UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [x] Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 'SS'240.14a-12
BLIMPIE INTERNATIONAL, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[x] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies: [ ]
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): The filing
fee of $5,191.00 was calculated pursuant to Exchange Act Rule
011(c)(1) by multiplying 1/50th of 1% by (1) the proposed cash
payment of $25,658,245 for 9,163,659 shares of common stock, par
value $.01 per share, of Blimpie International, Inc. at $2.80 per
share and
(2) the proposed cash payment of $295,285 to be paid to persons
holding options to acquire shares of common stock in consideration of
cancellation of such options (assuming options to purchase an
aggregate of 427,000 shares of common stock are cancelled in exchange
for cash in the transaction.)
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4) Proposed maximum aggregate value of transaction: [ ]
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5) Total fee paid: [ ]
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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[LOGO]
BLIMPIE INTERNATIONAL, INC.
740 Broadway
New York, New York 10003
[ ], 200[ ]
TO OUR SHAREHOLDERS:
You are cordially invited to attend a special meeting of shareholders
of Blimpie International, Inc., to be held on [ ], 200[ ],
at____ a.m. local time, at [ ]
At the special meeting, you will be asked to consider and vote upon a
proposal to adopt and approve the Agreement and Plan of Merger, dated as of
October 5, 2001, providing for the merger of Sandwich Acquisition Corp.
("Newco") into Blimpie. Newco is a wholly subsidiary of X2Y1, Inc., a
corporation owned by an investor group assembled by Jeffrey Endervelt, one of
Blimpie's subfranchisors ("Parent").
If the merger is completed, you will receive $2.80 in cash for each
share of Blimpie common stock that you own and Blimpie will become a private
company wholly owned by Parent.
Details of the merger, the merger agreement and certain effects of the
merger are discussed in the enclosed proxy statement, the forepart of which
includes a summary of the terms of the merger and certain questions and answers
relating to the proposed transaction. A copy of the merger agreement is attached
as Appendix A to the proxy statement.
The board of directors of Blimpie formed a special committee of
independent directors who are not officers or employees of Blimpie, to evaluate,
negotiate and, if appropriate, recommend the merger and the merger agreement.
The Special Committee has unanimously determined that the proposed merger as
contemplated by the merger agreement is fair to and in the best interests of the
shareholders of Blimpie and has recommended that the board of directors approve
and declare advisable the merger agreement, submit the merger agreement to
Blimpie's shareholders and recommend that Blimpie's shareholders adopt the
merger agreement.
In reaching its decision, the special committee considered, among other
factors, the written opinion of Capitalink, L.C., the special committee's
financial advisor, to the effect that, based upon and subject to the
considerations and limitations set forth in its opinion, the $2.80 per share
cash consideration to be received in the merger by the shareholders of Blimpie
was fair, from a financial point of view.
The board of directors, acting in part upon the unanimous
recommendation of the special committee of directors, has determined that the
terms of the merger, the merger agreement and
the transactions contemplated thereby are advisable, and are fair to, and in the
best interests of Blimpie's shareholders. The board of directors unanimously
recommends that you vote FOR the approval and adoption of the merger, the merger
agreement and the transactions contemplated thereby. Shareholders of Blimpie
should be aware that, in determining to approve the merger agreement, certain of
the directors of Blimpie had potentially conflicting interests. Some of these
potentially conflicting interests could have influenced the board of directors'
approval of the merger agreement and its recommendation that the shareholders of
Blimpie vote to approve the merger agreement. See - "Interests of the Management
Group; Appointment of Special Committee" in the accompanying proxy statement.
WE CANNOT COMPLETE THE MERGER UNLESS A MAJORITY OF THE VOTES CAST BY
THE HOLDERS OF OUR OUTSTANDING SHARES OF COMMON STOCK AT THE SPECIAL MEETING ARE
IN FAVOR OF THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT. IT IS VERY IMPORTANT TO US
THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING, WHETHER OR NOT YOU PLAN
TO ATTEND PERSONALLY. THEREFORE, YOU SHOULD COMPLETE AND SIGN THE ENCLOSED PROXY
CARD AND RETURN IT AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE PAID ENVELOPE.
THIS WILL ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL MEETING.
If the merger is consummated, you will receive instructions for
surrendering your Blimpie common stock certificate in exchange for $2.80 in cash
for each share and a letter of transmittal to be used for this purpose. You
should not submit your stock certificates for exchange until you have received
the instructions and the letter of transmittal.
The accompanying notice of meeting and proxy statement explain the
merger and the merger agreement and provide specific information concerning the
special meeting of shareholders. Please read these materials carefully.
Sincerely,
Anthony P. Conza
Chairman and Chief
Executive Officer
This proxy statement is dated [ ], 200[ ] and is first being
mailed to shareholders on or about [ ], 200[ ].
BLIMPIE INTERNATIONAL, INC.
740 Broadway
New York, New York 10003
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [ ], 200[ ]
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Notice is hereby given that a special meeting of the shareholders of
Blimpie International, Inc. ("Blimpie") will be held on , 200[ ]
at ______ a.m. local time at the offices of [ ] for the
following purposes:
1. To consider and vote upon a proposal to adopt and approve the Agreement
and Plan of Merger dated as of October 5, 2001, between Blimpie and Sandwich
Acquisition Corp. ("Newco"), and the transactions contemplated thereby, pursuant
to which
o Newco will be merged with and into Blimpie, with Blimpie being the
surviving corporation;
o each share of Blimpie common stock outstanding immediately prior to the
effective time of the Merger will be canceled and converted
automatically into the right to receive $2.80 in cash, without interest
or any other payment thereon, except that treasury shares, shares of
Blimpie common stock owned by any Blimpie subsidiaries and shares of
Blimpie owned by Newco immediately prior to the effective date of the
merger will be canceled; and
o each outstanding share of Newco common stock will be converted into one
share of Blimpie common stock. The merger agreement is more fully
described in the accompanying proxy statement and a copy of the merger
agreement is attached as Appendix A to the accompanying proxy statement.
2. To consider and transact such other business as may properly come before
the special meeting or any adjournments or postponements thereof.
YOUR BOARD OF DIRECTORS, BASED IN PART UPON THE UNANIMOUS RECOMMENDATION OF A
SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS, HAS DETERMINED THAT THE MERGER, THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE IN THE BEST
INTERESTS OF THE SHAREHOLDERS, AND RECOMMENDS THAT YOU VOTE "FOR" ADOPTION AND
APPROVAL OF THE MERGER, THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY.
The board of directors has fixed the close of business on [ ],
2001 as the record date for determining the shareholders entitled to notice of
and to vote at the special meeting and any adjournments or postponements
thereof. Only holders of record of shares of Blimpie common stock at the close
of business on the record date are entitled to notice of and to vote at the
special meeting.
The merger is described in the accompanying proxy statement, which you
are urged to read carefully. In addition, you may obtain information about
Blimpie from documents that Blimpie has filed with Securities and Exchange
Commission.
By Order of the Board of Directors
Charles G. Leaness
Secretary
New York, New York
______________, 200[ ]
YOUR VOTE IS VERY IMPORTANT REGARDLESS OF HOW MANY SHARES OF BLIMPIE
COMMON STOCK YOU OWN. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU
ARE REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY WITHOUT DELAY IN THE
ENCLOSED POSTAGE PAID ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO
ITS EXERCISE.
YOU SHOULD NOT SEND STOCK CERTIFICATES WITH YOUR PROXY CARD.
TABLE OF CONTENTS
SUMMARY TERM SHEET........................................................................... 1
QUESTIONS AND ANSWERS ABOUT THE MERGER....................................................... 4
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION.................................. 10
THE SPECIAL MEETING.......................................................................... 11
GENERAL................................................................................. 11
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING......................................... 11
RECORD DATE AND VOTING INFORMATION...................................................... 11
QUORUM.................................................................................. 12
PROXIES; REVOCATION..................................................................... 13
EXPENSES OF PROXY SOLICITATION.......................................................... 13
ADJOURNMENTS............................................................................ 13
APPRAISAL RIGHTS........................................................................ 13
THE PARTICIPANTS........................................................................ 14
BACKGROUND OF THE MERGER................................................................ 15
RECOMMENDATION OF THE BOARD OF DIRECTORS; FAIRNESS OF THE
MERGER................................................................................. 23
REASONS FOR THE SPECIAL COMMITTEE'S DETERMINATION....................................... 23
REASONS FOR THE BOARD OF DIRECTORS' DETERMINATION....................................... 25
FAIRNESS OF THE MERGER TO SHAREHOLDERS.................................................. 26
FORWARD LOOKING INFORMATION; CERTAIN PROJECTIONS........................................
OPINION OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE................................... 27
PUBLIC COMPANY PEER ANALYSIS............................................................
PRECEDENT TRANSACTION ANALYSIS..........................................................
STOCK PRICE PERFORMANCE ANALYSIS........................................................
DISCOUNTED CASH FLOW ANALYSIS...........................................................
SUMMARY OF VALUATION ANALYSES...........................................................
PURPOSE AND STRUCTURE OF THE MERGER..................................................... 37
EFFECTS OF THE MERGER................................................................... 38
TREATMENT OF STOCK OPTIONS.............................................................. 39
RISKS THAT THE MERGER WILL NOT BE COMPLETED.............................................
INTERESTS OF THE MANAGEMENT GROUP; APPOINTMENT OF SPECIAL
COMMITTEE.............................................................................. 40
MERGER CONSIDERATION TO BE RECEIVED BY THE MANAGEMENT GROUP............................. 45
EMPLOYMENT AGREEMENTS...................................................................
VOTING AGREEMENT........................................................................ 46
INDEMNIFICATION AND INSURANCE........................................................... 46
CERTAIN RISKS IN THE EVENT OF BANKRUPTCY................................................
MERGER FINANCING........................................................................
FEDERAL INCOME TAX CONSEQUENCES......................................................... 47
ANTICIPATED ACCOUNTING TREATMENT OF MERGER.............................................. 48
CERTAIN REGULATORY MATTERS.............................................................. 48
APPRAISAL RIGHTS........................................................................ 48
LITIGATION CHALLENGING THE MERGER....................................................... 49
THE MERGER AGREEMENT.................................................................... 49
THE MERGER.............................................................................. 49
EFFECTIVE TIME OF MERGER................................................................ 49
CERTIFICATE OF INCORPORATION, BYLAWS AND DIRECTORS AND OFFICERS
OF BLIMPIE AS THE SURVIVING CORPORATION................................................ 49
CONVERSION OF COMMON STOCK.............................................................. 49
PAYMENT FOR SHARES...................................................................... 50
SHAREHOLDERS OF BLIMPIE SHOULD NOT FORWARD STOCK CERTIFICATES TO THE PAYING AGENT
UNTIL THEY HAVE RECEIVED THE LETTER OF TRANSMITTAL...................................... 50
TRANSFER OF SHARES...................................................................... 50
TREATMENT OF STOCK OPTIONS.............................................................. 50
BLIMPIE SHAREHOLDER APPROVAL............................................................ 51
REPRESENTATIONS AND WARRANTIES.......................................................... 51
CONDUCT OF BUSINESS PENDING THE MERGER.................................................. 52
NO SOLICITATION......................................................................... 53
ACCESS TO INFORMATION................................................................... 55
CONDITIONS TO THE MERGER................................................................ 55
WAIVER.................................................................................. 56
TERMINATION OF THE MERGER AGREEMENT..................................................... 56
EXPENSES OF THE PARTIES................................................................. 59
AMENDMENTS.............................................................................. 59
COMMON STOCK MARKET INFORMATION......................................................... 59
NUMBER OF SHAREHOLDERS.................................................................. 60
DIVIDENDS............................................................................... 60
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS......................................... 60
FUTURE SHAREHOLDER PROPOSALS............................................................ 62
WHERE SHAREHOLDERS CAN FIND MORE INFORMATION............................................ 62
SUMMARY TERM SHEET
This summary term sheet briefly describes the material terms of the
proposed merger and may not contain all of the information that is important to
you. We urge you to read this entire proxy statement carefully, including the
documents appended to this proxy statement. In this proxy statement, the terms
"Blimpie," "we," "us," and "our" refer to Blimpie International, Inc., and the
term "Management Group" refers to Anthony P. Conza, our Chairman and Chief
Executive, David L. Siegel, our Vice Chairman and Chief Operating Officer,
Charles G. Leaness and Patrick J. Pompeo, both of whom are directors and
Executive Vice Presidents, and Joseph Conza, Joseph W. Morgan and Robert S.
Sitkoff, each of whom is a Senior Vice President, as a group.
THE MERGER. Blimpie has entered into a merger agreement that provides
for the merger of Blimpie with a newly formed New Jersey corporation, Newco. See
"The Merger Agreement" beginning on page ___.
PAYMENT. In the merger, all shares of Blimpie common stock will be
automatically converted into the right to receive $2.80 in cash, without
interest. See "The Merger Agreement" beginning on page ___.
BLIMPIE. Blimpie engages in franchising, subfranchising and master
licensing of the trademark, tradenames, service marks, logos, know-how,
marketing concepts and marketing programs for each of its brands; Blimpie Subs &
Salads, Pasta Central, Maui Taco and Smoothie Island. Blimpie franchises Blimpie
Subs & Salads, Pasta Central and is the majority owner of Maui Tacos
International, Inc., the franchisor of Maui Tacos and Smoothie Island. Blimpie
Subs & Salad offers a quick-service, healthy, sub sandwich in approximately 2000
franchise stores operating throughout the United States and in other countries.
Pasta Central's baked pasta meals address current eating trends for eat-in and
take out home meals. Maui Tacos restaurants provide a health-oriented,
affordable menu of "Maui"-diet items, including traditional Mexican foods
marinated in Hawaiian spices. Smoothie Island is a selection of blended
beverages of frozen yogurt and nutritional supplements sold through Blimpie,
Subs & Salads Pasta Central and Maui Tacos locations.
The board of directors of Blimpie, based in part on the unanimous
recommendation of the special committee, has unanimously determined that the
terms of the merger agreement and the merger are fair to, and in the best
interests of, Blimpie's shareholders. The board of directors recommends the
adoption and approval of the merger agreement by Blimpie's shareholders. See
"Recommendation of the board of directors; Fairness of the Merger" beginning on
page _____.
PARENT. X2Y1, Inc. is a Delaware corporation owned by a group of
investors led by Jeffrey Endervelt, one of our subfranchisors. Immediately
following the Merger, Parent will be the sole shareholder of Blimpie as the
surviving corporation. See "The Participants" beginning on page __.
NEWCO. Sandwich Acquisition Corp. is a newly organized New Jersey
corporation that is wholly owned by Parent. Newco was formed solely for the
purpose of engaging in the merger transaction. See "The Participants" at page
__.
1
SPECIAL COMMITTEE. Blimpie's board of directors formed a special
committee of directors to evaluate, negotiate and, if appropriate, recommend the
merger and the terms of the merger agreement with Newco. The special committee
consists solely of independent directors who are not officers or employees of
Blimpie and who have no financial interest in the completion of the merger
different from Blimpie's shareholders and option holders generally. The members
of the special committee are Alvin Katz, Harry Chernoff and Jim Petersen. See
"Background of the Merger" beginning on page ____ and "--Recommendation of the
board of directors; Fairness of the Merger" beginning on page __.
OPINION OF FINANCIAL ADVISOR. In deciding to approve the terms of the
merger agreement and the merger, one factor the board of directors and the
special committee considered was the opinion of Capitalink, L.C., the special
committee's financial advisor. Capitalink concluded that the consideration to be
received pursuant to the merger agreement is fair, from a financial viewpoint,
to Blimpie's shareholders. The complete Capitalink L.C. opinion, including
applicable limitations and assumptions, describes the basis for the opinion and
is attached as Appendix B to this proxy statement. See "Opinion of Financial
Advisor to the Special Committee" beginning on page____.
SHAREHOLDER VOTE. You are being asked to consider and vote upon a
proposal to adopt and approve the merger, the merger agreement and the
transactions contemplated thereby. Under New Jersey law, the merger agreement
must be adopted and approved by a majority of the votes cast at the special
meeting by the holders of our outstanding shares of common stock. A total of
5,513,336 shares of Blimpie's issued and outstanding common stock, or
approximately 57.9% of the total number of issued and outstanding shares as of
the record date, are held by the Management Group (other than Messrs. Morgan and
Sitkoff). Pursuant to a Voting Agreement dated October 5, 2001 entered into
among the members of the Management Group (other than Messrs. Morgan and
Sitkoff) and Newco, the participating members of the Management Group
agreed to vote all of their shares of Blimpie common stock in favor of the
adoption and approval of the merger agreement and the transactions contemplated
thereby, except under certain circumstances. See "Special Meeting-Record Date
and Voting Information" beginning on page ___;
INTERESTS OF THE MANAGEMENT GROUP. Anthony P. Conza, Blimpie's Chairman
and Chief Executive Officer owns approximately 7.68% of the common stock of
Parent expected to be outstanding at the time of closing. Newco and Parent have
made an offer of continued employment to Robert S. Sitkoff, currently a Senior
Vice President of Blimpie, effective upon closing of the merger. In connection
with the offer of employment, Parent has granted to Mr. Sitkoff an option to
purchase approximately 7.68% of Parent's common stock for approximately $58,000.
The option vests six months after the closing of the merger, and only if
Mr. Sitkoff is then a full time employee of Blimpie, as the survivor of the
merger. In addition, upon consummation of the merger, the employment agreements
and the non-competition and non-solicitation agreements entered into between
Blimpie and each of the members of the Management Group (other than Mr. Sitkoff)
will take effect and certain payments under those agreements will be made to
those members of the Management Group. As a result of the foregoing, the members
of the Management Group may have interests that are different from, or in
addition to, the interests of the Blimpie shareholders generally. The material
terms of the employment agreements and non-competition and non-solicitation
agreements mentioned above are described at "Interests of the Management Group;
Appointment of Special Committee" beginning on page __.
2
MERGER FINANCING. Blimpie and Newco estimate that approximately
$32,000,000 will be necessary to complete the merger and pay related fees and
expenses. Blimpie and Newco expect this amount to be funded through a
combination of capital contributions from Parent to Newco and bank debt of
Newco.
CONDITIONS. The merger is subject to the satisfaction of numerous
conditions, including no material adverse change in Blimpie. See "The Merger
Agreement--Conditions to the Merger" beginning on page __ for a discussion of
additional conditions to the Merger.
TERMINATION OF THE MERGER AGREEMENT. The parties may agree to terminate
the merger agreement at any time before the merger. In addition, the merger
agreement may be terminated for a number of other reasons. See "The Merger
Agreement--Termination of the Merger Agreement" beginning on page __.
TAX CONSEQUENCES. Generally, the merger will be taxable for U.S.
federal income tax purposes. You will recognize taxable gain or loss in the
amount of the difference between $2.80 and your adjusted tax basis for each
share of Blimpie's common stock that you own. See "Federal Income Tax
Consequences" beginning on page __.
AFTER THE MERGER. Upon completion of the merger, Blimpie as the
surviving corporation will be a privately held corporation, wholly owned by
Parent. There will be no public market for shares of Blimpie's common stock upon
completion of the merger and the shares of common stock will cease to be traded
on the American Stock Exchange. See "Effects of the Merger" beginning on page
__.
3
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT AM I BEING ASKED TO VOTE UPON? (see page _______)
A: You are being asked to consider and vote upon a proposal to adopt and approve
the merger, the merger agreement and the transactions contemplated thereby.
Under the merger agreement, Newco will be merged with and into Blimpie, with
Blimpie as the surviving corporation. Newco is a newly formed New Jersey
corporation. If the merger agreement is adopted and approved by the shareholders
and the merger is completed, Blimpie will no longer be a publicly held
corporation. Parent will own all equity interest in Blimpie as the surviving
corporation.
Q: WHAT WILL I RECEIVE IN THE MERGER? (see page _______)
A: Upon completion of the merger, each issued and outstanding share of Blimpie's
common stock will be converted into the right to receive $2.80 in cash, without
interest.
Q: WHAT KIND OF PREMIUM TO THE PRICE OF BLIMPIE COMMON STOCK IS IMPLIED BY THE
MERGER CONSIDERATION? (see page ___)
A: The merger consideration represents a (i) premium of approximately 86.7% over
the $1.50 closing sale price for Blimpie's common stock as traded on the
American Stock Exchange on October 5, 2001, the last trading day before Blimpie
announced that it had executed the merger agreement with Newco, (ii) a premium
of approximately ___% over the average closing sale price per share of $___
during the one week preceding that announcement, and (iii) a premium of
approximately ___% over the $___ closing sale price for Blimpie's common stock
as traded on the American Stock Exchange on [ ], 200[ ] [day before
date of Proxy].
Q: WHAT WILL HAPPEN TO MY STOCK OPTIONS? (see pages __ and __)
A: Outstanding options to purchase shares of Blimpie's common stock, whether or
not then vested or exercisable, will as of the effective date of the merger, be
cancelled, and each option holder will be entitled to receive a cash payment in
an amount equal to the product of the (i) number of shares of Blimpie common
stock subject to such option, whether or not then exercisable, and (ii) excess,
if any, of $2.80 over the exercise price per share subject or related to such
option, for each cancelled option.
Q: WHY WAS THE SPECIAL COMMITTEE FORMED? (see page ___)
A: Anthony P. Conza and David L. Siegel, Blimpie's Chairman and Chief Executive
Officer and Vice Chairman, Chief Operating Officer and General Counsel,
respectively, Charles G. Leaness and Patrick J. Pompeo, both of whom are
directors and Executive Vice Presidents of Blimpie, and Joseph Conza, a Senior
Vice President of Blimpie, own in the aggregate approximately 57.9% of
Blimpie's outstanding shares of capital stock. Each of those individuals has
executed a voting agreement with Newco, pursuant to which they have agreed to
vote their shares of Blimpie common stock in favor of the approval and adoption
of the merger agreement and the transactions contemplated thereby except under
certain circumstances. The execution of the voting agreement, coupled with the
facts that
o Anthony P. Conza is the owner of approximately 7.68% of the outstanding
common stock of Parent and
4
o certain members of the Management Group will be receiving various
payments pursuant to employment agreements and non-competition and
non-solicitation agreements that they have entered into with Newco,
led our board of directors to the conclusion that, in order to protect the
interests of our shareholders in evaluating and negotiating the merger
agreement, a special committee of independent directors who are not officers
or employees of Blimpie and who have no financial interest in the merger
different from Blimpie's shareholders generally, should be formed to perform
those tasks and, if appropriate, recommend the merger and the terms of the
merger agreement. The special committee independently selected and retained
legal and financial advisors to assist it. For a description of the agreements
mentioned above, see "Interests of the Management Group; Appointment of Special
Committee" beginning on page ___.
Q: WHY IS THE BOARD OF DIRECTORS RECOMMENDING THAT I VOTE IN FAVOR OF THE MERGER
AGREEMENT? (see page __)
A: Based in part upon the unanimous recommendation of the special committee,
Blimpie's board of directors determined that the terms of the merger agreement
and the merger are fair to, and in the best interests of Blimpie's shareholders.
Q: WHAT ARE THE CONSEQUENCES OF THE MERGER TO PRESENT MEMBERS OF MANAGEMENT AND
THE BOARD OF DIRECTORS? (see page ___)
A: Upon consummation of the merger,
o Anthony P. Conza, by reason of his approximately 7.68% ownership
interest in Parent, will indirectly own through Parent
approximately the same percentage of Blimpie;
o if Robert S. Sitkoff accepts Newco's offer of continued employment, he
will be employed by Blimpie, as the survivor of the merger;
o Mr. Sitkoff, as the holder of an option to purchase approximately 7.68%
of Parent's common stock, will own directly, if he exercises that
option, a comparable interest in Blimpie, as the survivor of the merger;
and
o the employment agreements and non-competition and non-solicitation
agreements entered into between Newco and certain members of the
Management Group will take effect and the payments contemplated by
those agreements will be made.
For a description of the agreements mentioned above, see "Interests of the
Management Group; Appointment of Special Committee" beginning on page __.
Q: IS THE MERGER SUBJECT TO THE SATISFACTION OF ANY CONDITIONS? (see page __)
A: Yes. Before completion of the merger, a number of closing conditions must be
satisfied or waived. A condition to the obligations of each party to complete
the merger is the requirement that the merger agreement be adopted and approved
by a majority of the votes cast at the special meeting by the holders of the
outstanding shares of Blimpie's common stock. The conditions to
5
<Page>
the obligations of Newco to complete the merger, which can only be waived by
Newco, include, among others, the absence of a material adverse effect on
Blimpie.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED? (see page __)
A: Blimpie and Newco are working toward completing the merger as quickly as
possible. If the merger agreement is adopted and approved and the other
conditions to the merger are satisfied or waived, the merger is expected to be
completed promptly after the special meeting.
Q: CAN THE MERGER AGREEMENT BE TERMINATED PRIOR TO THE COMPLETION OF THE MERGER?
(see page ____)
o A: Yes. The merger agreement may be terminated and the merger and the
other transactions contemplated thereby may be abandoned at any time
before the effective time of the merger under certain circumstances.
See "The Merger - Termination of the Merger Agreement" beginning on
page _______.
Q. WHAT HAPPENS IF THE MERGER AGREEMENT IS TERMINATED PRIOR TO THE COMPLETION OF
THE MERGER? (see page ___)
A. Generally, if the merger agreement is terminated, there will be no liability
on the part of Blimpie, Newco or any of their affiliates, directors, officers,
employees or shareholders. If the merger agreement is terminated under certain
specified circumstances, Blimpie will be obligated to pay to Newco one or both
of:
o a fee of $1,300,000, and
o an amount of up to $200,000 and up to $600,000 in certain
circumstances to reimburse Newco for its expenses.
If the merger agreement is terminated under other specified
circumstances, Newco will be obligated to pay to Blimpie one or both of:
o a fee of $50,000, and
o up to $200,000 to reimburse Blimpie for its expenses.
See "The Merger Agreement - Termination of the Merger" beginning on
page ________ for discussions of the circumstances under which those fees and
expenses will be payable.
Q: WHAT WILL HAPPEN TO THE MARKET FOR BLIMPIE'S COMMON STOCK AFTER THE MERGER?
(see page ____)
A: At the effective time of the merger, trading in Blimpie's common stock on the
American Stock Exchange will cease and there will no longer be a public market
for Blimpie's common
6
stock. Price quotations for Blimpie's common stock will no longer be available
and the registration of Blimpie's common stock under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), will be terminated.
Q: WHAT ARE THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER? (see page
____)
A: The receipt of cash for shares of Blimpie's common stock in the merger will
be a taxable transaction for U.S. federal income tax purposes and also may be a
taxable transaction under applicable state, local, foreign or other tax laws.
Generally, you will recognize gain or loss equal to the difference between $2.80
per share and your tax basis for the shares of common stock that you owned
immediately before completion of the merger. For U.S. federal income tax
purposes, this gain or loss generally will be a capital gain or loss if you held
the shares of common stock as a capital asset.
TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO YOU
WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU ARE URGED TO CONSULT YOUR
OWN TAX ADVISOR WITH RESPECT TO YOUR OWN INDIVIDUAL TAX CONSEQUENCES AS A RESULT
OF THE MERGER.
Q: WHEN AND WHERE IS THE SPECIAL MEETING? (see page ____)
A: The special meeting of Blimpie's shareholders will be held at _______ a.m.
local time on ____________________, 2001, at [ ]
Q: WHO CAN VOTE ON THE MERGER AGREEMENT? (see page ____)
A: Holders of Blimpie's common stock at the close of business on
_______________, 2001, the record date for the special meeting, may vote in
person or by proxy at the special meeting.
Q: WHAT VOTE IS REQUIRED TO ADOPT AND APPROVE THE MERGER AGREEMENT? (see page
____)
A: The affirmative vote of a majority of the votes cast at the special meeting
by the holders of our outstanding shares of common stock is required to adopt
and approve the merger agreement. On the record date for the special meeting,
[9,163,659] shares were outstanding. The Management Group (other than Messrs.
Morgan and Sitkoff) owns an aggregate of 5,513,336 of those shares,
representing approximately 57.9% of the total number of shares entitled to
vote at the special meeting. The members of the Management Group (other than
Messrs. Morgan and Sitkoff) have entered into a voting agreement with Newco,
pursuant to which they agreed to vote their shares of Blimpie common stock in
favor of the approval and adoption of the merger agreement and the transactions
contemplated by the merger Agreement except under certain circumstances. If
those members of the Management Group vote their shares as they have agreed to
in the voting agreement, the merger will be approved and the merger agreement
will be adopted regardless of how any other shareholder votes on these issues.
7
Q: WHAT DO I NEED TO DO NOW? (see page ____)
A: You should read this proxy statement carefully, including the documents
appended to this proxy statement, and consider how the merger affects you. Then,
please mark your vote on your proxy card and date, sign and mail it in the
enclosed, postage paid return envelope as soon as possible so that your shares
can be voted at the special meeting.
Q: WHAT HAPPENS IF I DO NOT RETURN A PROXY CARD? (see page ____)
A: The failure to return your proxy card will have the same effect as voting
against the merger agreement.
Q: MAY I VOTE IN PERSON? (see page ____)
A: Yes. You may attend the special meeting of our shareholders and vote your
shares in person whether or not you sign and return your proxy card. If your
shares are held of record by a broker, bank or other nominee and you wish to
vote at the meeting, you must obtain a proxy from the broker, bank or other
nominee.
Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD? (see page
____)
A: Yes. You may change your vote at any time before your proxy card is voted at
the special meeting. You can do this in one of three ways. First, you can send a
written notice to Blimpie's Secretary at Blimpie's executive offices located at
740 Broadway, New York, New York 10003, stating that you would like to revoke
your proxy. Second, you can complete and submit a new, later-dated proxy card.
Third, you can attend the meeting and vote in person. Your attendance alone will
not revoke your proxy. If you have instructed a broker to vote your shares, you
must follow the directions you receive from your broker to change those
instructions.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME? (see page ______)
A: No. Your broker will not be able to vote your shares without instructions
from you. You should instruct your broker to vote your shares by following the
procedures provided to you by your broker.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW? (see page ____)
A: No. After the merger is completed, you will receive written instructions for
exchanging your shares of Blimpie common stock for a cash payment of $2.80 per
share, without interest.
Q: DO I HAVE A RIGHT TO SEEK AN APPRAISAL OF MY SHARES? (see pages ____ and
____)
8
A: No. Due to the fact that our common stock is listed for trading on the
American Stock Exchange and that shareholders will receive cash for their
shares, the provisions of the New Jersey Business Corporation Act ("NJBCA")
provide that our shareholders will not have the right to dissent from the merger
and seek appraisal rights with respect to their shares of our common stock.
Q: IS THERE ANY LITIGATION CHALLENGING THE MERGER? (see page ____)
A: Yes. An action has been commenced against Blimpie and six of its directors
which alleges that certain of the members of the Management Group have
engaged with Mr. Endervelt in an unlawful scheme which violates their
fiduciary duties to Blimpie's shareholders. The plaintiff is seeking class
action status for the action See "Litigation Challenging the Merger" at
page ____.
Q: WHO CAN HELP ANSWER MY QUESTIONS? (see page ____)
A: The information provided above in question and answer format is for your
convenience only and is merely a summary of the information contained in this
proxy statement. You should carefully read this entire proxy statement,
including the documents appended to this proxy statement. If you would like
additional copies, without charge, of this proxy statement or if you have
questions about the merger, including the procedures for voting your shares, you
should contact:
Blimpie International, Inc.
740 Broadway
New York, New York
Telephone: (212) 673-5900
Attn: Charles G. Leaness,
Executive Vice President
RISKS THAT THE MERGER WILL NOT BE COMPLETED
Completion of the merger is subject to various risks, including, but not limited
to, the following:
o that the merger agreement will not be adopted and approved by the
holders of a majority of the outstanding shares of Blimpie common
stock held by shareholders;
o that Blimpie or Newco will not have performed in all material
respects their obligations contained in the merger agreement before
the effective time of the merger;
o that the representations and warranties made by Blimpie or Newco in
the merger agreement will not be true and correct at the closing
date of the merger; and
o that there may be new litigation that could prevent the merger, and
o the occurrence of a material adverse effect upon Blimpie or Newco.
9
As a result of various risks to the completion of the merger, there can be no
assurance that the merger will be completed even if the requisite shareholder
approval is obtained. It is expected that, if our shareholders do not adopt and
approve the merger agreement or if the merger is not completed for any other
reason, the current management of Blimpie, under the direction of the board of
directors, will continue to manage Blimpie as an ongoing business.
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION
This proxy statement and documents to which we refer you in this proxy
statement include various forward-looking statements. These forward-looking
statements are based on Blimpie's current estimates and assumptions and, as
such, involve uncertainty and risk. Forward-looking statements include the
information concerning Blimpie's possible or assumed future results of
operations and also include those preceded or followed by the words
"anticipates," "believes," "could," "estimates," "expects," "intends," "may,"
"should," "plans," "targets" and/or similar expressions.
The forward-looking statements are not guarantees of future
performance, and actual results may differ materially from those contemplated by
these forward-looking statements. In addition to the factors discussed elsewhere
in this proxy statement, other factors that could cause actual results to differ
materially include:
o changes in the cost of food and labor,
o the performance of any restaurants, particularly new restaurants,
o adverse weather conditions,
o the effect of health and regulatory developments,
o the loss of key personnel,
o competitive factors,
o potential liabilities associated with long-term leases,
o changes in consumer tastes and eating habits,
o Blimpie's ability to execute its business strategy,
o fluctuations in inventory and general and administrative expenses,
o and general economic conditions, especially economic conditions in
the areas in which the Blimpie's franchises are concentrated.
10
Except to the extent required under the federal securities laws, we do not
intend to update or revise the forward-looking statements to reflect
circumstances arising after the date of the preparation of the forward-looking
statements.
THE SPECIAL MEETING
This proxy statement is being furnished to Blimpie's shareholders as
part of the solicitation of proxies by Blimpie's board of directors for use at
the special meeting of shareholders to be held at [ ] on [ ],
2001, beginning at ______ a.m. local time, and at any adjournments or
postponements thereof. This proxy statement is accompanied by a form of proxy
for use at the special meeting.
This proxy statement and the accompanying form of proxy are being
mailed to shareholders on or about [ ], 2001.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting, our shareholders will be asked to consider and
vote upon a proposal to adopt and approve the Agreement and Plan of Merger,
dated as of October 5, 2001, between Blimpie and Newco, pursuant to which Newco
will be merged with and into Blimpie, with Blimpie being the surviving
corporation. If the requisite votes in favor of the proposal are obtained and
certain other conditions are satisfied or, where permissible, waived, Newco will
be merged with and into Blimpie with Blimpie being the surviving corporation. At
the effective time of the merger, each share of common stock of Blimpie issued
and outstanding immediately prior to the filing of a certificate of merger with
the Secretary of State of the State of New Jersey will be automatically
converted into the right to receive $2.80 in cash, without interest, except for
shares held in Blimpie's treasury, shares of our common stock owned by any of
our subsidiaries and shares of common stock owned by Newco immediately prior to
the effective time of the merger, which will be canceled without payment.
Blimpie does not expect a vote to be taken at the special meeting on
any matter other than the proposal to adopt and approve the merger agreement
and, if necessary, a vote to adjourn or postpone the meeting. However, if any
other matters are properly presented at the special meeting for consideration,
the holders of the proxies will have discretion to vote on these matters in
accordance with their best judgment. Blimpie is soliciting proxies to grant
discretionary authority to vote in favor of adjournment or postponement of the
special meeting.
RECORD DATE AND VOTING INFORMATION
Only holders of record of common stock at the close of business on
[ ], 2001 will be entitled to notice of and to vote at the special
meeting. At the close of business on [ ], 2001, there were outstanding
and entitled to vote [9,163,659] shares of Blimpie common stock. A list of our
shareholders will be available for review at our executive offices during
regular business hours for a period of [10] days before the special meeting.
Each holder of record of common stock on the record date will be entitled to
one vote for each share held.
11
All votes will be tabulated by the inspector of elections appointed for
the special meeting, who will separately tabulate affirmative and negative
votes, abstentions and broker non-votes. Brokers who hold shares in street name
for clients typically have the authority to vote on "routine" proposals when
they have not received instructions from beneficial owners. However, absent
specific instructions from the beneficial owner of the shares, brokers are not
allowed to exercise their voting discretion with respect to the adoption and
approval of non-routine matters, such as the merger agreement. Proxies submitted
without a vote by the brokers on these matters are referred to as "broker
non-votes." Abstentions and broker non-votes are counted for purposes of
determining whether a quorum exists at the special meeting.
The affirmative vote of a majority of the votes cast at the special
meeting by the holders of the outstanding shares of our common stock entitled to
vote is required to adopt and approve the merger agreement. On the record date
for the special meeting, the Management Group (other than Messrs. Morgan and
Sitkoff) owned an aggregate of 5,513,336 shares of Blimpie common stock,
representing approximately 57.9% of the total number of shares entitled to vote
at the special meeting. The members of the Management Group (other than Messrs.
