D-1 (the "Schedule 14D-1") with respect to the Offer, which will
contain the offer to purchase and form of the related letter of transmittal and
summary advertisement (such Schedule 14D-1 and such documents included therein
pursuant to which the Offer will be made, together with any supplements or
amendments thereto, the "Offer Documents"). Parent, Merger Subsidiary and the
Company each agrees promptly to correct any information provided by it for use
in the Offer Documents if and to the extent that such information shall have
become false or misleading in any material respect. Parent and Merger Subsidiary
agree to take all steps necessary to cause the Schedule 14D-1 as so corrected to
be filed with the SEC and the other Offer Documents as so corrected to be
disseminated to holders of Shares, in each case as and to the extent required by
applicable federal securities laws. The Company and its counsel shall be given
an opportunity to review and comment on the Offer Documents (and any amendments
thereto) prior to their being filed with the SEC or disseminated to the holders
of Shares. Parent and Merger Subsidiary shall provide the Company and its
counsel with any comments or other communications that Parent, Merger Subsidiary
or their counsel may receive from time to time from the SEC or its
staff with respect to the Offer Documents promptly after receipt of such
comments or other communications.
SECTION 2.02. Company Action. (a) The Company hereby consents to the Offer
and represents that its Board of Directors, at a meeting duly called and held
has (i) determined that this Agreement and the transactions contemplated hereby,
including the Offer and the Merger, are fair to and in the best interests of the
Company's shareholders, (ii) approved and adopted this Agreement and the
transactions contemplated hereby, including the Offer and the Merger, in
accordance with the requirements of the Tennessee Law and (iii) subject to
Section 7.03(c), resolved to recommend acceptance of the Offer and approval and
adoption of this Agreement and the Merger by its shareholders. The Company
further represents that J.C. Bradford & Co. has delivered to the Company's Board
of Directors its written opinion that the consideration to be paid in the Offer
and the Merger is fair to the holders of Shares from a financial point of view.
The Company has been advised that all of its directors and its three top
executive officers who own Shares intend either to tender their Shares pursuant
to the Offer or to vote in favor of the Merger. The Company will promptly
furnish Parent with a list of its shareholders, mailing labels and any available
listing or computer file containing the names and addresses of all record
holders of Shares and lists of securities positions of Shares held in stock
depositories, in each case true and correct as of the most recent practicable
date, and will provide to Parent such additional information (including, without
limitation, updated lists of shareholders, mailing labels and lists of
securities positions) and such other assistance as Parent may reasonably request
in connection with the Offer.
(b) As soon as practicable on the day that the Offer is commenced, the
Company shall file with the SEC and disseminate to holders of Shares, in each
case as and to the extent required by applicable federal securities laws, a
Solicitation/Recommendation Statement on Schedule 14D-9 (together with any
amendments or supplements thereto, the "Schedule 14D-9") that, subject to
Section 7.03(c), shall reflect the recommendations of the Company's Board of
Directors referred to above. The Company, Parent and Merger Subsidiary each
agree promptly to correct any information provided by it for use in the Schedule
14D-9 if and to the extent that it shall have become false or misleading in any
material respect. The Company agrees to take all steps necessary to cause the
Schedule 14D-9 as so corrected to be filed with the SEC and to be disseminated
to holders of Shares, in each case as and to the extent required by applicable
federal securities laws. Parent and its counsel shall be given an opportunity to
review and comment on the Schedule 14D-9 (and any amendments thereto) prior to
its being filed with the SEC. The Company shall provide to Parent and its
counsel with any comments or other communications that the Company or its
counsel may
receive from time to time from the SEC or its staff with respect to the Schedule
14D-9 promptly after receipt of such comments or other communications.
SECTION 2.03. Directors. (a) Effective upon the acceptance for payment of
any Shares pursuant to the Offer, Parent shall be entitled to designate the
number of directors, rounded up to the next whole number, on the Company's Board
of Directors that equals the product of (i) the total number of directors on the
Company's Board of Directors (giving effect to the election of any additional
directors pursuant to this Section) and (ii) the percentage that the number of
Shares beneficially owned by Parent and/or Merger Subsidiary (including Shares
accepted for payment) bears to the total number of Shares outstanding, and the
Company shall take all action necessary to cause Parent's designees to be
elected or appointed to the Company's Board of Directors, including, without
limitation, increasing the number of directors, and seeking and accepting
resignations of incumbent directors. At such time, the Company will also use its
best efforts to cause individuals designated by Parent to constitute the number
of members, rounded up to the next whole number, on (i) each committee of the
Board and (ii) each board of directors of each Subsidiary of the Company (and
each committee thereof) that represents the same percentage as such individuals
represent on the Board of Directors of the Company.
(b) The Company's obligations to appoint Parent's designees to the
Board of Directors shall be subject to Section 14(f) of the 1934 Act and Rule
14f- 1 promulgated thereunder. The Company shall promptly take all actions, and
shall include in the Schedule 14D-9 such information with respect to the Company
and its officers and directors, as Section 14(f) and Rule 14f-1 require in order
to fulfill its obligations under this Section. Parent shall supply to the
Company in writing and be solely responsible for any information with respect to
itself and its nominees, officers, directors and affiliates required by Section
14(f) and Rule 14f-1.
(c) Following the election or appointment of Parent's designees
pursuant to Section 2.03(a) and until the Effective Time, the approval of a
majority of the directors of the Company then in office who were not designated
by Parent shall be required to authorize (and such authorization shall
constitute the authorization of the Board of Directors and no other action on
the part of the Company, including any action by any other director of the
Company, shall be required to authorize) any termination of this Agreement by
the Company, any amendment of this Agreement requiring action by the Board of
Directors, any extension of time for performance of any obligation or action
hereunder by Parent or Merger Subsidiary and any enforcement of or any waiver of
compliance with any of the agreements or conditions contained herein for the
benefit of the Company (and the
directors designated by Parent shall leave any Board of Directors meeting for
the period during which such matters are being considered).
ARTICLE 3
THE MERGER
SECTION 3.01. The Merger. (a) At the Effective Time, Merger Subsidiary
shall be merged (the "Merger") with and into the Company in accordance with
Tennessee Law, whereupon the separate existence of Merger Subsidiary shall
cease, and the Company shall be the surviving corporation (the "Surviving
Corporation").
(b) As soon as practicable after satisfaction or, to the extent
permitted hereunder, waiver of all conditions to the Merger, the Company and
Merger Subsidiary will file articles of merger with the Tennessee Secretary of
State and make all other filings or recordings required by Tennessee Law in
connection with the Merger. The Merger shall become effective at such time (the
"Effective Time") as the articles of merger are duly filed with the Tennessee
Secretary of State or at such later time as is specified in the articles of
merger.
(c) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, powers, privileges and franchises and be subject to all
of the obligations, liabilities, restrictions and disabilities of the Company
and Merger Subsidiary, all as provided under Tennessee Law.
SECTION 3.02. Conversion of Shares. At the Effective Time, each of the
following shall occur automatically by virtue of the Merger and without any
further action by Parent, Merger Subsidiary, the Company or holders of Shares:
(a) except as otherwise provided in Section 3.02(b), each Share
outstanding immediately prior to the Effective Time shall be converted into the
right to receive $21.00 in cash or any higher price paid for each share in the
Offer, without interest (the "Merger Consideration");
(b) each Share held by the Company as treasury stock or owned by Parent
or any of its Subsidiaries immediately prior to the Effective Time shall be
canceled and retired, and no payment shall be made with respect thereto; and
(c) each share of common stock of Merger Subsidiary outstanding
immediately prior to the Effective Time shall be converted into and become one
share of common stock of the Surviving Corporation with the same rights, powers
and privileges as the shares so converted and shall constitute the only
outstanding shares of capital stock of the Surviving Corporation.
SECTION 3.03. Surrender and Payment. (a) Prior to the Effective Time,
Parent shall appoint an agent (the "Exchange Agent") for the purpose of
exchanging certificates representing Shares (the "Certificates") for the Merger
Consideration. Parent will make available to the Exchange Agent, as needed, the
Merger Consideration to be paid in respect of the Shares. Such funds
constituting Merger Consideration shall be invested by the Exchange Agent as
directed by Parent or the Surviving Corporation. Promptly after the Effective
Time, Parent will send, or will cause the Exchange Agent to send, to each holder
of Shares at the Effective Time a letter of transmittal and instructions (that
shall specify that the delivery shall be effected, and risk of loss and title
shall pass, only upon proper delivery of the Certificates to the Exchange Agent)
for use in such exchange.
(b) Each holder of Shares that have been converted into the right to
receive the Merger Consideration will be entitled to receive, upon surrender to
the Exchange Agent of a Certificate, together with a properly completed letter
of transmittal, the Merger Consideration payable for each Share represented by
such Certificate. From and after the Effective Time, all Shares which have been
so converted shall no longer be outstanding and shall automatically be canceled
and retired, and each Certificate shall, after the Effective Time, represent for
all purposes only the right to receive such Merger Consideration.
(c) If any portion of the Merger Consideration is to be paid to a
Person other than the Person in whose name the surrendered Certificate is
registered, it shall be a condition to such payment that the Certificate so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the Person requesting such payment shall pay to the Exchange
Agent any transfer or other taxes required as a result of such payment to a
Person other than the registered holder of such Certificate or establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
(d) After the Effective Time, there shall be no further registration
of transfers of Shares. If, after the Effective Time, Certificates are presented
to the Surviving Corporation, they shall be canceled and exchanged for the
Merger Consideration provided for, and in accordance with the procedures set
forth, in this Article.
(e) Any portion of the Merger Consideration made available to the
Exchange Agent pursuant to Section 3.03(a) (and any interest or other income
earned thereon) that remains unclaimed by the holders of Shares six months after
the Effective Time shall be returned to Parent, upon demand, and any such holder
who has not exchanged Shares for the Merger Consideration in accordance with
this Section prior to that time shall thereafter look only to Parent for payment
of the Merger Consideration in respect of such Shares without any interest
thereon. Notwithstanding the foregoing, Parent shall not be liable to any holder
of Shares for any amount paid to a public official pursuant to applicable
abandoned property, escheat or similar laws. To the extent permitted by
applicable law, any amounts remaining unclaimed by holders of Shares two years
after the Effective Time (or such earlier date immediately prior to such time
when the amounts would otherwise escheat to or become property of any
governmental authority) shall become the property of Parent free and clear of
any claims or interest of any Person previously entitled thereto.
(f) Any portion of the Merger Consideration made available to the
Exchange Agent pursuant to Section 3.03(a) to pay for Shares for which appraisal
rights have been perfected shall be returned to Parent, upon demand.
SECTION 3.04. Stock Options. At or immediately prior to the Effective Time,
each employee stock option to purchase Shares outstanding under any employee
stock option or compensation plan or arrangement of the Company, whether or not
vested or exercisable, shall be canceled, and the Company shall pay each holder
of any such option at or promptly after the Effective Time for each such option
an amount in cash determined by multiplying (i) the excess, if any, of the
Merger Consideration per Share over the applicable exercise price of such option
by (ii) the number of Shares such holder could have purchased (assuming full
vesting of all options) had such holder exercised such option in full
immediately prior to the Effective Time.