Morgan and Sitkoff) have entered into a voting agreement with Newco, pursuant
to which they agreed to vote their shares of Blimpie common stock in favor of
the approval and adoption of the merger agreement and the transactions
contemplated by the merger agreement, except under certain circumstances. If
those members of the Management Group vote their shares as they have agreed to
in the voting agreement, the merger will be approved and the merger agreement
will be adopted regardless of how any other shareholder votes on these issues.
Because the affirmative vote of a majority of the votes cast at the
special meeting is required in order to approve the merger agreement,
abstentions and broker non-votes will have the same effect as votes "AGAINST"
adoption and approval of the merger agreement.
With the exception of broker non-votes, the treatment of which is
discussed above, each share of Blimpie common stock represented by a proxy
properly executed and received by Blimpie in time to be voted at the special
meeting and not revoked will be voted in accordance with the instructions
indicated on such proxy and, if no instructions are indicated, will be voted
"FOR" the proposal to adopt and approve the merger, the merger agreement and the
transactions contemplated thereby. All proxies voted "FOR" such matter,
including proxies on which no instructions are indicated, other than broker
non-votes, may, at the discretion of the proxy holder, be voted "FOR"
discretionary authority to vote in favor of any motion to adjourn or postpone
the special meeting to another time and/or place for the purpose of soliciting
additional proxies or otherwise. Any proxy that is voted against discretionary
authority to vote in favor of any motion to adjourn or postpone the special
meeting will not be voted in favor of any such adjournment or postponement.
QUORUM
The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of Blimpie's common stock entitled to vote at the special
meeting is necessary to constitute a quorum for the transaction of business at
the special meeting.
12
PROXIES; REVOCATION
Any person giving a proxy pursuant to this solicitation has the power
to revoke it at any time before it is voted. It may be revoked by filing with
Blimpie's Secretary at Blimpie's executive offices located at 740 Broadway, New
York, New York 10003, a written notice of revocation or a duly executed proxy
bearing a later date, or it may be revoked by attending the special meeting and
voting in person. Attendance at the special meeting will not, by itself, revoke
a proxy. Furthermore, if a shareholder's shares are held of record by a broker,
bank or other nominee and the shareholder wishes to vote at the meeting, the
shareholder must obtain a proxy from the record holder.
EXPENSES OF PROXY SOLICITATION
Blimpie will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to shareholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their name shares of common stock beneficially owned by
others for forwarding to these beneficial owners. Blimpie may reimburse persons
representing beneficial owners of common stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of Blimpie. No
additional compensation will be paid to directors, officers or other regular
employees for their services.
ADJOURNMENTS
Although it is not expected, the special meeting may be adjourned for
the purpose of soliciting additional proxies. Any adjournment of the special
meeting may be made without notice, other than by an announcement made at the
special meeting, by approval of the holders of a majority of the shares of our
common stock present in person or represented by proxy at the special meeting,
whether or not a quorum exists. Blimpie is soliciting proxies to grant
discretionary authority in favor of adjournment or postponement of the special
meeting. In particular, discretionary authority may be exercised if the purpose
of the adjournment or postponement is to provide additional time to solicit
additional votes to adopt and approve the merger agreement and the merger.
APPRAISAL RIGHTS
Under the provisions of the NJBCA, you will not have the right to
dissent from the merger and seek appraisal rights with respect to your shares of
common stock. See "Appraisal Rights" beginning at page _______ of this proxy
statement.
PLEASE DO NOT SEND IN STOCK CERTIFICATES AT THIS TIME. IN THE EVENT THE
MERGER IS COMPLETED, BLIMPIE WILL DISTRIBUTE INSTRUCTIONS REGARDING THE
PROCEDURES FOR EXCHANGING BLIMPIE STOCK CERTIFICATES FOR THE $2.80 PER SHARE
CASH PAYMENT.
13
THE PARTICIPANTS
Blimpie International, Inc.
740 Broadway
New York, New York 10003
Blimpie engages in franchising, subfranchising and master licensing of
the trademark, tradenames, service marks, logos, know-how, marketing concepts
and marketing programs for each of its brands; Blimpie Subs & Salads, Pasta
Central, Maui Taco and Smoothie Island. Blimpie franchises Blimpie Subs &
Salads, Pasta Central and is the majority owner of Maui Tacos International,
Inc., the franchisor of Maui Tacos and Smoothie Island. Blimpie Subs & Salad
offers a quick-service, healthy, sub sandwich in approximately 2000 franchise
stores operating throughout the United States and in other countries. Pasta
Central's baked pasta meals address current eating trends for eat-in and take
out home meals. Maui Tacos restaurants provide a health-oriented, affordable
menu of "Maui"-diet items, including traditional Mexican foods marinated in
Hawaiian spices. Smoothie Island is a selection of blended beverages of frozen
yogurt and nutritional supplements sold through Blimpie, Subs & Salads Pasta
Central and Maui Tacos locations.
Newco
Sandwich Acquisition Corp.
10850 Wilshire Blvd.
Suite 200
Los Angeles, California 90024
Newco, a New Jersey corporation, was organized to acquire Blimpie and
has not conducted any unrelated activities since its organization. All
outstanding shares of Newco are owned by Parent.
Parent
X2Y1, Inc.
10850 Wilshire Blvd.
Suite 200
Los Angeles, California 90024
Parent, a Delaware corporation, was organized to acquire Blimpie and
has not conducted any unrelated activities since its organization. All of the
capital stock of Parent is owned by a group of investors organized by Jeffrey
Endervelt. Mr. Endervelt has been a Blimpie subfranchisor for 17 years, and has
served as chairman of Blimpie's subfranchisor advisory body for the past three
years. Anthony P. Conza, co-founder of Blimpie, and its current Chairman and
Chief Executive Officer, is a member of the investor group and will remain with
Blimpie as Chairman Emeritus following the merger.
14
BACKGROUND OF THE MERGER
During Blimpie's national franchise convention held in the Summer of
2000, Mr. Endervelt spoke for the first time with David L. Siegel regarding his
interest in acquiring Blimpie. At that time, Mr. Endervelt explained that he had
reason to believe that he could assemble an investment group and arrange for the
financing needed to acquire Blimpie. He explained in very general terms his
views as to how he thought an acquisition transaction might be structured.
Mr. Siegel responded by providing his views of Blimpie's general business and
financial prospects and its share value.
During the Fall of 2000, Mr. Endervelt and a financial advisor met with
Anthony P. Conza and David Siegel to engage in further discussions of a
preliminary and developmental nature. He once again expressed his interest in
acquiring Blimpie, and reiterated his belief that he could assemble the
financing required to accomplish that goal. As was the case during the first
meeting, a general discussion took place regarding Blimpie's business and
financial prospects and its share value. In that regard, Messrs. Siegel and
Conza expressed their personal view that the proper value of Blimpie was not
adequately reflected by its market price. Instead, they stated their view that
Blimpie should be valued at approximately $4.00 per share. At the time,
Blimpie's shares were trading on the American Stock Exchange at less than half
of that price.
Mr. Endervelt advised Messrs. Conza and Siegel that, although he shared
their views that a proper valuation of Blimpie was greater than its current
market price, he did not agree that it was as high as $4.00 per share. He also
told Messrs. Conza and Siegel that it was his desire and intention to provide a
continuing role for them in the business and operations of the company after he
acquired it, and that he would try to structure an acquisition that would
provide the shareholders of Blimpie with an opportunity to receive a premium
over the then current market for their shares, and also provide an attractive
compensation package for Messrs. Conza and Siegel and other members of Blimpie's
management.
Also, during the Fall of 2000, another Blimpie subfranchisor advised
Messrs. Conza and Siegel that he had an interest in acquiring Blimpie, and that
he was in the process of assembling an investor group to do that. Messrs. Conza
and Siegel provided that subfranchisor with the same general views that they had
expressed to Mr. Endervelt regarding the prospects of Blimpie's business, and
their personal views regarding the premium they had placed on Blimpie's per
share value.
During the first three months of 2001, Mr. Endervelt told Mr. Siegel
that he had successfully assembled a group of investors and financing partners
who would be willing to undertake an acquisition of Blimpie.
In April and May 2001, the following developments occurred:
o Mr. Endervelt advised Mr. Conza and Mr. Siegel of his interest in
negotiating an acquisition of Blimpie by paying an unspecified price
per share. He also advised Messrs. Conza and Siegel that he and his
investors were prepared to negotiate
15
employment agreements and non-competition agreements with Messrs.
Conza and Siegel and other members of Blimpie management.
o Upon learning from Mr. Siegel that Mr. Endervelt was prepared to
negotiate an acquisition, the other subfranchisor with whom Messrs.
Conza and Siegel had engaged in preliminary acquisition discussions
indicated that he and his group would be willing pay $1.75 per share
for all shares.
o Mr. Siegel then advised Mr. Endervelt regarding the interest
expressed by the other subfranchisor. Mr. Endervelt responded by
stating that he and his investor group would match the $1.75 per
share offer and would also enter into the employment and
non-competition agreements that he had mentioned during their
earlier conversations.
o Mr. Siegel then communicated Mr. Endervelt's offer to match the
$1.75 per share price to the other subfranchisor. He responded by
suggesting that he and his group would pay $4.00 per share for the
shares held by Messrs. Conza and Siegel, and certain other members
of management, but they would not purchase the balance of the
outstanding shares.
o When Mr. Siegel explained that latest development to Mr. Endervelt,
he countered with an offer of $2.75 per share for all shares, and he
reiterated his desire to enter into employment and non-competition
agreements with the Management Group.
o At that point, Mr. Conza advised Mr. Endervelt that he would be
interested in maintaining a small ownership interest in Blimpie, and
inquired as to whether he might be able to participate in Mr.
Endervelt's investor group. Mr. Endervelt agreed that Mr. Conza
could obtain an ownership interest in the range of 5% calculated on
a fully diluted basis for the same price per share that Mr.
Endervelt paid for his shares.
o When the other subfranchisor was apprised by Mr. Siegel of Mr.
Endervelt's counter-offer, he did not respond with an increased
offer.
Messrs. Conza and Siegel then met with Mr. Endervelt and negotiated the
terms of a letter of intent that was executed by Blimpie on June 6, 2001.
On June 8, 2001, Blimpie's board of directors met to discuss the
proposed merger transaction, as negotiated by Messrs. Conza and Siegel. During
the meeting, the directors were fully apprised of Mr. Conza's participation as
an investor in Parent, and the economic terms of the various employment
agreements and non-competition agreements to be entered into by the Management
Group with Newco. Based upon the payments to be received by certain members of
the board of directors that would not otherwise be received by the other
shareholders of Blimpie, the board of directors appointed a special committee
comprised of Alvin Katz (Chairman), Harry G. Chernoff and Jim Petersen, to
evaluate, negotiate and, if appropriate, recommend that the board of directors
approve the merger agreement. The special committee independently engaged legal
counsel to assist and represent it in the performance of its activities.
At the first meeting of the special committee held on June 26, 2001,
the special committee discussed in general the terms of the letter of intent
with Parent that had been signed on behalf of Blimpie and the initial draft of
the merger agreement that had been provided by Parent to Blimpie. A copy of the
letter of intent and draft merger agreement had previously been
16
distributed to the special committee. The special committee discussed, among
other things, the fact that the letter of intent contained a 45-day exclusivity
period agreed to by Blimpie prior to the formation of the special committee. The
special committee also discussed, with input from its counsel, the role of the
special committee and the reason for its formation in light of the fact that
Parent's offer contained payments to Messrs. Conza and Siegel, members of the
Board of Directors and executive officers of Blimpie, in the form of payments
under employment agreements ($250,000 per year for Mr. Conza and $200,000 per
year for Mr. Siegel) and upfront payments for non-compete and non-solicitation
covenants (then contemplated to be $2,608,000 for Mr. Conza and $2,136,000 for
Mr. Siegel, and reduced as a result of subsequent negotiations) that would not
be paid to other shareholders of Blimpie. Also, the special committee discussed
that Messrs. Conza and Siegel, along with certain other Board members and
management, had agreed to enter into voting agreements to vote in favor of the
merger with Newco, which shares represented more than 50% of the outstanding
shares of Blimpie. Counsel to the special committee also advised the special
committee that a second group had submitted an expression of interest to acquire
the shares of Blimpie at a range of $2.50 to $3.00 per share, subject to
completion of due diligence. A copy of the letter from the second group had
previously been provided to the special committee. The special committee
determined, after further discussion and input from counsel, that the second
group would need to be advised that neither Blimpie nor the special committee
could discuss a proposed transaction with the second group due to the
contractual obligation of Blimpie under the exclusivity provisions granted to
Parent under the letter of intent. The special committee confirmed that their
understanding was that the scheduled expiration date for the exclusivity period
was July 21, 2001. The special committee determined, upon further discussion and
input from counsel, that Parent should be advised that an unsolicited expression
of interest from a third party had been received that included a proposed
offer price in a range higher than the $2.75 bid made by Parent, and that
Parent should strongly consider raising their bid. The special committee also
determined, after discussion and input from counsel, that Parent should be
required to put up a deposit, and that consummation of the merger could not be
conditioned on Parent's ability to obtain financing or the completion of a due
diligence investigation satisfactory to Parent. The special committee also
authorized its Chairman to negotiate and hire an investment banker to deliver
a fairness opinion as to the price to be paid to the shareholders of Blimpie
in any merger or similar cash transaction with its shareholders. The special
committee also discussed, with input from counsel, the hiring of an investment
banker not only to provide a fairness opinion, but also to conduct a market
check investigation regarding the existence and interest of other parties who
might acquire Blimpie, depending on the progress of the current bid by Parent.
The special committee determined that if it was unable to persuade Parent to
increase its price substantially, it would require a period of time in which
other prospective purchasers could be solicited.
The next meeting of the special committee was held on June 29, 2001.
Counsel to the special committee advised the special committee that the issues
raised by the special committee in its prior meeting had been communicated to
counsel for the Parent, but no response had been received as of that date.
The next meeting of the Special Committee was held on July 13, 2001. At
that meeting, it was reported that Newco had increased its offer price to $2.80
per share. Also, at that meeting, counsel to the special committee advised the
special committee that the second group had again contacted counsel to the
special committee and was again advised that neither Blimpie nor the special
committee was in a position to discuss any new offers as a result of the
exclusivity provisions under the letter of intent with Parent. At the meeting,
the special committee was also apprised of certain intellectual property claims
relating to Blimpie's trademarks that had been asserted by a third party. A
summary of the issues was presented to the special committee by Blimpie's
outside general counsel. After discussion and additional input from Blimpie's
outside counsel, the special committee requested to be kept
17
updated on any new developments on these issues, and concluded that Parent (or
any other potential buyer) would need to be fully apprised of the claims, if not
resolved prior to signing a definitive agreement, notwithstanding whether or not
Blimpie concluded the claims were without merit.
On July 21, 2001, the date the exclusivity period was scheduled to
expire, the Chairman of the special committee approved a 15-day extension of the
exclusivity period to August 4, 2001. The decision to extend the exclusivity
period was primarily based on the following developments since the signing of
the letter of intent with Parent:
o Parent's agreement to increase the offer price to $2.80,
o Parent's indication that it expected to have a financing commitment
by August 4, 2001,
o the extent of the due diligence performed by Parent to date, which
increased the probability of completing a successful transaction
with Parent compared to a new bidder coming in at this stage,
o Parent's statements that it would lose its financing source if the
exclusivity period was not extended, and
o the expression of interest from the second group specifically
contained a requirement to complete a satisfactory due diligence
investigation of Blimpie.
The next meeting of the special committee was held on July 27, 2001. At
the meeting, the chairman of the special committee confirmed that the members of
the special committee had received a copy of the proposed engagement letter from
Capitalink. The Chairman described the general terms of the engagement letter,
which included the delivery of a fairness opinion and conducting a market check
to maximize shareholder value. After discussion and input from counsel, the
special committee approved the hiring of Capitalink under the terms of the
engagement letter. After such approval, representatives of Capitalink joined the
call. Counsel to the special committee advised the special committee that a
meeting was scheduled in New York with Parent, Newco, counsel to Parent and
Newco, Blimpie's counsel, a representative from Capitalink, special committee
counsel, Messrs. Conza and Siegel and a representative from one of the proposed
investors in Parent to identify and resolve the major issues still outstanding
under the proposed merger agreement submitted by Newco. The special committee
specifically discussed that it was critical that Capitalink be allowed to
conduct a market check at some point in order to maximize shareholder value,
and that Newco must have a financing commitment in place prior to signing the
merger agreement that was not subject to a due diligence contingency by the
lender with respect to Blimpie.
The parties described above met in New York on July 30th. Subsequent to
the meeting, on the same day, a meeting of the special committee was held.
Counsel to the special committee summarized progress made at the business
meeting, explaining that all business points were
18
subject to approval of the special committee. In summary, counsel advised the
special committee that:
o Newco had agreed to a 30-day post-signing market check,
o Newco anticipated receipt of a financing commitment by the end of
the week (prior to the expiration of the exclusivity period),
o Parent had not increased the offer price of $2.80, notwithstanding
presentations by Capitalink and extensive discussions among the
members at the meeting,
o Newco agreed to a break-up fee in the range of $1.5 million, plus
expenses but had rejected any request for a deposit, and
o Newco requested an extension of the exclusivity period because it
anticipated that signing the merger agreement with all required
attachments, including exhibits and disclosure schedules, was not
probable to occur prior to August 4, 2001 based on the current
status of the negotiations.
As a result of the foregoing report, the special committee instructed
counsel to the special committee to report back to Parent that:
o Some form of deposit would be required,
o The $1.5 million break-up fee must be inclusive of expenses, and
o The special committee would extend the exclusivity period for an
additional two weeks if a financing commitment was provided prior
to the current expiration date of the exclusivity period (August 4,
2001) and a revised draft of the merger agreement was distributed
by Newco's counsel to address prior comments submitted to Newco's
counsel by counsel to the special committee and Blimpie's outside
counsel.
The next meeting of the special committee was held on August 3, 2001.
Counsel to the special committee reported the following progress on the major
issues raised by the special committee at the prior meeting:
o Newco would provide a $50,000 deposit upon signing the merger
agreement,
o Newco had delivered a financing proposal (but not a commitment),
o A revised merger agreement had been received from Newco's counsel
that did address some, but not all, of prior comments raised, and
o Newco was still insisting on a $1.3 million break-up fee plus
expenses in the range of $600,000 to $800,000.
19
Based on the progress made since the July 30th meeting on the major
issues raised by the special committee, the special committee agreed to extend
the exclusivity period to August 7th, to allow the parties to resolve the
break-up fee issue, which was still not acceptable to the special committee.
The next meeting of the special committee was held on August 7, 2001.
Counsel to the special committee reported that Newco had agreed to a $1.5
million break-up fee, inclusive of expenses. However, the documentation was
still not finalized, including the exhibits and disclosure schedules to the
merger agreement. The special committee agreed to extend the exclusivity period
to August 18, 2001 to allow time to finalize the documentation. The basis for
such extension included:
o Progress made on the various issues since the July 30th meeting in
New York,
o The extent of the due diligence performed by Parent to date, which
increased the probability of completing a successful transaction
with Parent compared to a new bidder coming in at this stage,
o the value of having a bid on the table in light of Parent's
statements that it would lose its financing source if the
exclusivity period was not extended, and
o the ability to conduct a market check after signing the merger
agreement.
The next meeting of the special committee was held on August 15, 2001.
Counsel to the special committee advised the special committee that:
o Newco had not delivered a financing commitment, but indicated a
commitment should be available by August 18, 2001 (prior to
expiration of the exclusivity period), and
o Full disclosure had been made to Newco regarding intellectual
property claims by a third party, and no indication had been made
that such disclosure would affect delivery of the financing
commitment by Newco's lender.
The special committee agreed to extend the exclusivity period to
August 29, 2001, based primarily on the same factors as set forth above, as
well as the special committee's understanding that the bank providing the
financing to Newco was scheduled to meet and approve or disapprove financing
to Newco at or around that date, but would not hold the meeting without a
signed merger agreement or extension of the exclusivity period.
The next meeting of the special committee was held on August 29, 2001.
Counsel to the special committee reported that the exchange of the documentation
relating to a merger agreement with Newco was still in process, specifically in
the area of finalizing exhibits and schedules to the Agreement. Based on the
progress thus far and in reliance upon the understanding that no major issues
remained outstanding with respect to the merger agreement, the special committee
agreed to extend the exclusivity period to September 14, 2001, based
20
primarily on the same factors set forth above, specifically including the
understanding by the special committee that the alleged intellectual property
claims had been fully disclosed and were acceptable to Newco and its lender.
The next meeting of the special committee was held on September 14,
2001. Due to the tragic events in the country that occurred on September 11,
2001, in addition to the various factors set forth above, the special committee
agreed to further extend the exclusivity period to October 2, 2001. The special
committee specifically noted that Blimpie headquarters and outside counsel for
Blimpie are both located in New York City. Counsel to the special committee
reported to the special committee that counsel to Newco had received a draft
of the financing commitment letter, but it contained provisions that would not
be acceptable to the special committee (including a right not to finance the
transaction based on a due diligence investigation by the lender). Counsel for
Newco further indicated that a revised draft of the commitment letter should
be received prior to October 2, 2001.
The next meeting of the special committee was held on October 2, 2001.
Counsel to the special committee confirmed that each member of the special
committee had received a copy of the financing commitment from Newco's lender,
which required payment of approximately $200,000 by Newco at the time of
its acceptance of the financing commitment. Counsel to the special committee
also advised the special committee that although the merger agreement and
exhibits were in substantially final form, the agreements would not be ready
to sign by the end of the day. Based on the foregoing, the special committee
agreed to extend the exclusivity period to October 5, 2001.
The next meeting of the Special Committee was held on October 4, 2001.
Capitalink confirmed that each member of the Special Committee had received the
presentation booklet prepared by Capitalink. Capitalink gave a detailed
presentation to the special committee with respect to the contents of the
various sections in the special committee package, including a summary of the
transaction, selected comparable company analysis, selected comparable
transaction analysis, discounted cash flow analysis, historical financial data
analysis and historical stock price analysis. The special committee discussed
the presentation made by Capitalink and asked various questions regarding
Capitalink's valuation methodologies and analysis. Capitalink then rendered its
oral opinion, to be subsequently confirmed by a written opinion, to the effect
that as of that date, based upon and subject to the assumptions, limitations and
qualifications set forth in its analysis, the proposed cash consideration of
$2.80 was fair to the shareholders of Blimpie from a financial point of view.
The special committee, based primarily on the presentation by Capitalink,
unanimously agreed that the price of $2.80 was fair to the shareholders, and
unanimously agreed to recommend that a merger agreement containing that price
should be approved by the Board. The approval of the merger agreement was
deferred until a final draft had been received by the special committee,
although discussions proceeded regarding provisions in the latest
draft of the merger agreement relating to termination of the merger agreement,
the amount of the break-up fee, the definition of material adverse change, and
the 30-day market check provisions, which allowed for negotiations to continue
after the 30-day period with parties that had expressed an interest in a
transaction with Blimpie prior to the expiration of the 30-day market check,
as well as the financial incentives to the Management Group, including payements
to Messrs. Conza and Siegal, and Mr. Conza's ownership interest in the Parent.
21
Following the meeting on October 4, 2001, counsel to the special
committee and outside counsel to Blimpie received a revised draft of the merger
agreement, which contained substantive changes from prior drafts discussed with
the special committee. Although many points were negotiated among counsel
regarding these changes and progress was made regarding various issues, it was
agreed by all parties that if a merger agreement was signed prior to a meeting
of the special committee and the Board to fully discuss these changes, such
agreements would be held in escrow pending such approval. The earliest that all
of the members of the special committee could reconvene was October 8, 2001.
The parties executed a definitive merger agreement on October 5, 2001
subject to approval by the special committee and the Board, and the signed
agreements were delivered in escrow pending such approval.
A meeting of the special committee was held on October 8, 2001. Counsel
to the special committee confirmed that a final draft of the merger agreement
had been received by the special committee. At the meeting, the special
committee reviewed and discussed with counsel the revisions that had been
proposed by Newco since the prior meeting of the special committee. The special
committee agreed to the changes that had been made since their discussions from
the last draft of the merger agreement, other than the change indicating that
the expense reimbursement to Newco would be increased to $600,000 if the merger
agreement could not be consummated as a result of injunctive relief being
granted to the party alleging intellectual property claims. The special
committee noted that Newco's agreement to accept this risk was always a key
factor to the special committee in agreeing to prior extensions of the
exclusivity period and was a risk not within Blimpie's control. The special
committee advised counsel to relay its non-approval of this change to Newco's
counsel. At the meeting, Capitalink advised the special committee that although
the proposed changes would require certain changes to the previous presentation
booklet presented to the special committee at the October 4, 2001 meeting, the
proposed changes did not affect the fairness opinion previously delivered orally
to the special committee. Capitalink then delivered its written opinion dated
October 8, 2001 confirming, subject to the assumptions, limitations and
qualifications set forth in the analysis it delivered to the special committee
on October 4, 2001, that the proposed cash consideration of $2.80 per share to
be paid upon consummation of the merger was fair to the shareholders of Blimpie
from a financial point of view. After the meeting, numerous conversations ensued
among counsel for Blimpie, Newco and the special committee. As a result of
these conversations, the change not acceptable to the special committee was
deleted from the merger agreement. A meeting was held on October 8, 2001 with
the special committee and the full board, at which time the special committee
recommended that the merger agreement, with the deletion of the added provision
described above, be approved by the Board. The Board unanimously approved the
merger agreement and recommended that it be approved by the shareholders of
Blimpie.
A press release announcing the execution of the merger agreement was
issued on October 8, 2001. Immediately thereafter, Capitalink commenced its
30-day market check by contacting various parties that it had identified as
possessing a possible interest in a transaction with Blimpie, including the
second party that had expressed interest in the past. This process is ongoing.
22
RECOMMENDATION OF THE BOARD OF
DIRECTORS; FAIRNESS OF THE MERGER
The special committee of the board of directors has unanimously
determined that the terms of the merger and the merger agreement are fair to,
and in the best interests of, Blimpie's shareholders. The special committee
unanimously recommended to the board of directors that the merger agreement be
adopted and approved. The special committee considered a number of factors, as
more fully described above under "--Background of the Merger" and as described
below under "--Reasons for the Special Committee's Determination," in making its
recommendation. The board of directors, acting in part upon the recommendation
of the special committee, unanimously determined that the terms of the merger
and the merger agreement are fair to, and in the best interests of, Blimpie's
shareholders. The board of directors, based in part on the unanimous
recommendation of the special committee, recommends that Blimpie's shareholders
vote FOR the adoption and approval of the merger agreement.
REASONS FOR THE SPECIAL COMMITTEE'S DETERMINATION
In recommending adoption and approval of the merger agreement and the
merger to the board of directors, the special committee considered a number of
factors that they believe supported their recommendation, including:
o the premium over the price of Blimpie's common stock prior to the
announcement of the transaction of $1.50 on October 8, 2001;
o the relative illiquidity of an investment in Blimpie, including the
fact that, over 62.4% of Blimpie's common stock is held by officers
and directors of Blimpie as of _______, 2001;
o the opinion the special committee received from Capitalink and the
analyses underlying such opinion;
o the historical prices at which Blimpie's common stock has traded as
described under "Market Information" compared to the price offered
in the merger agreement;
o limited research coverage from securities analysts;
o Blimpie's inability to generate revenue and unit growth generally
expected by the public markets;
o the substantial ongoing expenses incurred by Blimpie as a publicly
reporting company;
o the $2.80 per share price provided for in the merger agreement
substantially exceeded the book value of $1.83 as of June 30, 2001;
23
o the trading price per share of Blimpie's common stock during the
52-week period ended September 30, 2001 ranged from a low of $1.19
to a high of $1.96;
o the deteriorating financial performance of Blimpie as reflected in
a decrease in operating income of $1.5 million for the year ended
June 30, 2000 to an operating loss of ($195,000) for the year ended
June 30, 2001;
o the terms of the merger agreement that permit Capitalink to solicit
bids from third parties for a 30-day period after the merger
agreement was signed, which will allow Blimpie to receive
alternative proposals and encourage Newco to submit its best
possible offer; and
o the obligation of Newco to close the transaction is not conditioned
on a financing contingency.
The special committee drew on its knowledge of the business, financial
results and prospects of Blimpie, as well as the special committee's knowledge
of the restaurant industry generally that committee members had developed in
their time as members of the full board of directors of Blimpie as well as their
outside business experiences. Specifically, the special committee considered the
potential for growth through new store openings, and the views expressed by
Capitalink and management of Blimpie regarding the financial condition, results
of operations, business and prospects of Blimpie, including the prospects of
Blimpie if it were to remain publicly owned.
The special committee also determined that the merger is procedurally
fair because, among other things:
o Blimpie's board of directors established a special committee to
consider and negotiate the merger agreement;
o the special committee was composed of independent directors who are
not officers or employees of Blimpie and have no financial interest
in the merger different from Blimpie's shareholders generally other
than their ownership of stock options;
o the special committee was given exclusive and unlimited authority
to, among other things, evaluate, negotiate and recommend the terms
of any proposed transactions;
o the special committee retained and received advice from its own
independent legal counsel and financial advisors in evaluating,
negotiating and recommending the terms of the merger agreement;
o Capitalink rendered an opinion concerning the fairness, from a
financial point of view, of the per share consideration of $2.80
to be received by the shareholders in the merger;
o the price of $2.80 per share and the other terms and conditions of
the merger agreement resulted from active and lengthy negotiations
between the special
24
committee and its representatives, on the one hand, and Newco and
its representatives on the other hand.
The special committee also considered a variety of risks and other
potentially negative factors concerning the merger. The material risks and
potentially negative factors considered by the special committee were as
follows:
o if the merger is not completed under circumstances further
discussed in "The Merger Agreement--Termination of the Merger
Agreement," Blimpie may be required to reimburse Newco for
specified expenses, and under certain circumstances, pay a break-up
fee;
o the cash consideration received by a shareholder generally will be
taxable to the shareholder in an amount equal to the excess of
$2.80 over the shareholder's tax basis in the shareholder's shares
of Blimpie common stock;
o following the merger, Blimpie's shareholders, other than
o Anthony P. Conza, who will own indirectly an approximate
7.68% interest in Blimpie after the merger, and
o Robert S. Sitkoff will own indirectly, if he exercises the
option he holds to purchase approximately 7.68% of Parent's
common stock, a comparable interest in Blimpie after the
merger,
will cease to participate in any future earnings growth of Blimpie
or benefit from any increase in the value of Blimpie; and
o certain members of the Management Group will be receiving payments
that will not be received by all of the shareholders of Blimpie.
After considering these factors, the special committee concluded that
the positive factors relating to the merger outweighed the negative factors. The
special committee also concluded that obtaining a present cash premium for the
shares was preferable to enabling the shareholders to have a speculative
potential future return. Because of the variety of factors considered, the
special committee did not find it practicable to quantify or otherwise assign
relative weights to, and did not make specific assessments of, the specific
factors considered in reaching its determination. However, individual members of
the special committee may have assigned different weights to various factors.
The determination of the special committee was made after consideration of all
of the factors together.
The foregoing discussion of the information and factors considered and
weight given by the special committee is not intended to be exhaustive but is
believed to include all material factors considered by the special committee. In
the course of its deliberations, the special committee, based on the factors
outlined above and on the presentations and opinion of Capitalink, adopted the
opinion of Capitalink as to the fairness, from a financial point of view, of the
consideration to be received in the merger and determined that the merger and
the merger agreement are fair to, and in the best interest of, the shareholders
of Blimpie.
REASONS FOR THE BOARD OF DIRECTORS' DETERMINATION
Blimpie's board of directors consists of seven members, three of whom
serve on the special committee. At the October 8, 2001 meeting of the board of
directors, the special committee, with its legal and financial advisers
participating, reported to the other members of the board of directors on the
course of its negotiations with Newco and its legal counsel, its review of the
merger agreement and the related financing requirements and the factors it took
into account in reaching its determination that the merger is fair to, and in
the best interests of, Blimpie's
25
shareholders. In view of the wide variety of factors considered in its
evaluation of the merger, the board of directors did not find it practicable to
quantify or otherwise assign relative weights to, and did not make specific
assessments of, the specific factors considered in reaching its determination.
Rather, the board of directors based its position on the totality of the
information presented and considered. In considering the determination of the
special committee, the board of directors believed that the analysis of the
special committee was reasonable and adopted the special committee's conclusion
and the analysis underlying the conclusion.
The board of directors also considered the financial and managerial
resources and future prospects of Blimpie continuing as an independent entity.
It considered the financial analysis made by Capitalink, Blimpie's limited
history of accessing equity and debt capital, and its ability to continue to
attract and retain management with equity incentives which historically have not
proven to be valuable for Blimpie's management. The board of directors also
considered the possible effects on the business of Blimpie and its employees,
customers, suppliers and creditors.
FAIRNESS OF THE MERGER TO SHAREHOLDERS
The board of directors believes that the merger, the merger agreement
and the related transactions are substantively and procedurally fair to, and in
the best interests of, Blimpie's shareholders for all of the reasons set forth
above under "--Recommendation of the board of directors; Fairness of the
Merger--"Reasons for the Special Committee's Determination" and "--Reasons for
the board of directors' Determination." In addition, with respect to procedural
fairness, the board of directors established a special committee, consisting of
three independent directors none of whom is an officer or employee of Blimpie or
has an interest in the merger different from that of Blimpie's shareholders
generally. The merger consideration of $2.80 in cash per share was the highest
price Newco indicated it was willing to pay following extensive negotiations
between the special committee and Newco and its representatives.
In reaching these conclusions, the board of directors considered it
significant that,
o no member of the special committee has an interest in the merger
different from that of Blimpie's shareholders generally; and
o the special committee retained its own financial and legal
advisors who have extensive experience with transactions
similar to the merger and who assisted the special committee
in evaluating the merger and in negotiating with Newco.
Capitalink was retained to advise the special committee as to the
fairness, from a financial point of view, of the proposal received from Newco.
Capitalink reached the conclusion expressed in its written opinion dated October
8, 2001 that, subject to the considerations and limitations set forth in the
opinion, the per share consideration of $2.80 is fair, from a financial point of
view, to the shareholders of Blimpie.
26
THE BOARD OF DIRECTORS, BASED IN PART ON THE UNANIMOUS RECOMMENDATION
OF THE SPECIAL COMMITTEE, RECOMMENDS THAT BLIMPIE'S SHAREHOLDERS VOTE IN FAVOR
OF THE PROPOSAL TO ADOPT AND APPROVE THE MERGER AGREEMENT. The recommendation of
the board of directors was made after consideration of all the material factors,
as described above.
The financial benefits to be derived by each of the members of the
members of Management Group (except Mr. Sitkoff) pursuant to the various
agreements thant Newco entered into with them, and Anthony P. Conza's
approximately 7.68% ownership interest in Parent, were previously made known
to, and fully described to, all of the members of Blimpie's board of directors,
and were taken into consideration by the board in reaching its decision.
Resolutions to ratify, confirm, authorize and approve the execution of the
merger agreement, subject to the shareholders' approval, and to recommend that
the shareholders authorize and approve the merger, the merger agreement and the
transactions contemplated thereby, were unanimously adopted on October 8, 2001.
OPINION OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE
Capitalink was retained by the special committee to render an opinion
as to the fairness, from a financial point of view, of the per share
consideration of $2.80 to be received by our shareholders in connection with
the merger. Capitalink is an investment banking firm that, as part of its
investment banking business, regularly is engaged in the evaluation of
businesses and their securities in connection with mergers, acquisitions, and
private placements. The special committee selected Capitalink based on its
reputation.
In connection with advisory services related to the merger and the
issuance of Capitalink's opinion, Capitalink received $120,000 from Blimpie. In
addition, Capitalink may receive additional fees if Blimpie undertakes a
transaction involving greater consideration than the merger. Blimpie also agreed
to reimburse Capitalink for all reasonable fees and disbursements of its counsel
and all of its reasonable travel and other out-of-pocket expenses arising in
connection with its engagement. In addition, Blimpie agreed to indemnify
Capitalink and its affiliates to the full extent permitted by law against
liabilities relating to or arising out of its engagement, except for liabilities
found to have resulted from the bad faith or gross negligence of Capitalink.
Further, as of the date of the Capitalink's opinion, a principal of Capitalink
beneficially owned 2,000 shares of our common stock.
In connection with the merger, the special committee of our board of
directors engaged Capitalink to render an opinion as to the fairness, from a
financial point of view, to our shareholders, of the per share consideration of
$2.80 to be received. On October 5, 2001, at a meeting of the special committee
of our board of directors, Capitalink delivered its oral opinion that, as of
such date, based upon and subject to the assumptions made, matters considered,
and limitations on its review as set forth in the opinion, from a financial
point of view, the consideration to be received in the merger is fair to our
shareholders. Subsequently, on October 8, 2001, Capitalink delivered and updated
its oral opinion, which was followed by its written opinion, that as of such
later date,
27
based upon and subject to the assumptions made, matters considered, and
limitations on its review as set forth in the opinion, from a financial point of
view, the consideration to be received in the merger is fair to our
shareholders.
THE FULL TEXT OF THE WRITTEN OPINION OF CAPITALINK DATED AS OF OCTOBER
8, 2001 IS ATTACHED AS APPENDIX B AND IS INCORPORATED BY REFERENCE (THE
"CAPITALINK OPINION"). YOU ARE URGED TO READ THE CAPITALINK OPINION CAREFULLY
AND IN ITS ENTIRETY FOR A DESCRIPTION OF THE ASSUMPTIONS MADE, MATTERS
CONSIDERED, PROCEDURES FOLLOWED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY
CAPITALINK IN RENDERING ITS OPINION. THE SUMMARY OF THE CAPITALINK OPINION SET
FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF SUCH OPINION.
No limitations were imposed by Blimpie on the scope of Capitalink's
investigation or the procedures to be followed by Capitalink in rendering its
opinion. Capitalink was not requested to and did not make any recommendation to
the special committee of the board of directors of Blimpie as to the form or
amount of consideration received in the merger, which, Capitalink assumed, was
determined through arms length negotiations between parties. The Capitalink
Opinion is for the use and benefit of the special committee of the board of
directors of Blimpie in connection with its consideration of the merger and is
not intended to be and does not constitute a recommendation to any shareholder
of Blimpie as to how such shareholder should vote with respect to the merger.
Capitalink was not requested to opine as to, and its opinion does not address,
our underlying business decision to proceed with or effect the merger.
Capitalink took into account its assessment of general economic, market
and financial conditions as well as its experience in connection with similar
transactions and securities valuations generally. Capitalink was not asked to
consider, and its opinion does not address, the relative merits of the merger as
compared to any alternative business strategy that might exist for Blimpie.
In arriving at its opinion, Capitalink, among other things: (i)
reviewed an unexecuted draft of the merger agreement, an unexecuted draft of the
voting agreement and drafts of the employment agreements between Newco and the
members of the Management Group, and the specific terms of the merger;
(ii) reviewed publicly available financial information and other data with
respect to Blimpie, including a draft Form 10-K for the year ended June 30,
2001, the Form 10-K for the year ended June 30, 2000, and the Quarterly Report
on Form 10-Q for the period ended March 31, 2001, and certain other relevant
financial and operating data relating to Blimpie; (iii) reviewed and analyzed
the financial terms of certain transactions that Capitalink deemed significant
involving companies comparable to Blimpie; (iv) reviewed and analyzed certain
financial characteristics of companies that Capitalink deemed comparable to
Blimpie; (v) reviewed and analyzed the premium to be paid in the merger and
premiums paid in certain other transactions; (vi) reviewed and discussed with
representatives of the management of Blimpie certain financial and operating
information furnished to Capitalink, including financial analyses and
projections and related assumptions with respect to the business, operations and
prospects of Blimpie; (vii) considered
28
the historical financial results and present financial condition of Blimpie;
(viii) reviewed certain publicly available information concerning the trading
of, and the trading market for, the common stock of Blimpie; (ix) inquired about
and discussed the merger and other matters related thereto with Blimpie
management and the special committee's legal counsel; and (x) performed such
other analyses and examinations as Capitalink deemed appropriate. Capitalink
also was aware that Newco and certain members of the Management Group would
enter into non-competition and non-solicitation agreements in connection with
the merger, and was apprised of the financial terms of those agreements.
In arriving at its opinion, Capitalink relied upon and assumed the
accuracy and completeness of all of the financial and other information that was
used by it without assuming any responsibility for any independent verification
of any such information and further relied upon the assurances of Blimpie
management that they were not aware of any facts or circumstances that would
make any such information inaccurate or misleading. With respect to the
financial projections utilized, Capitalink assumed that such projections were
reasonably prepared on a basis reflecting the best currently available
estimates and judgments, and that such projections provide a reasonable basis
upon which it could form an opinion. In arriving at its opinion, Capitalink did
not make a physical inspection of the properties and facilities of Blimpie, and
had not made or obtained any evaluations or appraisals of the assets and
liabilities (contingent or otherwise) of Blimpie. Capitalink assumed that the
merger will be consummated in a manner that complies in all respects with the
applicable provisions of the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, and all other applicable federal and state
statues, rules and regulations. In addition, it is assumed that the merger will
be a taxable event to the Blimpie shareholders. The Capitalink Opinion was
necessarily based upon market, economic and other conditions as they exist on,
and could be evaluated as of, October 8, 2001. Accordingly, although subsequent
developments may affect its opinion, Capitalink has not assumed any obligation
to update, review or reaffirm its opinion.
Each of the analyses conducted by Capitalink was carried out in order
to provide a different perspective on the merger, and to enhance the total mix
of information available. Capitalink did not form a conclusion as to whether any
individual analysis, considered in isolation, supported or failed to support an
opinion as to the fairness, from a financial point of view, of the merger to our
shareholders. Capitalink did not place any particular reliance or weight on any
individual analysis, but instead concluded that its analyses, taken as a whole,
supported its determination. Accordingly, Capitalink believes that its analyses
must be considered as a whole and that selecting portions of its analyses or the
factors it considered, without considering all analyses and factors
collectively, could create an incomplete view of the process underlying the
analyses performed by Capitalink in connection with the preparation of its
opinion.
Capitalink analyzed the fairness of the merger using the following
methodologies:
Selected Comparable Company Analysis. The selected comparable company
analysis involves the review of publicly traded companies deemed comparable to
Blimpie (the "Comparable Companies"). Capitalink reviewed certain financial
information relating to Blimpie in the context of the corresponding financial
information, ratios and public market multiples for the Comparable Companies. No
company used in Capitalink's analysis was deemed to be identical to Blimpie;
accordingly, Capitalink considered the multiples for the Comparable Companies to
be more relevant than the multiples of any single company.
29
Capitalink ranked and presented the Comparable Companies based on three
sets of criteria: (i) enterprise values (defined as market value plus the
aggregate book value of all debt, preferred stock and minority interest, minus
the aggregate cash and cash equivalents); (ii) percentage of franchised units
within their respective system, and (iii) percentage of revenue derived from
franchising operations.
It was noted that Blimpie financial data utilized by Capitalink was
based on the draft 10-K for the year ended June 30, 2001, and such financial
data had not been publicly released. Therefore, the potential impact of such
information was not reflected in the Blimpie stock price and the respective
Blimpie market multiples. The Comparable Companies utilized are: Wendy's
International; Papa John's International Inc.; Applebee's International Inc.;
IHOP Corp.; Sonic Corporation; Uno Restaurant Corp.; Checkers Drive-In
Restaurants; Pizza Inn, Inc.; Mexican Restaurants; Schlotzsky's, Inc.;
Tumbleweed, Inc.; Quizno's Corporation; Nathan's Famous; Back Yard Burgers; and
Noble Roman's, Inc.
Based on publicly available information, Capitalink reviewed various
financial information for each of the Comparable Companies including, among
other things, enterprise value, market value, revenue, percentage of franchised
units, percentage of revenue derived from franchising, earnings before interest
and taxes ("EBIT"), earnings before interest, taxes, depreciation and
amortization ("EBITDA"), earnings per share ("EPS"), net income, return on
average assets, return on average common equity, and selected financial ratios.
Subsequent to such review and based on the respective market value or enterprise
value as of October 3, 2001, Capitalink calculated and compared the following
multiples for each of the Comparable Companies grouped into three categories:
(i) enterprise value below $50 million; (ii) greater than 80% of stores
franchised; and (iii) greater than 50% of revenue from franchising.
Enterprise Value Below $50 million
Multiples Comparable Companies Blimpie
------------------------------ -------------------------------------------- -------------
High Mean Median Low
---- ---- ------ ---
Market Value
------------
Last Twelve Months ("LTM") EPS 17.9x 12.9x 12.7x 8.3x 136.0x
Common equity 23.0x 5.1x .6x .4x .7x
Net tangible common equity 23.0x 5.3x 1.2x .5x 1.3x
Enterprise Value
----------------
Assets 2.7x 1.0x .7x .3x .1x
LTM revenue 5.8x 1.2x .5x .3x .1x
LTM EBIT 49.7x 13.7x 7.8x 3.9x na
LTM EBITDA 11.9x 6.0x 4.6x 2.3x 3.8x
30
Greater than 80% of Stores Franchised
Multiples Comparable Companies Blimpie
------------------------------ ------------------------------------------------- --------
High Mean Median Low
---- ---- ------ ----
Market Value
------------
LTM EPS 22.9x 13.5x 14.1x 4.9x 136.0x
CFY est. EPS 23.4x 16.5x 14.7x 13.2x na
NFY est. EPS 19.7x 15.3x 14.1x 12.1x na
Common equity 23.0x 5.5x 2.2x .5x .7x
Net tangible common equity 23.0x 6.2x 2.3x 1.1x 1.3x
Enterprise Value
----------------
Assets 2.9x 1.5x 1.5x .3x .1x
LTM revenue 5.8x 1.9x 1.2x .3x .1x
CFY est. revenue 3.0x 2.2x 2.2x 1.4x na
NFY est. revenue 2.5x 1.9x 1.9x 1.3x na
LTM EBIT 13.1x 8.6x 8.0x 3.9x na
LTM EBITDA 11.9x 6.8x 6.5x 2.3x 3.8x
Greater Than 50% of Revenue from Franchising
Multiples Comparable Companies Blimpie
------------------------------ ------------------------------------------------- --------
High Mean Median Low
---- ---- ------ ---
Market Value
------------
LTM EPS 17.9x 12.7x 14.1x 4.9x 136.0x
CFY est. EPS 13.7x 13.4x 13.4x 13.2x na
NFY est. EPS 12.1x 12.1x 12.1x 12.1x na
Common equity 1.9x 1.2x 1.2x .5x .7x
Net tangible common equity 2.0x 1.5x 1.5x 1.1x 1.3x
Enterprise Value
----------------
Assets 2.7x 1.3x 1.0x .6x .1x
LTM revenue 5.8x 2.5x 1.7x .8x .1x
LTM EBIT 13.1x 8.7x 7.8x 6.2x na
LTM EBITDA 11.9x 7.2x 6.3x 4.5x 3.8x
For each of the groups set forth above, utilizing Blimpie's historical
and projected financial data, Capitalink derived Blimpie's implied enterprise
value, implied market value, and implied market value per share with respect to
the high, mean, median and low for the selected multiples noted below. In order
to determine the implied market value, Capitalink increased the derived implied
enterprise values by Blimpie's cash less any debt as of June 30, 2001.
31
As of such date, Blimpie had cash of approximately $9.5 million and
assumed cash from the exercise of outstanding options (with an exercise price
less than $2.80 per share) of approximately $900,000. As of such date, Blimpie
had no debt; therefore, the excess of cash over debt was approximately $10.4
million (the "Net Cash"). The following tables set forth the implied per share
value of Blimpie based upon the multiples noted above.
Enterprise Value Below $50 million
----------------------------------
Implied per share as multiple of: High Mean Median Low
---- ---- ------ ---
LTM revenue $19.53 $4.99 $2.57 $1.95
LTM EBITDA $ 2.08 $1.58 $1.47 $1.28
LTM Net Income $ 0.14 $0.10 $0.10 $0.06
Greater than 80% of Stores Franchised
-------------------------------------
Implied per share as multiple of: High Mean Median Low
---- ---- ------ ---
LTM revenue $19.53 $7.29 $5.07 $2.17
LTM EBITDA $ 2.08 $1.65 $1.62 $1.28
LTM Net Income $ 0.18 $0.10 $0.11 $0.04
CFY est. Net Income $ 3.42 $2.66 $2.45 $2.11
Greater Than 50% of Revenue from Franchising
--------------------------------------------
Implied per share as multiple of: High Mean Median Low
---- ---- ------ ---
LTM revenue $19.53 $9.08 $6.61 $3.59
LTM EBITDA $ 2.08 $1.69 $1.60 $1.46
LTM Net Income $ 0.14 $0.10 $0.11 $0.04
CFY est. Net Income $ 2.38 $2.33 $2.33 $2.29
None of the Comparable Companies, or any of the sets of Comparable
Companies noted above, is identical to Blimpie. Accordingly, Capitalink
considered the multiples for such companies to be more relevant than the
multiples of any single company. Further, an analysis of publicly-traded
comparable companies is not mathematical, rather it involves complex
consideration and judgments concerning differences in financial and operating
characteristics of the Comparable Companies and other factors that could affect
the public trading of the Comparable Companies.
Selected Comparable Transaction Analysis. The comparable transaction
analysis involves a review of merger, acquisition and asset purchase
transactions involving companies that are in related industries to Blimpie (the
"Comparable Transactions"). Information is typically not disclosed for
transactions involving a private seller, even when the buyer is a public
company, unless the acquisition is deemed to be "material" for the acquiror. As
As result, the selected comparable transaction analysis is limited to
transactions involving the acquisition of a public company, or substantially all
of its assets, or the acquisition of a large private company, or substantially
all of its assets, by a public company.
32
Capitalink located 24 transactions over the past three years involving
companies in industries similar to Blimpie, where financial data of the acquired
company and the terms of the transaction were disclosed. The Comparable
Transactions are as follows:
Acquiror Target
-------- ------
Private Group Quizno's Corporation
Castle Harlan Inc. Avado Brands Inc.
Private Group Panchos Mexican Buffet Inc.
Goldner Hawn Johnson & Morrison Vicorp Restaurants
Bruckmann Rosser Sherrill & Co. II Fornaio America Corp.
Carrols Corp. Taco Cabana Inc.
Creative Host Services Inc. GladCo Enterprises Inc.
Jacksonville Restaurant Acq. Corp. Cucos Inc.
Interfoods of America Inc. RMS Family Restaurants
The Quiznos Corp. ASI-DIA Inc.
Nathan's Famous, Inc. Miami Subs Corporation
Rose Casual LP Applebees International Inc.
NPC International Tricon Global Restaurants
Santa Barbara Restaurant Group La Salsa Holding Co.
Morgans Food Inc. Tricon Global Restaurants Inc.
Private Group Rock Bottom Restaurants
Chart House Enterprises Inc. Angelo & Maxies
Fairmont Capital Inc. Sharis Management Corp.
Trinity Management Corp. Wall Street Deli Inc.
Austins Steaks & Saloon Inc. Western Sizzlin Corp.
CBRL Group Inc. Logan's Roadhouse, Inc.
Checkers Drive-In Restaurants Rally's Hamburgers Inc.
SRC Holdings Inc./Private Group Back Bay Restaurant Group Inc.
Cracken Harkey Street & Hartnett Spaghetti Warehouse Inc.
Based on the information disclosed in the each of the Comparable
Transactions, Capitalink calculated and compared multiples for each of the
Comparable Transactions based on (i) revenue, (ii) EBIT, (iii) EBITDA, and
(iv) net income. The multiples were derived by dividing either the total
invested capital (price paid for equity plus interest bearing debt assumed),
or the price paid, by items (i) through (iv) above.
Proposed
Multiples Comparable mergers Merger
------------------------------------------ ------------------------------------------------- ----------
High Mean Median Low
---- ---- ------ ---
Based on Total Invested Capital
-------------------------------
Revenue 1.83x .80x .70x .12x .84x
EBIT 39.40x 12.73x 9.75x 6.42x Na
EBITDA 10.94x 7.32x 7.10x 3.71x 32.25x
Based on Price Paid
-------------------
Net income 38.07x 15.45x 13.79x 2.65x 347.73x
33
Following the calculation of such multiples with respect to each of the
Comparable Transactions, and utilizing Blimpie's historical financial data,
Capitalink derived Blimpie's implied enterprise value, implied market value, and
implied market value per share with respect to the high, mean, median and low
for the multiples relating to (i) LTM revenue, (ii) LTM EBITDA, and (iii) LTM
net income. In order to arrive at the implied market value, Capitalink added Net
Cash of approximately $10.4 million. The following tables set forth the implied
per share value of Blimpie based upon such multiples.
Implied per share as multiple of: High Mean Median Low
--------------------------------- ---- ---- ------ ---
LTM Revenue $6.96 $3.63 $3.32 $1.48
LTM EBITDA $1.99 $1.69 $1.67 $1.39
LTM Net Income $0.29 $0.12 $0.11 $0.02
None of the Comparable Transactions are identical to the merger.
Accordingly, an analysis of comparable business combinations is not
mathematical; rather it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
Comparable Transactions and other factors that could affect the respective
acquisition values.
Discounted Cash Flow. Capitalink performed several discounted cash flow
analyses, aggregating (x) the present value of projected unleveraged free cash
flows over a forecast period (the "Forecast Period"), with (y) the present value
of the terminal value at the end of such period. Free cash flow represents the
amount of cash generated and available for principal, interest and dividend
payments after providing for ongoing business operations. The Forecast Period is
comprised of the fiscal years ending June 30, 2002 through 2004, and such
projections were derived from historical financial information and operating
data provided by Blimpie. In order to arrive at a present value of the free cash
flows over the Forecast Period, Capitalink utilized discount rates ranging from
16.0% to 28.5%, which were chosen based upon several assumptions including
interest rates, the inherent business risk of Blimpie, and Blimpie's estimated
weighted average cost of capital.
The range of terminal values represents the residual value of Blimpie
at the end of the Forecast Period. Capitalink presented two ranges of terminal
values by applying ranges of implied multiples to Blimpie (i) revenue and (ii)
EBITDA in the final year of the respective Forecast Period. In addition,
Capitalink presented a perpetual growth scenario whereby a range of growth rates
were applied to Blimpie's projected 2004 free cash flows in order to determine a
terminal value, rather than multiples.
Utilizing the projections and based upon a range of terminal multiples
of revenue for fiscal year 2004 of .70x to 1.20x, the estimated enterprise value
of Blimpie ranged from approximately $15.9 million to approximately $31.8
million; after adding Net Cash of $10.4 million, the estimated equity value of
Blimpie ranged from approximately $26.4 million to approximately $42.2 million.
Such analysis resulted in a mid-point average of estimated equity values of
$33.4 million, or $3.48 per share. Such per share calculation is based on
9,590,000 shares assumed outstanding, comprised of 9,163,000 shares outstanding
as of June 30, 2001, and
34
427,000 shares to be issued upon the assumed exercise of options with a per
share exercise price less than or equal to $2.80.
Utilizing the projections and based upon a range of terminal multiples
of EBITDA for fiscal year 2004 of 5.00x to 7.25x, the estimated enterprise value
of Blimpie ranged from approximately $14.4 million to approximately $24.5
million; after adding Net Cash of $10.4 million, the estimated equity value of
Blimpie ranged from approximately $24.8 million to approximately $34.9 million.
Such analysis resulted in a mid-point average of estimated equity values of
$29.3 million, or $3.06 per share, based on 9,590,000 shares outstanding.
Utilizing the projections and based upon a terminal growth rate ranging
from 9.50% to 10.75%, the estimated enterprise value of Blimpie ranged from
approximately $10.8 million to approximately $38.7 million; after adding Net
Cash of $10.4 million, the estimated equity value of Blimpie ranged from
approximately $21.2 million to approximately $49.1 million. Such analysis
resulted in a mid-point average of estimated equity values of $27.4 million, or
$2.86 per share, based on 9,590,000 shares outstanding.
Premiums Paid Analysis. Capitalink undertook a series of premiums paid
analyses. Capitalink compared the consideration in the merger to the Blimpie
closing price per share as of October 3, 2001, and to the average closing prices
per share over varying time periods. Such time periods included the prior five
trading days, prior 30 trading days, prior six months, and prior year. The
premium of the per share consideration in the merger over the respective
closing, or average closing, prices was noted.
Capitalink also reviewed the acquisition premiums offered in certain
transactions utilized in the Selected Comparable Transactions Analysis (the
"Premiums Paid Selected Comparable Transactions") to the closing price of the
target company for the (i) prior one day, (ii) prior five days, (iii) prior one
month, and (iv) prior two months. Capitalink adjusted the premium by deducting
the applicable Russell 3000 index premium during the respective period to
determine a market adjusted premium for each Premiums Paid Selected Comparable
Transactions. The Premiums Paid Selected Comparable Transactions are:
Acquiror Seller
-------- ------
Private Group Panchos Mexican Buffet
Gold Investment Fund Vicorp Restaurant
Bruckman Rosser Sherrill & Co. Il Fornaio (America) Corp.
Carrols Corp. Taco Cabana Inc.
Jacksonville Restaurant Acq. Corp. Cucos Inc.
Nathan's Famous, Inc. Miami Subs Corporation
Private Group Rock Bottom Restaurants
Checkers Drive-In Restaurants Rally's Hamburgers Inc.
SRC Holdings Inc./Private Group Back Bay Restaurant Group Inc.
Cracken Harkey Street & Hartnett Spaghetti Warehouse Inc.
35
<Page>
In addition, Capitalink reviewed the Mergerstat Transaction database to
retrieve each of the completed acquisitions for the period between January 1,
2001 and October 3, 2001, with enterprise values less than $25 million (the
"Mergerstat Transactions"). Capitalink reviewed the one-day and five-day
premiums for the Mergerstat Transactions.
After determining the (i) high, (ii) mean, (iii) median, and (iv) low
premiums paid in the Premiums Paid Selected Comparable Transactions and the
Mergerstat Transactions, such premiums were applied to the Blimpie share price
for the (i) prior one day, (ii) average prior five days, (iii) average prior one
month (only for Premiums Paid Selected Comparable Transactions), and
(iv) average prior two months (only for Premiums Paid Selected Comparable
mergers), to arrive at an implied range of market value per share, as set forth
below.
Premiums High Mean Median Low
-------------------------------------------------- -------------- ------------- ----------------- -------------
Based on Selected Premiums Paid
Comparable Transactions
Prior One Day $2.98 $1.98 $1.80 $1.55
Prior Five Day $2.83 $1.90 $1.79 $1.55
Prior One Month $3.77 $2.53 $2.43 $1.92
Prior Two Months $3.48 $2.59 $2.52 $2.02
Based on Mergerstat Transactions
Prior One Day $5.02 $2.33 $2.05 $1.41
Prior Five Day $5.93 $2.34 $2.13 $1.07
None of the Premiums Paid Selected Comparable Transactions or the
Mergerstat Transactions is identical to the merger. Accordingly, an analysis
of comparable business combinations is not mathematical, rather it involves
complex considerations and judgements concerning differences in financial and
operating characteristics of the Premiums Paid Selected Comparable Transactions
and the Mergerstat Transactions and other factors that could affect the
respective acquisition values.
Historical Financial Data Analysis. Capitalink reviewed and analyzed
certain financial information for Blimpie as reported in its annual filings on
Form 10-K and its quarterly filings on Form 10-Q, including audited and
unaudited financial statements. Further, Capitalink reviewed Blimpie's draft
Form 10-K for the year ended June 30, 2001, and certain supportive information
and projections as provided by Blimpie management.
Historical Stock Price Analysis. Capitalink reviewed the daily closing
market price and trading volume of the Blimpie common stock over the period
commencing October 3, 2000 through October 3, 2001. Capitalink compared the
daily closing market price performance of the Blimpie common stock for such
period to both the Comparable Companies and the Russell 3000 Index. Capitalink
calculated total trading volumes at various closing pricing ranges of Blimpie
common stock. In addition, the number of trading days, and the respective
percentages, at certain trading volume, was set forth.
36
<Page>
Capitalink performed a variety of financial and comparative analyses
for the purpose of rendering the Capitalink Opinion. While the foregoing summary
describes all material analyses and factors reviewed by Capitalink with the
special committee of our board, it does not purport to be a complete description
of the presentations by Capitalink to the special committee of our board or the
analyses performed by Capitalink in arriving at the Capitalink Opinion. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description. Capitalink believes that
its analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all analyses
and factors, could create a misleading view of the processes underlying the
Capitalink Opinion. In addition, Capitalink may have given various analyses more
or less weight that other analyses, and may have deemed various assumptions more
or less probable than other assumptions, so that the range of valuations
resulting from any particular analysis described above should not be taken to be
Capitalink's view of the actual value of Blimpie. In performing its analyses,
Capitalink made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond the control of Blimpie. The analyses performed by Capitalink are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses. In
addition, analyses relating to the value of businesses or assets do not purport
to be appraisals or to necessarily reflect the prices at which businesses or
assets may actually be sold. The analyses performed were prepared solely as part
of Capitalink's analysis of the fairness of the consideration, from a financial
point of view, to the shareholders of the Blimpie, and were provided to the
special committee of our board in connection with the delivery of the Capitalink
Opinion.
PURPOSE AND STRUCTURE OF THE MERGER
For Blimpie, the purpose of the merger is to allow Blimpie's
shareholders to realize the value of their investment in Blimpie in cash at a
price that represents a premium over the market price of Blimpie's common stock
before the public announcement of the execution of the merger agreement. The
board of directors believes that Blimpie has not been able to realize fully the
benefits of public company status. The reasons for their belief include the
limited ability of Blimpie's shareholders to sell their stock quickly at the
current market price due to the low trading volume and the undervaluation of the
common stock in the public market due to Blimpie's small market capitalization,
limited public float, limited research coverage from securities analysts and the
inability to generate the type of rapid revenue and unit growth generally
expected by the public markets. At the same time, public company status has
imposed a number of limitations on Blimpie and its management in conducting
Blimpie's operations. These limitations include the costs and time associated
with public company reporting obligations and the short-term focus on quarter to
quarter performance goals to meet expectations of the public markets.
Accordingly, one of the purposes of the merger is to afford greater operating
flexibility, allowing management to concentrate on long-term growth and to
reduce its attention to the quarter-to-quarter performance and to be able to
pursue opportunities that Blimpie could not previously pursue because of its
duties to the public shareholders. Further, the merger is intended to enable
Blimpie to use in its operations those funds that would otherwise be expended in
complying with requirements applicable to public companies.
37
<Page>
As described in the "--Background of the Merger" section, Newco
believes that Blimpie has strong business prospects for the future, based upon
publicly available information regarding Blimpie and based upon their knowledge
of the quick service restaurant industry. Newco believes that Blimpie will have
greater operating flexibility to focus on its long-term value by emphasizing
growth and operating cash flow without the constraint of the public market's
emphasis on quarterly earnings. The transaction has been structured as a merger
of Newco into Blimpie in order to preserve Blimpie's identity and existing
contractual arrangements with third parties.
The transaction has been structured as a cash merger in which Blimpie
as the surviving corporation will incur indebtedness to acquire all shares of
Blimpie common stock for cash. Blimpie's purpose in submitting the merger to the
vote of its shareholders with a favorable recommendation at this time is to
allow the shareholders an opportunity to receive a cash payment at a fair price,
to provide a prompt and orderly transfer of ownership of Blimpie to Newco and to
provide the shareholders with cash for all of their shares of Blimpie's common
stock.
EFFECTS OF THE MERGER
Upon completion of the merger, Blimpie will be a privately held
corporation, wholly owned by Parent. Except as provided below, the current
shareholders of Blimpie will cease to have ownership interests in Blimpie or
rights as company shareholders and will not benefit from any continuing
operations or growth of Blimpie, or any transactions in which Blimpie may be
involved in the future. However, Anthony P. Conza, Blimpie's Chairman and Chief
Executive Officer, will own approximately 7.68% of parent, and indirectly, a
comparable interest in Blimpie as the surviving corporation after the merger.
Robert S. Sitkoff, a Senior Vice President of Blimpie, has been offered
continued employment and has been granted an option to purchase approximately
7.68% of Parent which, if exercised, will result in his indirect ownership of a
comparable interest in Blimpie as the surviving corporation after the merger.
The shareholders of Blimpie will be entitled to receive $2.80 in cash for each
share of Blimpie's common stock which they own. See "Recommendation of the Board
of Directors; Fairness of the Merger" beginning on page _____.
As a result of the merger, Blimpie will be a privately held
corporation, and there will be no public market for its common stock. After the
merger, the shares of common stock will cease to be traded on the American Stock
Exchange, and price quotations of sales of shares of common stock in the public
market will no longer be available. In addition, registration of the common
stock under the Exchange Act, as amended, will be terminated. This termination
will make most provisions of the Exchange Act, such as the short-swing profit
recovery provisions of Section 16(b) and the requirement of furnishing a proxy
or information statement in connection with shareholders' meetings, no longer
applicable to Blimpie. After the effective time of the merger, Blimpie will no
longer be required to file periodic reports with the Securities and Exchange
Commission.
At the effective time of the merger,
38
<Page>
o the directors of Newco, will become the directors of Blimpie as the
surviving corporation;
o the officers of Newco, will become the officers of Blimpie as the
surviving corporation;
o Anthony P. Conza, Blimpie's chairman and chief executive officer will
become chairman emeritus of Blimpie;
o David L. Siegel, Esq., Blimpie's vice chairman, chief operating
officer and general counsel, will become Blimpie's general
counsel/director of legal affairs; and
o Newco's certificate of incorporation and bylaws will become Blimpie's
certificate of incorporation and bylaws.
It is expected that, following completion of the merger, the operations of
Blimpie will be conducted substantially as they are currently being conducted.
Blimpie and Newco do not have any present plans or proposals that relate to or
would result in an extraordinary corporate transaction following completion of
the merger involving Blimpie's corporate structure, business or management, such
as a merger, reorganization, liquidation, relocation of any operations or sale
or transfer of a material amount of assets. However, Blimpie as the surviving
corporation, will continue to evaluate Blimpie's business and operations after
the merger and may develop new plans and proposals that Blimpie, considers to be
in the best interests of Blimpie and its then current shareholders.
See "Summary Term Sheet," "Questions and Answers About the Merger,"
"Interests of the Management Group; Appointment of Special Committee," "Risks
That The Merger Will Not Be Completed" and "Estimated Fees and Expenses of The
Merger."
TREATMENT OF STOCK OPTIONS.
Each outstanding stock option, whether or not then vested or exercisable,
will, as of the effective date of the Merger, be cancelled. Each option holder
will be entitled to receive a payment in cash with respect to each cancelled
option, in an amount equal to the product of (i) the number of shares of
Blimpie's common stock subject to such options, whether or not then exercisable,
and (ii) the excess, if any, of $2.80 over the exercise price per share subject
or related to such option.
The following chart shows the number of shares of Blimpie common stock
receivable upon exercise of outstanding options held by directors and executive
officers of Blimpie and the weighted exercise price of all such options:
39
<Page>
Total Shares of Blimpie Common Stock Weighted Average Exercise Price of
Name Receivable Upon Exercise of Options All Options
---- ----------------------------------- -----------
Anthony P. Conza, CEO 85,000 $4.07
David L. Siegel, COO 85,000 4.07
Charles G. Leaness, Exec VP 65,000 3.46
Patrick J. Pompeo, Exec VP 65,000 3.46
Alvin L. Katz, director 37,000 1.92
Harry G. Chernoff, director 37,000 1.92
Jim L. Peterson, director 10,000 1.64
Joseph W. Morgan, Sr. VP 185,000 3.21
Joseph A. Conza, Sr. VP 42,500 5.53
Robert S. Sitkoff, Sr. VP 85,000 3.39
Brian D. Lane, CFO 25,000 3.03
Total for all directors and executive
officers 721,500 $3.45
INTERESTS OF THE MANAGEMENT GROUP;
APPOINTMENT OF SPECIAL COMMITTEE
In considering the recommendation of the board of directors, our
shareholders should be aware that the members of the Management Group have
interests that are or may be different from, or in addition to, the interests of
Blimpie's shareholders generally. Such interest are, as follows:
Anthony P. Conza, Chairman and Chief Executive Officer
Employment Agreement. Mr. Conza has entered into a ten year employment
agreement with Newco that will take effect upon consummation of the merger. That
agreement provides that:
o Mr. Conza will be employed as Chairman Emeritus of Newco;
o he will serve as a marketing spokesperson and public relations
officer of Newco and
o he will perform such other duties are requested by Newco's board
of directors from time to time;
o Newco will pay a salary to Mr. Conza of $250,000 per year;
o Newco will provide health insurance benefits substantially
equivalent to the health benefits currently provided to Mr. Conza
by Blimpie until his 65th birthday;
o Newco will provide to Mr. Conza the use of the same vehicles that
are currently provided to him by Blimpie, and will pay for
parking, repairs, insurance and replacement vehicles as needed;
40
<Page>
o In the event that the agreement is terminated for any reason
other than "for cause," or if Mr. Conza resigns without cause
after the seventh anniversary of the date of consummation of the
merger, he will receive the unpaid balance of the salary that
would have been payable to him as though the agreement had not
terminated.
Non-competition and Non-solicitation Agreement. Mr. Conza has entered
into a non-competition and non-solicitation agreement with Newco which shall
become effective upon consummation of the merger. At the closing of the merger,
Newco will pay $2,486,000 to Mr. Conza in consideration for his agreement
o not to engage in, or to assist others in to engage in, a
competitive business in any of 104 specified countries in which
Blimpie has registered its trademarks for a period of five years,
o not to solicit, interfere with or disturb Newco's relations with
it various vendors, suppliers and franchisees in those countries
during that same five year period,
o not to recruit or solicit any employee of Blimpie before the
merger and Newco after the merger to work for any other business
and
o not to employ anyone who was employed at any time during the two
year period ending on October 5, 2001 by Blimpie before the
merger and Newco after the merger.
The term "competitive business" is defined in the non-competition and
non-solicitation agreement to mean any of the following business entities:
o Metropolitan Blimpie, Inc. ("MBI")(1), any subfranchisor of MBI
or any corporation or other business entity owned or controlled,
directly or indirectly, by MBI's controlling stockholders;
o The Blimpie National Franchisee Association or any other
association of Blimpie franchisees;
o The Blimpie Subfranchisor Advisory Counsel or any other
association of Blimpie subfranchisors; and
o the franchise companies that offer and sell Subway, Quizno,
Schlotsky's and Jersey Mike franchises, and any subfranchisor or
affiliated entity of any of such franchise companies.
(1) MBI is the owner of an undivided 40% interest in the Blimpie trademark,
tradenames, service marks, logos, know-how, marketing concepts and
marketing programs and conducts its business within the United States in
territories that are separate from the territories where Blimpie conducts
its operations. MBI is not affiliated with Blimpie or any of its officers
or directors.
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Parent Common Stock. Mr. Conza owns approximately 7.68% of Parent
common stock expected to be outstanding at the time of the closing. Mr. Conza
paid approximately the same price per share for his investment in Parent common
stock as Jeffrey Endervelt, the principal stockholder of Parent.
David L. Siegel, Vice Chairman and Chief Operating Officer
Employment Agreement. Mr. Siegel has entered into a five year
employment agreement with Newco that will take effect upon consummation of the
merger. That agreement provides that
o Mr. Siegel will be employed as Executive Vice President and
general counsel/director of legal affairs of Newco;
o Newco will pay a salary to Mr. Siegel of $200,000 per year;
o Newco will provide health insurance benefits substantially
equivalent to the health benefits currently provided to Mr.
Siegel by Blimpie throughout the term of the agreement and
thereafter until his 65th birthday;
o Newco will provide to Mr. Siegel the use of the same vehicles
that are currently provided to him by Blimpie, and will pay for
parking, repairs, insurance and replacement vehicles as needed;
o In the event that the agreement is terminated for any reason
other than "for cause," or if Mr. Siegel resigns without cause
after the second anniversary of the date of consummation of the
merger, Mr. Siegel will receive the unpaid balance of the salary
that would have been payable to him as though the agreement had
not terminated.
Non-competition and Non-solicitation Agreement Mr. Siegel has entered
into a non-competition and no-solicitation agreement with Newco which shall
become effective upon consummation of the merger. At the closing of the merger,
Newco will pay $2,069,000 to Mr. Siegel in consideration for his agreement to be
bound by substantially the same terms found in Anthony P. Conza's
non-competition and non-solicitation agreement, except that the term
"competitive business," as defined in Mr. Siegel's agreement, means any business
(including, without limitation, MBI) engaged in the business of franchising,
sub-franchising and master licensing of trademarks, trade names, service marks,
logos, know-how, marketing concepts and programs in connection with non-cooking,
fast food restaurants which sell mainly submarine sandwiches and salads, baked
pasta meals, "Maui-Mex" food items (including, without
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limitation, traditional Mexican food marinated in Hawaiian spices), and/or
blended beverages of frozen yogurt, fruit and nutritional supplements.
The practice of law by Mr. Siegel is not prohibited by the terms
of the non-competition and non-solicitation agreement. However the agreement
specifically prohibits Mr. Siegel from performing legal services for any
client defined above as a "competitive business" in the discussion of
Mr. Conza's non-competition and non-solicitation agreement.
Charles G. Leaness, Director and Executive Vice President
Employment Agreement Mr. Leaness has entered into an employment
agreement with Newco that will take effect upon consummation of the merger. He
will serve as chief executive of Maui Tacos International, Inc. for an
indefinite period of time. After his service in that capacity is terminated
(which can occur on 30 days' notice from Newco), he will continue to be employed
by Newco for a period of one year. During that one year period, Mr. Leaness will
continue to be available to Newco and shall provide such advice as Newco may
reasonably request from him. Mr. Leaness' agreement also provides that:
o Newco will pay a salary to him of $185,000 per year;
o Newco will provide health insurance benefits substantially
equivalent to the health benefits currently provided to Mr.
Leaness by Blimpie; and
o In the event that the agreement is terminated for any reason
other than "for cause," Mr. Leaness will receive substantially
equivalent health benefits and the unpaid balance of the salary
that would have been payable to him as though the agreement had
not terminated.