SECTION 3.05. Employee Stock Purchase Plan. (a) After the date hereof, no
new offering period shall commence under the Company's 1992 Employee Stock
Purchase Plan (the "ESPP") and after December 31, 1999 no further payroll
deductions will be made under the ESPP. At the end of the current payment
period, existing options shall be exercised in accordance with the ESPP. As of
the Effective Time, the ESPP shall be terminated, and the Company shall pay each
participant in any current offering thereunder, in cash at or promptly after the
Effective Time, in cancellation of all rights under the ESPP, the amount of such
participant's account balance under such plan, including interest to the extent
required under the terms of the ESPP.
(b) Prior to the Effective Time, the Company shall take all actions
(including, if appropriate, amending the terms of the ESPP) that are necessary
to give effect to the transactions contemplated by Section 3.05(a).
SECTION 3.06. Adjustments. If, during the period between the date of this
Agreement and the Effective Time, any change in the outstanding Shares shall
occur, including by reason of any reclassification, recapitalization, stock
split or combination, exchange or readjustment of Shares, or stock dividend
thereon with a record date during such period, the cash payable pursuant to the
Offer, the Merger Consideration and any other amounts payable pursuant to this
Agreement shall be appropriately adjusted.
SECTION 3.07. Withholding Rights. Each of the Surviving Corporation and
Parent shall be entitled to deduct and withhold from the consideration otherwise
payable to any Person pursuant to this Article such amounts as it is required to
deduct and withhold with respect to the making of such payment under any
provision of federal, state, local or foreign tax law. If the Surviving
Corporation or Parent, as the case may be, so withholds amounts, such amounts
shall be treated for all purposes of this Agreement as having been paid to the
holder of the Shares in respect of which the Surviving Corporation or Parent, as
the case may be, made such deduction and withholding.
SECTION 3.08. Lost Certificates. 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
the Surviving Corporation, the posting by such Person of a bond, in such
reasonable amount as the Surviving Corporation may direct, as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will pay, in exchange for such lost, stolen or destroyed
Certificate, the Merger Consideration to be paid in respect of the Shares
represented by such Certificate, as contemplated by this Article.
ARTICLE 4
THE SURVIVING CORPORATION
SECTION 4.01. Charter. The charter of Merger Subsidiary in effect at the
Effective Time shall be the charter of the Surviving Corporation until amended
in accordance with applicable law; provided that, at the Effective Time,
Paragraph 1 of such charter shall be amended to read as follows: "The name of
the corporation is Catherines Stores Corporation."
SECTION 4.02. Bylaws. The bylaws of Merger Subsidiary in effect at the
Effective Time shall be the bylaws of the Surviving Corporation until amended in
accordance with applicable law.
SECTION 4.03. Directors and Officers. From and after the Effective Time,
until successors are duly elected or appointed and qualified in accordance with
applicable law, (i) the directors of Merger Subsidiary at the Effective Time
shall be the directors of the Surviving Corporation and (ii) the officers of the
Company at the Effective Time shall be the officers of the Surviving
Corporation.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent that:
SECTION 5.01. Corporate Existence and Power. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Tennessee and has all corporate powers and all governmental licenses,
authorizations, permits, consents and approvals required to carry on its
business as now conducted, except for those licenses, authorizations, permits,
consents and approvals the absence of which would not have, individually or in
the aggregate, a Material Adverse Effect on the Company. Except as set forth in
Schedule 5.01, the Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where such
qualification is necessary, except for those jurisdictions where failure to be
so qualified would not have, individually or in the aggregate, a Material
Adverse Effect on the Company. The Company has heretofore delivered to Parent
true and complete copies of the charter and bylaws of the Company as currently
in effect.
SECTION 5.02. Corporate Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation of the
transactions contemplated hereby are within the Company's corporate powers and,
except for the affirmative vote of the holders of a majority of the outstanding
Shares in connection with the consummation of the Merger (if required by law),
have been duly authorized by all necessary corporate action on the part of the
Company. The affirmative vote of the holders of a majority of the outstanding
Shares (if required by law) is the only vote of the holders of any of the
Company's capital stock necessary in connection with the consummation of the
Merger. This Agreement constitutes a valid and binding agreement of the Company.
SECTION 5.03. Governmental Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby require no action by or in respect of,
or filing with, any governmental body, agency, official or authority, domestic
or foreign, other than (i) the filing of articles of merger with respect to
the Merger with the Tennessee Secretary of State and appropriate documents with
the relevant authorities of other states in which the Company is qualified to do
business, (ii) compliance with any applicable requirements of the HSR Act, (iii)
compliance with any applicable requirements of the 1933 Act, the 1934 Act and
any other applicable securities or takeover laws, whether state or foreign, and
(iv) any actions or filings the absence of which would not be reasonably
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company.
SECTION 5.04. Non-contravention. Except as set forth on Schedule 5.04, the
execution, delivery and performance by the Company of this Agreement and the
consummation of the transactions contemplated hereby do not and will not (i)
contravene, conflict with, or result in any violation or breach of any provision
of the charter or bylaws or other organizational documents of the Company or any
of its Subsidiaries, (ii) assuming compliance with the matters referred to in
Section 5.03, contravene, conflict with, or result in a violation or breach of
any provision of any applicable law, statute, ordinance, rule, regulation,
judgment, injunction, order or decree, (iii) require any consent or other action
by any Person under, constitute a default, or an event that, with or without
notice or lapse of time or both, would become a default, under, or cause or
permit the termination, cancellation, acceleration or other change of any right
or obligation or the loss of any benefit to which the Company or any of its
Subsidiaries is entitled under any provision of any agreement or other
instrument binding upon the Company or any of its Subsidiaries or any license,
franchise, permit, certificate, approval or other similar authorization
affecting, or relating in any way to, the assets or business of the Company and
its Subsidiaries or (iv) result in the creation or imposition of any Lien on any
asset of the Company or any of its Subsidiaries, except for such contraventions,
conflicts and violations referred to in clause (ii) and for such failures to
obtain any such consent or other action, defaults, terminations, cancellations,
accelerations, changes, losses or Liens referred to in clauses (iii) and (iv)
that would not be reasonably expected to have, individually or in the aggregate,
a Material Adverse Effect on the Company.
SECTION 5.05. Capitalization. (a) The authorized capital stock of the
Company consists of 50,000,000 Shares and 1,000,000 shares of preferred stock,
$0.01 par value per share (the "Preferred Stock"). At the close of business on
November 10, 1999, there were outstanding 6,794,133 Shares, and employee stock
options to purchase an aggregate of 1,108,347 Shares (of which options to
purchase an aggregate of 714,725 Shares were exercisable). There are no
outstanding shares of Preferred Stock. Schedule 5.05(a) identifies (i) the
holders of each of the options, (ii) the number of options vested for each
holder, (iii) the option plan under which each option was issued, (iv) the
number of options held by such holder and (v) the exercise price of each of the
options. All outstanding shares of capital stock of the Company have been, and
all Shares that may be
issued pursuant to the exercise of stock options will be, when issued in
accordance with the respective terms thereof, duly authorized and validly issued
and are fully paid and nonassessable.
(b) Except as set forth in Section 5.05(a) and on Schedule 5.05(b) and
for changes since November 10, 1999 resulting from the exercise of employee
stock options outstanding on such date, there are no outstanding (i) shares of
capital stock or voting securities of the Company, (ii) securities of the
Company or any of its Subsidiaries convertible into or exchangeable for shares
of capital stock or voting securities of the Company, (iii) options, warrants,
calls, subscriptions, securities or other rights to acquire from the Company or
any of its Subsidiaries, and no preemptive or similar rights, subscriptions or
other rights, redemptive rights, repurchase rights, convertible securities,
agreements, arrangements or commitments of any character, relating to the
capital stock of the Company, obligating the Company or any of its Subsidiaries
to issue, transfer or sell, or to cause to be issued, transferred or sold, any
shares of capital stock, other equity interest, voting securities or securities
convertible into or exchangeable for shares of capital stock, other equity
interest or voting securities of the Company or obligating the Company or any of
its Subsidiaries to issue, grant, extend or enter into any such option, warrant,
call, subscription, security or other right, preemptive or similar right,
redemptive right, repurchase right, convertible security, agreement, arrangement
or commitment (the items in clauses (i), (ii) and (iii) being referred to
collectively as the "Company Securities"), (iv) voting trusts, proxies or other
similar agreements or understandings to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound with respect to the voting of any shares of capital stock of the Company
or any of its Subsidiaries, or (v) contractual obligations or commitments of any
character restricting the transfer of, or requiring the registration for sale
of, any shares of capital stock of the Company or any of its Subsidiaries. There
are no outstanding obligations of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any of the Company Securities.
SECTION 5.06. Subsidiaries. (a) Each Subsidiary of the Company is a
corporation or partnership duly incorporated or organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation or
organization, has all corporate or partnership powers and all governmental
licenses, authorizations, permits, consents and approvals required to carry on
its business as now conducted, except for those licenses, authorizations,
permits, consents and approvals the absence of which would not have,
individually or in the aggregate, a Material Adverse Effect on the Company.
Except as set forth on Schedule 5.06(a), each such Subsidiary is duly qualified
to do business as a foreign corporation or partnership and is in good standing
in each jurisdiction where such
qualification is necessary, except for those jurisdictions where failure to be
so qualified would not have, individually or in the aggregate, have a Material
Adverse Effect on the Company. Except for Catherines of Nevada, Inc., a Nevada
corporation, all Subsidiaries of the Company and their respective jurisdictions
of incorporation or organization are identified in the Company 10-K.
(b) Except for its Subsidiaries and 21 shares of common stock, par
value $.01 per share, of Trans World Airlines, Inc., a Delaware corporation, and
warrants for five such shares exercisable at $14.40 per share, the Company does
not own, directly or indirectly, any equity or other ownership interest in any
corporation, partnership, joint venture or other entity or enterprise.
(c) All of the outstanding capital stock of, or other voting
securities or ownership interests in, each Subsidiary of the Company is owned by
the Company, directly or indirectly, free and clear of any Lien and free of any
other limitation or restriction (including any restriction on the right to vote,
sell or otherwise dispose of such capital stock or other voting securities or
ownership interests) other than the Lien granted in favor of First American
National Bank in connection with the First American Credit Facility. There are
no outstanding (i) securities of the Company or any of its Subsidiaries
convertible into or exchangeable for shares of capital stock or other voting
securities or ownership interests in any Subsidiary of the Company or (ii)
options, warrants, calls, subscriptions, securities or other rights to acquire
from the Company or any of its Subsidiaries, and no preemptive or similar
rights, subscriptions or other rights, redemptive rights, repurchase rights,
convertible securities, agreements, arrangements or commitments of any
character, relating to the capital stock of any Subsidiary of the Company,
obligating the Company or any of its Subsidiaries to issue, transfer or sell, or
to cause to be issued, transferred or sold, any shares of capital stock, other
equity interest, voting securities or securities convertible into or
exchangeable for shares of capital stock, other equity interest or voting
securities of any Subsidiary of the Company or obligating the Company or any of
its Subsidiaries to issue, grant, extend or enter into any such option, warrant,
call, subscription, security or other right, preemptive or similar right,
redemptive right, repurchase right, convertible security, agreement, arrangement
or commitment (the items in clauses (i) and (ii) being referred to collectively
as the "Company Subsidiary Securities"). Except as set forth in Schedule
5.06(c), there are no outstanding obligations of the Company or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any of the Company
Subsidiary Securities.