Non-competition and Non-solicitation Agreement Mr. Leaness has entered
into a non-competition and no-solicitation agreement with Newco which shall
become effective upon consummation of the merger. At the closing of the merger,
Newco will pay $603,000 to Mr. Leaness in consideration for his agreement to be
bound by substantially the same terms found in Anthony P. Conza's
non-competition and non-solicitation agreement.
Patrick J. Pompeo, Director and Executive Vice President
Employment Agreement Mr. Pompeo has entered into a two year employment
agreement with Newco that will take effect upon consummation of the merger. That
agreement provides that
o Mr. Pompeo will be employed as an advisor to Newco with respect
to its research and development activities, its relations with
its purveyors, manufacturers and distributors, its product
specifications, its co-business relationships, the administration
and collection of its R&D Fund and the training of his successor;
o Newco will pay a salary to Mr. Pompeo of $173,250 per year;
o Newco will provide health insurance benefits substantially
equivalent to the health benefits currently provided to Mr.
Pompeo by Blimpie throughout the term of the agreement; and
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o In the event that the agreement is terminated for any reason
other than "for cause," or by reason of Mr. Pompeo's death or
disability, he will receive substantially equivalent health
benefits and the unpaid balance of the salary that would have
been payable to him as though the agreement had not terminated.
Non-competition and Non-solicitation Agreement Mr. Pompeo has entered
into a non-competition and no-solicitation agreement with Newco which shall
become effective upon consummation of the merger. At the closing of the merger,
Newco will pay $553,000 to Mr. Pompeo in consideration for his agreement to be
bound by substantially the same terms found in Anthony P. Conza's
non-competition and non-solicitation agreement.
Joseph Conza, Senior Vice President
Employment Agreement Mr. Conza has entered into a two year employment
agreement with Newco that will take effect upon consummation of the merger. That
agreement provides that
o Mr. Conza will be employed as an advisor to the Company with
respect to the business and affairs of BI Concept Systems, Inc.,
the relocation of the business conducted by BI Concept Systems in
whole or in part from Houston, Texas, to Atlanta, Georgia, the
training of his successor and store equipment and construction
matters;
o Newco will pay a salary to Mr. Conza of $130,910 per year;
o Newco will provide health insurance benefits substantially
equivalent to the health benefits currently provided to Mr. Conza
by Blimpie throughout the term of the agreement; and
o In the event that the agreement is terminated for any reason
other than "for cause," or by reason of Mr. Conza's death or
disability, he will receive substantially equivalent health
benefits and the unpaid balance of the salary that would have
been payable to him as though the agreement had not terminated.
Non-competition and Non-solicitation Agreement Mr. Conza has entered
into a non-competition and no-solicitation agreement with Newco which shall
become effective upon consummation of the merger. At the closing of the merger,
Newco will pay $64,000 to Mr. Conza in consideration for his agreement to be
bound by substantially the same terms found in Anthony P. Conza's
non-competition and non-solicitation agreement.
Joseph W. Morgan, Senior Vice President
Separation Agreement. Mr. Morgan's employment by Blimpie will end upon
consummation of the merger. Newco has entered into a separation agreement with
Mr. Morgan
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which will provide him with post-separation benefits consisting of 12 monthly
payments each in the amount of $17,237.
Non-competition and Non-solicitation Agreement Mr. Morgan has entered
into a non-competition and no-solicitation agreement with Newco which shall
become effective upon consummation of the merger. At the closing of the merger,
Newco will pay $282,000 to Mr. Morgan in consideration for his agreement to be
bound by substantially the same terms found in Anthony P. Conza's
non-competition and non-solicitation agreement.
Robert S. Sitkoff, Senior Vice President
Continued Employment. Newco and Parent have made an offer of continued
employment to Mr. Sitkoff, effective upon closing of the merger.
Option to Purchase Shares of Parent's Common Stock. In connection with
the offer of employment, Parent has granted to Mr. Sitkoff an option to purchase
approximately 7.68% of Parent's common stock. The option has an exercise price
of approximately $58,000 and vests six months after the closing of the merger,
and only if Mr. Sitkoff is then a full time employee of Blimpie, as the
survivor of the merger.
The Special Committee
As a result of the conflict of interests of interest described above, the board
of directors appointed the special committee, consisting of three independent
directors who are not officers or employees of Blimpie and who have no financial
interest in the merger different from our shareholders generally (other than as
holders of shares and options to purchase shares of our common stock). The
special committee was appointed to evaluate, negotiate and, if appropriate,
recommend the merger agreement and to evaluate whether the merger is in the best
interests of our shareholders. The special committee was aware of these
differing interests (other than the interests of Mr. Sitkoff, which arose after
the special committee's consideration of the transaction) and considered them,
among other matters, in evaluating and negotiating the merger agreement and the
merger and in recommending to the board of directors that the merger agreement
and the merger be adopted and approved.
The board of directors determined that each member of the special
committee would receive $15,000 for the services they have rendered on the
committee, regardless of whether any proposed transaction was entered into or
completed. The board of directors also determined that Alvin Katz would receive
an additional $5,000 fee in recognition of the fact that his position as
chairman of the special committee would require him to perform additional duties
not required of the other members.
MERGER CONSIDERATION TO BE RECEIVED
BY THE MANAGEMENT GROUP
The members of the Management Group will be entitled to receive $2.80
per share for each share of Blimpie common stock held by them upon completion of
the merger, or $14,678,011 in the aggregate and individually as follows:
Anthony P. Conza $8,254,238
David L. Siegel 4,154,850
Charles G. Leaness 1,209,342
Patrick J. Pompeo 1,116,184
Joseph Conza 130,424
Joseph W. Morgan 572,303
Robert S. Sitkoff 40,670
------------
$14,678,011
------------
------------
Under the terms of the merger agreement, all outstanding options and
warrants granted by Blimpie will be terminated. The holders of those options and
warrants that were granted at an
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exercise price which is less than $2.80 per share will receive payment in cash
from Newco equal to the difference between $2.80 and the exercise price
multiplied by the number of shares purchasable under their respective options or
warrants. Each of the foregoing members of the Management Group also will
receive payment of $28,400 in connection with the termination of options to
purchase 20,000 shares of our common stock that were granted to them on December
11, 2000. The exercise price of those options is $1.38 per share.
VOTING AGREEMENT
Pursuant to the provisions of the Voting Agreement entered into between
Newco and certain of the members of the Management Group, the members of the
Management Group (other than Messrs. Morgan and Sitkoff) agreed to vote all of
their shares of Blimpie common stock in favor of the adoption and approval of
the merger agreement. Those members of the Management Group hold, in the
aggregate 5,513,336 shares of common stock or approximately 57.9% of the total
number of issued and outstanding shares of Blimpie common stock.
INDEMNIFICATION AND INSURANCE
Paragraph SIXTH of Blimpie's certificate of incorporation, as amended,
eliminates the personal liability of its directors to Blimpie or its
shareholders for monetary damages for breaches of their fiduciary duty (subject
to certain exceptions, such as breaches of the duty of loyalty to Blimpie or its
shareholders), and provides that Blimpie may indemnify its officers and
directors to the full extent permitted by law.
Article XI of Blimpie's bylaws includes provisions for indemnification
of Blimpie's officers and directors to the extent permitted by the NJBCA.
Section 14A:3-5 of the NJBCA authorizes a corporation to indemnify its
directors, officers, employees or agents if such party acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the best
interest of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Blimpie has entered into indemnification agreements with each of its
directors and with the following executive officers who are not also directors:
Joseph A. Conza, Robert S. Sitkoff, Joseph W. Morgan and Brian D. Lane.
Generally, the indemnification agreements attempt to provide the maximum
protection permitted by the NJBCA for indemnification of directors and officers.
The indemnification agreements provide that Blimpie will pay, to the fullest
extent permitted by law, certain amounts incurred by a director or officer in
connection with any civil or criminal action or proceeding where the
individuals' involvement is by reason of the fact that he or she is or was a
director or officer. Such amounts include, attorney's fees, judgments, fines and
amounts paid in settlement incurred in connection with any actual or threatened
action or proceeding whether civil or criminal.
Blimpie also maintains directors and officers liability insurance which
provides up to $5,000,000 of coverage for each of its directors and officers
against claims arising from their actions in such capacities on behalf of
Blimpie its subsidiaries.
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The merger agreement provides that Blimpie as the surviving corporation
will, for six years after the effective time of the merger, continue to honor
all indemnification obligations in force as of the date of the merger agreement
unless otherwise required by law, provided that in the event any claim or claims
are asserted or made within such six year period, all rights to indemnification
in respect of any such claim and claims will continue until final disposition of
any and all such claims. In addition, Blimpie as the surviving corporation, is
required to maintain its directors and officers' liability insurance policies in
effect for six years after the effective time of the merger, except that Blimpie
as the surviving corporation will not be required to pay insurance premiums in
excess of 150% of the premiums currently paid by Blimpie.
FEDERAL INCOME TAX CONSEQUENCES
Upon completion of the merger, each outstanding share of Blimpie common
stock will be automatically converted into the right to receive the $2.80 in
cash, without interest.
The following discussion is a summary of the principal United States
federal income tax consequences of the merger to shareholders whose shares are
surrendered pursuant to the merger. The discussion applies only to shareholders
in whose hands shares of our common stock are capital assets, and may not apply
to shares of our common stock received pursuant to the exercise of employee
stock options or otherwise as compensation, or to shareholders who are not
citizens or residents of the United States.
The United States federal income tax consequences set forth below are
based upon present law. Because individual circumstances may differ, each
shareholder is urged to consult his or her own tax advisor to determine the
applicability of the rules discussed below to him or her and the particular tax
effects of the merger, including the application and effect of state, local and
other tax laws.
The receipt of cash pursuant to the merger will be a taxable
transaction for federal income tax purposes under the Internal Revenue Code of
1986, as amended, and also may be a taxable transaction under applicable state,
local and other income tax laws. In general, for federal income tax purposes, a
shareholder will recognize gain or loss equal to the difference between the cash
received by the shareholder pursuant to the merger and the shareholder's
adjusted tax basis in the shares of Blimpie common stock surrendered in the
merger. Such gain or loss will be capital gain or loss and will be long term
gain or loss if, on the effective date of the merger, the shares of Blimpie
common stock were held for more than one year. There are limitations on the
deductibility of capital losses.
Payments in connection with the merger may be subject to "backup
withholding" at a 31% rate. Backup withholding generally applies if the
shareholder fails to furnish such shareholder's social security number or other
taxpayer identification number, or furnishes an incorrect taxpayer
identification number. Backup withholding is not an additional tax but merely an
advance payment, which may be refunded to the extent it results in an
overpayment of tax. Certain persons generally are exempt from backup
withholding, including corporations and financial institutions. Certain
penalties apply for failure to furnish correct information and for
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failure to include the reportable payments in income. Shareholders should
consult with their own tax advisors as to the qualifications for exemption from
withholding and procedures for obtaining such exemption.
Newco will not recognize gain or loss for United States federal tax
purposes as a result of the merger.
There will be no United States federal tax consequences to Blimpie as a
result of the merger.
ANTICIPATED ACCOUNTING TREATMENT OF MERGER
For U.S. accounting purposes, the merger will be accounted for under
the purchase method of accounting under which the total consideration paid in
the merger will be allocated among Blimpie's consolidated assets and liabilities
based upon the fair value of the assets acquired and liabilities assumed.
CERTAIN REGULATORY MATTERS
Blimpie and Newco do not believe that any governmental filings are
required with respect to the merger other than (i) the filing of the certificate
of merger with the Secretary of State of the State of New Jersey, (ii) filings
with the Securities and Exchange Commission and the American Stock Exchange, and
(iii) filings relating to franchises. Blimpie and Newco do not believe that they
are required to make a filing with the Department of Justice and the Federal
Trade Commission pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, although each agency has the authority to challenge the merger
on antitrust grounds before or after the merger is completed.
APPRAISAL RIGHTS
Under the provisions of the New Jersey Business Corporation Act ("NJBCA"),
unless otherwise provided in Blimpie's certificate of incorporation,
shareholders of a merged corporation will not have the right to dissent from any
plan of merger or consolidation with respect to shares:
o of a class which is listed on a national securities exchange or
is held of record by not less than 1,000 holders on the record
date fixed to determine the shareholders entitled to vote upon
the plan of merger or consolidation; or
o for which pursuant to the plan of merger or consolidation, he
will receive (x) cash, (y) shares, obligation or other securities
which, upon consummation of the merger or consideration, will
either be listed on a national securities exchange or held of
record by not less than 1,000 holders or (z) cash and such
securities.
Due to the fact that our common stock is listed for trading on the
American Stock Exchange and that shareholders will receive cash for their
shares, our shareholders will not have
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the right to dissent from the merger and seek appraisal rights with respect to
their shares of our common stock.
LITIGATION CHALLENGING THE MERGER
On October 22, 2001, a summons and complaint in an action entitled
Richard Johansen, individually and on behalf of all others similarly situated,
against Anthony P. Conza, David L. Siegel, Patrick J. Pompeo, Charles G.
Leaness, Alvin Katz, Harry G. Chernoff and Blimpie International, Inc., was
served upon Blimpie and all of its directors (other than the members of the
special committee). The action is pending in the Superior Court of New Jersey,
Chancery Division, Mercer County under Docket No. Mer-C-154-01.
The complaint in the action alleges that
o certain of the members of the Management Group have engaged with
Mr. Endervelt in an unlawful scheme designed to acquire Blimpie in
a going-private transaction for grossly inadequate consideration
and without full and complete disclosure of all material
information; and
o the action should proceed as a class action.
The action seeks permanent injunctive relief against consummation
of the transaction, rescission of the transaction and rescissionary damages.
Blimpie believes that the action is completely without merit and intends to
vigorously defend itself and its director-defendants.
THE MERGER AGREEMENT
The description of the merger agreement contained in this proxy
statement describes the material terms of the merger agreement. A complete copy
of the merger agreement, without exhibits, appears as Appendix A to this proxy
statement and is incorporated by this reference. You are urged to read the
entire merger agreement as it is the legal document that governs the merger.
The Merger. The merger agreement provides that, subject to the conditions
summarized below, Newco will merge with and into Blimpie. Upon completion of the
merger, Newco will cease to exist and Blimpie will continue as the surviving
corporation.
Effective Time Of Merger. The merger will become effective upon the filing of a
certificate of merger with the Secretary of State of the State of New Jersey in
accordance with the NJBCA or at such later time as is specified in the
certificate of merger. This time is referred to as the "effective time." The
filing is expected to occur as soon as practicable after adoption and approval
of the merger agreement by Blimpie's shareholders at the special meeting and
satisfaction or waiver of the other conditions to the merger set forth in the
merger agreement.
Certificate Of Incorporation, Bylaws And Directors And Officers Of Blimpie As
The Surviving Corporation. When the merger is completed:
the certificate of incorporation of Newco as in effect immediately prior to
the effective time will be the certificate of incorporation of Blimpie as
the surviving corporation;
the bylaws of Newco in effect immediately prior to the effective time will
be the bylaws of Blimpie as the surviving corporation;
the directors of Newco immediately prior to the effective time will become
the directors of Blimpie as the surviving corporation; and
the officers of Newco immediately prior to the effective will become
officers of Blimpie as the surviving corporation.
Conversion Of Common Stock. At the effective time, each outstanding share of
Blimpie common stock will automatically be converted into and represent the
right to receive $2.80 in cash, without interest, referred to as the merger
consideration, except for shares held by Blimpie in treasury, by any subsidiary
of Blimpie or by Newco immediately prior to the effective time of the merger,
which will be canceled without any payment thereon.
At the effective time, each outstanding share of capital stock of Newco
will be converted into and exchanged for one share of common stock of Blimpie,
as the surviving corporation.
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Payment For Shares. At the effective time of the merger, Blimpie, as the
surviving corporation will deposit with the paying agent appointed by Newco
sufficient funds to pay the merger consideration. Promptly after the effective
time of the merger, Blimpie as the surviving corporation will cause to be mailed
to each record holder of shares of Blimpie common stock immediately prior to the
effective time a letter of transmittal and instructions to effect the surrender
of their certificate(s) in exchange for payment of the merger consideration.
SHAREHOLDERS OF BLIMPIE SHOULD NOT FORWARD
STOCK CERTIFICATES TO THE PAYING AGENT UNTIL
THEY HAVE RECEIVED THE LETTER OF TRANSMITTAL.
Each of our shareholders will be entitled to receive $2.80 per share
only upon surrender to the paying agent of a share certificate, together with
such letter of transmittal, duly completed in accordance with the instructions
thereto. If payment of the merger consideration is to be made to a person whose
name is other than that of the person in whose name the share certificate is
registered, it will be a condition of payment that (i) the share certificate so
surrendered be properly endorsed or otherwise in proper form for transfer and
(ii) the person requesting such exchange pay any transfer or other taxes that
may be required to the satisfaction of the paying agent. No interest will be
paid or accrued upon the surrender of the share certificates for the benefit of
holders of the share certificates on any merger consideration.
At any time following the date six months after the effective time of
the merger, Blimpie, as the surviving corporation, at its option, shall be
entitled to require the paying agent to deliver to Blimpie as the surviving
corporation all cash and documents in its possession, which have been deposited
with the paying agent and which have not been disbursed to holders of share
certificates. Thereafter, holders of certificates representing shares of Blimpie
common stock outstanding before the effective time will surrender their
certificates to Blimpie as the surviving corporation and will be entitled to
look only to Blimpie as the surviving corporation and only as general creditors
of the surviving corporation for payment of any claims for merger consideration
to which they may be entitled. Neither Blimpie as the surviving corporation nor
the paying agent will be liable to any person in respect of any merger
consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
Transfer Of Shares. At the effective time, the stock transfer books of Blimpie
will be closed and there will be no further transfers on the records of Blimpie
as the surviving corporation, or its transfer agent of certificates representing
shares of Blimpie common stock outstanding before the effective time and any
such certificates presented to Blimpie as the surviving corporation for
transfer, will be canceled. From and after the effective time, the holders of
share certificates representing shares of Blimpie's common stock before the
effective time will cease to have any rights with respect to these shares except
as otherwise provided for in the merger agreement or by applicable law. All
merger consideration paid upon the surrender for exchange of those share
certificates in accordance with the terms of the merger agreement will be deemed
to have been issued and paid in full satisfaction of all rights pertaining to
the share certificates.
Treatment Of Stock Options. Each outstanding stock option, whether or not then
vested or exercisable, will, as of the effective date of the merger, be
cancelled. Each option holder will be
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entitled to receive a payment in cash with respect to each cancelled option, in
an amount equal to the product of (i) the number of shares of Blimpie's common
stock subject to such options, whether or not then exercisable, and (ii) the
excess, if any, of $2.80 over the exercise price per share subject or related to
such option.
Blimpie Shareholder Approval. Blimpie has agreed that promptly after the
execution of the merger agreement it will take all action reasonably necessary
in accordance with the NJBCA and its certificate of incorporation and bylaws to
convene a shareholders meeting to consider and vote on the merger and the merger
agreement. In this regard, the board of directors of Blimpie and the special
committee shall recommend that Blimpie's shareholders vote to approve the merger
and the merger agreement and use their reasonable best efforts to solicit from
Blimpie's shareholders proxies in favor of the merger.
Representations And Warranties
The merger agreement contains various customary representations and
warranties of Blimpie (which will not survive completion of the merger) relating
to, among other things:
o Blimpie's due organization, valid existence, good standing and
necessary corporate power and authority of Blimpie and its
subsidiaries to carry on their business;
o Blimpie's certificate of incorporation and bylaws and the
equivalent document for each of the subsidiaries of Blimpie;
o the capitalization of Blimpie;
o authorization, execution, delivery and enforceability of the
merger agreement;
o the absence of any conflicts between the merger agreement and
Blimpie's certificate of incorporation and bylaws, and charter or
bylaws of any Blimpie subsidiary, and any applicable laws;
o the absence of consents, approvals, authorizations or permits of
governmental authorities, except those specified in the merger
agreement, required for Blimpie to complete the merger;
o the accuracy of information concerning Blimpie in this proxy
statement;
o brokers', finders' and investment bankers' fees; and
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o the absence of any action, claim, suit, investigation or
proceeding actually pending or threatened against Blimpie or its
subsidiaries that if adversely determined, would, individually or
in the aggregate, be reasonably expected to have a material
adverse effect on Blimpie's business or operations, except for
those disclosed in Blimpie's reports filed with the Securities
and Exchange Commission.
The merger agreement contains various customary representations and
warranties of Newco (which will not survive completion of the merger) relating
to, among other things:
o the due organization, valid existence, good standing and
necessary corporate power and authority of Newco to carry on its
business;
o the authorization, execution, delivery and enforceability of the
merger agreement;
o the absence of any conflicts between the merger agreement and
Newco's certificate of incorporation or bylaws, any applicable
law or other contracts or documents;
o the absence of consents, approvals, authorization or permits of
governmental authorities, except those specified in the merger
agreement, required for Newco to complete the merger;
o financing commitments obtained from third parties in connection
with the merger;
o the accuracy of information concerning information provided by
Newco in connection with this proxy statement;
o brokers', finders' and investment bankers' fees; and
o absence of any action, claims, suit or proceeding actually
pending or threatened against Newco that has had or would be
reasonably expected to have a material adverse effect or Newco.
Conduct Of Business Pending The Merger. The merger agreement imposes various
restrictions on Blimpie's conduct and operations until the merger is completed.
Blimpie has agreed that, prior to the effective time, unless Newco otherwise
consents in writing, Blimpie and each of its subsidiaries will
o operate their respective businesses in the usual and ordinary
course consistent with past practices;
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o employ their reasonable best efforts
to preserve intact their business organization,
maintain their rights and franchises,
retain the services of their respective key employees and
maintain their relationships with their respective customers
and suppliers and others having business dealings with them;
o use their reasonable best efforts to
maintain and keep their properties and assets in as good
repair and condition as at present, ordinary wear and tear
excepted, and
maintain supplies and inventories in quantities consistent
with their customary business practice; and
o use their reasonable best efforts to keep in full force and
effect insurance and bonds comparable in amount and scope of
coverage to that currently maintained.
Solicitation. Newco has agreed that during the 30 day period that commenced on
October 5, 2001, Blimpie, its subsidiaries and their respective officers,
directors, employees, representatives, agents or affiliates have the right to
o initiate, solicit and encourage inquiries or the making or
submission of acquisition proposals from other parties who might
be interested in acquiring Blimpie;
o enter into and maintain or continue discussions or negotiations
with any person or group in furtherance of such inquiries, and
o obtain or induce any person or group to make or submit an
acquisition proposal.
Blimpie has agreed that subsequent to that 30 day period until the
earlier of the effective time of the merger or the termination of the merger
agreement, it will not, and it will cause its subsidiaries not to
o authorize or permit their respective officers, directors,
representatives or agents to, directly or indirectly, encourage,
solicit, initiate or knowingly encourage any inquiries or
proposals,
o engage in negotiations or discussions concerning, or agree to
approve or recommend any acquisition proposal; provided, that,
Blimpie is not prohibited from continuing discussions after the
expiration of the 30-day period with any person that has
discussed an interest in acquiring Blimpie during the initial
30-day market check described above.
53
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As used in the merger agreement the term acquisition proposal means
o a merger, consolidation, share exchange, recapitalization,
liquidation, dissolution, business combination or other similar
transaction;
o any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 15% or more of the assets of Blimpie and its
subsidiaries taken as a whole;
o any tender offer or exchange offer that, if consummated, would
result in any person or group beneficially owning more than 15%
of the outstanding shares of any class of Blimpie's equity
securities or the filing of a registration statement in
connection therewith;
o any acquisition of 15% or more of Blimpie's outstanding shares of
capital stock or the filing of a registration statement in
connection therewith;
o any other acquisition or disposition the consummation of which
would prevent or materially diminish the benefit to Newco of the
merger; or
o any public announcement by Blimpie or any third party of a
proposal, plan or intention to do any of the foregoing or any
agreement to engage in any of the foregoing.
If the special committee or Blimpie's board of directors receives an
unsolicited acquisition proposal for or request to discuss any competing
transaction from a person that was not solicited by Blimpie after the date of
the merger agreement, the special committee on behalf of Blimpie may supply
non-public information to that person as, and to the extent that, the special
committee believes that to do so could reasonably lead to a superior proposal.
Supplying non-public information under these circumstances must be subject to a
customary confidentiality agreement.
A superior proposal is defined in the merger agreement to be any
proposal made by a third party to acquire, directly or indirectly, including
pursuant to a tender offer, exchange offer, merger, consolidation, share
exchange, business combination, recapitalization, liquidation, dissolution or
other similar transaction, not less than 51% of Blimpie's outstanding shares of
common stock or all or substantially all of Blimpie and its subsidiaries assets
taken as a whole which the special committee determines in good faith
o is more favorable to Blimpie's shareholders from a financial
point of view than the merger, and
o is reasonably likely to be consummated in a timely manner, taking
into account all financial, regulatory, legal and other aspects
of such proposal.
54
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Blimpie has agreed to notify Newco promptly of any such proposals or
inquiries, and thereafter to keep Newco informed as to the status of any such
proposals or inquiries.
Access To Information. Blimpie has agreed that between the date of the merger
agreement and the effective time of the merger it will afford to the officers,
employees, counsel, accountants, and other representatives of Newco full access,
during normal business hours, to Blimpie's or any of its subsidiaries' books and
records. Blimpie further agreed that Blimpie and its subsidiaries would promptly
furnish to Newco a copy of each report, schedule, registration statement and
other document filed during such period pursuant to the requirements of federal
and state securities laws and such other information concerning the business,
properties, contracts, records and personnel of Blimpie and its subsidiaries as
may be reasonably requested by or on behalf of Newco.
Conditions To The Merger.
Conditions To Each Party's Obligation. The obligations of Blimpie and Newco to
complete the merger are subject to the satisfaction or waiver on or prior to the
effective time of the following conditions:
o the merger and the merger agreement shall have been adopted and
approved by the holders of a majority of the outstanding shares
of Blimpie's common stock; and
o the absence of any statute, order or injunction that prohibits
the completion of the merger.
Conditions To Newco's Obligation. The obligations of Newco to complete
the merger are subject to the satisfaction, or waiver by Newco, on or prior to
the effective time, of the following conditions:
o Blimpie shall not have suffered from a material adverse effect;
and
o Blimpie shall have received and furnished to Newco evidence of
approvals and consents from third parties and governmental
entities necessary or required to complete the transactions
contemplated by the merger agreement.
Conditions To Blimpie's Obligation. The obligation of Blimpie
to effect the merger is subject to the satisfaction, or waiver by Blimpie, on or
prior to the effective time, of the following conditions:
o Newco shall not have suffered from a material adverse effect; and
o Newco shall have received and furnished to Blimpie evidence of
approvals and consents from third parties and governmental
entities necessary or required to complete the transactions
contemplated by the merger agreement.
55
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A material adverse effect is defined in the merger agreement to mean
o any fact, event or circumstance that results in or would
reasonably be expected to result in an adverse change or effect
in the financial condition, assets, liabilities, business,
properties or results of operations of a specified party, which
change or effect is material with any other such changes or
effects, to the specified party (and when used with respect to
Blimpie, taking into consideration Blimpie and its subsidiaries
taken as a whole)
o any event, matter, condition or effect which materially impairs
the ability of a specified party to perform on a timely basis its
obligations under the merger agreement or the consummation of the
transactions contemplated thereby; in each case, other than any
change or effect attributable to
the economy in general,
claims and allegations made by MBI concerning its rights
under various agreements it has with Blimpie that Blimpie
has previously disclosed to Newco, or
with respect to Blimpie, a change in relationships with its
franchisees resulting primarily from the announcement of the
merger.
Waiver. At any time prior to the effective time of the merger, any party to the
merger agreement may with respect to any other party
o extend the time for the performance of any of the obligations or
other acts
o waive any inaccuracies in the representations and warranties
contained in the merger agreement or in any document delivered
pursuant to the merger agreement or
o waive compliance with any of the agreements or conditions
contained in the merger agreement.
However, after the approval of the merger by Blimpie's shareholders, no
extensions or waivers will be made that by law require further approval of the
shareholders without the approval of such shareholders.
Termination Of The Merger Agreement. The merger agreement may be terminated and
the merger and the other transactions contemplated thereby may be abandoned at
any time before the effective time of the merger by written notice by the
terminating party to the other party whether before or after approval of the
matters presented in connection with the merger to the shareholders of Blimpie:
o by mutual written consent of the board of directors of Blimpie
and Newco;
56
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o by either Blimpie or Newco by action of the board of directors if
the merger is not completed on or before March 31, 2002;
o by either Blimpie or Newco by action of its board of directors if
a court of competent jurisdiction or other governmental entity
shall have issued a non-appealable final order, decree or ruling
or taken any other action, in each case having the effect of
permanently restraining, enjoining, or otherwise prohibiting the
merger;
o by either Blimpie or Newco by action of its board of directors,
if at the shareholders meeting, the requisite votes of the
shareholders of Blimpie in favor of the merger and the merger
agreement shall have not been obtained;
o by Newco by action of its board of directors if
our board of directors or any committee of our board
initiates, solicits or encourages acquisition proposals
or enters into or maintains discussions or negotiations
with any person or group in furtherance of such inquiries
in violation of the provisions of the merger agreement,
recommends an acquisition proposal to our shareholders,
or
withdraws, revokes or amends its approval or
recommendation of the merger and the merger agreement
in a manner adverse to Newco,
Capitalink withdraws, revokes, amends or modifies its
opinion to the special committee in a manner adverse to
Newco; or
we fail to include in this proxy statement our board's
approval or recommendation of the merger and the merger
agreement;
o by Newco, if Blimpie shall have breached or failed to perform in
any respect any of its representations, warranties or covenants
required to be performed by it under the merger agreement, other
than breaches that will not have a material adverse effect or
that are not cured within a 10-day period;
o by Blimpie, if Newco shall have breached or failed to perform in
any respect any of its representations, warranties or covenants
required to be performed by it under the merger agreement, other
than breaches that will not have a material adverse effect or
that are not cured within a 10-day period;
o by Blimpie at any time prior to the shareholder meeting, by
action of the special committee, if a third party, including any
group, shall have made a superior proposal, and
the special committee has determined in good faith that it
would be necessary for our board of directors to terminate
the merger agreement in order to comply with its fiduciary
obligations under applicable law;
57
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Blimpie has notified Newco in writing of the determinations
made by the special committee at least three business days
prior to terminating the merger agreement;
the special committee concurrently or previously approves
the superior proposal; and
we shall have reimbursed Newco for its expenses not in
excess of $200,000 and paid the $1,300,000 fee required
under the merger agreement; and
o by Blimpie in the event of Newco's failure to obtain the funds
provided by the financing contemplated in the merger agreement on
or before March 31, 2002.
If the merger agreement is terminated, other than for the reasons
described below, there will be no liability on the part of Blimpie, Newco or any
of their affiliates, directors, officers, employers or shareholders.
Blimpie will be obligated to reimburse Newco for all reasonable
out-of-pocket fees and expenses actually incurred by Newco in connection with
the merger and the proposed financing thereof, which fees and expenses shall not
exceed $200,000, and to pay Newco an amount equal to $1,300,000 if the merger
agreement is terminated
o by Blimpie if it terminates the merger agreement in order to
accept a superior proposal; and
o by Newco by action of its board of directors if
our board of directors or any committee of our board
violates any material provisions of the
non-solicitation provisions of the merger agreement,
recommends an acquisition proposal to our shareholders,
or
withdraws, revokes or amends its approval or
recommendation of the merger and the merger agreement
in a manner adverse to Newco,
Capitalink withdraws, revokes, amends or modifies its
opinion to the special committee in a manner adverse to
Newco; or
we fail to include in this proxy statement our board's
approval or recommendation of the merger and the merger
agreement.
In the event Newco terminates the merger agreement as a result of a
breach or failure to perform any of our representations, warranties or
covenants, as described above, we will be obligated to reimburse Newco for not
more than $600,000 of all reasonable out-of-pocket fees and expenses actually
incurred by Newco in connection with the merger and the proposed financing
thereof.
In the event that the merger agreement is terminated by either Newco or
Blimpie because the requisite vote of the shareholders of Blimpie in favor of
the merger shall not have been obtained, Blimpie will be required to reimburse
Newco for its reasonable out-of-pocket fees and
58
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expenses incurred in connection with the merger, which fees and expenses shall
not exceed $200,000.
In the event Blimpie terminates the merger agreement as a result of
o Newco's breach or failure to perform its representations,
warranties or covenants or
o Newco's failure to obtain the funds necessary to finance the
merger on or before March 31, 2002,
the $50,000 deposited in escrow by Newco shall be delivered to Blimpie and Newco
shall reimburse Blimpie for its reasonable out-of-pocket fees and expenses
incurred in connection with the merger, which fees and expenses shall not exceed
$200,000.
Expenses Of The Parties. Except for the reimbursement of expenses to Newco in
the event of termination of this merger agreement as described above, all fees
and expenses incurred in connection with the merger agreement and the
transactions contemplated by the merger agreement will be paid by the party
incurring the expenses, whether or not the merger is completed.
Amendments. The merger agreement may be amended by the parties at any time
before or after any required approval of matters presented in connection with
the merger by the stockholders; provided, however, that after any such approval,
there shall be made no amendment that by law requires further approval by such
shareholders without the further approval of such stockholders. The merger
agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties.
COMMON STOCK MARKET INFORMATION
Our common stock is listed on the American Stock Exchange under the
symbol BLM. The quarter by quarter ranges of the high, low and closing prices of
our Common Stock on that Exchange during the fiscal years ended June 30, 2000
and 2001, and the quarter ended September 30, 2001, were as follows:
High Low Close
--------------------------- -------------- -------------- --------------
Fiscal 2000
-----------
Qtr Ended 9/99 3.319 2.000 2.000
Qtr Ended 12/99 2.063 1.250 1.875
Qtr Ended 3/00 1.907 1.292 1.846
Qtr Ended 6/00 2.215 1.563 1.813
Fiscal 2001
-----------
Qtr Ended 9/00 1.960 1.531 1.625
Qtr Ended 12/00 1.813 1.188 1.250
Qtr Ended 3/01 1.953 1.240 1.510
Qtr Ended 6/01 1.750 1.350 1.720
Fiscal 2002
-----------
Qtr Ended 9/01
59
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The closing sale price for shares of Blimpie common stock on the
American Stock Exchange on October 5, 2001, the last trading day before Blimpie
announced that it had executed the merger agreement with Newco , was $1.50. The
average closing sale price per share of Blimpie common stock was $1.45 during
the one week preceding that announcement. On [ ], 200[ ], the last full trading
day before the public announcement of the signing of the merger agreement, the
high and low sales prices of Blimpie common stock as reported on the American
Stock Exchange were $1.50 and $1.41 per share, respectively, and the closing
sale price on that date was $1.50 per share. On ___________, 200[ ], the last
practicable trading day for which information was available prior to the date of
the first mailing of this proxy statement, the closing price per share of the
Blimpie common stock as reported on the American Stock Exchange was $_____.
Shareholders should obtain a current market quotation for Blimpie common stock
before making any decision with respect to the merger.
NUMBER OF SHAREHOLDERS
As of [ ], 200[ ], there were issued and outstanding [9,163,659]
shares of our common stock and approximately [ ] beneficial owners of those
shares.
DIVIDENDS
During the fiscal years ended June 30, 1999, 2000 and 2001, we paid
cash dividends aggregating $.07 per share in each fiscal year. Following the
merger, it is not expected that Blimpie will pay any dividends.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the
beneficial ownership of Blimpie as of [the record date] by (1) all those known
to Blimpie to be beneficial owners of more than 5% of its common stock; (2) each
executive officer and director of Blimpie; and (3) all executive officers and
directors of Blimpie as a group. Newco currently does not beneficially own any
Blimpie common stock. Unless otherwise indicated, the address for each of the
shareholders listed below is c/o Blimpie International, Inc., 740 Broadway, New
York, New York 10003.
60
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Number of Shares Percent
Name and Address of Beneficial Owner (1) Beneficially Owned (2) Owned (3)
---------------------------------------- ---------------------- ---------
Anthony P. Conza................................ 3,017,742 (4) 32.7%
David L. Siegel................................. 1,555,117 (5) 16.8%
Charles G. Leaness.............................. 489,459 (6) 5.3%
Patrick Pompeo.................................. 451,368 (7) 4.9%
Alvin L. Katz (8)............................... 43,600 (9) *
Harry G. Chernoff (10).......................... 35,868 (11) *
Jim L. Petersen (12)............................ 2,000 (13) *
Joseph W. Morgan................................ 262,767 (14) 2.8%
Joseph A. Conza................................. 88,601 (15) *
Robert S. Sitkoff............................... 84,525 (16) *
Brian D. Lane................................... 29,043 (17) *
All Directors and Executive Officers
As a Group (10 Persons)......................... 6,060,090 (18) 62.4%
---------------------------
* Represents less than 1%.
(1) Except as otherwise noted, the address of each of the persons listed below
is 740 Broadway, New York, New York 10003.
(2) Includes shares actually and beneficially owned.
(3) Based upon 9,163,659 shares outstanding on September 26, 2001 (not
including 470,267 treasury shares), increased by the number of shares under
options which the holder(s) thereof have the right to acquire within 60
days from September 26, 2001.
(4) Includes 70,000 shares which Mr. Conza may acquire pursuant to options
exercisable within 60 days of September 26, 2001. Does not include (a)
37,050 shares owned by Mr. Conza's daughter, (b) 9,300 shares owned by Mr.
Morgan (Mr. Conza's son-in-law), (c) 125,000 shares owned jointly by Mr.
Conza's daughter and Mr. Morgan over which Mr. Morgan has sole voting
power, (d) 4,150 shares owned by Mr. Conza's parents, (e) 44,913 shares
owned by Joseph Conza, the brother of Mr. Conza, and (f) 44,000 shares held
by Mr. Conza's daughter as Trustee for the Anthony P. Conza Charitable
Remainder Trust, as to all of which Mr. Conza disclaims beneficial
ownership.
(5) Includes 70,000 shares which Mr. Siegel may acquire pursuant to options
exercisable within 60 days of September 26, 2001. Does not include 13,046
shares held by Mr. Siegel's daughter, as to which Mr. Siegel disclaims
beneficial ownership.
(6) Includes 50,000 shares which Mr. Leaness may acquire pursuant to options
exercisable within 60 days of September 26, 2001.
(7) Includes 50,000 shares which Mr. Pompeo may acquire pursuant to options
exercisable within 60 days of September 26, 2001. Does not include 6,300
shares held by Mr. Pompeo's sister and brother-in-law, as to which Mr.
Pompeo disclaims beneficial ownership.
(8) The address of Mr. Katz is 301 N. Birch Road, Ft. Lauderdale, Florida
33304.
(9) Includes 23,600 shares which Mr. Katz may acquire pursuant to options
exercisable within 60 days of September 26, 2001.
61
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(10) The address of Dr. Chernoff is 286 Spring Street, Suite 401, New York, New
York 10013.
(11) Includes 23,600 shares which Dr. Chernoff may acquire pursuant to options
exercisable within 60 days of September 26, 2001.
(12) The address of Mr. Petersen is Five North McCormick Street, Oklahoma City,
Oklahoma 73127.
(13) Includes 2,000 shares which Mr. Petersen may acquire pursuant to options
exercisable within 60 days of September 26, 2001.
(14) Includes 128,000 shares which Mr. Morgan may acquire pursuant to options
exercisable within 60 days of September 26, 2001. Does not include (a)
37,050 shares held by Mr. Morgan's wife (Mr. A. Conza's daughter), (b)
13,100 shares held by Mr. Morgan's children, (c) 700 shares held by Mr.
Morgan's wife as custodian for his son under the Transfers to Minors Act,
(d) 44,000 shares held by Mr. Morgan's wife as Trustee for the Anthony P.
Conza Charitable Remainder Trust, and (e) 16,500 shares held by a
corporation of which Mr. Morgan's wife is the sole shareholder, as to all
of which Mr. Morgan disclaims beneficial ownership.
(15) Includes 41,000 shares which Mr. Conza may acquire pursuant to options
exercisable within 60 days of September 26, 2001.
(16) Includes 70,000 shares which Mr. Sitkoff may acquire pursuant to options
exercisable within 60 days of September 26, 2001.
(17) Includes 20,000 shares which Mr. Lane may acquire pursuant to options
exercisable within 60 days of September 26, 2001.
(18) Includes 548,200 shares which all of such persons may acquire pursuant to
options exercisable within 60 days of September 26, 2001. Does not include
the shares excluded from the percentage ownership calculations made with
respect to Messrs. Conza, Siegel, Pompeo and Morgan pursuant to notes 4,
5, 7 and 14 above.
FUTURE SHAREHOLDER PROPOSALS
If the merger is completed, there will be no public participation in
any of our future shareholder meetings. However, if the merger is not completed,
our shareholders will continue to be entitled to attend and participate in our
shareholders' meetings. If the merger is not completed, we will inform our
shareholders, by press release or other means which we determine to be
reasonable, of the date by which shareholder proposals must be received by
Blimpie for inclusion in the proxy materials relating to the annual meeting,
which proposals must comply with the rules and regulations of the Securities and
Exchange Commission then in effect.
WHERE SHAREHOLDERS CAN FIND MORE INFORMATION
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We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. Such reports,
proxy statements and other information contain additional information about us.
Our shareholders may read and copy any reports, statements or other
information filed by us at the Commission's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional office at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Please call the
Commission at 1-800-SEC-0330 for further information on the operation of the
public reference rooms. Our filings with the Commission are also available to
the public from commercial document retrieval services and at the website
maintained by the Commission located at: "www.sec.gov."
The proxy statement does not constitute an offer to sell, or a
solicitation of an offer to buy, any securities, or the solicitation of a proxy,
in any jurisdiction to or from any person to whom it is not lawful to make any
offer or solicitation in such jurisdiction. The delivery of this proxy statement
should not create an implication that there has been no change in Blimpie's
affairs since the date of this proxy statement or that the information herein is
correct as of any later date.
Shareholders should not rely on information other than that contained
or incorporated by reference in this proxy statement. Blimpie has not authorized
anyone to provide information that is different from that contained in this
proxy statement. This proxy statement is dated [ ], 200[ ]. No assumption should
be made that the information contained in this proxy statement is accurate as of
any date other than such date, and the mailing of this proxy statement will not
create any implication to the contrary.
63
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
BETWEEN
BLIMPIE INTERNATIONAL, INC.
AND
SANDWICH ACQUISITION CORP.
DATED AS OF OCTOBER 5, 2001
TABLE OF CONTENTS
Page
----
ARTICLE 1 THE MERGER.........................................................................................1
Section 1.1 The Merger......................................................................................1
Section 1.2 Effective Time..................................................................................1
Section 1.3 Effect of the Merger............................................................................2
Section 1.4 Certificate of Incorporation; Bylaws............................................................2
Section 1.5 Directors and Officers..........................................................................2
Section 1.6 Conversion of Securities........................................................................2
Section 1.7 Adjustments to Prevent Dilution.................................................................3
Section 1.8 Surrender of Shares.............................................................................3
Section 1.9 No Further Transfer or Ownership Rights.........................................................4
Section 1.10 Treatment of Options...........................................................................4
Section 1.11 Execution of Voting Agreement..................................................................4
Section 1.12 Execution of Employment and Non-Competition Agreements.........................................4
Section 1.13 Adjustment of the Merger Consideration and the Option Consideration............................4
Section 1.14 Closing........................................................................................5
Section 1.15 Deposit........................................................................................5
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................................................5
Section 2.1 Organization and Qualification..................................................................6
Section 2.2 Subsidiaries and Affiliates.....................................................................6
Section 2.3 Capitalization..................................................................................6
Section 2.4 Authority Relative to this Agreement............................................................7
Section 2.5 Absence of Certain Changes......................................................................8
Section 2.6 Report and Financial Statements.................................................................8
Section 2.7 Proxy Statement.................................................................................9
Section 2.8 Consents and Approvals; No Violation............................................................9
Section 2.9 Brokerage Fees and Commissions.................................................................10
Section 2.10 Litigation....................................................................................10
Section 2.11 Absence of Changes in Benefit Plans...........................................................10
Section 2.12 ERISA Compliance..............................................................................10
Section 2.13 Taxes.........................................................................................13
Section 2.14 Compliance with Applicable Laws...............................................................14
Section 2.15 Environmental.................................................................................14
Section 2.16 State Takeover Statutes.......................................................................16
Section 2.17 Contracts.....................................................................................16
Section 2.18 Labor Matters.................................................................................16
Section 2.19 Property......................................................................................17
Section 2.20 [Reserved.]...................................................................................17
Section 2.21 Opinion of Financial Advisors.................................................................17
Section 2.22 Intellectual Property.........................................................................17
Section 2.23 Insurance.....................................................................................19
Section 2.24 Affiliate Transactions........................................................................19
Section 2.25 Franchise Operations..........................................................................19
Section 2.26 Health Claims.................................................................................22
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF NEWCO...........................................................23
Section 3.1 Organization and Qualification.................................................................23
Section 3.2 Authority Relative to this Agreement...........................................................23
Page
----
Section 3.3 Consents and Approvals; No Violation...........................................................23
Section 3.4 Financing Commitments; Solvency................................................................23
Section 3.5 Ownership of Company Stock.....................................................................24
Section 3.6 Information....................................................................................24
Section 3.7 Brokerage Fees and Commissions.................................................................24
Section 3.8 Litigation.....................................................................................24
ARTICLE 4 CONDUCT OF BUSINESS PENDING THE MERGER............................................................24
Section 4.1 Conduct of Business of the Company Pending the Merger..........................................24
Section 4.2 Prohibited Actions by the Company..............................................................25
ARTICLE 5 COVENANTS AND ADDITIONAL AGREEMENTS...............................................................27
Section 5.1 Solicitation Provisions........................................................................27
Section 5.2 Access to Information..........................................................................29
Section 5.3 [Reserved].....................................................................................29
Section 5.4 Reasonable Best Efforts........................................................................29
Section 5.5 Event Notices and Other Actions................................................................30
Section 5.6 Third Party Standstill Agreements..............................................................31
Section 5.7 Employee Stock Options; Employee Plans and Benefits............................................31
Section 5.8 Meeting of the Company's Shareholders..........................................................32
Section 5.9 Proxy Statement................................................................................32
Section 5.10 Public Announcements..........................................................................33
Section 5.11 FIRPTA........................................................................................33
Section 5.12 Alternative Financing; Disclosure.............................................................33
Section 5.13 Delisting.....................................................................................33
Section 5.14 Stockholder Litigation........................................................................33
Section 5.15 Indemnification...............................................................................33
ARTICLE 6 CONDITIONS TO CONSUMMATION OF THE MERGER..........................................................34
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger.....................................34
Section 6.2 Conditions to Obligations of Newco to Effect the Merger........................................34
Section 6.3 Conditions to the Obligations of the Company...................................................35
ARTICLE 7 TERMINATION; AMENDMENT; WAIVER....................................................................35
Section 7.1 Termination....................................................................................35
Section 7.2 Effect of Termination..........................................................................36
Section 7.3 Fees and Expenses..............................................................................36
Section 7.4 Amendment......................................................................................37
Section 7.5 Extension; Waiver..............................................................................37
ARTICLE 8 MISCELLANEOUS.....................................................................................38
Section 8.1 Non-Survival of Representations and Warranties.................................................38
Section 8.2 Enforcement of the Agreement...................................................................38
Section 8.3 Severability...................................................................................38
Section 8.4 Notices........................................................................................38
Section 8.5 Failure or Indulgence Not Waiver; Remedies Cumulative..........................................39
Section 8.6 Governing Law..................................................................................39
Section 8.7 Descriptive Headings...........................................................................39
Section 8.8 Parties in Interest............................................................................39
Section 8.9 Counterparts...................................................................................39
Section 8.10 Certain Definitions...........................................................................39
Section 8.11 Interpretation................................................................................40
Section 8.12 Entire Agreement; Assignment..................................................................41
ii
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, is dated as of October 5, 2001 (the
"Agreement") between Sandwich Acquisition Corp., a New Jersey corporation
("Newco") and Blimpie International, Inc., a New Jersey corporation (the
"Company").
WHEREAS, it is the intention of the parties that Newco shall merge with and
into the Company (the "Merger"), with the Company being the surviving
corporation;
WHEREAS, a Special Committee (the "Special Committee") of the Board of
Directors of the Company (composed entirely of directors who have no direct or
indirect interest in the transactions contemplated hereby) has unanimously
determined, and the Board of Directors of the Company has unanimously
determined, that the Merger and other transactions contemplated by this
Agreement are fair to, advisable and in the best interests of the Company and
its shareholders, and each of the Special Committee and the Board of Directors
of the Company has approved this Agreement and recommended its adoption by the
shareholders of the Company;
WHEREAS, the Special Committee, the Board of Directors of the Company and
the Board of Directors and the sole stockholder of Newco have each approved and
adopted this Agreement and have approved the transactions contemplated hereby;
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, as a condition and inducement to Newco's willingness to enter into
this Agreement, Messrs. Anthony Conza, David Siegel, Patrick Pompeo, Charles
Leaness and Joe Conza, shareholders of the Company (the "Key Shareholders"),
have entered into a Voting Agreement with Newco (the "Voting Agreement"),
pursuant to which such shareholders have agreed to vote all shares of Company
Common Stock owned by them in favor of the approval of this Agreement and the
Merger and against any competing transaction;
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, as a condition and inducement to Newco's willingness to enter into
this Agreement, the Key Shareholders have entered into employment agreements
(the "Employment Agreements") and Non-Competition and Non-Solicitation
Agreements (the "Non-Competition Agreements") with Newco, which, in each case,
are conditioned upon the consummation of the Merger;
WHEREAS, Newco and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe certain conditions to the Merger; and
NOW THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements set forth herein, the parties hereto
intending to be legally bound, agree as follows:
ARTICLE 1
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, at the Effective Time (as defined in Section 1.2),
Newco shall be merged with and into the Company and the separate corporate
existence of Newco shall thereupon cease. The Company shall be the surviving
corporation in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation") and continue its existence under the laws of the State of New
Jersey.
Section 1.2 Effective Time. As promptly as practicable after the
satisfaction or waiver in accordance with this Agreement of the conditions set
forth in Article VI of this Agreement, the parties
1
hereto shall cause the Merger to be consummated by filing a Certificate of
Merger ("Certificate of Merger") with the Secretary of State of the State of New
Jersey in such form as is required by, and executed in accordance with, the
applicable provisions of the New Jersey Business Corporation Act (the "NJBCA").
The Certificate of Merger will provide that the Merger will become effective
immediately upon the filing thereof with such Secretary of State in accordance
with the NJBCA. The time when the Merger becomes effective is hereinafter
referred to as the "Effective Time."
Section 1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided by the NJBCA. Without limiting the foregoing, all
the property, rights, privileges, powers and franchises of the Company and Newco
shall be vested in the Surviving Corporation, and all debts, liabilities and
duties of the Company and Newco shall become the debts, liabilities and duties
of the Surviving Corporation.
Section 1.4 Certificate of Incorporation; Bylaws.
(a) The certificate of incorporation of Newco as in effect at the
Effective Time shall be the certificate of incorporation of the Surviving
Corporation (the "Certificate of Incorporation"), until duly amended as
provided therein or by applicable law, except that Article I thereof shall
be amended to read, "The name of the corporation is Blimpie International,
Inc."
(b) The bylaws of Newco in effect at the Effective Time shall be the
bylaws of the Surviving Corporation (the "Bylaws"), until duly amended as
provided therein or by applicable law (with the name of the Surviving
Corporation changed, as appropriate).
Section 1.5 Directors and Officers.
(a) The directors of Newco at the Effective Time shall, from and after
the Effective Time, be the directors of the Surviving Corporation to serve
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the
Certificate of Incorporation and the Bylaws.
(b) The officers of Newco at the Effective Time shall, from and after
the Effective Time, be the officers of the Surviving Corporation to serve
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the
Certificate of Incorporation and the Bylaws.
Section 1.6 Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of Newco, the Company or the
holders of any of the following securities:
(a) Each share of common stock of the Company, par value $.01 per share
("Company Common Stock"), issued and outstanding immediately before the
Effective Time (other than shares of Company Common Stock cancelled
pursuant to Section 1.6(b)) shall be converted into and represent the right
to receive $2.80 in cash (the "Merger Consideration"), without interest,
upon surrender of the certificate formerly representing such share in the
manner provided in Section 1.8, less any required withholding taxes.
(b) Each share of Company Common Stock held in the treasury of the
Company or held by any Subsidiary of the Company, and each share of Company
Common Stock held by Newco immediately before the Effective Time, shall be
cancelled and cease to exist, and no payment shall be made with respect
thereto.
(c) Each share of common stock, par value $0.01 per share, of Newco
that is issued and outstanding immediately prior to the Effective Time
shall be converted into one share of common stock, par value $0.01 per
share, of the Surviving Corporation.
2
Section 1.7 Adjustments to Prevent Dilution. In the event that the Company
changes the number of shares of capital stock of the Company or securities
convertible or exchangeable into or exercisable for shares of capital stock of
the Company issued and outstanding prior to the Effective Time as a result of a
reclassification, stock split (including a reverse split), stock dividend or
distribution, recapitalization, merger, subdivision, issuer tender or exchange
offer, or other similar transaction, the Merger Consideration shall be equitably
adjusted on a dollar-for-dollar or share-for-share basis.
Section 1.8 Surrender of Shares.
(a) Prior to the mailing of the Proxy Statement (as defined in Section
2.7), Newco shall appoint a bank or trust company to act as paying agent
(the "Paying Agent") for the payment of the Merger Consideration. At the
Effective Time, the Surviving Corporation shall deposit with the Paying
Agent for the benefit of former holders of shares of Company Common Stock
sufficient funds to make payments of the Merger Consideration on all shares
of Company Common Stock to be converted into cash under Section 1.6(a).
Such funds shall be invested by the Paying Agent in money market
obligations selected by the Surviving Corporation. Any net profit resulting
from, or interest or income produced by, such investments shall be payable
to the Surviving Corporation or as it directs.
(b) Promptly after the Effective Time, the Surviving Corporation shall
cause to be mailed to each record holder, as of the Effective Time, of an
outstanding certificate or certificates which immediately prior to the
Effective Time represented shares of Company Common Stock (the
"Certificates"), a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Paying
Agent) and instructions for use in effecting the surrender of the
Certificates for payment of the Merger Consideration therefor. Upon
surrender to the Paying Agent of a Certificate, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, and such other documents as may be required pursuant
to such instructions, the holder of such Certificate shall be entitled to
receive in exchange therefor the aggregate amount of Merger Consideration
into which the number of shares of Company Common Stock previously
represented by such Certificate or Certificates surrendered shall have been
converted pursuant to this Agreement. If any Merger Consideration is to be
remitted to a person whose name is other than that in which the Certificate
surrendered for exchange is registered, it shall be a condition of such
exchange that the Certificate so surrendered shall be properly endorsed,
with signature guaranteed, or otherwise in proper form for transfer, and
that the person requesting such exchange shall have paid any transfer
and/or other taxes required by reason of the remittance of Merger
Consideration to a person whose name is other than that of the registered
holder of the Certificate surrendered, or the person requesting such
exchange shall have established to the satisfaction of the Surviving
Corporation that such tax either has been paid or is not applicable. No
interest shall be paid or accrued, upon the surrender of the Certificates,
for the benefit of holders of the Certificates on any Merger Consideration.
(c) At any time following the date six months after the Effective Time,
the Surviving Corporation, at its option, shall be entitled to require the
Paying Agent to deliver to it any funds (including any interest received
with respect thereto) which shall have been deposited with the Paying Agent
and which shall have not been disbursed to holders of Certificates, and
thereafter such holders shall be entitled to look only to the Surviving
Corporation (subject to abandoned property, escheat or other similar laws)
and only as general creditors thereof for payment of their claim for Merger
Consideration to which such holders may be entitled.
(d) Notwithstanding the provisions of Section 1.8(c), neither the
Surviving Corporation nor the Paying Agent shall be liable to any person in
respect of any Merger Consideration delivered to a public official pursuant
to any applicable abandoned property, escheat or similar law.
3
(e) The Surviving Corporation shall be entitled to deduct and withhold
from the consideration otherwise payable pursuant to this Agreement to any
former holder of shares of Company Common Stock such amounts as the
Surviving Corporation (or any affiliate thereof) is required to deduct and
withhold with respect to the making of such payment under the Code (as
defined in Section 2.12), or any provision of any applicable state, local
or foreign law, rule or regulation. To the extent that amounts are so
withheld by the Surviving Corporation and paid by the Surviving Corporation
to the applicable taxing authority, such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the former holder
of shares of Company Common Stock in respect of which such deduction and
withholding was made by the Surviving Corporation.
Section 1.9 No Further Transfer or Ownership Rights. After the Effective
Time, there shall be no further transfer on the records of the Company (or the
Surviving Corporation) or its transfer agent of Certificates representing shares
of Company Common Stock, and if such Certificates are presented to the Company
(or the Surviving Corporation) for transfer, they shall be cancelled. From and
after the Effective Time, the holders of certificates evidencing ownership of
shares of capital stock of the Company outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to such shares of
capital stock except as otherwise provided for herein or by applicable law. All
Merger Consideration paid upon the surrender for exchange of certificates
representing shares of capital stock of the Company in accordance with the terms
of this Article I shall be deemed to have been issued (and paid) in full
satisfaction of all rights pertaining to the shares of capital stock of the
Company exchanged for Merger Consideration theretofore represented by such
certificates.
Section 1.10 Treatment of Options. Prior to the Effective Time, the Board
of Directors of the Company (and/or, if appropriate, the Special Committee)
shall adopt appropriate resolutions and take all other actions necessary to
provide that each outstanding stock option or warrant (each, an "Option")
heretofore granted by the Company, whether under the Company's Omnibus Stock
Incentive Plan (the "Stock Incentive Plan"), the Company's 2000 Omnibus Stock
Incentive Plan (the "2000 Plan") (collectively, the "Company Stock Option
Plans"), or otherwise, whether or not then vested or exercisable, shall, at the
Effective Time, be cancelled, and each holder thereof shall be entitled to
receive a payment in cash as provided in Section 5.7 hereof, if any (subject to
any applicable withholding taxes, the "Cash Payment"). As provided herein,
unless otherwise determined by Newco, the Company Stock Option Plans (and any
feature of any other Benefit Plan (as defined in Section 2.11) or other plan,
program or arrangement providing for the issuance or grant of any other interest
in respect of the capital stock of the Company) shall terminate as of the
Effective Time. After the date hereof, the Company will not issue any Options or
other options, warrants, rights or agreements which would entitle any person to
acquire any capital stock of the Company or, except as otherwise provided in
this Section 1.10 or in Section 5.7, to receive any payment in respect thereof.
Section 1.11 Execution of Voting Agreement. Concurrently with the execution
and delivery of this Agreement, and as a condition to Newco's willingness to
enter into this Agreement, the Key Shareholders have executed and delivered to
Newco the Voting Agreement.
Section 1.12 Execution of Employment and Non-Competition Agreements.
Concurrently with the execution and delivery of this Agreement, and as a
condition to Newco's willingness to enter into this Agreement, the Key
Shareholders have executed and delivered their respective Employment Agreements
and Non-Competition Agreements.
Section 1.13 Adjustment of the Merger Consideration and the Option
Consideration. The Merger Consideration and the Option Consideration (as defined
in Section 5.7), each payable pursuant to this Agreement, have been calculated
based upon the representations and warranties made by the Company in Section
2.3. In the event that, at the Closing Date, (i) the actual number of shares of
Company Common Stock outstanding and/or the actual number of shares issuable
upon the exercise of Options or similar agreements or upon conversion of
securities (including without limitation, as a result of any stock split,
reclassification, stock dividend (including any dividend or distribution of
securities
4
convertible into shares of Company Common Stock) or recapitalization) is greater
than as described in Section 2.3 hereof, or (ii) the weighted average exercise
price of the Options is lower than described in Section 2.3 hereof, the Merger
Consideration and the Option Consideration shall be appropriately adjusted
downward; provided, however, that no such adjustment shall be required unless
and until the aggregate impact from such differences results in an increase in
the aggregate Merger Consideration and Option Consideration payable by Newco of
at least $50,000. The provisions of this Section 1.13 shall not, in any event,
adversely affect, constitute a waiver of or otherwise impair any of Newco's
rights under this Agreement (including any of Newco's rights arising from any
misrepresentation or breach of the representations and warranties set forth in
Section 2.3 hereof).
Section 1.14 Closing. Immediately prior to the Effective Time, a closing
for the transactions contemplated hereby (the "Closing") will be held at the
offices of Smith, Gambrell & Russell, LLP, 1230 Peachtree Street, NE, Suite
3100, Atlanta, Georgia 30309, unless another place is agreed in writing by Newco
and the Company. All actions taken at the Closing shall be deemed to have been
taken simultaneously at the time the last of any such actions is taken or
completed. The date such Closing occurs is referred to herein as the "Closing
Date."
Section 1.15 Deposit. As of the date of execution of this Agreement,
Newco has deposited Fifty Thousand Dollars ($50,000) (the "Deposit") into an
escrow account to be held by First Union National Bank ("Escrow Agent") pursuant
to the terms of the Escrow Agreement attached hereto as Exhibit 1.15. The
Deposit shall be applied against the Merger Consideration upon Closing. In the
event the Closing does not occur: (x) if this Agreement is terminated by the
Company pursuant to Section 7.1(g) or Section 7.1(i) hereof, then the Deposit
shall be delivered to the Company in accordance with Section 7.3(f) hereof; or
(y) if this Agreement is terminated for any other reason, then the Deposit shall
be returned to Newco.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Newco that, except as set forth in
the corresponding section of the disclosure schedule delivered by the Company to
Newco concurrently with entering into this Agreement (the "Company Disclosure
Schedule"):
5
Section 2.1 Organization and Qualification. Except as set forth in Section
2.1(a) of the Company Disclosure Schedule, each of the Company and its
Subsidiaries (specifically excluding for this purpose, the Leasing
Subsidiaries) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization and has the requisite corporate power and authority necessary
to enable it to own, lease and operate its properties and assets and to
carry on its business as it is now being conducted. Except as set forth in
Section 2.1(a) of the Company Disclosure Schedule, each of the Leasing
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization and has the requisite corporate power and authority necessary
to enable it to own, lease and operate its properties and assets and to
carry on its business as it is now being conducted, except where the
failure to be so organized, existing or in good standing would not have,
individually or in the aggregate, a Material Adverse Effect on the Company.
Each of the Company and its Subsidiaries (specifically excluding for this
purpose, the Leasing Subsidiaries) is duly qualified as a foreign
corporation, and is in good standing, in each state where the character of
the properties owned or leased by it or the nature of its activities makes
such qualification or licensing necessary, except where the failure to be
so qualified would not have, individually or in the aggregate, a Material
Adverse Effect on the Company.
(b) The Company has delivered or made available to Newco for inspection
complete and correct copies of the certificate or articles of incorporation
and bylaws, or other governing documents as currently in effect of the
Company and each of its Subsidiaries.
Section 2.2 Subsidiaries and Affiliates.
The Company Disclosure Schedule sets forth the name and jurisdiction of
incorporation of each Company Subsidiary and the jurisdictions in which each
such Company Subsidiary is qualified to do business (specifically excluding for
this purpose, the Leasing Subsidiaries). Except for each Company Subsidiary and
except as set forth in the Company Disclosure Schedule, the Company does not
own, directly or indirectly, any capital stock or other equity or similar
interest in, or any interest convertible into or exchangeable or exercisable for
any equity or similar interest in, any corporation or have any direct or
indirect equity or ownership interest in any business. Except as set forth in
the Company Disclosure Schedule, all the outstanding capital stock or other
equity interests of each Company Subsidiary is owned directly or indirectly by
the Company, free and clear of all Liens (as defined in Section 2.8), and is
validly issued, fully paid and non-assessable, and there are no outstanding
options, rights or agreements of any kind relating to the issuance, sale or
transfer of any capital stock or other equity securities of any such Company
Subsidiary to any person except the Company.
Section 2.3 Capitalization.
(a) The authorized capital stock of the Company consists of 20,000,000
shares of Company Common Stock, par value $.01 per share. As of the date
hereof, 9,163,659 shares of Company Common Stock are issued and
outstanding. As of the date hereof, an aggregate of 1,293,700 shares of
Company Common Stock are reserved for future issuance under the Company
Stock Option Plans and Options to purchase 1,038,000 shares of Company
Common Stock are issued and outstanding under the Company Stock Option
Plans and otherwise. Except for the Options referred to in the preceding
sentence, no Options are issued or outstanding. The weighted average
exercise price for the outstanding Options is $3.44. All of the issued and
outstanding shares of Company Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable and are not subject to
preemptive rights. The shares of Company Common Stock referred to above
that are reserved for issuance, consisting of the shares reserved under the
Company Stock Option Plans, and the 100,000 shares of Company Common Stock
reserved for issuance for outstanding Options, have not been issued and
will not be issued prior to the Effective Time, and no commitment by the
Company has been or will be made for their issuance, other than (in the
case of both preceding clauses) pursuant to the exercise of the Options
described above that are issued and outstanding as of the date of this
Agreement. At the Effective
6
Time, except as otherwise provided in Section 1.10 hereof, each Option
shall be cancelled, and the holder thereof shall not be entitled to receive
any consideration therefor other than the cash payments, if any, provided
by Section 1.10 and Section 5.7 of this Agreement. Section 2.3(a) of the
Company Disclosure Schedule sets forth the exercise prices and number of
shares of Company Common Stock in respect of outstanding Options under the
Company Stock Option Plans. There are no bonds, debentures, notes or other
indebtedness of the Company having the right to vote (or convertible into,
or exchangeable for, securities having the right to vote) on any matters on
which shareholders of the Company may vote ("Voting Company Debt"). Except
as set forth above in this Section 2.3(a), there are no outstanding
securities, options, warrants, calls, rights, convertible or exchangeable
securities, "phantom" stock rights, stock appreciation rights ("SARs"),
stock-based performance units, commitments, agreements, arrangements or
undertakings of any kind (including any shareholder rights plan) to which
the Company is a party or by which the Company is bound obligating the
Company to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock or other voting securities of the
Company or obligating the Company to issue, grant, extend or enter into any
such security, option, warrant, call, right, unit, commitment, agreement,
arrangement or undertaking. Except as set forth in Section 2.3 of the
Company Disclosure Schedule, there are not any outstanding contractual
obligations of the Company to repurchase, redeem or otherwise acquire, or
providing preemptive or registration rights with respect to, any shares of,
or any outstanding options, warrants or rights of any kind to acquire any
shares of, or any outstanding securities that are convertible into or
exchangeable for any shares of, capital stock of the Company. Except as set
forth in Section 2.3 of the Company Disclosure Schedule, the Company does
not have outstanding any loans to any person in respect of the purchase of
securities issued by the Company.
(b) Except as set forth in Section 2.3(b) of the Company Disclosure
Schedule, there are no voting trusts, proxies, registration rights
agreements, or other agreements, commitments or understandings of any
character to which the Company is bound with respect to the voting of any
shares of capital stock of the Company or with respect to the registration
of the offering, sale or delivery of any shares of capital stock of the
Company under the Securities Act of 1933, as amended (the "Securities
Act").
Section 2.4 Authority Relative to this Agreement.
(a) The Company has all requisite corporate power and authority to
execute and deliver this Agreement and each instrument required hereby to
be executed and delivered by the Company prior to or at the Effective Time,
to perform its obligations hereunder and thereunder, and to consummate the
transactions contemplated hereby (the "Transactions") (subject to the
Company Shareholder Approval (as defined below) with respect to the
Merger). The execution and delivery of this Agreement and each instrument
required hereby to be executed and delivered by the Company prior to or at
the Effective Time and the performance of its obligations hereunder and
thereunder and the consummation by the Company of the Transactions have
been duly and validly authorized by all necessary corporate action on the
part of the Company (including the unanimous approval of the Special
Committee), and no other corporate proceedings on the part of the Company
are necessary to authorize this Agreement or to consummate the Transactions
(other than the Company Shareholder Approval and the filing of appropriate
merger documents as required by the NJBCA). This Agreement has been duly
and validly executed and delivered by the Company, and, assuming this
Agreement constitutes a valid and binding obligation of Newco, this
Agreement constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights and to general equity principles.
(b) The only vote of holders of any class or series of capital stock of
the Company necessary under applicable law or stock exchange (or similar
self regulatory organization)
7
regulations to adopt or approve this Agreement and the Merger is the
adoption and approval of this Agreement and the Merger by the holders of a
majority of the votes cast at the Shareholder Meeting (as defined in
Section 5.8) entitled to vote on the Merger, voting together as a single
class, with each share of Company Common Stock entitled to one vote per
share (the "Company Shareholder Approval"). No vote of the holders of any
capital stock or other securities of the Company is necessary to consummate
any of the Transactions other than as set forth in the preceding sentence.
(c) Consummation of the Transactions (including the transactions
contemplated by Sections 1.10 and 5.7 hereof) does not conflict with or
violate the provisions of any Company Stock Option Plan or any option
agreement evidencing the grant of any Options.
Section 2.5 Absence of Certain Changes. Except (i) as disclosed in the
Company's filings and reports under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") filed and publicly available prior to the date of
this Agreement (the "Filed Company SEC Documents"), (ii) as set forth in Section
2.5 of the Company Disclosure Schedule, or (iii) for the transactions
contemplated by this Agreement, since June 30, 2001, the Company and each of its
Subsidiaries has conducted its respective business in the ordinary course, and
during such period there has not been any event, change, effect or development
that has had or would reasonably be expected to have a Material Adverse Effect
on the Company. Except (i) as disclosed in the Filed Company SEC Documents, (ii)
as set forth in Section 2.5 of the Company Disclosure Schedule, or (iii) for the
transactions contemplated by this Agreement, since June 30, 2001, there has not
been (a) any declaration, setting aside or payment of any dividend or other
distribution in respect of the capital stock of the Company or any redemption or
other acquisition by the Company of any capital stock of the Company; (b) any
entry into (or any amendment to any material terms of) any Material Agreement by
the Company or any of its Subsidiaries, other than in the ordinary course of
business consistent with past practice; (c) any split, combination or
reclassification of the Company's capital stock or of any other equity interests
in the Company, or any issuance or the authorization of any issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock or of any other equity interests in the Company; (d)(i) any
granting by the Company or any of its Subsidiaries to any officer or director of
the Company or any of its Subsidiaries of any material increase in compensation,
except in the ordinary course of business consistent with prior practice or as
was required under employment agreements in effect as of the date hereof
identified in the Company Disclosure Schedule, (ii) any granting by the Company
or any of its Subsidiaries to any such officer or director of any increase in
severance or termination pay, except as was required under employment, severance
or termination agreements in effect as of the date hereof identified in the
Company Disclosure Schedule or (iii) any entry by the Company or any of its
Subsidiaries into (or any amendment to any material terms of) any employment,
severance or termination agreement with any officer or director; (e) any damage,
destruction or loss, whether or not covered by insurance, that has had or would
reasonably be expected to have a Material Adverse Effect on the Company; (f) any
change in accounting methods, principles or practices by the Company materially
affecting the consolidated assets, liabilities, results of operations or
business of the Company, except insofar as may have been required by a change in
generally accepted accounting principles; (g) any tax election that individually
or in the aggregate could reasonably be expected to have a Material Adverse
Effect on the Company; (h) any sale or license of any material Intellectual
Property by the Company or any of its Subsidiaries, other than in the ordinary
course of business consistent with prior practice; or (i) any material
charitable contributions or commitments therefor.
Section 2.6 Report and Financial Statements.
(a) Except as disclosed in Section 2.6(a) of the Company Disclosure
Schedule, since January 1, 1996, the Company has timely filed all required
forms, reports and documents with the Securities and Exchange Commission
(the "SEC") required to be filed by it pursuant to the federal securities
laws and the rules and regulations of the SEC thereunder (collectively, the
"Company SEC Documents"), all of which have complied as of their respective
filing dates (or, if amended or superceded by a filing, then on the date of
such filing) in all material respects with all
8
applicable requirements of the Securities Act and the Exchange Act, and the
rules and regulations promulgated thereunder. None of such forms, reports
or documents at the time filed contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of the
Company Subsidiaries is required to file any forms, reports or other
documents with the SEC.
(b) The financial statements of the Company and its Subsidiaries
included in the Company SEC Documents (including the notes thereto) have
been prepared from, and are in accordance with, the books and records of
the Company and its consolidated subsidiaries, and comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto as in effect as of
the date of such filing, have been prepared in accordance with generally
accepted accounting principles (except, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto) and fairly present, in all material respects, in accordance with
generally accepted accounting principles the consolidated financial
position of the Company and its Subsidiaries as of the dates thereof and
the consolidated results of operations and cash flows of the Company and
its Subsidiaries for the periods then ended (subject, in the case of any
unaudited interim financial statements, to the absence of footnote
disclosure and normal year-end adjustments).
(c) Except as disclosed in Section 2.6(c) of the Company Disclosure
Schedule, at the date of the most recent audited financial statements of
the Company included in the Company SEC Documents, neither the Company nor
any of its Subsidiaries had, and since such date neither the Company nor
any of its Subsidiaries has incurred, any liabilities or obligations of any
nature (whether accrued, absolute, contingent, determinable or otherwise,
and whether or not required to be reflected or reserved against in a
consolidated balance sheet of the Company prepared in accordance with
United States generally accepted accounting principles) except liabilities
incurred in the ordinary and usual course of business and consistent with
past practice, liabilities expressly incurred in connection with the Merger
and liabilities that have not had and would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company.
Section 2.7 Proxy Statement. At the time the Proxy Statement is mailed, the
Proxy Statement (as defined below) will comply as to form in all material
respects with the Exchange Act and the regulations thereunder. The Proxy
Statement shall not, at the time it is mailed, at the time of the Shareholder
Meeting or at the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, that, no representation is
made by the Company with respect to the information furnished by Newco for
inclusion therein. The letter to shareholders, notice of meeting, proxy
statement and form of proxy, or the information statement, as the case may be,
to be distributed to shareholders of the Company in connection with the Merger,
and the Schedule 14A and any other schedule required to be filed with the SEC in
connection therewith, together with any amendments or supplements thereto, are
collectively referred to herein as the "Proxy Statement."