SECTION 5.07. SEC Filings. (a) The Company has filed all required reports,
schedules, forms, statements and other documents with the SEC since January 31,
1997 (such documents, together with all exhibits and schedules thereto and
documents incorporated by reference therein, the "Company SEC
Documents"). No Subsidiary of the Company is required to file any reports,
schedules, forms, statements or other documents with the SEC.
(b) As of its filing date, each Company SEC Document complied as to
form in all material respects with the applicable requirements of the 1933 Act
and the 1934 Act, as the case may be.
(c) As of its filing date (or, if amended or superceded by a filing
prior to the date hereof, on the date of such filing), each Company SEC Document
filed pursuant to the 1934 Act did not, and each such Company SEC Document filed
subsequent to the date hereof will not, contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading.
(d) Each Company SEC Document that is a registration statement, as
amended or supplemented, if applicable, filed pursuant to the 1933 Act, as of
the date such statement or amendment became effective, did not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading.
SECTION 5.08. Financial Statements. (a) The audited consolidated financial
statements and unaudited consolidated interim financial statements of the
Company included in the Company SEC Documents fairly present, in conformity with
generally accepted accounting principles ("GAAP") applied on a consistent basis
(except as may be indicated in the notes thereto), the consolidated financial
position of the Company and its consolidated Subsidiaries as of the dates
thereof and their consolidated results of operations and cash flows for the
periods then ended (subject to normal year-end adjustments in the case of any
unaudited interim financial statements). The books and records of the Company
and its Subsidiaries have been, and are being, maintained, in all material
respects, in accordance with GAAP and any other applicable legal and accounting
requirements.
(b) All inventory of the Company and its Subsidiaries is valued on the
Company's books and records at the lower of cost or market as determined by the
retail method, and at least 98% of such inventory is saleable in the ordinary
course of business consistent with past practice.
SECTION 5.09. Disclosure Documents. (a) Each document required to be filed
by the Company with the SEC or required to be distributed or otherwise
disseminated to the Company's shareholders in connection with the transactions
contemplated by this Agreement (the "Company Disclosure Documents"),
including, without limitation, the Schedule 14D-9, the proxy or information
statement of the Company (the "Company Proxy Statement"), if any, to be filed
with the SEC in connection with the Merger, and any amendments or supplements
thereto, when filed, distributed or disseminated, as applicable, will comply as
to form in all material respects with the applicable requirements of the 1934
Act.
(b) (i) The Company Proxy Statement, as supplemented or amended, if
applicable, at the time such Company Proxy Statement or any amendment or
supplement thereto is first mailed to shareholders of the Company and at the
time such shareholders vote on adoption of this Agreement and at the Effective
Time, and (ii) any Company Disclosure Document (other than the Company Proxy
Statement), at the time of the filing of such Company Disclosure Document or any
supplement or amendment thereto and at the time of any distribution or
dissemination thereof, will not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading. The representations and warranties contained in this Section 5.09(b)
will not apply to statements or omissions included in the Company Disclosure
Documents based upon information furnished to the Company in writing by Parent
specifically for use therein.
(c) The information with respect to the Company or any of its
Subsidiaries that the Company furnishes to Parent in writing specifically for
use in the Offer Documents, at the time of the filing thereof, at the time of
any distribution or dissemination thereof and at the time of the consummation of
the Offer, will not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
SECTION 5.10. Absence of Certain Changes. Since the Company Balance Sheet
Date, the business of the Company and its Subsidiaries has been conducted in the
ordinary course consistent with past practices and except as set forth in
Schedule 5.10 there has not been:
(a) any event, occurrence, development or state of circumstances or
facts that has had or could reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company, or any
repurchase, redemption or other acquisition by the Company or any of its
Subsidiaries of any outstanding shares of capital stock or other securities of,
or other ownership interests in, the Company or any of its Subsidiaries;
(c) any amendment of any term of any outstanding security of the
Company or any of its Subsidiaries that would increase the obligations of the
Company or such Subsidiary under such security;
(d) any incurrence, assumption or guarantee by the Company or any of
its Subsidiaries of any indebtedness for borrowed money other than in the
ordinary course of business and in amounts and on terms consistent with past
practices;
(e) any creation or other incurrence by the Company or any of its
Subsidiaries of any Lien on any asset other than in the ordinary course of
business consistent with past practices;
(f) any making of any loan, advance or capital contributions to or
investment in any Person other than loans, advances or capital contributions to
or investments in its wholly-owned Subsidiaries made in the ordinary course of
business consistent with past practices;
(g) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of the Company or any of
its Subsidiaries that has had or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company;
(h) any transaction or commitment made, or any contract or agreement
entered into, by the Company or any of its Subsidiaries relating to its assets
or business (including the acquisition or disposition of any assets) or any
modification, amendment, termination or relinquishment by the Company or any of
its Subsidiaries of any contract, license or other right, in either case,
material to the Company and its Subsidiaries, taken as a whole, other than
transactions and commitments in the ordinary course of business consistent with
past practices and those contemplated by this Agreement;
(i) any change in any method of accounting, method of tax accounting
or accounting principles or practice by the Company or any of its Subsidiaries,
except for any such change required by reason of a concurrent change in GAAP or
Regulation S-X under the 1934 Act;
(j) any (i) grant of any severance or termination pay to (or amendment
to any existing arrangement with) any director, officer or employee of the
Company or any of its Subsidiaries, (ii) increase in benefits payable under any
existing severance or termination pay policies or employment agreements, (iii)
any entering into any employment, deferred compensation or other similar
agreement (or any amendment to any such existing agreement) with any director,
officer or employee of the Company or any of its Subsidiaries, (iv)
establishment, adoption or amendment (except as required by applicable law) of
any collective bargaining, bonus, profit-sharing, thrift, pension, retirement,
deferred compensation, compensation, stock option, restricted stock or other
benefit plan or arrangement covering any director, officer or employee of the
Company or any of its Subsidiaries, or (v) increase in compensation, bonus or
other benefits payable to any director, officer or employee of the Company or
any of its Subsidiaries, other than in the ordinary course of business
consistent with past practice; or
(k) any labor dispute, other than routine individual grievances, or
any activity or proceeding by a labor union or representative thereof to
organize any employees of the Company or any of its Subsidiaries, which
employees were not subject to a collective bargaining agreement at the Company
Balance Sheet Date, or any lockouts, strikes, slowdowns, work stoppages or
threats thereof by or with respect to such employees.
SECTION 5.11. No Undisclosed Material Liabilities. There are no liabilities
or obligations of the Company or any of its Subsidiaries of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable or otherwise,
and there is no existing condition, situation or set of circumstances that could
reasonably be expected to result in such a liability, other than:
(a) liabilities or obligations disclosed and provided for in the
Company Balance Sheet or in the notes thereto or in the Company SEC Documents
filed prior to the date hereof; and
(b) liabilities or obligations incurred since the Company Balance
Sheet Date and that would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company.
SECTION 5.12. Compliance with Laws and Court Orders. The Company and each
of its Subsidiaries is and at all times since January 1, 1998 has been in
compliance with, and to the Knowledge of the Company is not under investigation
with respect to and has not been threatened to be charged with or given notice
of any violation of, any statute, law, rule, regulation, judgment, decree,
order, permit, license or other governmental authorization or approval
applicable to the Company or any of its Subsidiaries or by which any property,
asset or operation of the Company or any of its Subsidiaries is bound or
affected, except for failures to comply or violations that have not had and
could not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company.
SECTION 5.13. Material Contracts. Except as set forth in Schedule 5.13,
from the Company Balance Sheet Date through the date hereof, neither the Company
nor any of its Subsidiaries has entered into any contract which, if entered into
prior to the Company Balance Sheet Date, would have been required to be
disclosed in the Company 10-K. Neither the Company nor any of its Subsidiaries
nor, to the Knowledge of the Company, any other party, is in material breach of
or default under any such contract or any contract filed as an exhibit (or
incorporated by reference as an exhibit) to the Company 10-K.
SECTION 5.14. Non-Compete Agreements. Except as set forth in Schedule 5.14,
neither the Company nor any of its Subsidiaries is a party to any agreement that
limits the ability of the Company or any of its Subsidiaries (or after the
Merger, Parent or any of its Subsidiaries) to compete in, or conduct, any line
of business or to compete with any Person, in any geographic area or during any
period of time.
SECTION 5.15. Litigation. Except as set forth in the Company SEC Documents
filed prior to the date hereof, there is no action, suit, investigation or
proceeding (or any basis therefor) pending against, or threatened in writing
received by the Company or any of its Subsidiaries against, or, to the Knowledge
of the Company, otherwise threatened against or affecting, the Company, any of
its Subsidiaries, any present or former officer, director or employee of the
Company or any of its Subsidiaries or any other Person for whom the Company or
any such Subsidiary may be liable or any of their respective properties before
any court or arbitrator or before or by any governmental body, agency or
official, domestic or foreign which (i) individually or in the aggregate, if
determined or resolved adversely in accordance with the plaintiff's demands,
could reasonably be expected to have a Material Adverse Effect on the Company,
(ii) except as set forth on Schedule 5.15, involves damages in excess of
$50,000, (iii) seeks injunctive relief or (iv) in any manner challenges or seeks
to prevent, enjoin, alter or materially delay the Merger or any of the other
transactions contemplated hereby. Except as set forth in the Company SEC
Documents filed prior to the date hereof, neither the Company nor any of its
Subsidiaries is subject to any outstanding judgment, order, writ, injunction or
decree that has had or could reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company.
SECTION 5.16. Title to Properties. (a) Except as set forth in Schedule
5.16(a), each of the Company and its Subsidiaries has good and defensible title
to, or valid leasehold interests in, all its assets and properties described in
the Company SEC Documents, except for assets and properties (i) no longer used
or useful in the conduct of its businesses and (ii) disposed of in the ordinary
course of business. Except as set forth in Schedule 5.16(a), all such assets and
properties,
other than assets and properties in which the Company or any of its Subsidiaries
has leasehold interests, are free and clear of all Liens, other than those
assets and properties set forth in the Company SEC Documents filed prior to the
date hereof and other than Liens, that, in the aggregate, do not and will not
materially interfere with the ability of the Company or any of its Subsidiaries
to conduct business as currently conducted.
(b) Each of the Company and its Subsidiaries has complied in all
material respects with the terms of all leases to which it is a party and under
which it is in occupancy, and all such leases are in full force and effect. Each
of the Company and its Subsidiaries enjoys peaceful and undisturbed possession
under all such leases. The Company has heretofore (or on or before the Effective
Time will have) delivered to Parent true and complete copies of each such lease
containing all agreements or understandings between the Company or its
Subsidiaries, on the one hand, and the applicable third party landlord, on the
other hand, with respect to such lease.
(c) The buildings and premises of the Company and each of its
Subsidiaries that are used in its business are in reasonably good operating
condition and in a state of good maintenance and repair, normal wear and tear
excepted, are suitable for the purpose for which they are currently being used
and have access to utility services necessary for the conduct of the business.
No tenant repairs are required with respect to any leased stores other than (i)
normal and routine repairs consistent with past practice or (ii) repairs which,
in the aggregate, would not cost in excess of $300,000 to complete. Except as
would not have, individually or in the aggregate, a Material Adverse Effect on
the Company, there are no zoning law changes or similar restrictions that would
adversely impact any of the stores operated by the Company or any of its
Subsidiaries.
SECTION 5.17. Intellectual Property. The Company and its Subsidiaries own
all Intellectual Property that is material to the condition (financial or
otherwise) or conduct of the business and operations of the Company and its
Subsidiaries taken as a whole. The Company and any of its Subsidiaries have not
infringed or misappropriated and do not infringe or misappropriate any item of
Intellectual Property of any Person, except for infringement or misappropriation
that would not, in the aggregate, have a Material Adverse Effect on the Company.
No Person has infringed or misappropriated, or is infringing or
misappropriating, any item of Intellectual Property that is owned by or licensed
to the Company or any of its Subsidiaries, except for infringement or
misappropriation that would not, individually or in the aggregate, have a
Material Adverse Effect with respect to the Company. There are no pending or, to
the Knowledge of the Company, threatened, claims relating to infringement,
misappropriation, unenforceability,
invalidity, misuse, ownership, right to use, or other violation asserted by or
against the Company or any of its Subsidiaries relating to any item of
Intellectual Property, except as would not have, individually or in the
aggregate, a Material Adverse Effect on the Company. Schedule 5.17 sets forth a
list of all of the Intellectual Property owned by the Company and its
Subsidiaries.
SECTION 5.18. Year 2000 Readiness. The Company has conducted a review of
each System used in the conduct of the business and operations of the Company
and its Subsidiaries to determine whether such System is Year 2000 Ready, and is
currently implementing a compliance plan that the Company believes will result
in each material System being Year 2000 Ready in all material respects no later
than December 31, 1999. Each action to have been taken prior to the date of this
Agreement under such plan has been substantially completed and, as of the date
of this Agreement, the Company has no Knowledge indicating that any action to be
taken under such plan after the date of this Agreement will be materially
delayed or will fail to accomplish its purpose under the plan. "System" shall
mean all software, hardware and firmware, including without limitation any
devices with embedded electronics. A system is "Year 2000 Ready" if it is able
to accurately process date and time data from, into and between the years 1999
and 2000, and any other year through the year 2049.
SECTION 5.19. Finders' Fees. Except for J.C. Bradford & Co., a copy of
whose engagement agreement has been provided to Parent and whose fees are to be
paid by the Company, there is no investment banker, broker, finder or other
intermediary that has been retained by or is authorized to act on behalf of the
Company or any of its Subsidiaries, or any of their respective officers or
directors, who might be entitled to any banking, broker's, finder's or similar
fee or commission from the Company or any of its Subsidiaries in connection with
the transactions contemplated by this Agreement. The Company has no obligations
or commitments to any investment banker or financial advisor in connection with
any transactions that may be entered into by the Company after the Effective
Time. The engagement agreement between the Company and J.C. Bradford & Co.
provided to Parent constitutes the entire understanding of the Company and J.C.
Bradford & Co. with respect to the matters therein and has not been amended or
modified, nor will it be amended or modified, prior to the Effective Time.
SECTION 5.20. Taxes. As of the date hereof and as of the Effective Time:
(a) Filing and Payment. Except as set forth on Schedule 5.20(a), (i) all Tax
returns, statements, reports and forms (including estimated tax or information
returns and reports) required to be filed with any Taxing Authority with respect
to any Pre-Closing Tax Period by or on behalf of the Company or any of its
Subsidiaries (collectively, the "Returns"), have, to the extent required to be
filed on or before the date hereof, been filed when due in accordance with all
applicable
laws; (ii) as of the time of filing, the Returns were true and complete; and
(iii) all Taxes shown as due and payable on the Returns that have been filed
have been timely paid, or withheld and remitted to the appropriate Taxing
Authority.
(b) Financial Records. Except as set forth on Schedule 5.20(b), (i)
the charges, accruals and reserves for Taxes with respect to the Company and its
Subsidiaries for any Pre-Closing Tax Period reflected on the books of the
Company and its Subsidiaries (excluding any provision for deferred income taxes
reflecting either differences between the treatment of items for accounting and
income tax purposes or carryforwards) are adequate to cover Tax liabilities
accruing through the end of the last period for which the Company and its
Subsidiaries ordinarily record items on their respective books; (ii) since the
end of the last period for which the Company and its Subsidiaries ordinarily
record items on their respective books, neither the Company nor any of its
Subsidiaries has engaged in any transaction, or taken any other action, other
than in the ordinary course of business; and (iii) all information set forth in
the Company Balance Sheet (including the notes thereto) relating to Tax matters
is true and complete.
(c) Procedure and Compliance. Except as set forth on Schedule 5.20(c),
(i) all Returns filed with respect to Tax years of the Company and its
Subsidiaries through the Tax year ended February 3, 1996 have been examined and
closed or are Returns with respect to which the applicable period for assessment
under applicable law, after giving effect to extensions or waivers, has expired;
(ii) neither the Company nor any of its Subsidiaries is delinquent in the
payment of any Tax or has requested any extension of time within which to file
any Return and has not yet filed such Return; (iii) neither the Company nor any
of its Subsidiaries (or any member of any affiliated, consolidated, combined or
unitary group of which the Company or any of its Subsidiaries is or has been a
member) has granted any extension or waiver of the statute of limitations period
applicable to any Return, which period (after giving effect to such extension or
waiver) has not yet expired; (iv) there is no claim, audit, action, suit,
proceeding, or investigation now pending or threatened in writing received by
the Company or any Subsidiary against or with respect to the Company or any of
its Subsidiaries in respect of any Tax or Tax Asset; (v) there are no requests
for rulings or determinations in respect of any Tax or Tax Asset pending between
the Company or any of its Subsidiaries and any Taxing Authority; (vi) neither
the Company nor any of its Subsidiaries has received a tax opinion with respect
to any transaction relating to the Company or any of its Subsidiaries, other
than a transaction in the ordinary course of business; and (vii) during the
five-year period ending on the date hereof, neither the Company nor any of its
Subsidiaries has made or changed any tax election, changed any annual tax
accounting period, or adopted or changed any method of tax accounting (to the
extent that any such action may materially affect the Company or any of its
Subsidiaries, taken as a whole), nor
has it, to the extent it may affect or relate to the Company or any of its
Subsidiaries, filed any amended Return, entered into any closing agreement,
settled any Tax claim or assessment, or surrendered any right to claim a Tax
refund, offset or other reduction in Tax liability.
(d) Taxing Jurisdictions. Schedule 5.20(d) contains a list of all
jurisdictions (whether foreign or domestic) to which any Tax is properly payable
by the Company or any of its Subsidiaries, except for those jurisdictions in
which the failure to pay would not have, individually or in the aggregate, a
Material Adverse Effect on the Company. No Taxing Authority in a jurisdiction
where the Company or any of its Subsidiaries does not file Tax returns has
claimed, in writing received by the Company or any of its Subsidiaries, that the
Company or any of its Subsidiaries is or may be subject to taxation by that
jurisdiction.
(e) Tax Effects of Transactions. Except as set forth on Schedule
5.20(e), (i) neither the Company nor any of its Subsidiaries owns an interest in
real property in any jurisdiction in which a Tax is imposed on the transfer of
an interest in real property and which treats the transfer of an interest in an
entity that owns an interest in real property as a transfer of the interest in
real property and (ii) neither the purchase of Shares tendered in the Offer nor
the consummation of the Merger will result in any material increase in the Tax
liability of the Company or any of its Subsidiaries.
(f) Certain Agreements and Arrangements. Except as set forth on
Schedule 5.20(f), (i) neither the Company nor any of its Subsidiaries is a
direct or indirect beneficiary of a guarantee of tax benefits or any other
arrangement that has the same economic effect (including an indemnity from a
seller or lessee of property, or other insurance) with respect to any
transaction or tax opinion relating to the Company or any of its Subsidiaries;
(ii) neither the Company nor any Subsidiary is a party to any understanding or
arrangement described in Section 6111(d) or Section 6662(d)(2)(C)(iii) of the
Code; (iii) neither the Company nor any of its Subsidiaries is a party to a
lease arrangement involving a defeasance of rent, interest or principal; and
(iv) neither the Company nor any of its Subsidiaries, nor any other person on
behalf of the Company or any of its Subsidiaries, has entered into any agreement
or consent pursuant to Section 341(f) of the Code.
SECTION 5.21. Employee Benefit Plans. (a) Schedule 5.21(a) sets forth, and
the Company has provided Parent with, copies of the Employee Plans (and, if
applicable, related trust agreements) and all amendments thereto and summary
plan descriptions together with the three most recent annual reports (Form 5500
including, if applicable, Schedule B thereto) and the most recent actuarial
valuation report prepared in connection with any Employee Plan. Neither the
Company nor any of its Affiliates has at any time entered into, maintained,
administered, contributed to or been obligated to contribute to any
Multiemployer Plan, Title IV Plan or plan maintained in connection with any
trust described in Section 501(c)(9) of the Code.
(b) As of September 1, 1999, the Company and its Subsidiaries had no
unfunded liability in respect of all Employee Plans or Benefit Arrangements
described under Sections 4(b)(5) or 401(a)(1) of ERISA, except for (i) claims
not yet paid from funds contributed under the Company's "cafeteria" plan and
(ii) the Company's matching contribution to the Company's "401(K)" plan.
(c) No transaction prohibited by Section 406 of ERISA or Section 4975
of the Code has occurred with respect to any employee benefit plan or
arrangement that is covered by Title I of ERISA, which transaction has or will
cause the Company or any of its Subsidiaries to incur any liability under ERISA,
the Code or otherwise, excluding transactions effected pursuant to and in
compliance with a statutory or administrative exemption.
(d) Each Employee Plan that is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified during the period
since its adoption; each trust created under any such Plan is exempt from tax
under Section 501(a) of the Code and has been so exempt since its creation. The
Company has provided Parent with the most recent determination letter of the
Internal Revenue Service relating to each such Employee Plan. Each Employee Plan
has been maintained in substantial compliance with its terms and with the
requirements prescribed by any and all applicable statutes, orders, rules and
regulations, including but not limited to ERISA and the Code.
(e) Schedule 5.21(e) sets forth, and the Company has provided Parent
with copies or descriptions of, each Benefit Arrangement (and, if applicable,
related trust agreements) and all amendments thereto and summary plan
descriptions. Each Benefit Arrangement has been maintained in substantial
compliance with its terms and with the requirements prescribed by any and all
applicable statutes, orders, rules and regulations and has been maintained in
good standing with applicable regulatory authorities.
(f) Neither the Company nor any of its Subsidiaries has any current or
projected liability in respect of post-employment or post-retirement health or
medical or life insurance benefits for retired, former or current employees of
the Company or any of its Subsidiaries, except as required to avoid excise tax
under Section 4980B of the Code. No condition exists that would prevent the
Company or any of its Subsidiaries from amending or terminating any Employee
Plan or Benefit Arrangement providing health or medical benefits in respect of
any active
employee of the Company or any of its Subsidiaries other than limitations
imposed under the terms of a collective bargaining agreement.
(g) All contributions and payments under each Employee Plan and
Benefit Arrangement, determined in accordance with prior funding and accrual
practices, will be discharged and paid or accrued on or prior to the Effective
Time. There has been no amendment to, written interpretation of or announcement
(whether or not written) by the Company or any of its Subsidiaries relating to,
or change in employee participation or coverage under, any Employee Plan or
Benefit Arrangement that would increase materially the expense of maintaining
such Employee Plan or Benefit Arrangement above the level of the expense
incurred in respect thereof for the most recent fiscal year ended prior to the
date hereof.