Section 2.8 Consents and Approvals; No Violation. Subject to (i) obtaining
the Company Shareholder Approval, (ii) compliance with the requirements of the
Exchange Act, and (iii) the filing of the Certificate of Merger, and except as
disclosed on Section 2.8 of the Company Disclosure Schedule, the execution,
delivery and performance of this Agreement do not, and the consummation of the
Transactions (including the changes in ownership of the shares of Company Common
Stock or the composition of the Board of Directors of the Company) and
compliance with the provisions of this Agreement will not (i) conflict with or
violate the Certificate of Incorporation or Bylaws of the Company or the
comparable organizational documents of any of its Subsidiaries, (ii)conflict
with or violate any statute, ordinance, rule, regulation, judgment, order, writ,
injunction, decree or law applicable to the Company or its Subsidiaries, or by
which any of them or any of their respective properties or assets may
9
be bound or affected, or (iii) result in a violation or breach of or constitute
a default (or an event which with or without notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in any loss of any benefit
under, or the creation of any pledges, claims, equities, options, liens,
charges, call rights, rights of first refusal, "tag" or "drag" along rights,
encumbrances and security interests of any kind or nature whatsoever
(collectively, "Liens") on any of the property or assets of the Company or any
of its Subsidiaries pursuant to anyloan or credit agreement, note, bond,
mortgage, indenture, License Agreement (as defined in Section 2.22), or other
agreement, instrument, Contract or Permit applicable to the Company, its
Subsidiaries or any of their respective properties or assets, except for such
violations, breaches or defaults that individually or in the aggregate would not
have a Material Adverse Effect on the Company. No consent, approval, order or
authorization of, or registration, declaration or filing with, any federal,
state or local government or any court, administrative or regulatory agency or
commission or other governmental authority or agency, domestic or foreign (a
"Governmental Entity"), is required by the Company in connection with the
execution and delivery of this Agreement by the Company or the consummation by
the Company of the Transactions, except for (i) the filing with the SEC of the
Proxy Statement relating to the approval by the Company's shareholders of this
Agreement, (ii) the filing of the Certificate of Merger pursuant to the NJBCA,
(iii) such other consents, approvals, orders, authorizations, registrations,
declarations and filings identified in Section 2.8 of the Company Disclosure
Schedule, and (iv) consents, approvals, orders, authorizations, registrations,
declarations or filings, the failure of which to obtain would not individually
or in the aggregate have a Material Adverse Effect on the Company.
Section 2.9 Brokerage Fees and Commissions. Neither the Company nor any of
its officers, directors or shareholders has employed any investment banker,
business consultant, financial advisor, broker or finder in connection with the
Transactions, except for the Special Committee Financial Advisor, or obligated
the Company to pay any investment banking, business consultancy, financial
advisory, brokerage or finders' fees or commissions in connection with the
Transactions, except for fees payable to the Special Committee Financial
Advisor. Correct and complete copies of the engagement letters between the
Special Committee Financial Advisor and the Company with respect to the
Transactions, which accurately describe the fees payable to the Special
Committee Financial Advisor, have been provided by the Company to Newco.
Section 2.10 Litigation. Except as disclosed in the Filed Company SEC
Documents or as set forth in Section 2.10 of the Company Disclosure Schedule,
there is no claim, suit, action or proceeding (including arbitration
proceedings) pending or, to the knowledge of the Company, threatened against the
Company that has had or would reasonably be expected to have individually or in
the aggregate a Material Adverse Effect on the Company, nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against the Company or any of its Subsidiaries that has
had or would reasonably be expected to have individually or in the aggregate a
Material Adverse Effect on the Company.
Section 2.11 Absence of Changes in Benefit Plans. Except as disclosed in
the Filed Company SEC Documents, as required by applicable law, as contemplated
by this Agreement, or as set forth in Section 2.11 of the Company Disclosure
Schedule, since June 30, 2000, there has not been any adoption or material
amendment by the Company or any Subsidiary of any bonus, pension, profit
sharing, deferred compensation, incentive compensation, stock ownership, stock
purchase, stock option, phantom stock, retirement, vacation, severance,
disability, death benefit, hospitalization, medical or other plan, arrangement
or understanding providing benefits to any current or former employee, officer
or director of the Company or any Subsidiary. Except as disclosed in the Filed
Company SEC Documents, as required by applicable law or as set forth on Section
2.11 of the Company Disclosure Schedule, there exist no severance, bonus,
incentive award, termination or indemnification agreements, arrangements or
understandings between the Company or any Subsidiary and any of its current or
former officers or directors or employees.
Section 2.12 ERISA Compliance.
10
(a) Section 2.12(a) of the Company Disclosure Schedule sets forth a
complete list of all "employee benefit plans" (as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), including, but not limited to, employment contracts, bonus,
pension, profit sharing, deferred compensation, incentive compensation,
excess benefit, stock, stock option, severance, termination pay, change in
control or other employee benefit plans, programs or arrangements,
including those providing medical, dental, vision, disability, life
insurance and vacation benefits (other than those required to be maintained
by law), whether written or unwritten, qualified or unqualified, funded or
unfunded, foreign or domestic, currently maintained, or contributed to, or
required to be maintained or contributed to, by the Company or any other
person or entity that, together with the Company, is treated as a single
employer under Section 414 of the Internal Revenue Code of 1986, as amended
(the "Code") (each an "ERISA Affiliate") for the benefit of any current or
former employees, officers or directors of the Company or any Subsidiary or
with respect to which the Company or its Subsidiary has any liability
(collectively, the "Benefit Plans"). As applicable with respect to each
Benefit Plan, the Company has delivered or made available to Newco, true
and complete copies of (i) each Benefit Plan, including all amendments
thereto, and in the case of an unwritten Benefit Plan, a written
description thereof, (ii) all trust documents, investment management
contracts, custodial agreements and insurance contracts relating thereto,
(iii) the current summary plan description and each summary of material
modifications thereto, (iv) the most recent annual reports (Form 5500 and
all schedules thereto) filed with the Internal Revenue Service ("IRS"), (v)
the most recent IRS determination letter and each currently pending
application to the IRS for a determination letter, (vi) the most recent
financial statements and trustee reports, (vii) all records, notices and
filings concerning IRS or Department of Labor audits or investigations,
prohibited transactions within the meaning of Section 406 of ERISA or
Section 4975 of the Code and "reportable events" within the meaning of
Section 4043 of ERISA, (viii) all personnel, payroll, and employment
manuals and policies; (ix) all collective bargaining agreements pursuant to
which contributions have been made or obligations incurred (including both
pension and welfare benefits) by the Company and the ERISA Affiliates, and
all collective bargaining agreements pursuant to which contributions are
being made or obligations are owed by such entities; (x) all registration
statements filed with respect to any Company Plan; (xi) all insurance
policies purchased by or to provide benefits under any Company Plan; (xii)
all contracts with third party administrators, actuaries, investment
managers, consultants, and other independent contractors that relate to any
Benefit Plan; (xiii) the most recent reports submitted by third party
administrators, actuaries, investment managers, consultants, or other
independent contractors with respect to any Benefit Plan; (xiv) all notices
that were given by the Company or any ERISA Affiliate or any Benefit Plan
to the IRS, the Pension Benefit Guaranty Corporation ("PBGC"), or any
participant or beneficiary, pursuant to statute, within the four years
preceding the date of this Agreement; and (xv) with respect to Benefit
Plans subject to Title IV of ERISA, the Form PBGC-1 filed for the most
recent plan year.
(b) No event has occurred and, to the knowledge of the Company, there
exists no condition or set of circumstances in connection with which the
Company or any ERISA Affiliate is or would reasonably be expected to be
subject to any material liability under the terms of any Benefit Plan,
under ERISA, or, with respect to any Benefit Plan, under the Code or any
other applicable law, rule or regulation, domestic or foreign. Neither the
Company nor any ERISA Affiliate has incurred or would reasonably be
expected to incur any material liability in respect of any employee benefit
plan maintained by an ERISA Affiliate but not included within the term
"Benefit Plan" or by any person other than the Company or any ERISA
Affiliate. No statement, either written or oral, has been made by the
Company or an ERISA Affiliate to any person with regard to any Benefit Plan
that was not in accordance with the terms of the Benefit Plan and that
would have a Material Adverse Effect on the Company or an ERISA Affiliate.
All filings required by ERISA and the Code as to each Benefit Plan have
been timely, completely and accurately filed, and all notices and
disclosures to participants required by either ERISA or the Code have been
timely, completely and accurately provided. All contributions and payments
11
made or accrued with respect to all Benefit Plans are deductible under
Section 162 or 404 of the Code. No amount, or any asset of any Benefit Plan
is subject to tax as unrelated business taxable income. The Company has no
material liability to the IRS with respect to any Benefit Plan, including
any liability imposed by Chapter 43 of the Code.
(c) Neither the Company nor any ERISA Affiliate has, at any time, (i)
maintained or contributed to any employee pension benefit plan subject to
Title IV of ERISA or Code Section 412 or (ii) been required to contribute
to, or incurred any withdrawal liability within the meaning of ERISA
Section 4201 to, any multiemployer plan as defined in ERISA Section 3(37).
(d) The Benefit Plans which are "employee pension benefit plans" within
the meaning of Section 3(2) of ERISA and which are intended to meet the
qualification requirements of Section 401(a) of the Code (each a "Pension
Plan") are prototype plans, which prototype plans have received favorable
determination letters from the IRS, and the Company has no knowledge of any
circumstances likely to result in the revocation of any such favorable
determination letter. The Company has no material liability to the PBGC
with respect to any Benefit Plan or has any liability under Section 502 or
4071 of ERISA.
(e) Except as set forth on Section 2.12(e) of the Company Disclosure
Schedule or as contemplated by this Agreement, the execution and delivery
of this Agreement do not, and the consummation of the Transactions will not
(i) require the Company or any ERISA Affiliate to pay greater compensation
or make a larger contribution to, or pay greater benefits or accelerate
payment or vesting of a benefit under, any Benefit Plan or (ii) create or
give rise to any additional vested rights or service credits under any
Benefit Plan.
(f) Except for requirements under applicable law, as set forth in
Section 2.12(f) of the Company Disclosure Schedule or as contemplated by
this Agreement, neither the Company nor any ERISA Affiliate is a party to
or is bound by any severance agreement, program or policy.
(g) Except as set forth in Section 2.12(g) of the Company Disclosure
Schedule, no Benefit Plan provides benefits, including without limitation,
death or medical benefits, beyond termination of employment or retirement
other than (i) coverage mandated by law or (ii) death or retirement
benefits under a Benefit Plan qualified under Section 401(a) of the Code.
Neither the Company nor any ERISA Affiliate is contractually obligated to
provide any person with life, medical, dental or disability benefits for
any period of time beyond retirement or termination of employment, other
than as required by the provisions of Sections 601 through 608 of ERISA and
Section 4980B of the Code.
(h) With respect to any Benefit Plan that is an employee welfare
benefit plan (as defined in Section 3(1) of ERISA), (i) no such Benefit
Plan is funded through a "welfare benefit fund", as such term is defined in
Section 419(e) of the Code, (ii) each such Benefit Plan that is a "group
health plan", as such term is defined in Section 5000(b)(l) of the Code,
complies in all respects with the applicable requirements of Sections 601
through 608 of ERISA and Section 4980B(f) of the Code, and (iii) each such
Benefit Plan (including any such Plan covering retirees or other former
employees), as in effect on the date hereof, may be amended or terminated
as to future benefit accruals without material liability to the Company or
any ERISA Affiliate on or at any time after the Effective Time.
(i) Except as disclosed in the Company Disclosure Schedule or for the
transactions contemplated by this Agreement, there is no contract,
agreement, Benefit Plan or other arrangement covering any employee or
former employee of the Company or any of its Subsidiaries that would give
rise to the payment of any amount that would not be deductible under
Section 280G of the Code.
12
(j) To the knowledge of the Company, no event has occurred or
circumstance exists that would result in a material increase in premium
costs of any Benefit Plan that is insured, or a material increase in
benefit costs of such Plan that is self-insured.
(k) Other than claims for benefits submitted by participants or
beneficiaries, no claim against, or legal proceeding involving, any Benefit
Plan is pending or, to the Knowledge of the Company or any Shareholder, is
threatened which, if adversely determined, would individually or in the
aggregate have a Material Adverse Effect on the Company.
(l) Each current or former employee of the Company who has taken a
leave of absence under the Family and Medical Leave Act of 1994, as
amended, was, upon his or her return to employment with the Company, placed
in the same position with respect to all eligibility requirements and
benefits of any Benefit Plan as had been applicable to such employee
immediately before the leave commenced, except where the failure to so
comply would not have a Material Adverse Effect.
Section 2.13 Taxes.
(a) The Company and its Subsidiaries have timely filed (taking into
account any extension of time within which to file) all Tax Returns
required to be filed by or with respect to them, other than those the
failure of which to file would not individually or in the aggregate
reasonably be expected to have a Material Adverse Effect on the Company.
All such filed Tax Returns are complete and accurate in all material
respects. All Taxes that are shown therein as due have been paid in full.
(b) Except as set forth in Section 2.13(b) of the Company Disclosure
Schedule, no Tax Return of the Company or any of its Subsidiaries is under
audit or examination by any taxing authority, and no written notice of such
an audit or examination has been received by the Company or any of its
Subsidiaries.
(c) Except as set forth in Section 2.13(c) of the Company Disclosure
Schedule, there is not in force any waiver or agreement for any extension
of time for the assessment or payment of any Tax due with respect to the
period covered by any Tax Return.
(d) Except as set forth in Section 2.13(d) of the Company Disclosure
Schedule, there is no issue raised or claim against the Company or any of
its Subsidiaries for any Taxes, and no assessments, deficiency or
adjustment has been asserted or proposed with respect to any Tax Return and
no issues relating to Taxes were raised in writing by a taxing authority in
a completed audit or examination that, in each case, would reasonably be
expected to result in an assessment, deficiency, or adjustment for a later
taxable period that, if adversely determined would individually or in the
aggregate have a Material Adverse Effect on the Company.
(e) Except as set forth in Section 2.13(e) of the Company Disclosure
Schedule, since January 1, 1996, the Company and each of its Subsidiaries
have been a member of an affiliated group filing a consolidated federal
income Tax Return.
(f) There are no material Liens for Taxes on the assets of the Company
or any of its Subsidiaries other than Liens for current taxes not yet due
or payable.
(g) Except as set forth in Section 2.13(g) of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries is bound by any
tax sharing, tax indemnity or similar agreement with respect to Taxes.
(h) No record owner of shares of Company Common Stock is, to the
Company's knowledge, a non-resident alien individual or foreign corporation
(within the meaning of Section
13
897(a)(i) of the Code) that has held more than 5% of the Company Common
Stock at any time during the five-year period ending on the date hereof.
(i) None of the Company and its Subsidiaries has filed a consent under
Code Section 341(f) concerning collapsible corporations. None of the
Company and its Subsidiaries has been a United States real property holding
corporation within the meaning of Code Section 897(c)(2) during the
applicable period specified in Code Section 897(c)(1)(A)(ii).
As used herein, "Tax Returns" shall mean all returns, declarations, claims
for refund, information returns and reports of or with respect to any Tax which
are required to be filed with a Tax authority by or with respect to the Company
or any of its Subsidiaries, and "Taxes" shall mean (i) income taxes, ad valorem
taxes, excise taxes, withholding taxes, stamp taxes or other taxes of or with
respect to gross receipts, premiums, real property, personal property, windfall
profits, sales, use, transfers, licensing, employment, payroll and franchises
imposed by or under any federal, state, local or foreign statute, law, rule or
regulation, and such terms shall include any interest, fines, penalties,
assessments or additions to tax resulting from, attributable to or incurred in
connection with any such tax or any contest or dispute thereof; (ii) liability
of the Company and its Subsidiaries or any fiduciary for the payment of any
amounts of the type described in clause (i) as a result of being a member of an
affiliated, combined consolidated or unitary group for any taxable period; and
(iii) liability of the Company and its Subsidiaries for the payment of any
amounts of the type described in clauses (i) or (ii) as a result of any express
or implied obligation to indemnify any other person.
Section 2.14 Compliance with Applicable Laws.
(a) The Company and each of its Subsidiaries has in effect all
licenses, franchises, permits and other governmental authorizations
(including Environmental Permits, as defined in Section 2.15) ("Permits")
necessary to conduct its respective business, other than Permits the
failure of which to hold would not individually or in the aggregate have a
Material Adverse Effect on the Company. Neither the Company nor any of its
Subsidiaries is in violation of any such Permits except for such violations
that would not individually or in the aggregate have a Material Adverse
Effect on the Company.
(b) Except as set forth in Section 2.14(b) of the Company Disclosure
Schedule, the business operations of the Company and its Subsidiaries have
been conducted in compliance with all applicable federal, state, local and
foreign laws, statutes, ordinances, rules, regulations, orders, judgments
and decrees, except for such violations which would not, individually or in
the aggregate, have a Material Adverse Effect on the Company.
Section 2.15 Environmental.
(a) For purposes of this Agreement, the term "Environmental Permit"
means any permit, license, approval or other authorization issued under any
Environmental Law (as defined below).
(b) Each of the Company, its Subsidiaries and their respective
properties, assets, businesses, and operations has all required
Environmental Permits that are material to the business of the Company, and
each of the Company, its Subsidiaries and their respective properties,
assets, businesses and operations is, and has been, in compliance with all
applicable Environmental Laws (as defined below) and Environmental Permits,
except for such violations as would not, individually or in the aggregate,
have a Material Adverse Effect on the Company. The term "Environmental
Laws" means any federal, state, local or foreign statute, code, ordinance,
rule, regulation, policy, guideline, permit, consent, approval, license,
judgment, order, writ, decree, injunction or other authorization, including
the requirement to register underground storage tanks, relating to: (i)
Releases (as defined below) of Hazardous Material (as defined below) into
the environment or any structure, including into ambient air, soil,
sediments, land
14
surface or subsurface, buildings or facilities, surface water, groundwater,
publicly-owned treatment works, septic systems or land; or (ii) the
generation, treatment, storage, recycling, disposal, use, handling,
manufacturing, transportation, distribution in commerce, or shipment
(collectively, "Management") of Hazardous Material; including the following
statutes, their implementing regulations and any state corollaries: the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended by the Superfund Amendments and Reauthorization Act, 42 U.S.C.
Section 9601 et seq., the Toxic Substances Control Act, 15 U.S.C. Section
2601 et seq., the Clean Water Act, 33 U.S.C. Section 1251 et seq. and the
Clean Air Act, 42 U.S.C. Section 7401 et seq.
(c) No Environmental Claims or Environmental Liabilities (as such terms
are defined below) are being asserted against the Company or any of its
Subsidiaries nor is the Company aware of any acts, omissions, facts, or
circumstances which would so subject it, arising from or based upon any
act, omission, event, condition or circumstance occurring or existing on or
prior to the date hereof or for which the Company or any of its
Subsidiaries is responsible, including any such Environmental Claims or
Environmental Liabilities arising from or based upon the ownership or
operation of assets, businesses or properties of the Company or any of its
Subsidiaries which, if adversely determined, would individually or in the
aggregate have a Material Adverse Effect on the Company. Neither the
Company nor any of its Subsidiaries has received any notice of any
violation of any Environmental Law or Environmental Permit or any
Environmental Claim in connection with its assets, properties, businesses
or operations. The Company has provided to Newco and has disclosed on
Section 2.15(c) of the Company Disclosure Schedule all environmental
assessment reports prepared by, on behalf of or, to the extent in the
Company's possession or contract, relating to the Company or any of its
Subsidiaries since January 1, 1996 (or earlier for any such matter which is
unresolved) regarding the environmental condition of the Company's or its
Subsidiaries' properties or the environmental compliance of the Company or
any Subsidiary. The term "Environmental Claim" means any third party
(including governmental agencies, regulatory agencies, employees or other
private parties) action, lawsuit, claim, investigation proceeding
(including claims or proceedings under the Occupational Safety and Health
Act or similar laws relating to safety of employees) which seeks to impose
liability for (i) noise; (ii) pollution or contamination of the air,
surface water, ground water, land or structure; (iii) Hazardous Materials
Management; (iv) exposure to Hazardous Material; (v) the safety or health
of employees, consumers, customers or vendors; or (vi) any violation of any
Environmental Law or Environmental Permit. The term "Environmental
Liabilities" includes all costs arising from any Environmental Claim or
violation or alleged violation or circumstance or condition which would
give rise to a violation or liability under any Environmental Permit or
Environmental Law under any theory of recovery, at law or in equity, and
whether based on negligence, strict liability or otherwise, including but
not limited to: remedial, removal, response, abatement, investigative,
monitoring, personal injury and damage to property, and any other related
costs, expenses, losses, damages, investigatory remediation or monitoring
costs, penalties, fines, liabilities and obligations, including reasonable
attorney's fees and court costs.
15
Section 2.16 State Takeover Statutes. The Special Committee and the Board
of Directors of the Company, subject to their fiduciary obligations under
applicable law, have approved the Merger and this Agreement, and such approval
is sufficient to render inapplicable to the Merger, this Agreement, the Voting
Agreement and the other Transactions the provisions of Section 14A:10A-4 and
14A:10A-5 of the NJBCA to the extent, if any, such provisions are applicable to
the Merger, this Agreement, the Voting Agreement and the other Transactions. No
other "fair price", "moratorium", "control share acquisition", "business
combination", or other state takeover statute or similar statute or regulation
applies or purports to apply to the Company, Newco, affiliates of Newco, the
Merger, the Voting Agreement, this Agreement, or any of the other Transactions.
Section 2.17 Contracts. Section 2.17 to the Company Disclosure Schedule
lists, under the relevant heading, all contracts, agreements, arrangements,
guarantees, licenses, leases and executory commitments, other than Benefit
Plans, agreements disclosed on Section 2.11 to the Company Disclosure Schedule,
Leases disclosed on Schedule 2.19(b) of the Company Disclosure Schedule,
Franchise Agreements described in Section 2.25(c) of the Company Disclosure
Schedule and any Contracts heretofore filed as an exhibit to any Filed Company
SEC Document, that exist as of the date hereof to which the Company or any of
its Subsidiaries is a party or by which it is bound and which fall within any of
the following categories (each a "Contract"): (a) Contracts not entered into in
the ordinary course of the Company's or any of its Subsidiaries' respective
businesses; (b) joint venture, partnership or franchising agreements, (c)
Contracts containing covenants purporting to limit the freedom of the Company or
any of its Subsidiaries to compete in any line of business in any geographic
area or to hire any individual or group of individuals, (d) Contracts which
after the consummation of any of the Transactions would have the effect of
limiting the freedom of the Surviving Corporation or any of its affiliates to
compete in any line of business in any geographic area or to hire any individual
or group of individuals, (e) Contracts relating to any outstanding commitment
for capital expenditures in excess of $10,000, (f) indentures, mortgages,
promissory notes, loan agreements or guarantees of borrowed money, letters of
credit or other agreements or instruments of the Company or any of its
Subsidiaries evidencing indebtedness for borrowed money or providing for the
creation of any charge, security interest, encumbrance or Lien upon any of the
assets of the Company or any of its Subsidiaries, (g) License Agreements, (h)
Contracts with respect to which a change in the ownership (whether directly or
indirectly) of the shares of Company Common Stock or the composition of the
Board of Directors of the Company or any of its Subsidiaries or any of the other
Transactions may result in a violation of or default under, or give rise to a
right of termination, modification, cancellation or acceleration of any
obligation or loss of benefits under, such Contract or (i) any other agreement
of a type required to be filed under Item 601(b)(10) of Regulation S-K
promulgated by the SEC. All Contracts to which the Company or any of its
Subsidiaries is a party or by which it is bound are valid and binding
obligations of the Company or its Subsidiary (as applicable) and, to the
knowledge of the Company, the valid and binding obligation of each other party
thereto. Neither the Company or its Subsidiary (as applicable) nor, to the
knowledge of the Company, any other party thereto is in violation of or in
default in respect of, nor has there occurred an event or condition which with
the passage of time or giving of notice (or both) would constitute a default by
the Company or its Subsidiary (as applicable) (or to its knowledge a default by
any other party thereto) under or permit the termination of, any such Contract,
except for such instances of default thereunder or terminations thereof that
would not individually or in the aggregate result in a Material Adverse Effect
on the Company. The Company has, prior to the date hereof, delivered or made
available true, complete and correct copies of the Contracts to Newco.
Section 2.18 Labor Matters. Except to the extent set forth in Section
2.18(a) of the Company Disclosure Schedule, (i) no employee of the Company or
any of its Subsidiaries is represented by any union or other labor organization;
(ii) there is no labor strike, dispute, or work stoppage pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
its Subsidiaries; and (iii) neither the Company nor any of its Subsidiaries has
ever experienced any work stoppage.
(b) Except to the extent set forth in Section 2.18(b) of the Company
Disclosure Schedule, the Company and each of its Subsidiaries has not
incurred any liability under, and has
16
complied in all material respects with, the Worker Adjustment Retraining
Notification Act and the regulations promulgated thereunder ("WARN") and
does not reasonably expect to incur any such liability as a result
ofactions taken or not taken prior to the Effective Time. The Company and
each of its Subsidiaries has not given, and has not been required to give,
any notice under WARN within 90 days prior to the date hereof.
Section 2.19 Property.
(a) Section 2.19(a) of the Disclosure Schedule sets forth a list of all
real property owned in fee by the Company or any of its Subsidiaries. The
Company or its Subsidiary (as applicable) has good and valid title to all
such real property, free and clear of all Liens known to the Company except
(i) Liens for taxes, assessments and other governmental charges that are
not delinquent or that are being contested in good faith and in respect of
which adequate reserves have been established, (ii) mechanics',
materialmen's, carriers', workmen's, warehousemen's, repairmen's landlord's
or other similar Liens securing obligations that are not due and payable or
that are being contested in good faith and in respect of which adequate
reserves have been established, (iii) imperfections of title and Liens that
do not and would not reasonably be expected to detract materially from the
value or materially interfere with the present use of the properties
subject thereto or affected thereby, and (iv) in the case of any real
property subject to a title commitment described in Section 2.19(a) of the
Company Disclosure Schedule, imperfections of title and Liens that are
shown on such title commitment or such schedule (collectively, "Permitted
Liens").
(b) The Company has provided or made available to Newco all leases for
all real property leased by the Company or any of its Subsidiaries, as
lessor or lessee, as of the date hereof (the "Leases"). All such Leases are
valid and binding in accordance with their respective terms and the Company
or its Subsidiary (as applicable) is not in default in any respect under
any Lease, except for such instances of default thereunder that would not
individually or in the aggregate result in a Material Adverse Effect on the
Company. Except as set forth in Section 2.19(b) of the Company Disclosure
Schedule, the execution and delivery of this Agreement by the Company and
the consummation of the Transactions, including the Merger, does not and
will not result in a breach or violation of, or constitute a default or an
event that, with the passage of time or the giving of notice, or both,
would constitute a default, give rise to a right of termination, material
modification (including as to the amount, timing or nature of lease
payments), cancellation or acceleration or require the consent or approval
of any party (other than the Company or its Subsidiary (as applicable))
under any Lease.
Section 2.20 [Reserved.]
Section 2.21 Opinion of Financial Advisors. The Company and the Special
Committee have received the opinion of the Special Committee Financial Advisor,
dated October 5, 2001, to the effect that, as of such date, the consideration to
be received in the Merger by the Company's shareholders is fair to the Company's
shareholders from a financial point of view. The Company has delivered a signed
copy of such opinion to Newco (it being understood that Newco will not be a
third party beneficiary of such opinion), and such opinion has not been amended,
modified or revoked in a manner adverse to Newco. The Company has been
authorized by the Special Committee Financial Advisor to permit the inclusion of
such fairness opinion (and, subject to prior review and consent by such Special
Committee Financial Advisor, a reference thereto) in the Proxy Statement.
Section 2.22 Intellectual Property. Section 2.22(a) of the Company
Disclosure Schedule sets forth, for the Intellectual Property owned by the
Company or its Subsidiaries, a complete and accurate list of all U.S. and
foreign (i) patents and patent applications; (ii) trademark registrations
(including Internet domain registrations), trademark applications, and material
unregistered trademarks; (iii) copyright registrations, and material
unregistered copyrights, as well as (iv) in the case of registrations and
applications, the registration or application number and date. Section
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2.22(a) of the Company Disclosure Schedule contains a list of all software
programs material to the operation of the Company's business (other than readily
available commercial software programs) which are owned or licensed by Company
or its Subsidiaries, and identifies which software is owned or licensed, as the
case may be.
(b) Section 2.22(b) of the Company Disclosure Schedule sets forth a
complete and accurate list of all License Agreements (other than Franchise
Agreements or other agreements pursuant to which the Company or its
Subsidiaries have granted nonexclusive licenses of Intellectual Property to
franchisees or subfranchisees in the ordinary course of business). The
License Agreements are valid and binding obligations of all parties
thereto, enforceable in accordance with their terms, and there exists no
event or condition which will result in a violation or breach of, or
constitute (with or without due notice of lapse of time or both) a default
by any party under any such License Agreement. Neither Company nor any of
its Subsidiaries has licensed or sublicensed its rights in any Intellectual
Property other than pursuant to the License Agreements. No royalties,
honoraria or other fees are payable by Company or any of its Subsidiaries
to any third parties for the use of or right to use any Intellectual
Property except pursuant to the License Agreements.
(c) Except as set forth in Section 2.22(c) of the Company Disclosure
Schedule, the Company and each of its Subsidiaries owns and/or is licensed
to use (in each case, free and clear of any Liens, claims, or similar
encumbrances), and has the right to bring actions for the infringement,
dilution, misappropriation or other violation of, all patents and patent
applications, trademarks, service marks, trade names, and registrations and
applications for registration of industrial designs, copyrights, mask
works, trademarks, service marks, trade names, trade dress, and all domain
names, technology, inventions, know-how, trade secrets, processes and all
agreements and other rights with respect to intellectual property and
computer programs (collectively, "Intellectual Property") material to the
conduct of its respective business as currently conducted;
(d) Except as set forth in Section 2.22(d) of the Company Disclosure
Schedule, all of the patents, trademark and service mark registrations
(including the U.S. trademark registration for "Blimpie"), copyright
registrations and domain name registrations, and all applications for such
registrations, owned by the Company or any of its Subsidiaries (A) are
valid and in full force, (B) are held of record in the name of the Company
or its Subsidiary (as applicable), (C) are not the subject of any
cancellation or reexamination proceeding or any other proceeding
challenging their extent or validity and (D) all necessary registration,
maintenance and renewal fees in connection with such patents and
registrations have been paid and all necessary documents and certificates
in connection with such patents and registrations have been filed with the
relevant patent, copyright, trademark or other authorities in the United
States or foreign jurisdictions, as the case may be, for the purposes of
maintaining such patents and registrations. To the Company's knowledge, all
of the patents, trademark and service mark registrations (including the
U.S. trademark registration for "Blimpie"), copyright registrations and
domain name registrations, and all applications for such registrations,
exclusively licensed (including where exclusively licensed within a
discrete territory) to the Company or any of its Subsidiaries (A) are valid
and in full force, (B) are licensed exclusively to the Company or its
Subsidiary (as applicable) in the discrete territory indicated, if
applicable, (C) are not the subject of any cancellation or reexamination
proceeding or any other proceeding challenging their extent or validity and
(D) all necessary registration, maintenance and renewal fees in connection
with such patents and registrations have been paid and all necessary
documents and certificates in connection with such patents and
registrations have been filed with the relevant patent, copyright,
trademark or other authorities in the United States or foreign
jurisdictions, as the case may be, for the purposes of maintaining such
patents and registrations;
(e) The use of such Intellectual Property by the Company or any of its
Subsidiaries does not infringe on the rights of any party;
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(f) To the knowledge of Company, no person is infringing on any right
of the Company or any of its Subsidiaries with respect to such Intellectual
Property;
(g) Neither the Company nor any of its Subsidiaries is, and the
consummation of the Transactions will not cause them to be, in breach or
violation of any agreement relating to the use of any of its Intellectual
Property, and neither the Company nor any of its Subsidiaries has received
any notification, written or oral, from any third party that there is any
such violation, breach, or inability to perform under any such agreement
and is not aware of any basis therefor;
The Company takes reasonable measures to protect the confidentiality of its
trade secrets. No trade secret has been disclosed or authorized to be disclosed
to any third party other than pursuant to a non-disclosure agreement. To the
Company's knowledge, no party to any non-disclosure agreement relating to its
trade secrets is in breach or default thereof.
Section 2.23 Insurance. The Company and its Subsidiaries maintain policies
of franchise errors and omissions, directors and officers liability, fire and
casualty, liability and other forms of insurance in such amounts, with such
deductibles and against such risks and losses as are prudent and customary in
the industry in which the Company operates. As of the date hereof, except as set
forth in Section 2.23 of the Company's Disclosure Schedule, all such policies
are in full force and effect, all premiums due and payable thereon have been
paid, and no notice of cancellation or termination has been received with
respect to any such policy.
Section 2.24 Affiliate Transactions. Except as disclosed in the Filed
Company SEC Documents or in Section 2.24 of the Company Disclosure Schedule,
there are no transactions, agreements, arrangements or understandings (or series
thereof), written or oral, between the Company or any of its Subsidiaries and
any of their respective directors or officers (including, in the case of natural
persons, any of such persons' relatives or affiliates) that would be required to
be disclosed under Item 404 of Regulation S-K under the Securities Act.
Section 2.25 Franchise Operations.
(a) The Company has provided Newco with a copy of the Company's and its
Subsidiaries' currently effective uniform franchise offering circulars used by
the Company and its Subsidiaries to offer and sell franchises and subfranchises
in the United States and throughout the world for each of its and their brands,
namely, Blimpie, Smoothie Island Juice Bar, Maui Taco and Pasta Central
(collectively, the "Brands") ("Uniform Franchise Offering Circulars" or
"UFOCs").
(b) Except as set forth on Section 2.25(b) of the Company Disclosure
Schedule, the Company does not have any Subsidiary or Affiliate offering or
selling franchises or subfranchises relating to the Brands, domestically or
internationally.
(c) Section 2.25(c) of the Company Disclosure Schedule is a true and
complete list of all subfranchise, franchise or license agreements to which the
Company or a Subsidiary is a party, including at a minimum the name, address and
telephone number of each and every subfranchisee, franchisee, licensee, master
licensee, or master franchisee (a "Franchisee") (collectively, the "Franchise
Agreements"). Each Franchise Agreement is substantially similar to the form of
subfranchise, franchise or license agreement incorporated into the UFOC that was
issued to the Franchisee contemporaneously with the sale of a franchise or
subfranchise by the Company or a Subsidiary to the Franchisee. The Company and
its Subsidiaries had, at all relevant times and in all material respects, the
corporate power and authority and legal right to enter into and carry out the
terms of each Franchise Agreement. All of the Franchise Agreements are valid,
binding and enforceable against the Franchisee thereunder, subject to any such
Franchisee's bankruptcy, insolvency, receivership or similar proceeding under
state or federal law and is enforceable against such Franchisee in accordance
with its terms.
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(d) Section 2.25(d) of the Company Disclosure Schedule identifies each
current Franchisee that (i) has received any outstanding notices of financial
default under a Franchise Agreement, which default has not been cured as of the
Effective Time; (ii) is, to the Company's knowledge, in material default under a
Franchise Agreement for any other reason; or (iii) has on three or more
occasions within any twelve month period received written notices of events of
default under a Franchise Agreement.
(e) Except as set forth on Section 2.25(e) of the Company Disclosure
Schedule, and except as may be granted by operation of law, no Franchisee has a
protected territory, exclusive territory, right of first refusal, option or
other arrangement with the Company or its Subsidiaries for the acquisition of
additional franchises or expansion of the Franchisee's territory. Except as
described in Section 2.25(d) of the Company Disclosure Schedule, no Franchisee's
protected territory is shared in whole or in part with any other Franchisee.
(f) Section 2.25(f) of the Company Disclosure Schedule is a true and
complete list of all written or oral agreements (and with respect to oral
agreements a description thereof) with independent sales representatives,
contractors or agents (exclusive of representatives of subfranchisors) with
respect to the sale or development of franchises by the Company or its
Subsidiaries, brokers or consultants and all territorial development, and master
franchise agreements or any other agreements or arrangements under which the
Company or its Subsidiaries has authorized any person to sell or promote
franchises or licenses on behalf of the Company or its Subsidiaries or agreed to
rebate or share amounts receivable under any Franchise Agreement and indicating
which of such agreements are in default and may be terminated by the Company or
a Subsidiary by notice to the other party. The Company has delivered to Newco
true, correct and complete copies of all written agreements described in Section
2.25(f) of the Company Disclosure Schedule. The Company has delivered to Newco
true, correct and complete copies of all written correspondence and memoranda
evidencing such oral agreements described in Section 2.25(f) of the Company
Disclosure Schedule. The payments payable to all parties to each such oral
agreement are set forth on such Schedules.
(g) To the knowledge of the Company and its Subsidiaries, no outlet
operating under any Brand is in a condition or is being operated in a manner
that is so materially inconsistent with the requirements of the Franchise
Agreement or franchise systems associated with such Brand that such condition or
operation will result in early termination of the Franchise Agreement relating
to that outlet.