(h) Except as set forth in Schedule 5.21(h), no employee or former
employee of the Company or any of its Subsidiaries will become entitled to any
bonus, retirement, severance, job security or similar benefit or enhanced such
benefit (including acceleration of vesting or exercise of an incentive award) as
a result of the transactions contemplated hereby. There is no contract, plan or
arrangement (written or otherwise) covering any employee or former employee of
the Company or any of its Subsidiaries that, individually or collectively, could
give rise to the payment of any amount that would not be deductible pursuant to
the terms of Section 280G of the Code.
(i) There has been no failure of a group health plan (as defined in
Section 5000(b)(1) of the Code) to meet the requirements of Code Section
4980B(f) with respect to a qualified beneficiary (as defined in Section
4980B(g)). Neither the Company nor any of its Subsidiaries has contributed to a
nonconforming group health plan (as defined in Section 5000(c)) and no ERISA
Affiliate of the Company or any of its Subsidiaries has incurred a tax under
Section 5000(a) that is or could become a liability of the Company or any of its
Subsidiaries.
(j) Neither the Company nor any of its Affiliates has at any time
employed any person other than in the United States.
(k) Except as set forth in Schedule 5.21(k), neither the Company nor
any of its Subsidiaries is a party to or subject to, or is currently negotiating
in connection with entering into, any collective bargaining agreement or other
contract or understanding with a labor union.
SECTION 5.22. Environmental Matters. (a) Except as set forth in the Company
SEC Documents filed prior to the date hereof:
(i) no notice, notification, demand, request for information,
citation, summons or order has been received, no complaint has been
filed, no penalty has been assessed, and no investigation, action,
claim, suit, proceeding or review (or any basis therefor) is pending
or, to the Knowledge of the Company, is threatened by any governmental
entity or other Person relating to or arising out of any Environmental
Law;
(ii) the Company is in compliance in all material respects with all
Environmental Laws and all Environmental Permits; and
(iii) there are no material liabilities of or relating to the Company or
any of its Subsidiaries of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise arising
under or relating to any Environmental Law, and there are no facts,
conditions, situations or set of circumstances that could reasonably be
expected to result in or be the basis for any such liability.
(b) There has been no environmental investigation, study, audit, test,
review or other analysis conducted of which the Company has Knowledge in
relation to the current or prior business of the Company or any of its
Subsidiaries or any property or facility now or previously owned or leased by
the Company or any of its Subsidiaries that has not been delivered to Parent at
least five days prior to the date hereof.
(c) For purposes of this Section 5.22, the terms "Company" and
"Subsidiaries" shall include any entity that is, in whole or in part, a
predecessor of the Company or any of its Subsidiaries.
SECTION 5.23. Other Information. None of the documents or information
delivered to Parent in connection with the transactions contemplated by this
Agreement contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading. The financial
projections relating to the Company or any of its Subsidiaries and the Company's
preliminary third quarter earnings results delivered to Parent are made in good
faith and are based upon reasonable assumptions, and the Company is not aware of
any fact or set of circumstances that would lead it to believe that such
projections or preliminary results are incorrect or misleading in any material
respect.
SECTION 5.24. Antitakeover Statutes and Rights Agreement. (a) The Company
has taken all action necessary to exempt the Offer, the Merger, this Agreement
and the transactions contemplated hereby from the provisions of Section
48-103-201, et. seq. of the Tennessee Code Annotated and any other antitakeover
or similar statute or regulation (it being understood that the Company makes no
representation regarding the impact (if any) on such exemptions of any
subsequent actions taken in accordance with Section 7.03).
(b) The Company has not entered into, and its Board of Directors has
not adopted or authorized the adoption of, a shareholder rights or similar
agreement.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company that:
SECTION 6.01. Corporate Existence and Power. Each of Parent and Merger
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
corporate powers and all governmental licenses, authorizations, permits,
consents and approvals required to carry on its business as now conducted,
except for those licenses, authorizations, permits, consents and approvals the
absence of which would not have, individually or in the aggregate, a Material
Adverse Effect on Parent. Since the date of its incorporation, Merger Subsidiary
has not engaged in any activities other than in connection with or as
contemplated by this Agreement.
SECTION 6.02. Corporate Authorization. The execution, delivery and
performance by Parent and Merger Subsidiary of this Agreement and the
consummation by Parent and Merger Subsidiary of the transactions contemplated
hereby are within the corporate powers of Parent and Merger Subsidiary and have
been duly authorized by all necessary corporate action. This Agreement
constitutes a valid and binding agreement of each of Parent and Merger
Subsidiary.
SECTION 6.03. Governmental Authorization. The execution, delivery and
performance by Parent and Merger Subsidiary of this Agreement and the
consummation by Parent and Merger Subsidiary of the transactions contemplated
hereby require no action by or in respect of, or filing with, any governmental
body, agency, official or authority, domestic or foreign, other than (i) the
filing of articles of merger with respect to the Merger with the Tennessee
Secretary of
State and appropriate documents with the relevant authorities of other states in
which Parent is qualified to do business, (ii) compliance with any applicable
requirements of the HSR Act, (iii) compliance with any applicable requirements
of the 1933 Act, the 1934 Act and any other applicable securities or takeover
laws, whether state or foreign, and (iv) any actions or filings the absence of
which would not be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect on Parent.
SECTION 6.04. Non-contravention. The execution, delivery and performance by
Parent and Merger Subsidiary of this Agreement and the consummation by Parent
and Merger Subsidiary of the transactions contemplated hereby do not and will
not (i) contravene, conflict with, or result in any violation or breach of any
provision of the certificate of incorporation or bylaws of Parent or Merger
Subsidiary, (ii) assuming compliance with the matters referred to in Section
6.03, contravene, conflict with, or result in any violation or breach of any
provision of any law, rule, regulation, judgment, injunction, order or decree or
(iii) require any consent or other action by any Person under, constitute a
default under, or cause or permit the termination, cancellation, acceleration or
other change of any right or obligation or the loss of any benefit to which
Parent or Merger Subsidiary is entitled under any provision of any agreement or
other instrument binding upon Parent or Merger Subsidiary, except for such
contraventions, conflicts and violations referred to in clause (ii) and for such
failures to obtain consent or other action, defaults, terminations,
cancellations, accelerations, changes or losses referred to in clause (iii) that
would not be reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect on Parent.
SECTION 6.05. Disclosure Documents. The information with respect to Parent
and any of its Subsidiaries that Parent furnishes to the Company in writing
specifically for use in any Company Disclosure Document will not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading (i) in the case of the Company Proxy
Statement, as supplemented or amended, if applicable, at the time such Company
Proxy Statement or any amendment or supplement thereto is first mailed to
shareholders of the Company and at the time such shareholders vote on adoption
of this Agreement and at the Effective Time, and (ii) in the case of any Company
Disclosure Document other than the Company Proxy Statement, at the time of the
filing of such Company Disclosure Document or any supplement or amendment
thereto and at the time of any distribution or dissemination thereof.
SECTION 6.06. Finders' Fees. Except for Lazard Freres & Co. LLC, whose fees
will be paid by Parent, there is no investment banker, broker, finder or
other intermediary that has been retained by or is authorized to act on behalf
of Parent who might be entitled to any banking, broker's, finder's or similar
fee or commission from the Company or any of its Affiliates upon consummation of
the transactions contemplated by this Agreement.
SECTION 6.07. Financing. Parent has, or will have prior to the expiration
of the Offer, sufficient cash, available lines of credit or other sources of
immediately available funds to enable it to purchase all of the Shares
outstanding on a fully-diluted basis and to pay all related fees and expenses
pursuant to the Offer.
ARTICLE 7
COVENANTS OF THE COMPANY
The Company agrees that:
SECTION 7.01. Conduct of the Company. From the date hereof until the
Effective Time, the Company and its Subsidiaries shall conduct their business in
the ordinary course consistent with past practice and shall use their best
efforts to preserve intact their business organizations and relationships with
third parties and to keep available the services of their present officers and
employees. Without limiting the generality of the foregoing, except with the
prior written consent of Parent or as contemplated by this Agreement or as set
forth in Schedule 7.01 (except with respect to the Proposed Amended First
American Credit Facility (as defined in Schedule 5.10), which the Company will
not enter into without Parent's prior written consent) from the date hereof
until the Effective Time:
(a) (i) the Company will not, and will not permit any of its
Subsidiaries to, declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than dividends and
distributions by any wholly owned Subsidiary of the Company to the Company or a
wholly owned Subsidiary of the Company, (ii) split, combine or reclassify any of
its capital stock or (iii) purchase, redeem or otherwise acquire any shares of
capital stock or options to acquire any such shares or other securities;
(b) the Company will not, and will not permit any of its Subsidiaries
to, issue, deliver, sell, pledge or otherwise encumber any shares of its capital
stock, any other voting securities or any securities convertible into, or any
rights, warrants or options to acquire, any such shares, voting securities or
convertible securities (other than, in the case of the Company, the issuance of
Shares upon the exercise of stock options outstanding on the date of this
Agreement in accordance
with their current terms or the issuance of Shares in connection with the ESPP
in accordance with its current terms);
(c) the Company will not adopt or propose any change to its charter or
bylaws;
(d) the Company will not, and will not permit any of its Subsidiaries
to, merge or consolidate with any other Person, adopt a plan of complete or
partial liquidation of the Company or any of its Subsidiaries, or acquire a
material amount of stock or assets of any other Person;
(e) the Company will not, and will not permit any of its Subsidiaries
to, sell, lease, license, mortgage, pledge or grant a Lien on or otherwise
encumber or dispose of any material Subsidiary or material amount of assets or
property except (i) pursuant to existing contracts or commitments or (ii) in the
ordinary course consistent with past practice;
(f) the Company will not, and will not permit any of its Subsidiaries
to, incur, assume or guarantee any indebtedness for borrowed money, except for
such borrowings (i) under the Company's existing letters of credit for purchases
of merchandise inventory in the ordinary course of business consistent with past
practice, (ii) under the Company's existing credit facilities (other than
letters of credit) that would not result in total outstanding indebtedness of
the Company and its Subsidiaries on a consolidated basis in excess of $1,000,000
at any one time and (iii) in connection with new capital leases for data
processing software and hardware not in excess of $1,000,000;
(g) the Company will not, and will not permit any of its Subsidiaries
to, increase the compensation or benefits of any director, officer or employee,
except for normal increases in the ordinary course of business consistent with
past practice or as required by applicable law or any existing agreement or
commitment;
(h) the Company will not, and will not permit any of its Subsidiaries
to, change any method of accounting or accounting principles used by it, except
for any such change required by reason of a concurrent change in GAAP or
Regulation S-X under the 1934 Act;
(i) the Company will not, and will not permit any of its Subsidiaries
to, make or change any Tax election, change any annual Tax accounting period,
adopt or change any method of Tax accounting, file any amended Return, enter
into any closing agreement, settle any Tax claim or assessment, surrender any
right to claim a Tax refund, offset or other reduction in Tax liability, consent
to
any extension or waiver of the limitations period applicable to any Tax claim or
assessment or take or omit to take any other action, if any such action or
omission would have the effect of increasing the Tax liability or reducing any
Tax Asset of the Company, any of its Subsidiaries, Parent or any Affiliate of
Parent, other than a settlement or settlements relating to pending state tax
disputes specified on Schedule 5.20(c) that do not exceed, in the aggregate,
$325,000;
(j) the Company will not, and will not permit any of its Subsidiaries
to, conduct any unusual liquidation of inventory or going out of business sale
or any discount or other sale other than in the ordinary course of business
consistent with past practice, including with respect to time of year, pricing,
location and goods sold;
(k) the Company will not, and will not permit any of its Subsidiaries
to, enter into or make any contract or commitment (including in respect of
capital expenditures) or series of related contracts or commitments involving
payments in excess of the amounts set forth in the contracts or commitments
contemplated by the Company's 1999 and 2000 capital expenditure plans previously
provided to Parent;
(l) the Company will not, and will not permit any of its Subsidiaries
to, fail to maintain insurance upon all its properties and with respect to the
conduct of its business of such kinds and in such amounts as is currently in
effect;
(m) the Company will not, and will not permit any of its Subsidiaries
to, (i) take any action that would make any representation and warranty of the
Company hereunder inaccurate in any material respect at, or as of any time prior
to, the Effective Time or (ii) omit to take any action necessary to prevent any
such representation or warranty from being inaccurate in any material respect at
any such time; and
(n) the Company will not, and will not permit any of its Subsidiaries
to, agree or commit to do any of the foregoing.
SECTION 7.02. Shareholder Meeting; Proxy Material. The Company shall
cause a meeting of its shareholders (the "Company Shareholder Meeting") to be
duly called and held as soon as reasonably practicable after consummation of the
Offer for the purpose of voting on the approval and adoption of this Agreement
and the Merger, unless Tennessee Law does not require a vote of shareholders of
the Company for consummation of the Merger. Subject to Section 7.03(c), the
Board of Directors of the Company shall recommend approval and adoption of this
Agreement and the Merger by the Company's shareholders. In connection with such
meeting, the Company will (i) promptly prepare and file with the SEC,
will use its best efforts to have cleared by the SEC and will thereafter mail to
its shareholders as promptly as practicable the Company Proxy Statement and all
other proxy materials for such meeting, (ii) use its reasonable best efforts to
obtain the necessary approvals by its shareholders of this Agreement and the
transactions contemplated hereby and (iii) otherwise comply with all legal
requirements applicable to such meeting.
SECTION 7.03. No Solicitation; Other Offers. (a) From the date hereof
until the termination hereof, the Company will not, and will cause its
Subsidiaries and the officers, directors, employees, investment bankers,
attorneys, accountants, consultants or other agents or advisors of the Company
and its Subsidiaries not to, directly or indirectly, (i) take any action to
solicit, initiate, facilitate or encourage the submission of any Acquisition
Proposal, (ii) engage in negotiations with, or disclose any nonpublic
information relating to the Company or any of its Subsidiaries or afford access
to the properties, books or records of the Company or any of its Subsidiaries
to, any Person who has made or, to the Company's knowledge, is considering
making, an Acquisition Proposal, or (iii) grant any waiver or release under any
standstill or similar agreement with respect to any class of equity securities
of the Company. Notwithstanding the foregoing sentence, the Company may, in the
press release announcing execution of this Agreement, include the following
sentence: "Under the Agreement, the Company may furnish information and hold
discussions with third parties in appropriate circumstances." Parent and the
Company agree further that the issuance of a press release containing the
foregoing sentence shall not constitute solicitation, initiation, facilitation
or encouragement by the Company or its Subsidiaries of the submission of an
Acquisition Proposal in violation of this Section 7.03(a). The Company will
notify Parent promptly (but in no event later than two business days) after
receipt by the Company (or any of its advisors) of any Acquisition Proposal, any
indication that any Person is considering making an Acquisition Proposal or any
request for nonpublic information relating to the Company or any of its
Subsidiaries or for access to the properties, books or records of the Company or
any of its Subsidiaries by any Person who has made or, to the Company's
knowledge, is considering making, an Acquisition Proposal. The Company shall
provide such notice orally and in writing and shall identify the Person making,
and the terms and conditions of, any such Acquisition Proposal, indication or
request. The Company shall keep Parent fully informed, on a current basis, of
the status and details of any such Acquisition Proposal, indication or request.
The Company shall, and shall cause its Subsidiaries and the directors, employees
and other agents of the Company and its Subsidiaries to, cease immediately and
cause to be terminated all activities, discussions and negotiations, if any,
with any Persons conducted prior to the date hereof with respect to any
Acquisition Proposal. Nothing contained in this Agreement shall prevent the
Board of Directors of the Company from complying with its fiduciary
duties or Rules 14d-9 and 14e-2 under the 1934 Act with respect to any
Acquisition Proposal.
(b) Notwithstanding the foregoing, the Company may negotiate or
otherwise engage in substantive discussions with, and furnish nonpublic
information to, any Person who delivers a written Acquisition Proposal if (i)
the Company has complied with the terms of this Section 7.03, including, without
limitation, the requirement in Section 7.03(a) that it notify Parent promptly
after its receipt of any Acquisition Proposal, (ii) the Board of Directors of
the Company has determined in good faith, based on the terms of such Acquisition
Proposal, including the proposed consideration per Share, that such Acquisition
Proposal could reasonably be expected to result in a Superior Proposal, (iii)
the Board of Directors of the Company determines in good faith that such action
is in the best interests of the Company's shareholders, (iv) such Person
executes a confidentiality agreement with terms no less favorable to the Company
than those contained in the Confidentiality Agreement and (v) the Company shall
have delivered to Parent a prior written notice advising Parent that it intends
to take such action.
(c) Except as provided in the next sentence, the Board of Directors of
the Company shall recommend approval and adoption of this Agreement and the
Merger by the Company's shareholders. The Board of Directors of the Company
shall be permitted to withdraw, or modify in a manner adverse to Parent, its
recommendation to its shareholders referred to in Section 7.02 hereof and
recommend or authorize the Company to enter into (and the Company may enter
into) an agreement with respect to a Superior Proposal, but only if (i) the
Company has complied with the terms of this Section 7.03, (ii) a Superior
Proposal is pending at the time the Board of Directors of the Company determines
to take any such action, (iii) the Board of Directors of the Company determines
in good faith that such action is in the best interests of the Company's
shareholders, (iv) the Company shall have delivered to Parent at least five
business days prior written notice advising Parent that it intends to take such
action and (v) Parent does not make, within such five business day period
following receipt of such notice, an offer that the Board of Directors of the
Company determines in good faith (after consultation with its financial
advisors) to be as favorable to the Company's shareholders as such Superior
Proposal.
SECTION 7.04. Access to Information. From the date hereof until the
Effective Time and subject to applicable law and the Confidentiality Agreement
dated as of October 12, 1999 between the Company and Parent (the
"Confidentiality Agreement"), the Company shall (i) give Parent, its counsel,
financial advisors, auditors and other authorized representatives full access to
the offices, properties, books and records of the Company and its Subsidiaries,
(ii)
furnish to Parent, its counsel, financial advisors, auditors and other
authorized representatives such financial and operating data and other
information as such Persons may reasonably request and (iii) instruct the
employees, counsel, financial advisors, auditors and other authorized
representatives of the Company and its Subsidiaries to cooperate with Parent in
its investigation of the Company and its Subsidiaries. Any investigation
pursuant to this Section shall be conducted in such manner as not to interfere
unreasonably with the conduct of the business of the Company and its
Subsidiaries. No information or knowledge obtained by Parent in any
investigation pursuant to this Section shall affect or be deemed to modify any
representation or warranty made by the Company hereunder.
SECTION 7.05. Bonus Acceleration. Prior to December 31, 1999, the
Company shall prepay to Mr. Wein a portion of his 1999 annual bonus in an amount
equal to $545,000 and shall prepay to Mr. Forell a portion of his 1999 annual
bonus in an amount equal to $230,000.
ARTICLE 8
COVENANTS OF PARENT
Parent agrees that:
SECTION 8.01. Obligations of Merger Subsidiary. Parent will take all action
necessary to cause Merger Subsidiary to perform its obligations under this
Agreement and to consummate the Merger on the terms and conditions set forth in
this Agreement.
SECTION 8.02. Voting of Shares. Parent agrees to vote all Shares
beneficially owned by it in favor of adoption of this Agreement at the Company
Shareholder Meeting.
SECTION 8.03. Director and Officer Liability. Parent shall cause the
Surviving Corporation, and the Surviving Corporation hereby agrees, to do the
following:
(a) For six years after the Effective Time (and to the extent Parent
has been notified in writing that a third party has made a claim that is the
subject of indemnification hereunder before the expiration of such period, for
so long thereafter as such claim is not finally adjudicated, settled,
time-barred or otherwise subject to an applicable statute of limitations), the
Surviving Corporation shall indemnify and hold harmless the present and former
officers and directors of the Company (each an "Indemnified Person") in respect
of acts
or omissions occurring at or prior to the Effective Time to the fullest extent
permitted by Tennessee Law or any other applicable laws or provided under the
Company's charter and bylaws in effect on the date hereof; provided that such
indemnification shall be subject to any limitation imposed from time to time
under applicable law.
(b) For six years after the Effective Time, the Surviving Corporation
shall provide officers' and directors' liability insurance in respect of acts or
omissions occurring prior to the Effective Time covering each such Indemnified
Person currently covered by the Company's officers' and directors' liability
insurance policy on terms with respect to coverage and amount no less favorable
than those of such policy in effect on the date hereof; provided that, in
satisfying its obligation under this Section 8.03(b), the Surviving Corporation
shall not be obligated to pay premiums in excess of 150% of the amount per annum
the Company paid in its last full fiscal year, which amount Company has
disclosed to Parent prior to the date hereof.
(c) If Parent, the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other Person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers or conveys all or substantially all of its properties
and assets to any Person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of Parent or
the Surviving Corporation, as the case may be, shall assume the obligations set
forth in this Section 8.03.
(d) The rights of each Indemnified Person under this Section 8.03
shall be in addition to any rights such Person may have under the charter or
bylaws or other organizational documents of the Company or any of its
Subsidiaries, or under Tennessee Law or any other applicable laws. These rights
shall survive consummation of the Merger and are intended to benefit, and shall
be enforceable by, each Indemnified Person.
ARTICLE 9
COVENANTS OF PARENT AND THE COMPANY
The parties hereto agree that:
SECTION 9.01. Reasonable Efforts. (a) Subject to the terms and conditions
of this Agreement, the Company and Parent will use their reasonable efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate the transactions contemplated by this Agreement. In furtherance and
not in limitation of the foregoing, each of Parent and the Company agrees to
make an appropriate filing of a Notification and Report Form pursuant to the HSR
Act with respect to the transactions contemplated hereby as promptly as
practicable and in any event within ten business days of the date hereof and to
supply as promptly as practicable any additional information and documentary
material that may be requested pursuant to the HSR Act and to take all other
actions necessary to cause the expiration or termination of the applicable
waiting periods under the HSR Act as soon as practicable.