(h) The Company and its Subsidiaries have prepared and maintained each of
its and their UFOCs in an accurate and correct manner, have filed UFOCs in all
states requiring registration and approval prior to any offers or sales of
subfranchises and franchises in such states and have filed all material changes,
amendments, renewals thereto on a timely and accurate basis. There were no
material misrepresentations or material omissions of information in any UFOC at
the time the Company or its Subsidiaries was using such UFOC.
(i) (1) Except as disclosed in Section 2.25(i) of the Company Disclosure
Schedule, each Franchise Agreement complies, and the offer and sale thereof
complied at the time such offer and sale was made, in all material respects with
all foreign and domestic (federal and state) laws, rules, ordinances and
regulations thereunder and all orders, consents or decrees from any foreign or
domestic administrative or regulatory agency;
(2) Except as listed or described in Section 2.25(i) of the Company
Disclosure Schedule, no Franchise Agreement has been subordinated and no
provision regarding the calculation and payment of royalty fees in any
Franchise Agreement has been waived, altered or modified in any respect
adverse to the Company or its Subsidiaries thereunder; no right of
rescission, set-off, counterclaim or defense has been asserted or to the
knowledge of the Company, is threatened or exists, with respect to any
Franchise Agreement; no notices of default have been issued by the Company
with respect to any Franchise Agreement for defaults which
20
have not been cured, and the Company has not waived any default by a
Franchisee which would adversely affect any Franchise Agreement.
(3) Except as set forth in Section 2.25(i) of the Company Disclosure
Schedule, neither the Company nor any Subsidiary operates a franchise or
subfranchise associated with the Brands;
(4) Except as set forth in Section 2.25(i) of the Company Disclosure
Schedule, the Company's and its Subsidiaries' franchise operation manuals
for all Brands have been in the past, and currently are, consistent in all
material respects with the respective UFOCs the Company and its
Subsidiaries previously used, and currently use, to offer and sell
subfranchises and franchises.
(j) (1) Except as set forth on Section 2.25(j) of the Company Disclosure
Schedule, no orders, consents or decrees have been issued by any foreign or
domestic (federal or state) administrative or regulatory agency to the Company
or a Subsidiary nor have letters of inquiry, investigation or the like been
issued to the Company or a Subsidiary by such foreign or domestic administrative
or regulatory agencies relating, directly or indirectly, to the Company's or a
Subsidiary's offer and sale of franchises or business opportunities. The Company
has permitted Newco the right to inspect all material correspondence between the
Company and its Subsidiaries and such foreign or domestic administrative and
regulatory agencies relating to the offering and sale of franchises or business
opportunities;
(2) Except as set forth in Section 2.25(j) of the Company Disclosure
Schedule, to the Company's knowledge, the Company and its Subsidiaries have
not violated any foreign or domestic (federal or state) law, rule,
ordinance or regulation thereunder in connection with the offer and sale of
franchises or business opportunities;
(3) At all times while the Company and its Subsidiaries and affiliates
have offered and sold franchises and business opportunities, each of the
Company and its Subsidiaries and affiliates has been duly authorized
pursuant to, or has otherwise qualified for exemption from registration
under, the various laws and regulations governing the offering and sale of
franchises and business opportunities in each of the jurisdictions
(domestic and international) in which they respectively offered to sell or
sold franchises or business opportunities. The Company has heretofore made
available to Newco correct and complete copies of all registrations,
advertising or promotional materials, UFOCs, disclosure documents or
agreements filed with any foreign or domestic administrative or regulatory
agency or otherwise used by the Company or any Subsidiaries in connection
with the offer, sale and operation of franchises or business opportunities
in any jurisdiction (domestic or international). Neither the Company nor
any of its Subsidiaries or affiliates has, in any of the aforementioned
documents (including, without limitation, UFOCs or disclosure documents),
made any untrue statement of a material fact, or omitted to state any fact
necessary to made the statements made by the Company or its Subsidiaries,
taken as a whole, not misleading, in connection with the offer or sale of
any franchise or business opportunity;
(4) Neither the Company nor any Subsidiary has during the time period
described in (iii) above authorized its officers, directors or
representatives to furnish any materials or information which is in any way
inconsistent with the "earnings claim" information set forth in Item 19 of
any UFOC and to the Company's knowledge, no such earnings claims were ever
made to prospective Franchisees by the Company, any Subsidiary or an
officer, director or representative of either.
(k) Except as set forth in Section 2.25(k) of the Company Disclosure
Schedule, no Franchisee has alleged to the Company or a Subsidiary that the
Company or a Subsidiary has acted improperly regarding (y) disparate treatment
among the Franchisees in violation of any foreign or domestic law, rule,
regulation or ordinance or (z) providing prospective Franchisees with inaccurate
or incorrect earnings claims or earnings claims that violated any foreign or
domestic law.
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(l) Except as set forth in Section 2.25(l) of the Company Disclosure
Schedule, neither the Company nor any Subsidiary or affiliate has entered into
any contracts, agreements, or arrangements, orally or in writing, whereby the
Company or any Subsidiary or affiliate receives rebates, commissions, discounts
or other payments or remuneration of any kind from suppliers selling products or
services to Franchisees.
(m) Neither the Company nor any Subsidiary is in material violation or
default of any Franchise Agreement, nor has there occurred any event or
condition which with the passage of time or giving of notice (or both) would
constitute a material default by the Company or any Subsidiary of any Franchise
Agreement under, or permit termination of, any such Franchise Agreement. Neither
the execution of this Agreement nor the consummation of the transactions
contemplated herein would result in a violation of or a default under, or give
rise to a right of termination, modification, cancellation or acceleration of
any obligation or loss of benefits under, any Franchise Agreement.
(n) The Company and its Subsidiaries have complied with all applicable
foreign and domestic franchise termination, fair practices and relationship laws
with respect to the proper notice of default, time to cure, and the actual
termination of any of its franchises or business opportunities as prescribed by
such laws.
(o) The Company and its Subsidiaries have not made to any Franchisee, or
any of its Franchisees' employees or agents, or to any other person, any
commitment to provide any special discount, allowance or accommodation other
than as set forth in the UFOCs. There are no material agreements or special
arrangements with any Franchisee other than as set forth in the UFOCs.
(p) Each of Blimpie Brand Building Fund, Inc., Maui Tacos Brand Building
Fund, Inc., Pasta Central Brand Building Fund, Inc. and Smoothie Island Brand
Building Fund, Inc. are entities that are authorized to receive voluntary
marketing allowances and payments from purveyors, distributors and manufacturers
servicing the Brands (the "Building Funds"). The Company and its Subsidiaries
have at all times complied fully with all agreements governing the Building
Funds including, without limitation, agreements contained in the Franchise
Agreements and UFOCs. The Building Funds and all monies paid thereto have been
allocated and used consistent with the Franchise Agreements and UFOCs and no
monies have been commingled with the monies or accounts of the Company or its
Subsidiaries.
Section 2.26 Health Claims. Except as set forth on Section 2.26 of the
Company Disclosure Schedule, no Health Claims (as defined below) are being
asserted against the Company or any of its Subsidiaries nor is the Company aware
of any acts, omissions, facts, or circumstances which would so subject it,
arising from or based upon any act, omission, event, condition or circumstance
occurring or existing on or prior to the date hereof or for which the Company or
any of its Subsidiaries is responsible, including any such Health Claims arising
from or based upon the ownership or operation of assets, businesses or
properties of the Company or any of its Subsidiaries, other than, in each case,
Health Claims that if adversely determined against the Company, would not
individually or in the aggregate have a Material Adverse Effect on the Company.
Neither the Company nor any of its Subsidiaries has received any notice of any
Health Claim in connection with its assets, properties, businesses or
operations. The term "Health Claim" means any third party (including
governmental agencies, regulatory agencies, employees or other private parties)
action, lawsuit, claim, investigation proceeding which seeks to impose liability
for (i) violation of the Federal Food Drug and Cosmetic Act ("FDC Act"), and all
acts and/or rules and regulations amending or supplementing same, the Federal
Wholesome Poultry Act, the Federal Wholesome Meat Act, the Federal Insecticide
Fungicide and Rodenticide Act, the Federal Hazardous Substance Labeling Act, any
state food and drug law or other applicable federal, state or municipals laws,
ordinances, rules or regulations; or (ii) sale of any food products containing
any salmonella or listeria organisms, toxins, foreign material or other
poisonous or injurious matter or any chemicals on any list promulgated by any
state or federal government of known chemicals causing cancer or reproductive
toxicity.
22
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF NEWCO
Newco represents and warrants to the Company as follows:
Section 3.1 Organization and Qualification. Newco is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New Jersey and has the requisite corporate power and authority to carry on its
business as it is now being conducted. Newco is duly qualified as a foreign
corporation or licensed to do business, and is in good standing, in each state
where the character of its properties owned or leased or the nature of its
activities makes such qualification or licensing necessary, except where the
failure to be so qualified or licensed and in good standing would not reasonably
be expected to prevent or materially delay the consummation of the Merger or the
other Transactions.
Section 3.2 Authority Relative to this Agreement. Newco has all requisite
corporate power and authority to execute and deliver this Agreement and each
instrument required hereby to be executed and delivered by Newco prior to or at
the Effective Time, to perform its obligations hereunder and thereunder, and to
consummate the Transactions. The execution and delivery by Newco of this
Agreement and each instrument required hereby to be exercised and delivered by
Newco prior to or at the Effective Time and the performance of its obligations
hereunder and thereunder, and the consummation by Newco of the Transactions have
been duly and validly authorized by the Board of Directors and sole stockholder
of Newco, and no other corporate proceedings on the part of Newco are necessary
to authorize this Agreement or to consummate the Transactions, other than filing
of appropriate merger documents as required by the NJBCA. This Agreement has
been duly and validly executed and delivered by Newco, and, assuming this
Agreement constitutes a valid and binding obligation of the Company, this
Agreement constitutes a valid and binding agreement of Newco, enforceable
against Newco in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
Section 3.3 Consents and Approvals; No Violation. Subject to the taking of
the actions described in the immediately succeeding sentence, the execution and
delivery of this Agreement do not, and the consummation of the Transactions will
not, conflict with, or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of
modification, termination, cancellation or acceleration of any obligation or to
loss of a material benefit under, or result in the creation of any Lien upon any
of the material properties or assets of Newco under (a) the certificate of
incorporation or bylaws of Newco, (b) any loan or credit agreement, note, bond,
indenture, lease or other agreement, instrument or Permit applicable to Newco or
its properties or assets, (c) any judgment, order, writ, injunction, decree,
law, statute, ordinance, rule or regulation applicable to Newco or its
properties or assets. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity or any other
person is required by Newco in connection with the execution and delivery of
this Agreement or the consummation by Newco of any of the Transactions, except
(i) pursuant to the Exchange Act, (ii) the filing of the Certificate of Merger
pursuant to the NJBCA, (iii) where the failure to obtain any such consent,
approval, authorization or permit, or to make any such filing or notification,
would not reasonably be expected to prevent or materially delay consummation of
the Merger or would not otherwise prevent Newco from performing its obligations
under this Agreement.
Section 3.4 Financing Commitments; Solvency. Newco has sufficient cash and
commitments for financing (and has provided the Special Committee with written
evidence thereof and all amendments or additions thereto) in an aggregate amount
sufficient to pay all of the Merger Consideration, Cash Payment and Company
Expense Reimbursement as required by this Agreement and to pay all other related
fees and expenses, and payments required under this Agreement. Newco has
delivered to the Special Committee true and correct copies of the commitment
letters of the lenders that will provide the debt financing which, together with
available equity, is expected to be sufficient to satisfy all of Newco's
obligations under this Agreement (the "Financing Commitments"). As of the date
of this Agreement, the Commitment Letters are in full force and effect and Newco
has paid all commitment fees required
23
thereunder. Immediately after giving effect to the transactions contemplated
hereby, Newco will not (i) be insolvent (either because its financial condition
is such that the sum of its debts is greater than the fair value of its assets
or because the fair salable value of its assets is less than the amount required
to pay its probable liability on its existing debts as they mature), (ii) have
unreasonably small capital with which to engage in its business, or (iii) have
incurred debts beyond its ability to pay as they come due.
Section 3.5 Ownership of Company Stock. As of the date of this Agreement,
neither Newco nor any "affiliate" or "associate" of Newco is an "interested
stockholder" of the Company, as such quoted terms are defined in Section
14A:10A-3 of the NJBCA.
Section 3.6 Information. None of the information supplied or to be supplied
by Newco for inclusion or incorporation by reference in the Proxy Statement
will, at the respective times filed with the SEC and, in addition, at the date
it or any amendment or supplement is mailed to shareholders, at the time of the
Shareholder Meeting and the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
Section 3.7 Brokerage Fees and Commissions. Neither Newco nor any of its
officers, directors or shareholders has employed any investment banker, business
consultant, financial advisor, broker or finder in connection with the
Transactions, except for The Robinson-Humphrey Company, LLC
("Robinson-Humphrey"), or obligated Newco to pay any investment banking,
business consultancy, financial advisory, brokerage or finders' fees or
commissions in connection with the Transactions, except for fees payable to
Robinson-Humphrey. A correct and complete copy of the engagement letter between
Robinson-Humphrey and Newco with respect to the Transactions, which accurately
describes the fees payable to Robinson-Humphrey, has been provided by Newco to
the Company.
Section 3.8 Litigation. There is no claim, suit, action or proceeding
(including arbitration proceedings) pending or, to the knowledge of Newco,
threatened against Newco that has had or would reasonably be expected to have a
Material Adverse Effect on Newco, nor is there any judgment, decree, injunction,
rule or order of any Governmental Entity or arbitrator outstanding against Newco
or any of its Affiliates that has had or would reasonably be expected to have a
Material Adverse Effect on Newco.
ARTICLE 4
CONDUCT OF BUSINESS PENDING THE MERGER
Section 4.1 Conduct of Business of the Company Pending the Merger. The
Company hereby covenants and agrees that, from the date hereof until the
Effective Time, unless otherwise expressly contemplated by this Agreement or
consented to in writing by Newco, the Company will, and will cause each of its
Subsidiaries to:
(a) operate their respective businesses in the usual and ordinary
course consistent with past practices;
(b) employ their reasonable best efforts to preserve intact (i) their
business organization, maintain their rights and franchises, retain the
services of their respective key employees and maintain their relationships
with their respective customers and suppliers and others having business
dealings with them, and (ii) the goodwill of those having relationships
with it;
(c) use their reasonable best efforts to maintain and keep their
properties and assets in as good repair and condition as at present,
ordinary wear and tear excepted, and maintain supplies and inventories in
quantities consistent with their customary business practice; and
(d) use their reasonable best efforts to keep in full force and effect
insurance and bonds comparable in amount and scope of coverage to that
currently maintained.
24
Section 4.2 Prohibited Actions by the Company. Without limiting the
generality of Section 4.1, the Company covenants and agrees that, except as
expressly contemplated by this Agreement or otherwise consented to in writing by
Newco, from the date hereof until the Effective Time, neither it nor any of its
Subsidiaries shall:
(a) (i) increase the compensation (or benefits) payable to or to become
payable to any director or employee, except for increases in salary or
wages of employees in the ordinary course of business and consistent with
past practice; (ii) grant any severance or termination pay to, or enter
into or amend any employment or severance agreement with, any employee,
except any such grants made in the ordinary course of business consistent
with past practice, or pursuant to agreements, plans or policies existing
on the date hereof or as otherwise provided under this Agreement; (iii)
establish, adopt, enter into or amend any collective bargaining agreement
or Benefit Plan of the Company or any ERISA Affiliate; or (iv) take any
action to accelerate any rights or benefits, or make any determinations not
in the ordinary course of business consistent with past practice, under any
Benefit Plan of the Company or any ERISA Affiliate; provided, however, that
the Company may amend the Company Stock Option Plans or take other action
to accelerate the vesting of any unvested Options that were issued and
outstanding on the date hereof and disclosed in Section 2.3 of the Company
Disclosure Schedule; and may otherwise amend the Company Stock Option Plans
(and option agreements entered into thereunder) to effectuate the purposes
of Section 1.10 hereof;
(b) declare, set aside or pay any dividend on, or make any other
distribution in respect of (whether in cash, stock or property),
outstanding shares of capital stock, other than dividends at the current
annual rate of $0.07 per share or dividends or distributions by a
wholly-owned Subsidiary to the Company;
(c) redeem, purchase or otherwise acquire, or offer or propose to
redeem, purchase or otherwise acquire, any outstanding shares of capital
stock of, or other equity interests in, or any securities that are
convertible into or exchangeable for any shares of capital stock of, or
other equity interests in, or any outstanding options, warrants or rights
of any kind to acquire any shares of capital stock of, or other equity
interests in, the Company (other than any purchase, forfeiture or
retirement of shares of Company Common Stock or the Options occurring
pursuant to the terms (as in effect on the date hereof) of any existing
Benefit Plan of the Company);
(d) except as provided in Sections 1.4 and 1.6 hereof, effect any
reorganization or recapitalization; or split, combine or reclassify any of
the capital stock of, or other equity interests in, the Company or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of or in substitution for, shares of such capital stock or such equity
interests;
(e) except as provided in Sections 1.4 and 1.6 hereof, offer, sell,
issue or grant, or authorize or propose the offering, sale, issuance or
grant of, any shares of capital stock of, or other equity interests in, any
securities convertible into or exchangeable for (or accelerate any right to
convert or exchange securities for) any shares of capital stock of, or
other equity interest in, or any options, warrants or rights of any kind to
acquire any shares of capital stock of, or other equity interests in, or
any Voting Company Debt or other voting securities of, the Company, or any
"phantom" stock, "phantom" stock rights, SARs or stock-based performance
units (or increase the number of shares reserved for issuance under the
Company Option Plans), other than issuance of shares of Company Common
Stock upon the exercise of the Options issued and outstanding as of the
date hereof and disclosed in Section 2.3 of the Company Disclosure
Statement in accordance with the terms thereof (as in effect on the date
hereof);
(f) acquire or agree to acquire, by merging or consolidating with, by
purchasing stock or other equity interest in or a portion of the assets of,
or in any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or interest
therein or otherwise acquire any assets of any other person (other than the
purchase of
25
inventories and supplies from suppliers or vendors in the ordinary
course of business and consistent with past practice);
(g) sell, lease, exchange or otherwise dispose of, or grant any
Lienwith respect to, any of the properties or assets of the Company or any
of its Subsidiaries that are material to the business of the Company or any
of its Subsidiaries (including without limitation any Intellectual
Property), except for dispositions of excess or obsolete assets and sales
in the ordinary course of business and consistent with past practice
(provided, however, that (i) Newco has approved the Company's sale or
closing of its Maui Tacos store in New York City and (ii) the Company shall
have the right to sell its Maui Tacos store in Atlanta, Georgia, subject to
Newco s written consent of the terms of such sale, which will not be
unreasonably withheld or delayed); or license any Intellectual Property
other than in the ordinary course of business consistent with past
practice.
(h) except as contemplated by Section 1.4, propose or adopt any
amendments to its Certificate of Incorporation or Bylaws or other
organizational documents;
(i) effect any change in any accounting methods, principles or
practices in effect as of June 30, 2001 affecting the reported consolidated
assets, liabilities or results of operations of the Company, except as may
be required by a change in generally accepted accounting principles;
(j) (i) incur any indebtedness for borrowed money, issue or sell any
debt securities or warrants or other rights to acquire any debt securities
of the Company or any of its Subsidiaries, guarantee any such indebtedness
or debt securities of another person, enter into any "keep well" or other
agreement to maintain any financial statement condition of another person
or enter into any arrangement having the economic effect of any of the
foregoing, or grant to any person or create any Lien outside the ordinary
course of business, or (ii) make any loans, advances or capital
contributions to, or investments in, any other person except for (x) loans
of up to $50,000 in the aggregate, the terms of which have been approved in
writing by Newco, such approval not to be unreasonably withheld or delayed,
and (y) loans, advances, capital contributions or investments between any
wholly-owned Subsidiary of the Company and the Company or another
wholly-owned Subsidiary of the Company;
(k) (i) enter into or amend any Contract of a type described in Section
2.17 or Section 2.25(c) or enter into or amend a lease for real property,
other than in the ordinary course of business consistent with past practice
(including on substantially the same terms and conditions), or (ii) enter
into or renew any vendor or supply agreement, absent the written consent of
Newco, such consent not to be unreasonably withheld or delayed;
(l) pay, discharge, settle or satisfy any material claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than in the ordinary course of business consistent with
past practice;
(m) make any Tax election except in a manner consistent with past
practice, or change any method of accounting for Tax purposes, except as
required by applicable law or GAAP, or settle or compromise any material
Tax liability;
(n) make or agree to make any material capital expenditures for the
period from June 30, 2001 until the Effective Time other than in the normal
course of business consistent with past practices and not in excess of
$50,000 in the aggregate.
(o) form, create or organize any Subsidiary, other than in the ordinary
course of business consistent with past practice; or
(p) agree in writing or otherwise to take any of the foregoing actions
or any action which would cause any condition set forth in Article VI to be
unsatisfied.
26
ARTICLE 5
COVENANTS AND ADDITIONAL AGREEMENTS
Section 5.1 Solicitation Provisions.
(a) Subject to the terms of Section 5.1(c) below, during the period (x)
beginning on the date of this Agreement and (y) continuing until the
thirty-day anniversary of the date of this Agreement, the Company, its
Subsidiaries and their respective officers, directors, employees,
representatives, agents or affiliates (including any investment banker,
attorney or accountant retained by the Company or the Special Committee)
shall have the right to: (i) initiate, solicit and encourage (including by
way of furnishing non-public information or assistance, but only pursuant
to appropriate confidentiality and standstill agreements) inquiries or the
making or submission of Acquisition Proposals (as defined below); and (ii)
enter into and maintain or continue discussions or negotiations with any
person or group in furtherance of such inquiries and to obtain or induce
any person or group to make or submit an Acquisition Proposal.
(b) During the period (x) beginning on the thirty-day anniversary of
the date of this Agreement and (y) continuing until the earlier of the
Effective Time or the termination of this Agreement in accordance with
Section 7.1, neither the Company, its Subsidiaries nor any of their
respective officers, directors, employees, representatives, agents or
affiliates (including any investment banker, attorney or accountant
retained by the Company or the Special Committee) will directly or
indirectly initiate, solicit or knowingly encourage (including by way of
furnishing non-public information or assistance), or take any other action
with the intention of facilitating, any inquiries or the making or
submission of any Acquisition Proposal (as defined below), or enter into or
maintain or continue discussions or negotiate with any person or group in
furtherance of such inquiries or to obtain or induce any person or group to
make or submit an Acquisition Proposal, or agree to or endorse any
Acquisition Proposal, or assist or participate in, facilitate or encourage,
any effort or attempt by any other person or group to do or seek any of the
foregoing, or authorize or permit any of its officers, directors or
employees or any of its affiliates or any investment banker, financial
advisor, attorney, accountant or other representative or agent retained by
it to take any such action; provided, however, that nothing contained in
this Agreement shall prohibit the Board of Directors of the Company or the
Special Committee or the Representatives from (a) furnishing information to
or entering into discussions or negotiations with any person or group that
makes an unsolicited written, bona fide Acquisition Proposal, if, and only
to the extent that (i) the Special Committee determines in good faith by a
majority vote, after consultation with the Special Committee Financial
Advisor (or other nationally reputable financial advisor) and with
independent legal counsel that such proposal is, or is reasonably likely to
lead to, a Superior Proposal, (ii) the Special Committee determines in good
faith by a majority vote after consultation with its outside legal counsel
that the failure to negotiate, or otherwise engage in discussions, with
such third party would be inconsistent with the Board's fiduciary duties
under applicable law, and (iii) such person or group, prior to the
disclosure of any non-public information, enters into a confidentiality
agreement with the Company that does not contain exclusivity provisions
which would prevent the Company from complying with its obligations
hereunder, or (b) maintaining or continuing discussions or negotiations
with any party that has expressed an interest in making or submitting an
Acquisition Proposal (whether orally or in writing) within the 30-day
period referenced in Section 5.1(a) above. Without limiting the foregoing,
it is understood that any violation of the restrictions set forth in this
Section 5.1 by any officer, director, employee or affiliate of the Company
or its Subsidiaries or any investment banker, attorney, accountant or other
advisor, agent or representative of the Company or its Subsidiaries or the
Special Committee, whether or not such person is purporting to act on
behalf of the Company or its directors or otherwise, shall be deemed to be
a breach of this Section 5.1 by the Company.
(c) Except as expressly permitted by this Section 5.1(c), neither the
Board of Directors of the Company nor the Special Committee (or any other
committee thereof) shall enter
27
into any letter of intent, agreement in principle, acquisition agreement or
other similar agreement (each, an "Acquisition Agreement") related to any
Acquisition Proposal; provided, however, that the Company may terminate
this Agreement pursuant to the provisions of Section 7.1(h) if (i) the
Company has received a Superior Proposal, (ii) in light of such Superior
Proposal, the Special Committee has determined in good faith (after having
consulted with outside legal counsel) that it would be necessary for the
Board to terminate this Agreement in order to comply with its fiduciary
obligations under applicable law, (iii) the Company has notified Newco in
writing of the determinations described in clause (ii) above at least three
(3) business days prior to terminating this Agreement, (iv) the Special
Committee concurrently or previously approves the Superior Proposal, and
(v) the Company shall have paid the Newco Expense Reimbursement and
Termination Fee required by Section 7.3.
(d) In addition to the obligations of the Company set forth in Sections
(b) and (c) above, the Company shall promptly (and in any event, within 72
hours) advise Newco orally and in writing of any request for information
(if it occurs after the thirty day anniversary of the date of this
Agreement), or the submission or receipt of any Acquisition Proposal, or
any inquiry with respect to or which could lead to any Acquisition Proposal
(if it occurs after the thirty day anniversary of the date of this
Agreement), the material terms and conditions of such request, Acquisition
Proposal or inquiry, and the identity of the person making any such
request, Acquisition Proposal or inquiry and its response or responses
thereto. The Company will keep Newco fully informed of the status and
material terms (including amendments or proposed amendments) of any such
request (if it occurs after the thirty day anniversary of the date of this
Agreement), Acquisition Proposal or inquiry (if it occurs after the thirty
day anniversary of the date of this Agreement). Except as expressly
permitted by Section 5.1(b), the Company, its Subsidiaries, their
respective officers, directors, employees, representatives, agents and
affiliates (including any investment banker, attorney or accountant
retained by the Company or the Special Committee) will immediately cease
and cause to be terminated any activities, discussions or negotiations
existing on the thirty-day anniversary of the date hereof with any parties
conducted with respect to any of the foregoing, provided that this sentence
will not make the provisions of Sections 5.1(b) or (c) inapplicable to a
subsequent proposal by any such party.
(e) As used herein, "Acquisition Proposal" means an inquiry, offer or
proposal regarding any of the following (other than the Transactions
contemplated by this Agreement) involving the Company: (i) any merger,
consolidation, share exchange, recapitalization, liquidation, dissolution,
business combination or other similar transaction; (ii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of 15% or more of
the assets of the Company and its Subsidiaries taken as a whole or of any
Material Business (as defined below) in a single transaction or series of
related transactions; (iii) any tender offer (including a self tender
offer) or exchange offer that, if consummated, would result in any person
or group beneficially owning more than 15% of the outstanding shares of any
class of equity securities of the Company (or in the case of a person or
group which beneficially owns more than 15% of the outstanding shares of
any class of equity securities of the Company as of the date hereof, would
result in such person or group increasing the percentage or number of
shares of such class beneficially owned by such person or group) or the
filing of a registration statement under the Securities Act in connection
therewith; (iv) any acquisition of 15% or more of the outstanding shares of
capital stock of the Company or the filing of a registration statement
under the Securities Act in connection therewith or any other acquisition
or disposition the consummation of which would prevent or materially
diminish the benefits to Newco of the Merger; or (v) any public
announcement by the Company or any third party of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of
the foregoing. "Superior Proposal" means any proposal made by a third party
to acquire, directly or indirectly, including pursuant to a tender offer,
exchange offer, merger, consolidation, share exchange, business
combination, recapitalization, liquidation, dissolution or other similar
transaction, not less than 51% of the shares of Company Common Stock then
outstanding or all or substantially all of the assets of the Company and
its Subsidiaries taken as a whole which the Special Committee determines in
good
28
faith (A) is more favorable to all of the shareholders of the Company from
a financial point of view than the transactions contemplated by this
Agreement (including any adjustment to the terms and conditions proposed in
writing by Newco in response to such Acquisition Proposal) and (B) is
reasonably likely to be consummated in a timely manner, taking into account
all financial, regulatory, legal and other aspects of such proposal.
"Material Business" means any business (or the assets needed to carry out
such business) that contributed or represented 15% or more of the net
sales, the net income or the assets (including equity securities) of the
Company and its Subsidiaries taken as a whole.
(f) Subject to compliance with Section 5.1(c), the Company or the Board
of Directors of the Company or the Special Committee may make any
disclosure or statement to the Company's shareholders if it determines in
good faith after consultation with independent legal counsel as to legal
matters that the failure to take such action would be inconsistent with the
fiduciary duty of the Board of Directors under applicable law or is
required by applicable law.
Section 5.2 Access to Information. Between the date hereof and the
Effective Time, the Company shall (a) afford to Newco and its officers,
directors, employees, accountants, consultants, legal counsel, agents and other
representatives full access during normal business hours and at all other
reasonable times to the officers, employees, agents, properties, offices and
other facilities of the Company and its Subsidiaries and to their books and
records (including all Tax Returns and all books and records related to Taxes
and such returns), (b) permit Newco to make such inspections as it may require
(and the Company shall cooperate with Newco in any inspections, and (c) furnish
promptly to Newco and its representatives a copy of each report, schedule,
registration statement and other document filed by it during such period
pursuant to the requirements of federal or state securities laws and such other
information concerning the business, properties, contracts, records and
personnel of the Company and its Subsidiaries (including financial, operating
and other data and information) in the possession of the Company or the
Company's counsel, accountants or other consultants or agents as may be
reasonably requested, from time to time, by or on behalf of Newco. All access,
inspections and furnishing pursuant to this Section 5.2 shall (i) be on
reasonable notice to the Company, (ii) be scheduled and otherwise managed so as
not to unreasonably disrupt the Company's operations, and (iii) without prior
authorization of the Company (such authorization not to be unreasonably
withheld) not involve direct contact with non-officer employees, suppliers or
non-retail customers.
Section 5.3 [Reserved].
Section 5.4 Reasonable Best Efforts.
(a) Subject to the terms and conditions herein (including Section 5.1),
each of the parties hereto agrees to use its reasonable best efforts to
take, or cause to be taken, all appropriate action, and to do, or cause to
be done, all things necessary, proper or advisable under applicable laws
and regulations to consummate and make effective as soon as reasonably
practicable the Merger and the other Transactions. In case at any time
after the Effective Time any further action is necessary or desirable to
carry out the purposes of this Agreement, the proper officers and directors
of each party to this Agreement shall take all such necessary action. Such
reasonable best efforts shall include reasonable best efforts to obtain the
Company Required Consents and the Newco Required Consents (as defined in
Section 6.2(b) and 6.3(b) hereof).
(b) The Company shall give and make all required notices and reports to
the appropriate persons with respect to the Permits and Environmental
Permits that are necessary for the ownership, operation and use of the
assets of Surviving Corporation after the Effective Time. Subject to the
other terms of this Agreement, each of the Company and Newco shall
cooperate and use their respective reasonable best efforts to make all
filings, to obtain all actions or nonactions, waivers, and orders of
Governmental Entities necessary to consummate the Transactions and to take
all reasonable steps as may be necessary to obtain an approval or waiver
from, or to avoid an action or proceeding by, any Governmental Entity. Each
of the parties hereto
29
will furnish to the other parties such necessary information and reasonable
assistance as such other parties may reasonably request in connection with
the foregoing.
(c) The Company and its Board of Directors shall (i) use reasonable
best efforts to make any state takeover statute or similar statute, rule or
regulation inapplicable to the Merger, this Agreement, the Voting Agreement
or any of the other Transactions and (ii) if any state takeover statute or
similar statute, rule or regulation becomes applicable to the Merger, this
Agreement, the Voting Agreement or any of the other Transactions, use
reasonable best efforts to ensure that the Merger and such other
Transactions may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise to minimize the effect of such
statute or regulation on the Merger and such other Transactions, in each
case consistent with the fiduciary duties of the Board of Directors and the
Special Committee.
Section 5.5 Event Notices and Other Actions.
(a) From and after the date hereof until the Effective Time, the
Company shall promptly notify Newco of (i) the occurrence or nonoccurrence
of any event, the occurrence or nonoccurrence of which has resulted in, or
would reasonably be expected to result in, any condition to the Merger set
forth in Article VI not being satisfied, (ii) the Company's failure to
comply with any covenant or agreement to be complied with by it pursuant to
this Agreement which has resulted in, or would reasonably be expected to
result in, any condition to the Merger set forth in Article VI not being
satisfied and (iii) any representation or warranty made by the Company
contained in this Agreement becoming untrue or inaccurate in any material
respect. The Company's delivery of any notice pursuant to this Section
5.5(a) shall not cure any breach of any representation or warranty of the
Company contained in this Agreement or otherwise limit or affect the
remedies available hereunder to Newco.
(b) Subject to the terms and conditions herein (including Section 5.1)
and applicable law, the Company shall not take any action or nonaction that
will, or that would reasonably be expected to, cause any condition to the
Merger set forth in Section 6.2(a) not to be satisfied.
(c) From and after the date hereof until the Effective Time, Newco
shall promptly notify the Company of (i) the occurrence or nonoccurrence of
any event, the occurrence or nonoccurrence of which has resulted in, or
would reasonably be expected to result in, any condition to the Merger set
forth in Article VI not being satisfied, (ii) Newco's failure to comply
with any covenant or agreement to be complied with by it pursuant to this
Agreement which has resulted in, or would reasonably be expected to result
in, any condition to the Merger set forth in Article VI not being satisfied
and (iii) any representation or warranty made by Newco contained in this
Agreement becoming untrue or inaccurate in any material respect. Newco's
delivery of any notice pursuant to this Section 5.5(c) shall not cure any
breach of any representation or warranty of Newco contained in this
Agreement or otherwise limit or affect the remedies available hereunder to
the Company.
(d) Subject to the terms and conditions herein and applicable law,
Newco shall not take any action or nonaction that will, or that would
reasonably be expected to cause any condition to the Merger set forth in
Section 6.3(a) not to be satisfied.
(e) No rights of a party hereunder shall be limited, and no party shall
be deemed to have waived any rights, by reason of any investigation or
audit conducted before or after the date hereof by any party or the
knowledge of any breach of a representation, warranty or covenant by the
other party contained in this Agreement. Each of Newco, on the one hand,
and the Company, on the other, shall have the right to rely fully on the
representations, warranties and covenants of the other party contained in
this Agreement.
30
Section 5.6 Third Party Standstill Agreements During the period from the
date hereof through the Effective Time, the Company shall not terminate, amend,
modify or take any action to waive any provision of any confidentiality or
standstill or similar agreement to which the Company is a party. Subject to the
foregoing, during such period, the Company agrees to enforce to the fullest
extent permitted under applicable law, the provisions of any such agreements,
including obtaining injunctions to prevent any breaches of such agreements and
to enforce specifically the terms and provisions thereof in any court or other
tribunal having jurisdiction. Notwithstanding the foregoing, nothing in this
Section 5.6 is intended to prevent the Company from exercising its rights under
Section 5.1 in accordance with the provisions of such Section.
Section 5.7 Employee Stock Options; Employee Plans and Benefits.
(a) Options. Prior to the Effective Time, the Board of Directors of the
Company (or, if appropriate, the Special Committee or any committee
administering the Company Stock Option Plans) shall adopt such resolutions
or take such other actions as are required to effect the transactions
contemplated by Section 1.10 in respect of all outstanding Options, and
thereafter the Board of Directors of the Company (or any such committee)
shall adopt any such additional resolutions and take such additional
actions as are required in furtherance of the foregoing.
(b) Payments in Respect of Options. Each Option cancelled pursuant to
Section 1.10 shall, upon cancellation, be converted into the right to
receive an amount in cash equal to the product of (i) the number of shares
of Company Common Stock subject to such Option, whether or not then
exercisable, and (ii) the excess, if any, of the Merger Consideration over
the exercise price per share subject or related to such Option (the "Option
Consideration").
(c) Time of Payment. The cash amount described in paragraph (b) of this
Section 5.7 shall be paid as promptly as is practicable after the Effective
Time.
(d) Withholding. All amounts payable pursuant to Section 1.10 and
Section 5.7(b) and (c) shall be subject to any required withholding of
taxes and shall be paid without interest. Payment shall, at Newco's
request, be withheld in respect of any Option until Newco has received
documentation that evidences such payment is in full satisfaction of all
rights under such Option.