(b) In connection with the efforts referenced in Section 9.01(a) to
obtain all requisite approvals and authorizations for the transactions
contemplated by this Agreement under the HSR Act or any other Antitrust Law,
each of Parent and the Company shall use its reasonable efforts to (i) cooperate
in all respects with each other in connection with any filing or submission and
in connection with any investigation or other inquiry, including any proceeding
initiated by a private party, (ii) keep the other party informed in all material
respects of any material communication received by such party from, or given by
such party to, the Federal Trade Commission (the "FTC"), the Antitrust Division
of the Department of Justice (the "DOJ") or any other governmental authority and
of any material communication received or given in connection with any
proceeding by a private party, in each case regarding any of the transactions
contemplated hereby and (iii) permit the other party to review any material
communication given by it to, and consult with each other in advance of any
meeting or conference with, the FTC, the DOJ or any such other governmental
authority or, in connection with any proceeding by a private party, with any
other Person. For purposes of this Agreement, "Antitrust Law" means the Sherman
Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal Trade
Commission Act, as amended, and all other federal, state and foreign, if any,
statutes, rules, regulations, orders, decrees, administrative and judicial
doctrines and other laws that are designed or intended to prohibit, restrict or
regulate actions having the purpose or effect of monopolization or restraint of
trade or lessening of competition through merger or acquisition.
SECTION 9.02. Certain Filings. The Company and Parent shall cooperate with
one another (i) in connection with the preparation of the Company Disclosure
Documents, (ii) in determining whether any action by or in respect of, or filing
with, any governmental body, agency, official, or authority is required, or any
actions, consents, approvals or waivers are required to be obtained from parties
to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement and (iii) in taking such actions or
making any such filings, furnishing information required in connection therewith
or with the Company Disclosure Documents and seeking timely to obtain any such
actions, consents, approvals or waivers.
SECTION 9.03. Public Announcements. Parent and the Company will consult
with each other before issuing any press release or making any public statement
with respect to this Agreement or the transactions contemplated hereby and will
not issue any such press release or make any such public statement prior to such
consultation. Notwithstanding the foregoing, any such press release or public
statement (i) by either Parent or the Company, as may be required by applicable
law or any listing agreement with any national securities exchange or (ii) by
the Company (A) following a change, if any, of the recommendation of this
Agreement by the Company's Board of Directors or (B) relating to an Acquisition
Proposal, which, in the case of either (A) or (B), the Company's Board of
Directors has determined in good faith that it is in the best interests of the
Company's shareholders to issue, may be issued prior to such consultation if the
party making such press release or public statement has used its reasonable
efforts to consult with the other party.
SECTION 9.04. Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or Merger
Subsidiary, any deeds, bills of sale, assignments or assurances and to take and
do, in the name and on behalf of the Company or Merger Subsidiary, any other
actions and things to vest, perfect or confirm of record or otherwise in the
Surviving Corporation any and all right, title and interest in, to and under any
of the rights, properties or assets of the Company acquired or to be acquired by
the Surviving Corporation as a result of, or in connection with, the Merger.
SECTION 9.05. Notices of Certain Events. Each of the Parent and the Company
shall promptly notify the other of:
(a) any notice or other communication from any Person alleging that
the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions contemplated
by this Agreement; and
(c) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge, threatened against, relating to or involving or
otherwise affecting Parent, the Company or any of its Subsidiaries that, if
pending on the date of this Agreement, would have been required to have been
disclosed pursuant
to Article 5 or Article 6, as the case may be, or that relate to the
consummation of the transactions contemplated by this Agreement.
SECTION 9.06. Merger Without Meeting of Shareholders. If Parent, Merger
Subsidiary or any other Subsidiary of Parent shall acquire at least 90% of the
outstanding Shares pursuant to the Offer or otherwise, the parties hereto agree,
at the request of Parent, to take all necessary and appropriate action to cause
the Merger to be effective as soon as practicable after the acceptance for
payment and purchase of Shares pursuant to the Offer without a meeting of
shareholders of the Company in accordance with Tennessee Law.
ARTICLE 10
CONDITIONS TO THE MERGER
SECTION 10.01. Conditions to Obligations of Each Party. The obligations of
the Company, Parent and Merger Subsidiary to consummate the Merger are subject
to the satisfaction of the following conditions:
(a) if required by Tennessee Law, this Agreement shall have been
approved and adopted by the shareholders of the Company in accordance with such
Law;
(b) any applicable waiting period under the HSR Act relating to the
Merger shall have expired or been terminated;
(c) no provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the Merger; and
(d) Merger Subsidiary shall have purchased Shares pursuant to the
Offer.
SECTION 10.02. Conditions to the Obligations of Parent and Merger
Subsidiary. The obligations of Parent and Merger Subsidiary to consummate the
Merger are subject to the satisfaction of the following further conditions:
(a) the Company shall have performed in all material respects all of
its obligations hereunder required to be performed by it at or prior to the
Effective Time; and
(b) Parent shall have received all documents it might reasonably
request relating to the existence of the Company and any of its Subsidiaries and
the
authority of the Company for this Agreement, all in form and substance
reasonably satisfactory to Parent.
ARTICLE 11
TERMINATION
SECTION 11.01. Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time (notwithstanding any
approval of this Agreement by the shareholders of the Company):
(a) by mutual written agreement of the Company and Parent;
(b) by either the Company or Parent, if:
(i) the Offer has not been consummated on or before February 29, 2000;
provided that the right to terminate this Agreement pursuant to this
Section 11.01(b)(i) shall not be available to any party whose breach of
any provision of this Agreement results in the failure of the Offer to
be consummated by such time; or
(ii) there shall be any law or regulation that makes acceptance for
payment of, and payment for, the Shares pursuant to the Offer or
consummation of the Merger illegal or otherwise prohibited or any
judgment, injunction, order or decree of any court or governmental body
having competent jurisdiction enjoining Merger Subsidiary from
accepting for payment of, and paying for, the Shares pursuant to the
Offer or the Company or Parent from consummating the Merger and such
judgment, injunction, order or decree shall have become final and
nonappealable;
(c) by Parent, if, prior to acceptance for payment of the Shares under
the Offer:
(i) (A) the Board of Directors of the Company shall have failed to
recommend or withdrawn, or modified in a manner adverse to Parent, its
approval or recommendation of this Agreement, the Offer or the Merger,
or shall have recommended, or entered into, or publicly announced its
intention to enter into, an agreement or an agreement in principle with
respect to a Superior Proposal (or shall have resolved to do any of the
foregoing), or (B) the Company shall have breached any of its
obligations under Sections 7.02 or 7.03;
(ii) any Person or "group" (as defined in Section 13(d)(3) of the 1934
Act), other than Parent or any of its Affiliates, shall have acquired
or proposed to acquire beneficial ownership of more than 50% of the
Shares or more than 50% of the assets of the Company and its
Subsidiaries, taken as a whole, through the acquisition of stock, the
formation of a group or otherwise, or shall have been granted any
option, right or warrant, conditional or otherwise, to acquire
beneficial ownership of such Shares or assets; or
(iii) Parent and Merger Subsidiary shall have terminated the Offer as a
result of the occurrence of any of the events set forth in Annex I;
(d) by the Company, if (i) the Board of Directors of the Company
authorizes the Company, subject to its complying with the terms of this
Agreement, to enter into a binding written agreement concerning a transaction
that constitutes a Superior Proposal and the Company notifies Parent in writing,
in accordance with Section 7.03(c), that it intends to enter into such an
agreement, attaching the most current version of such agreement to such notice,
(ii) Parent does not make, in accordance with Section 7.03(c), within five
business days of receipt of such written notification, an offer that the Board
of Directors of the Company determines in good faith (after consultation with
its financial advisors), is at least as favorable, from a financial point of
view, to the shareholders of the Company as the Superior Proposal and (iii) the
Company pays to Parent in immediately available funds, prior to such termination
pursuant hereto, the fees required to be paid pursuant to Section 12.04;
provided however that if at the time of such termination the Company has not
entered into an agreement with respect to a Superior Proposal, the Company shall
not be obligated to pay such fees at such time but shall acknowledge in writing
to Parent the Company's obligation to pay to Parent such fees at such time as
the Company does enter into such an agreement; or
(e) by the Company, if (i) Parent shall have failed to commence the
Offer within five business days following the date of this Agreement or (ii)
Parent shall have terminated the Offer without having accepted any Shares (or
all Shares validly tendered pursuant to the Offer) for payment thereunder;
provided that the right to terminate this Agreement under either clause (i) or
clause (ii) shall not be available to the Company if (A) the Company's breach of
any provision of this Agreement results in the failure of the Offer to be
commenced or consummated or (B) such failure to so commence the Offer or to
accept any Shares (or all Shares validly tendered pursuant to the offer) for
payment shall have resulted from the existence of any of the conditions
specified in paragraphs (e) or (f) of Annex I.
The party desiring to terminate this Agreement pursuant to this Section
11.01 (other than pursuant to Section 11.01(a)) shall give notice of such
termination to the other party.
SECTION 11.02. Effect of Termination. If this Agreement is terminated
pursuant to Section 11.01, this Agreement shall become void and of no effect
with no liability on the part of any party (or any shareholder, director,
officer, employee, agent, consultant or representative of such party) to the
other party hereto; provided that, if such termination shall result from the
willful (i) failure of either party to fulfill a condition to the performance of
the obligations of the other party, (ii) failure of either party to perform a
covenant hereof or (iii) breach by either party hereto of any representation or
warranty or agreement contained herein, such party shall be fully liable for any
and all liabilities and damages incurred or suffered by the other party as a
result of such failure or breach. The provisions of Sections 8.03, 11.02, 12.02,
12.04, 12.06, 12.07 and 12.08 shall survive any termination hereof.
ARTICLE 12
MISCELLANEOUS
SECTION 12.01. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including facsimile transmission) and
shall be given,
if to Parent or Merger Subsidiary, to:
Colin D. Stern
Charming Shoppes, Inc.
450 Winks Lane
Bensalem, Pennsylvania 19020
Telephone: (215) 245-9100
Facsimile: (215) 638-6648
with a copy to:
Dennis S. Hersch
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telephone: (212) 450-4000
Facsimile: (212) 450-4800
if to the Company, to:
David C. Forell
Catherines Stores Corporation
3742 Lamar Avenue
Memphis, Tennessee 38118
Telephone: (901) 363-3900
Facsimile: (901) 794-9726
with a copy to:
Samuel D. Chafetz
Waring Cox, PLC
50 North Front Street, Suite 1300
Memphis, Tennessee 38103
Telephone: (901) 543-8000
Facsimile: (901) 543-8030
or such other address or facsimile number as such party may hereafter specify
for the purpose by notice to the other parties hereto. All such notices,
requests and other communications shall be deemed received on the date of
receipt by the recipient thereof if received prior to 5 p.m. in the place of
receipt and such day is a business day in the place of receipt. Otherwise, any
such notice, request or communication shall be deemed not to have been received
until the next succeeding business day in the place of receipt.
SECTION 12.02. Survival of Representations and Warranties. The
representations and warranties and agreements contained herein and in any
certificate or other writing delivered pursuant hereto shall not survive the
Effective Time or the termination of this Agreement, except for the agreements
set forth in Sections 8.03, 11.02, 12.02, 12.04, 12.06, 12.07 and 12.08.
Disclosure of a specific item herein or in any schedule hereto shall not be
limited to the section as to which such disclosure is listed if the disclosure
is such that a reasonable person would recognize that the disclosure modifies a
disclosure made elsewhere herein or in any other schedule hereto.
SECTION 12.03. Amendments; No Waivers. (a) Except as set forth in Section
2.01(a), any provision of this Agreement may be amended or waived prior to the
Effective Time if, but only if, such amendment or waiver is in writing and is
signed, in the case of an amendment, by each party to this Agreement or, in the
case of a waiver, by each party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 12.04. Expenses. (a) Except as otherwise provided in this Section,
all costs and expenses incurred in connection with this Agreement shall be paid
by the party incurring such cost or expense.
(b) If (x) Parent shall terminate this Agreement pursuant to Section
11.01(c)(i) or Section 11.01(c)(ii) or (y) the Company shall terminate this
agreement pursuant to Section 11.01(d), then the Company shall pay to Parent a
fee of $5.5 million, by wire transfer of immediately available funds not later
than the date of termination of the Agreement; provided however that if at the
time of such termination the Company has not entered into an agreement with
respect to a Superior Proposal, the Company shall not be obligated to pay such
fee at such time but shall acknowledge in writing to Parent the Company's
obligation to pay to Parent such fee at such time as the Company does enter into
such an agreement.
(c) If (x) Parent shall terminate this Agreement pursuant to Section
11.01(b)(i) and (y) the condition in section (f) of Annex I relating to the
Company's obligations, representations and warranties shall exist, then the
Company shall pay to Parent an amount equal to Parent's Reasonable Expenses, by
wire transfer of immediately available funds not later than three business days
after the date of termination of the Agreement. "Parent's Reasonable Expenses"
shall mean all of the reasonable out-of-pocket expenses that are reasonably
documented and incurred by Parent or Merger Subsidiary in connection with this
Agreement and the transactions contemplated hereby; provided that the maximum
aggregate expenses for which the Company is responsible shall not exceed
$750,000.
(d) If (x) Parent commits a breach of this Agreement which results in
failure of the Offer to be consummated, the condition in section (f) of Annex I
relating to the Company's obligations, representations and warranties shall not
exist, and the Company shall terminate the Agreement pursuant to Section
11.01(b)(i), or (y) the Company shall terminate this Agreement pursuant to
Section 11.01(e), then Parent shall pay to the Company an amount equal to the
Company's Reasonable Expenses, by wire transfer of immediately available funds
not later than three business days after the date of termination of the
Agreement. "Company's Reasonable Expenses" shall mean all of the reasonable
out-of-pocket expenses that are reasonably documented and incurred by the
Company in connection with this Agreement and the transactions contemplated
hereby;
provided that the maximum aggregate expenses for which the Parent is responsible
shall not exceed $750,000.
(e) Each of the Company and Parent acknowledges that the agreements
contained in this section are an integral part of the transactions contemplated
by this Agreement, and that, without these agreements, the other party would not
enter into this Agreement. Accordingly, if either the Company or Parent fails
promptly to pay any amount due to the other party pursuant to this Section
12.04, it shall also pay any costs and expenses incurred by such other party in
connection with a legal action to enforce this Agreement that results in a
judgment against either the Company or Parent, as the case may be, for such
amount.
SECTION 12.05. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of each other party hereto, except that Parent or Merger
Subsidiary may transfer or assign, in whole or from time to time in part, to one
or more of its Affiliates, the right to purchase all or a portion of the Shares
pursuant to the Offer, but no such transfer or assignment will relieve Parent or
Merger Subsidiary of its obligations under the Offer or prejudice the rights of
tendering shareholders to receive payment for Shares validly tendered and
accepted for payment pursuant to the Offer.
SECTION 12.06. Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of Tennessee.
SECTION 12.07. Jurisdiction. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in connection
with, this Agreement or the transactions contemplated hereby may be brought in
any federal court located in the State of Pennsylvania or any Pennsylvania state
court, and each of the parties hereby consents to the nonexclusive jurisdiction
of such courts (and of the appropriate appellate courts therefrom) in any such
suit, action or proceeding and irrevocably waives, to the fullest extent
permitted by law, any objection that it may now or hereafter have to the laying
of the venue of any such suit, action or proceeding in any such court or that
any such suit, action or proceeding brought in any such court has been brought
in an inconvenient form. Process in any such suit, action or proceeding may be
served on any party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each party
agrees that service of process on such party as provided in Section 12.01 shall
be deemed effective service of process on such party.
SECTION 12.08. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
SECTION 12.09. Counterparts; Effectiveness; Benefit. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by all of the other parties hereto.
Except as provided in Section 8.03, no provision of this Agreement is intended
to confer any rights, benefits, remedies, obligations, or liabilities hereunder
upon any Person other than the parties hereto and their respective successors
and assigns.
SECTION 12.10. Entire Agreement. This Agreement and the Confidentiality
Agreement constitute the entire agreement between the parties with respect to
the subject matter of this Agreement and supersede all prior agreements and
understandings, both oral and written, between the parties with respect to the
subject matter of this Agreement.
SECTION 12.11. Captions. The captions herein are included for convenience
of reference only and shall be ignored in the construction or interpretation
hereof.
SECTION 12.12. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Upon such a determination, the parties shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated
hereby be consummated as originally contemplated to the fullest extent possible.
SECTION 12.13. Specific Performance. The parties hereto agree that
irreparable damage would occur if any provision of this Agreement were not
performed in accordance with the terms hereof and that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
or to enforce specifically the performance of the terms and provisions hereof,
in addition to any other remedy to which they are entitled at law or in equity.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
CATHERINES STORES CORPORATION
By: /s/ Bernard J. Wein
-----------------------
Name: Bernard J. Wein
Title: Chairman and Chief Executive
Officer
CHARMING SHOPPES, INC.
By: /s/ Eric M. Specter
-----------------------
Name: Eric M. Specter
Title: Executive Vice President and
Chief Financial Officer
ROSE MERGER SUB, INC.
By: /s/ Eric M Specter
----------------------
Name: Eric M. Specter
Title: President
ANNEX I
Notwithstanding any other provision of the Offer, Parent and Merger Subsidiary
shall not be required to accept for payment or pay for any Shares, and may
terminate the Offer (A) at any time after the date that is 20 business days from
the initial scheduled expiration date, if (x) the Minimum Condition (as defined
in this Agreement) has not been satisfied by the expiration date of the Offer or
(y) the applicable waiting period under the HSR Act shall not have expired or
been terminated by the expiration date of the Offer, and (B) at any time on or
after the date of this Agreement and prior to the expiration date of the Offer,
if any of the following conditions exist:
(a) there shall be instituted or pending any action or proceeding by
any government or governmental authority or agency, domestic or foreign, or by
any other Person, domestic or foreign, before any court or governmental
authority or agency, domestic or foreign, (i) challenging or seeking to make
illegal, to delay materially or otherwise directly or indirectly to restrain or
prohibit the making of the Offer, the acceptance for payment of or payment for
some of or all the Shares by Parent or Merger Subsidiary or the consummation of
the Merger, seeking to obtain material damages or otherwise directly or
indirectly relating to the transactions contemplated by the Offer or the Merger,
(ii) seeking to restrain or prohibit Parent's ownership or operation (or that of
its respective Subsidiaries or Affiliates) of all or any material portion of the
business or assets of the Company and its Subsidiaries, taken as a whole, or of
Parent and its Subsidiaries, taken as a whole, or to compel Parent or any of its
Subsidiaries or Affiliates to dispose of or hold separate all or any material
portion of the business or assets of the Company and its Subsidiaries, taken as
a whole, or of Parent and its Subsidiaries, taken as a whole, (iii) seeking to
impose or confirm material limitations on the ability of Parent, Merger
Subsidiary or any of Parent's other Subsidiaries or Affiliates effectively to
exercise full rights of ownership of the Shares, including, without limitation,
the right to vote any Shares acquired or owned by Parent, Merger Subsidiary or
any of Parent's other Subsidiaries or Affiliates on all matters properly
presented to the Company's shareholders, (iv) seeking to require divestiture by
Parent, Merger Subsidiary or any of Parent's other Subsidiaries or Affiliates of
any Shares or (v) that otherwise, in the good faith judgment of Parent, is
likely to have a Material Adverse Effect on the Company or Parent; or
(b) there shall have been any action taken, or any statute, rule,
regulation, injunction, order or decree proposed, enacted, enforced,
promulgated, issued or deemed applicable to the Offer or the Merger, by any
court, government or governmental authority or agency, domestic or foreign,
other than the application of the waiting period provisions of the HSR Act to
the Offer or the Merger, that,
in the good faith judgment of Parent, is likely, directly or indirectly, to
result in any of the consequences referred to in clauses (i) through (v) of
paragraph (a) above; or
(c) there has been any event, occurrence or development or state of
circumstances or facts which, individually or in the aggregate, has had or could
reasonably be expected to have a Material Adverse Effect (as defined in this
Agreement) on the Company; or
(d) it shall have been publicly disclosed or Parent shall have
otherwise learned that (i) any Person or "group" (as defined in Section 13(d)(3)
of the 1934 Act), other than Parent or any of its Affiliates, shall have
acquired or proposed to acquire beneficial ownership of more than 50% of the
Shares or more than 50% of the assets of the Company and its Subsidiaries, taken
as a whole, through the acquisition of stock, the formation of a group or
otherwise, or shall have been granted any option, right or warrant, conditional
or otherwise, to acquire beneficial ownership of such Shares or assets; or
(e) (A) the Board of Directors of the Company shall have failed to
recommend or withdrawn, or modified in a manner adverse to Parent, its approval
or recommendation of this Agreement, the Offer or the Merger, or shall have
recommended, or entered into, or publicly announced its intention to enter into,
an agreement or an agreement in principle with respect to a Superior Proposal
(or shall have resolved to do any of the foregoing) or (B) the Company shall
have breached any of its obligations under Sections 7.02 or 7.03; or
(f) the Company shall have breached or failed to perform in all
material respects any of its obligations under this Agreement, or any of the
representations and warranties of the Company contained in this Agreement (i)
that are qualified by materially or Material Adverse Effect shall not be true
when made or at any time prior to consummation of the Offer as if made at and as
of such time and (ii) that are not qualified by materiality or Material Adverse
Effect shall not be true in all material respects when made or at any time prior
to the consummation of the Offer as if made at and as of such time; or
(g) there shall have occurred any general suspension of trading in, or
limitation on prices for, securities on the New York Stock Exchange or in the
over-the-counter market, any declaration of a banking moratorium by federal or
New York authorities or general suspension of payments in respect of lenders
that regularly participate in the U.S. market in loans to large corporations,
any material limitation by any federal, state or local government or any court,
administrative or regulatory agency or commission or other governmental
authority or agency in the United States that materially affects the extension
of credit generally by lenders
that regularly participate in the U.S. market in loans to large corporations,
any commencement of a war involving the United States or any commencement of
armed hostilities or other national or international calamity involving the
United States that has a material adverse effect on bank syndication or
financial markets in the United States or, in the case of any of the foregoing
occurrences existing on or at the time of the commencement of the Offer, a
material acceleration or worsening thereof; or
(h) this Agreement shall have been terminated in accordance with its
terms;
which, in the sole good faith judgment of Parent in any such case, and
regardless of the circumstances giving rise to any such condition, makes it
inadvisable to proceed with such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of Parent and Merger
Subsidiary and may, subject to the terms of this Agreement, be waived by Parent
and Merger Subsidiary in whole or in part at any time and from time to time in
their discretion. The failure by Parent or Merger Subsidiary at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right, the waiver of any such right with respect to particular facts and
circumstances shall not be deemed a waiver with respect to any other facts and
circumstances, and each such right shall be deemed an ongoing right that may be
asserted at any time and from time to time prior to the Effective Time.