(e) Termination of Equity-Based Compensation. No stock options or
warrants will be issued under the Company Stock Option Plans or otherwise
after the date hereof. Unless otherwise determined by Newco, any provision
in any other Benefit Plan providing for the potential issuance, transfer or
grant of any capital stock of the Company or any interest, or release of
restrictions, in respect of any capital stock of the Company shall be
terminated as of the Effective Time. The Company shall ensure that, as of
the Effective Time, unless otherwise determined by Newco, no holder of an
Option, restricted stock or derivative security or any participant in the
Company Stock Option Plans or other Benefit Plan or otherwise shall have
any right thereunder to acquire any capital stock of the Company or the
Surviving Corporation, other than shares of Company Common Stock issued or
issuable upon exercise of Options that were issued and outstanding on the
date hereof. Holders of Options shall not be entitled to receive any
payment or benefit except as provided in Section 1.10 and this Section 5.7.
(f) No Right to Employment. Other than as specifically contemplated in
this Agreement, nothing contained in this Agreement shall confer upon any
employee of the Company or any ERISA Affiliate any right with respect to
employment by Newco, the Surviving Corporation or any of Newco's
affiliates, nor shall anything herein interfere with any or create any
additional right of Newco, the Surviving Corporation or any of Newco's
affiliates to terminate the employment of any such employee at any time,
with or without cause, or restrict Newco, the Surviving Corporation or any
of Newco's affiliates in the exercise of their independent business
judgment in modifying any other terms and conditions of the employment of
any such employee.
31
Section 5.8 Meeting of the Company's Shareholders.
The Company shall, as soon as practicable after execution of this
Agreement, take all action reasonably necessary in accordance with the NJBCA and
its Certificate of Incorporation and Bylaws to convene a shareholder meeting to
consider and vote on the Merger and this Agreement (the "Shareholder Meeting").
At the Shareholder Meeting, all of the shares of Company Common Stock then owned
by Newco or any other affiliate of Newco shall be voted to approve the Merger
and this Agreement. Subject to Section 5.1, the Board of Directors of the
Company (and the Special Committee) shall recommend that the Company's
shareholders vote to approve the Merger and this Agreement, shall use its
reasonable best efforts to solicit from shareholders of the Company proxies in
favor of the Merger and shall take all other action necessary and appropriate to
secure the vote of shareholders required by the NJBCA to effect the Merger.
Section 5.9 Proxy Statement.
(a) The Company and Newco shall furnish to each other all information
concerning such person or such person's business that is required for the
Proxy Statement. The Company shall, as soon as practicable after the date
hereof, prepare and file (after providing Newco with a reasonable
opportunity to review and comment thereon) the Proxy Statement with the SEC
and shall use its reasonable best efforts to respond to any comments of the
SEC (after providing Newco with a reasonable opportunity to review and
comment thereon); provided, however, that in no event shall the Company
file the preliminary Proxy Statement with the SEC any later than October
22, 2001 (unless Newco shall have failed to cooperate with the preparation
thereof as contemplated by this Section 5.9). The Company shall cause the
Proxy Statement to be mailed to the Company's shareholders as promptly as
practicable, but in any event no more than five business days after
responding to all such comments to the satisfaction of the staff of the SEC
and in any case no earlier than November 8, 2001. The Company shall notify
Newco promptly of the receipt of any comments from the SEC and of any
request by the SEC for amendments or supplements to the Proxy Statement or
for additional information and shall supply Newco with copies of all
correspondence between the Company or any of its representatives, on the
one hand, and the SEC, on the other hand, with respect to the Proxy
Statement or the Transactions. The Company will cause the Proxy Statement
to comply in all material respects with the applicable provisions of the
Exchange Act and the rules and regulations thereunder applicable to the
Proxy Statement and the solicitation of proxies for the Shareholder Meeting
(including any requirement to amend or supplement the Proxy Statement).
Newco shall cooperate with the Company in the preparation of the Proxy
Statement, and without limiting the generality of the foregoing, the
Company and Newco shall promptly furnish to the other such information
relating to it and its affiliates and the Transactions and such further and
supplemental information as may be reasonably requested by the other party
and shall promptly notify the other party of any change in such
information. If at any time prior to the Shareholder Meeting there shall
occur any event that should be set forth in an amendment or supplement to
the Proxy Statement, the Company shall promptly prepare and mail to its
shareholders such an amendment or supplement; provided, however, that no
such amendment or supplement to the Proxy Statement will be made by the
Company without providing Newco the reasonable opportunity to review and
comment thereon and without the approval of Newco, which approval shall not
be unreasonably withheld. The Company and its counsel shall (and the
Company shall cause the Special Committee and its counsel to) use
reasonable efforts to permit Newco and its counsel to participate in all
communications with the SEC and its staff, including all meetings and
telephone conferences, relating to the Proxy Statement, this Agreement or
the Transactions; provided, however, that in the event that such
participation by Newco does not take place, the Company (or the Special
Committee) shall promptly inform Newco of the content of all such
communications and the participants involved therein that specifically
relate to the Proxy Statement, this Agreement or the Transactions.
32
(b) Subject to the provisions of Section 5.1, the Company agrees to
include in the Proxy Statement the recommendation of the Company's Board of
Directors and the Special Committee. The Proxy Statement shall contain a
copy of the opinion of the Special Committee Financial Advisor.
Section 5.10 Public Announcements. Newco and the Company shall to the
fullest extent practicable consult with each other before issuing any press
release or otherwise making any public statement with respect to this Agreement,
the Merger and the other Transactions and shall not issue any such press release
or make any such public statement prior to such consultation, except as may be
required by law.
Section 5.11 FIRPTA. The Company shall deliver to Newco prior to the
execution of this Agreement a certified statement, prepared in accordance with
Sections 897 and 1445 of the Code, that the shares of Company Common Stock are
not "United States real property interests" within the meaning of Section 897 of
the Code.
Section 5.12 Alternative Financing; Disclosure.
(a) Newco shall use its reasonable best efforts to satisfy the
requirements of the Financing Commitments and to obtain the funding
contemplated by and on the terms contained in the Financing Commitments or,
if any of the Financing Commitments is terminated or such funds shall not
otherwise be available, use its reasonable best efforts to obtain an
alternative source of financing, in each case, on financial and other terms
no less favorable to Newco than those set forth in the respective Financing
Commitments.
(b) Following the date hereof, any amendment, termination or
cancellation of any Financing Commitment or any modification of any
Financing Commitment or any information which becomes known to Newco which
makes it substantially unlikely to obtain the financing on the terms set
forth in the Financing Commitments, shall be promptly disclosed to the
Company and the Special Committee of the Board of Directors. Newco shall
keep the Company and the Special Committee of the Board of Directors
reasonably apprised of any discussions or communications with each person
providing debt financing which relates to the matters referred to in the
preceding sentence.
Section 5.13 Delisting. Each of the parties hereto agrees to cooperate with
the other party in taking, or causing to be taken, all actions necessary (i) to
delist the Company Common Stock from the American Stock Exchange and (ii) to
terminate the registration of the Company Common Stock under the Exchange Act;
provided that such delisting and termination shall not be effective until or
after the Closing Date.
Section 5.14 Stockholder Litigation. Each of the Company and Newco shall
give the other the reasonable opportunity to participate in the defense of any
stockholder litigation against the Company or Newco, as applicable, and their
respective directors relating to the Merger. The Company agrees that it will not
settle any litigation currently pending, or commenced after the date hereof,
against the Company or any of its directors by any stockholder of the Company
relating to this Agreement, or the Merger, without prior written notice to
Newco. Subject to the terms and conditions herein (including Section 5.1) and
applicable law, the Company will not voluntarily cooperate with any third party
which has sought or may hereafter seek to restrain or prohibit or otherwise
oppose the Merger and will cooperate with Newco to resist any such effort to
restrain or prohibit or otherwise oppose the Merger.
Section 5.15 Indemnification.
(a) Newco agrees that all rights to indemnification now existing in
favor of any individual who at or prior to the Effective Time was a
director, officer, employee or agent of the Company or any of its
Subsidiaries (the "Indemnified Parties") as provided in their respective
33
charters, by-laws or indemnification agreements, as in effect on the date
hereof, shall survive the Merger and shall continue in full force and
effect for a period of not less than six years from the Effective Time
unless otherwise required by law, provided that in the event any claim or
claims are asserted or made within such six-year period, all rights to
indemnification in respect of any such claim or claims shall continue until
final disposition of any and all such claims.
(b) Newco agrees that the Company and, from and after the Effective
Time, the Surviving Corporation shall cause to be maintained in effect for
not less than six years from the Effective Time the current policies of the
directors' and officers' liability insurance maintained by the Company
(provided that Newco may substitute therefor, at its election, policies
with the same carriers or other obligors of substantially equal or better
financial standing as insure Newco's directors and officers of at least
substantially similar coverage and amounts containing terms and conditions
which are substantially similar to the existing insurance applicable to
Newco's directors or officers to the extent that such insurance policies
provide coverage for events occurring prior to or upon the Effective Time
for all persons who are directors and officers of the Company on the date
hereof); provided, that in no event will the Surviving Corporation be
required to expend annually in excess of 150% of the annual premium
currently paid by the Company for such coverage.
ARTICLE 6
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger are subject to the
satisfaction or waiver, where permissible, prior to the Effective Time, of the
following conditions:
(a) this Agreement shall have been approved by the affirmative vote of
the shareholders of the Company by the requisite vote in accordance with
the NJBCA, the rules of the American Stock Exchange and any applicable
provisions of the Company's certificate of incorporation or bylaws.
(b) no statute, rule, regulation, executive order, decree or injunction
shall have been enacted, entered, promulgated, or enforced by any court or
Governmental Entity which is in effect and has the effect of prohibiting
the consummation of the Merger; provided, however, that each of the parties
shall have used its reasonable best efforts (subject to the other terms and
conditions of this Agreement) to prevent the entry of any such injunction
or other order and to appeal as promptly as practicable any injunction or
other order that may be entered prior to it having become final and
nonappropriate.
Section 6.2 Conditions to Obligations of Newco to Effect the Merger. The
obligations of Newco to effect the Merger shall be subject to the fulfillment at
or before the Effective Time of the following conditions, any one or more of
which may be waived by Newco, in its sole discretion:
(a) Since the date of this Agreement, there shall not have occurred a
Material Adverse Effect with respect to the Company;
(b) The Company shall have received (and furnished to Newco evidence
thereof reasonably satisfactory to Newco) the approvals and consents from
third parties or Governmental Entities listed on Schedule 6.2(b) (the
"Company Required Consents"), and such approvals and consents shall not
have expired or been withdrawn; and
34
Section 6.3 Conditions to the Obligations of the Company. The obligations
of the Company to effect the Merger shall be subject to the fulfillment at or
before the Effective Time of the following conditions, any one or more of which
may be waived by the Company, in its sole discretion:
(a) Since the date of this Agreement, there shall not have occurred a
Material Adverse Effect on Newco.
(b) Newco shall have received (and furnished to the Company evidence
thereof reasonably satisfactory to the Company) the approvals and consents
from third parties or Governmental Entities listed on Schedule 6.3(b) (the
"Newco Required Consents"), and such approvals and consents shall not have
expired or been withdrawn.
ARTICLE 7
TERMINATION; AMENDMENT; WAIVER
Section 7.1 Termination. This Agreement may be terminated and the Merger
and the other Transactions may be abandoned at any time prior to the Effective
Time, by written notice by the terminating party to the other party, whether
before or after approval of the matters presented in connection with the Merger
to the shareholders of the Company:
(a) by the mutual written consent of the Board of Directors of Newco
and the Company;
(b) by either Newco or the Company by action of its Board of Directors
if the Merger shall not have been consummated by March 31, 2002 (provided
the right to terminate this Agreement under this Section 7.1(b) shall not
be available to a party whose failure to fulfill any obligation under this
Agreement has been the cause of or resulted in the failure of the Merger to
occur on or before such date);
(c) by either Newco or the Company by action of its Board of Directors
if a court of competent jurisdiction or other Governmental Entity shall
have issued a nonappealable final order, decree or ruling or taken any
other action, in each case having the effect of permanently restraining,
enjoining, or otherwise prohibiting the Merger, except if the party relying
on such order, decree, or ruling or other action has not complied with its
obligations under Section 5.4 of this Agreement;
(d) by either Newco or the Company by action of its Board of Directors,
if at the Shareholders Meeting (including any adjournment or postponement
thereof), the requisite vote of the shareholders of the Company in favor of
the Merger and this Agreement shall have not been obtained (provided the
right to terminate this Agreement under this Section 7.1(d) shall not be
available (x) to the Company if it has failed to fulfill its obligations
under Section 5.8 or (y) to Newco if it has failed to fulfill its
obligations under Section 5.12);
(e) by Newco by action of its Board of Directors, (i) if (A) the Board
of Directors of the Company (or any committee thereof, including the
Special Committee) shall have taken any material action prohibited by
Section 5.1; or (B) the Board of Directors of the Company (or any committee
thereof, including the Special Committee) shall have recommended to the
shareholders of the Company an Acquisition Proposal or entered into an
Acquisition Agreement; or (ii) (A) if the Board of Directors of the Company
(or any committee thereof, including the Special Committee) shall have
withdrawn, revoked, amended or modified its approval or recommendation of
the Merger and this Agreement in a manner adverse to Newco (other than in
response to an injunction issued by a court in connection with the Metro
Matter), (B) if the Special Committee Financial Advisor shall have
withdrawn, revoked, amended or modified its opinion referred to in Section
2.21 in a manner adverse to Newco and such withdrawn, amended or modified
opinion is not substituted with an opinion of the nature referred to in
Section 2.21 or
35
(C) the Company shall fail to include in the Proxy Statement its approval
or recommendation of the Merger and this Agreement;
(f) by Newco, if the Company shall have breached or failed to perform
in any respect any of its representations, warranties or covenants required
to be performed by it under this Agreement (other than breaches that
individually or in the aggregate would not have a Material Adverse Effect
on the Company), and such breach or failure to perform has continued
unremedied for ten business days following notice of such breach to Company
by the Newco;
(g) by the Company, if Newco shall have breached or failed to perform
in any respect any of its representations, warranties or covenants required
to be performed by it under this Agreement (other than breaches that
individually or in the aggregate would not have a Material Adverse Effect
on the Newco), and such breach or failure to perform has continued
unremedied for ten business days following notice of such breach to Newco
by the Company; and
(h) by the Company at any time prior to the Shareholder Meeting, by
action of the Special Committee, if a third party, including any group,
shall have made a Superior Proposal and the requirements of Section 5.1(c)
have been satisfied in all material respects.
(i) By the Company in the event of Newco's failure to obtain the funds
to be provided by the financing contemplated in Section 3.4 on or before
March 31, 2002.
Section 7.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 7.1, this Agreement, except for the provisions
of Sections 7.2, 7.3, and 8.6, shall immediately become void and there shall be
no liability or obligation on the part of Newco or the Company or their
respective officers, directors, shareholders or affiliates, except as set forth
in Section 7.3 below or except to the extent that a party to this Agreement has
breached in any material respect any representation, warranty or covenant
contained in this Agreement; provided, however, that the provisions of Sections
7.2, 7.3 and 8.6 of this Agreement shall remain in full force and effect and
survive any termination of this Agreement.
Section 7.3 Fees and Expenses.
(a) Except as set forth in this Section 7.3, all fees and expenses
incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses,
whether or not the Merger is consummated.
(b) In the event of a termination of this Agreement by the Company
pursuant to Section 7.1(h), the Company shall pay to Newco (i) the Newco
Expense Reimbursement (as defined in Section 7.3(h) below), and (ii) an
amount equal to $1,300,000 (the "Termination Fee"), in each case within
three business days after such termination (by check or wire transfer of
same day funds).
(c) In the event of termination of this Agreement by Newco pursuant to
Section 7.1(e) hereof, then the Company shall pay to Newco (i) the Newco
Expense Reimbursement and (ii) the Termination Fee, in each case within
twenty business days after such termination (by check or wire transfer of
same day funds).
(d) In the event of termination of this Agreement by Newco pursuant to
Section 7.1(f) hereof, or by either Newco or the Company pursuant to
Section 7.1(d) hereof, the Company shall pay to Newco the Newco Expense
Reimbursement within seven business days after such termination (or, if
such termination is by Newco, within twenty business days of such
termination) (in either case, by check or wire transfer of same day funds).
(e) [Reserved.]
36
(f) In the event of termination of this Agreement by the Company
pursuant to Section 7.1(g) or Section 7.1(i) hereof, then the Deposit shall
be delivered to the Company pursuant to the terms of the Escrow Agreement
and Newco shall pay to the Company the Company Expense Reimbursement (as
defined in Section 7.3(i) below) within seven business days after such
termination (by check or wire transfer of same day funds).
(g) The parties acknowledges that the Termination Fee, Company Expense
Reimbursement, Deposit and Newco Expense Reimbursement are integral parts
of the transactions contemplated by this Agreement and not a penalty, and
that, without these provisions, the parties would not enter into this
Agreement. Further, nothing in this Section 7.3 shall be deemed to limit
any liability of any party hereto for any breach in any material respect of
any representations, warranties or covenants contained in this Agreement
that occurs prior to termination of this Agreement.
(h) As used herein, "Newco Expense Reimbursement" means all reasonable
out-of-pocket fees and expenses actually incurred by Newco (and its agents
and representatives) or on its behalf in connection with the Merger and the
proposed financing thereof (including travel expenses of such parties, fees
and expenses of accountants, appraisers, engineers, consultants and other
persons engaged to perform due diligence, syndication, due diligence and
other expenses of prospective financing sources of Newco and reasonable
attorneys' fees and expenses of counsel for Newco and reasonable attorneys'
fees and expenses of counsel for prospective financing sources of Newco,
expenses payable to shareholders or potential shareholders of Newco, or any
commitment, transaction or similar fees payable to financing sources of
Newco. Notwithstanding anything to the contrary contained herein, in no
event shall the Newco Expense Reimbursement exceed (i) $600,000, in the
event of termination of this Agreement pursuant to Section 7.1(f); or (ii)
$200,000, in the event of termination for any other reason.
(i) As used herein, "Company Expense Reimbursement" means all
reasonable out-of-pocket fees and expenses actually incurred by Company
(and its agents and representatives) or on its behalf in connection with
the Merger and the proposed financing thereof (including travel expenses of
such parties, fees and expenses of accountants, appraisers, engineers,
consultants and other persons engaged to perform due diligence,
syndication, due diligence and other expenses of prospective financing
sources of Company and reasonable attorneys' fees and expenses of counsel
for Company and reasonable attorneys' fees and expenses of counsel for
prospective financing sources of Company, expenses payable to shareholders
or potential shareholders of Company, or any commitment, transaction or
similar fees payable to financing sources of Company. Notwithstanding
anything to the contrary contained herein, in no event shall the Company
Expense Reimbursement exceed $200,000.
Section 7.4 Amendment. To the extent permitted by applicable law, this
Agreement may be amended by action taken by Newco and the Board of Directors of
the Company at any time before or after approval of this Agreement by the
shareholders of the Company, but, after any such shareholder approval, no
amendment shall be made that by law requires the further approval of such
shareholders without the approval of such shareholders. This Agreement may not
be amended except by an instrument in writing signed on behalf of all the
parties.
Section 7.5 Extension; Waiver. At any time prior to the Effective Time, a
party may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties of the other parties contained herein or in any
documents, certificate or writing delivered pursuant hereto and (c) waive
compliance with any of the agreements or conditions of the other parties hereto
contained herein; provided that after the approval of the Merger by the
shareholders of the Company, no extensions or waivers shall be made that by law
require further approval by such shareholders without the approval of such
shareholders. Any agreement on the part of any party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
37
ARTICLE 8
MISCELLANEOUS
Section 8.1 Non-Survival of Representations and Warranties. None of the
representations and warranties made in this Agreement shall survive after the
Effective Time. This Section 8.1 shall not limit any covenant or agreement of
the parties hereto which by its terms contemplates performance after the
Effective Time.
Section 8.2 Enforcement of the Agreement. The Company agrees that
irreparable damage would occur to Newco in the event that any of the provisions
of this Agreement were not performed by the Company in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that Newco
shall be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
federal or state court located in the State of New York (as to which the parties
agree to submit jurisdiction of the purposes of such action), this being in
addition to any other remedy to which they are entitled at law or in equity
including those set forth in Section 7.3 of this Agreement. The Company further
agrees to waive any requirement for the securing or posting of any bond in
connection with obtaining any such injunction or other equitable relief.
Section 8.3 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic and legal substance of
the Transactions is not affected in any manner materially adverse to any party.
Upon such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that transactions
contemplated hereby are fulfilled to the extent possible. The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provisions of this Agreement, which
shall remain in full force and effect.
Section 8.4 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given upon receipt if
delivered personally, mailed by registered or certified mail (postage prepaid,
return receipt requested) or sent by a nationally recognized overnight courier
service, such as Federal Express, to the respective parties at the following
addresses or sent by electronic transmission to the fax number specified below,
with a confirming copy mailed or delivered (or at such other address or fax
number of a party as shall be specified by such party by like notice):
if to Newco:
Sandwich Acquisition Corporation
c/o Smith, Gambrell & Russell, LLP
Suite 3100, Promenade II
1230 Peachtree Street, N.E.
Atlanta, Georgia 30309-3592
Attention: Arthur Jay Schwartz, Esq.
Fax: (404) 685-6932
if to the Company:
Blimpie International, Inc.
740 Broadway, 12th Floor
New York, New York 10003
Attention: Chief Executive Officer
Fax: (212) 995-2560
38
with a copy to:
Hall Dickler Kent Goldstein & Wood, LLP
909 Third Avenue
New York, New York 10022
Attention: Steven D. Dreyer, Esq.
Fax: (212) 935-3121
Notice given by fax shall be deemed received on the day the sender receives
fax confirmation that such notice was received at the fax number of the
addressee. Notice given by mail as set out above shall be deemed received three
days after the date the same is postmarked.
Section 8.5 Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right.
Section 8.6 Governing Law. Except to the extent the provisions of the NJBCA
mandatorily apply hereto, this Agreement shall be governed by and construed in
accordance with the substantive laws of the State of New York regardless of the
laws that might otherwise govern under principles of conflicts of laws
applicable thereto.
Section 8.7 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
Section 8.8 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
Section 8.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
Section 8.10 Certain Definitions. For purposes of this Agreement, the
following terms shall have the meanings ascribed to them below:
(a) "affiliate" of a person shall mean (i) a person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, the first-mentioned person and (ii) an
"associate" of such person, as that term is defined in Rule 12b-2
promulgated under the Exchange Act as in effect on the date hereof.
(b) "beneficial owner" (including the term "beneficially own" or
correlative terms) shall have the meaning ascribed to such term under Rule
13d-3(a) under the Exchange Act.
(c) "business day" shall have the meaning ascribed to such term under
Rule 14d-1 of the Exchange Act.
(d) "control" (including the terms "controlling," "controlled by" and
"under common control with" or correlative terms) shall mean the
possession, directly or indirectly or as trustee or executor, of the power
to direct or cause the direction of the management and policies of a
person, whether through ownership of voting securities or as trustee or
executor, by contract or credit arrangement, or otherwise.
39
(e) "group" shall have the meaning ascribed to such term under Rule
13d-3(a) under the Exchange Act.
(f) "Leasing Subsidiaries" shall mean the subsidiaries of the Company
listed in Schedule 8.10(f) that were formed for the sole purpose of
entering into a lease agreement on behalf of the franchisees of the
Company.
(g) "License Agreements" shall mean all agreements (whether oral or
written) to which Company or any of its Subsidiaries is a party or
otherwise bound, (i) granting or obtaining any right to use or practice any
rights under any Intellectual Property, or (ii) restricting the Company's
(or such Subsidiary's) rights to use any Intellectual Property, including
license agreements, development agreements, distribution agreements,
settlement agreements, consent to use agreements, and covenants not to sue.
(h) "Material Adverse Effect" shall mean (i) any fact, event or
circumstance that results in or would reasonably be expected to result in
an adverse change or effect in the financial condition, assets,
liabilities, business, properties or results of operations of a specified
person, which change or effect is material with any other such changes or
effects, to the specified person (and when used with respect to the
Company, taking into consideration the Company and its Subsidiaries taken
as a whole), or (ii) any event, matter, condition or effect which
materially impairs the ability of a specified person to perform on a timely
basis its obligations under this Agreement or the consummation of the
Transactions; in each case, other than any change or effect attributable to
(i) the economy in general, (ii) the Metro Matter, or (iii) with respect to
the Company, a change in relationships with franchisees resulting primarily
from the announcement of the Merger.
(i) "Material Agreement" shall mean any agreement, commitment or
transaction by which the Company or its Subsidiaries is required to be
filed or disclosed as an exhibit to the Filed Company SEC Documents
pursuant to Item 601 of Regulation S-K of the Securities Act.
(j) "Metro Matter" shall mean the claims and allegations of
Metropolitan Blimpie, Inc. as disclosed in item 5 under Threatened
Litigation of Section 2.10 of the Disclosure Schedules, including any
litigation, injunction or arbitration resulting therefrom or relating
thereto.
(k) "person" shall mean a natural person, company, corporation,
partnership, association, trust or any unincorporated organization.
(l) "Subsidiary" shall mean, with respect to any party, any corporation
or other organization, whether incorporated or unincorporated, of which (i)
such party or any other Subsidiary of such party is a general partner
(excluding partnerships, the general partnership interests of which held by
such party or any Subsidiary of such party do not have the majority of the
voting interest in such partnership) or (ii) at least a majority of the
securities or other interests having by their terms ordinary voting power
to elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such party or by any one or
more of its Subsidiaries, or by such party and one or more of its
Subsidiaries.
Section 8.11 Interpretation.
(a) The words "hereof," "herein" and "herewith" and words of similar
import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole and not to any particular provision of this Agreement,
and article, section, paragraph, exhibit and schedule references are to the
articles, sections, paragraphs, exhibits and schedules of this Agreement
unless otherwise specified. Whenever the words "include", "includes" or
"including" are used in
40
this Agreement they shall be deemed to be followed by the words "without
limitation." All terms defined in this Agreement shall have the defined
meanings contained herein when used in any certificate or other document
made or delivered pursuant hereto unless otherwise defined therein. The
definitions contained in this Agreement are applicable to the singular as
well as the plural forms of such terms and to the masculine as well as to
the feminine and neuter genders of such term. Any agreement, instrument,
statute or rule defined or referred to herein or in any agreement or
instrument that is referred to herein means such agreement, instrument,
statute or rule as from time to time amended, modified or supplemented,
including (in the case of agreements and instruments) by waiver or consent
and (in the case of statutes and rules) by succession of comparable
successor statutes and rules and all attachments thereto and instruments
incorporated therein. References to a person are also to its permitted
successors and assigns.
(b) The parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any
provisions of this Agreement.
(c) References in this Agreement to "the Company's knowledge" or "the
knowledge of the Company" or similar terms mean the knowledge of any of the
Company's officers or directors; "knowledge" means actual knowledge,
together with the knowledge a reasonable business person would have
obtained after making reasonable inquiry and exercising reasonable
diligence to the matters at hand.
Section 8.12 Entire Agreement; Assignment. This Agreement (including the
Company Disclosure Schedule), the Escrow Agreement, the Voting Agreement and the
Employment Agreements, (a) constitute the entire agreement among the parties
with respect to the subject matter hereof and supersede all other prior
agreements and understandings, both written and oral, among the parties or any
of them with respect to the subject matter hereof, and (b) shall not be assigned
by operation of law or otherwise, provided that Newco may assign any of its
rights and obligations to any direct or indirect wholly owned subsidiary of
Newco or as collateral security to any lender providing financing to Newco in
connection with the Transactions, but no such assignment shall relieve Newco of
its obligations hereunder. Any attempted assignment in violation of this Section
8.12 shall be void. Subject to the preceding sentences, this Agreement will be
binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
41
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, on the day and
year first above written.
BLIMPIE INTERNATIONAL, INC.
By:
---------------------------------------
Name:
Title: CEO
SANDWICH ACQUISITION CORP.
By:
---------------------------------------
Name:
Title: CEO
42
October 8, 2001
Special Committee of the Board of Directors
Blimpie International, Inc.
740 Broadway
New York, NY 10003-9518
Members of the Special Committee of the Board of Directors:
It is our understanding that there is a draft Agreement and Plan of Merger, a
copy of which (version 12) was received by Capitalink on October 5, 2001,
between Sandwich, Inc. (a/k/a Blimpie International, Inc., and hereinafter,
"Blimpie" or the "Company") and Sandwich Acquisition Corp. ("Newco") (the
"Agreement"). Pursuant to the Agreement, each share of common stock of the
Company issued and outstanding immediately before the time when the Proposed
Transaction (as defined hereinafter) becomes effective (the "Effective Time")
shall be converted into and represent the right to receive $2.80 in cash (the
"Consideration"). No payments will be made with respect to shares of the
Company's common stock held in the treasury of the Company.
Further pursuant to the Agreement, at the Effective Time each of the Company's
outstanding options (whether or not then vested or exercisable) shall be
cancelled and converted into the right to receive an amount in cash equal to the
product of (i) the number of the shares of the Company's common stock subject to
such option, and (ii) the excess, if any, of the Consideration over the exercise
price per share related to such option.
Further pursuant to the Agreement, the Consideration shall be adjusted downward
in the event (i) the actual number of shares of the Company's common stock
outstanding or the number of shares issuable upon the exercise of outstanding
options is greater than as described in the Agreement, or (ii) the weighted
average exercise price of the aggregated outstanding options is lower than as
described in the Agreement, the Consideration shall be appropriately adjusted
downward; provided however, that no adjustments shall be made in the event such
aggregate adjustment would be less than $50,000.
Further pursuant to the Agreement, for a period of 30 days commencing on the
date of the Agreement, the Company shall have the opportunity to solicit,
initiate and encourage additional offers and enter into discussions with third
parties (the "Market Check"). In this regard, in the
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event the Proposed Transaction is terminated by the Company based on the receipt
of a Superior Proposal (as defined in the Agreement), Newco shall be entitled to
a fee from the Company equal to $1.3 million and an expense reimbursement not to
exceed $200,000.
In conjunction with and as a condition to entering into the Agreement, Anthony
Conza, David Siegel, Patrick Pompeo, Charles Leaness, and Joe Conza (the "Key
Shareholders") shall enter into a voting agreement (the "Voting Agreement")
pursuant to which each party shall vote all shares owned by such parties in
favor of the Proposed Transaction and against any competing transaction.
The transaction described above is referred to as the "Proposed Transaction."
You have requested our opinion as to the fairness, from a financial point of
view, of the Consideration to the shareholders of the Company. We have not been
requested to opine as to, and our opinion does not in any manner address, the
underlying business decision of the Company to proceed with or affect the
Proposed Transaction. As of the date hereof, we have not explored any
alternatives to the Proposed Transaction; however, we have been retained to
undertake the Market Check.
In arriving at our opinion, we, among other things: (i) reviewed the Agreement,
the Voting Agreement, draft Employment Agreements to be entered into between
Newco and the Key Shareholders (the "Employment Agreements"), and the specific
terms of the Proposed Transaction; (ii) reviewed publicly available financial
information and other data with respect to Blimpie, including the draft Form
10-K for the year ended June 30, 2001, the Form10-K for the year ended June 30,
2000, and the Quarterly Report on Form 10-Q for the period ended March 31, 2001,
and certain other relevant financial and operating data relating to Blimpie made
available to us; (iii) reviewed and analyzed the financial terms of certain
transactions that we deemed involved companies comparable to Blimpie; (iv)
reviewed and analyzed certain financial characteristics of companies that we
deemed comparable to Blimpie; (v) reviewed and analyzed the premium to be paid
in the Proposed Transaction and premiums paid in certain other transactions;
(vi) reviewed and discussed with representatives of the management of Blimpie
certain financial and operating information furnished to us by them, including
financial analyses and projections and related assumptions with respect to the
business, operations and prospects of the Company; (vii) considered the
historical financial results and present financial condition of Blimpie; (viii)
reviewed certain publicly available information concerning the trading of, and
the trading market for, the common stock of Blimpie; (ix) inquired about and
discussed the Proposed Transaction and other matters related thereto with
Blimpie management and the Special Committee's legal counsel; and (x) performed
such other analyses and examinations as we deemed appropriate. In addition, we
are aware that Newco and the Key Shareholders will enter into Non-Competition
and Non-Solicitation Agreements (the "Non-Competition and Non-Solicitation
Agreements") in conjunction with the Proposed Transaction.
In arriving at our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was used by us
without assuming any responsibility for any independent verification of any such
information and have further relied upon the
Page 2 of 4
assurances of Blimpie management that they were not aware of any facts or
circumstances that would make any such information inaccurate or misleading.
With respect to the financial projections utilized, we have assumed that such
projections have been reasonably prepared on a basis reflecting the best
currently available estimates and judgements, and that such projections provide
a reasonable basis upon which we could form an opinion. In arriving at our
opinion, we have not made a physical inspection of the properties and facilities
of Blimpie, and have not made or obtained any evaluations or appraisals of the
assets and liabilities (contingent or otherwise) of Blimpie. We have assumed
that the Proposed Transaction will be consummated in a manner that complies in
all respects with the applicable provisions of the Securities Act of 1933, as
amended, the Exchange Act of 1934, as amended, and all other applicable federal
and state statues, rules and regulations. In addition, it is assumed that the
Proposed Transaction will be a taxable event to the Blimpie shareholders. Our
opinion was necessarily based upon market, economic and other conditions as they
exist on, and could be evaluated as of, October 8, 2001. Accordingly, although
subsequent developments may affect our opinion, we do not assume any obligation
to update, review or reaffirm our opinion.
We have also assumed, with your consent, that the Proposed Transaction will be
consummated in accordance with the terms described in the Agreement, without any
further amendments thereto, and without waiver by the Company of any of the
conditions to any obligations thereunder. It is noted that the Employment
Agreements and the Non-Competition and Non-Solicitation Agreements are not part
of the Proposed Transaction nor are they elements of the Consideration, and
therefore they are not addressed in our opinion. It is our further understanding
that a certain principal of the Company may beneficially own a minority interest
in the acquiror of the Company.
In connection with our services, we have previously received a retainer and will
receive the balance of our fee for rendering this opinion. In addition, the
Company has agreed to indemnify us for certain liabilities that may arise out of
the rendering this opinion. Further, as of the date hereof, a principal of
Capitalink beneficially owns 2,000 shares of the Company's common stock. This
opinion is not intended to be and does not constitute a recommendation to any
shareholder of the Company as to how such shareholder should vote, if required
to, with respect to the Proposed Transaction.
Our opinion is for the use and benefit of the Special Committee of the Board of
Directors of Blimpie and is rendered to the Special Committee of the Board of
Directors in connection with its consideration of the Proposed Transaction and
may not be used by the Company for any other purpose or reproduced,
disseminated, quoted or referred to by the Company at any time, in any manner or
for any purpose, without the prior written consent of Capitalink, except that
this opinion, may be reproduced in full in, and references to the opinion and to
Capitalink and its relationship with the Company may be included in any proxy
materials relating to the Proposed Transaction that the Company files with the
U.S. Securities and Exchange Commission.
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Based upon and subject to the foregoing, it is our opinion that, as of the date
of this letter, the Consideration is fair, from a financial point of view, to
the shareholders of Blimpie.
Very truly yours,
CAPITALINK, L.C.
Page 4 of 4
APPENDIX I
BLIMPIE INTERNATIONAL, INC.
This Proxy is Solicited on Behalf of the Board of Directors of Blimpie
International, Inc.
The undersigned holder of the $.01 par value Common Stock (the "Common Shares")
of Blimpie International, Inc. (the "Company"), hereby acknowledges receipt of
the Notice of Annual Meeting of the Company and Proxy Statement attached
thereto, all relating to the Company's Special Meeting of Shareholders (the
"Special Meeting"), and does appoint [ ], and each of them, the true and
lawful attorney or attorneys of the undersigned, with power of substitution, for
and in the name of the undersigned, to vote as proxies for the undersigned
according to the number of Common Shares the undersigned would be entitled to
vote if then personally present at the Special Meeting to be held at [place,
street address, city, state, zip], on [ ] day, [ ], 200[ ], at [ ] A.M.,
or at any adjournment or adjournments thereof, and thereat to vote all Common
Shares of the Company held by the undersigned and entitled to be voted thereat
upon the following matters:
1. To adopt and approve the Agreement and Plan of Merger, dated as of October 5,
2001, providing for the merger of Sandwich Acquisition Corp. into the Company
and the transactions contemplated thereby.
2. To transact such other business as may properly come before the meeting.
This Proxy confers authority to vote "FOR" each of proposition 1 listed above
unless otherwise indicated. If any other business is transacted at said meeting,
this proxy shall be voted in accordance with the best judgment of the proxies.
The Board of Directors recommends a vote of "FOR" for proposition 1. This proxy
is solicited on behalf of the Board of Directors of Blimpie International, Inc.
and may be revoked prior to its exercise.
NOTE: Signature(s) should follow exactly the name(s) on the stock certificate.
Executor, administrator, trustee or guardian should sign as such. If more than
one trustee, all should sign. ALL JOINT OWNERS MUST SIGN.
Please be sure to sign and date
this Proxy in the box below Date
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Shareholder sign above -- Co-holder (if any) sign above
STATEMENT OF DIFFERENCES
The section symbol shall be expressed as....................................'SS'