EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
AMONG
MADISON DEARBORN PARTNERS II, L.P.,
TUESDAY MORNING ACQUISITION CORP.
AND
TUESDAY MORNING CORPORATION
DATED AS OF SEPTEMBER 12, 1997
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of September 12, 1997 (this
"Agreement"), is made and entered into by and among Madison Dearborn Partners
II, L.P., a Delaware limited partnership ("Parent"), Tuesday Morning
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
Parent ("Sub"), and Tuesday Morning Corporation, a Delaware corporation (the
"Company").
WHEREAS, the general partner of Parent and the respective Boards of
Directors of Sub and the Company have approved the acquisition of the Company
by Parent, by means of the merger (the "Merger") of Sub with and into the
Company, upon the terms and subject to the conditions set forth in this
Agreement;
WHEREAS, pursuant to those certain option agreements (the "Option
Agreements"), dated as of August 13, 1997, by and between Parent and each of
Messrs. Lloyd L. Ross and Jerry M. Smith (the "Stockholders"), Parent has
acquired an option (the "Option") to purchase 3,896,757 shares of common
stock, par value $0.01 per share, of the Company ("Shares" or "Company Common
Stock") held by the Stockholders (including 1,143,600 Shares issuable to the
Stockholders upon exercise of stock options), which Shares are currently being
held in escrow by NationsBank of Texas, N.A.;
WHEREAS, Parent, Sub and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the consummation thereof;
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the parties hereto,
intending to be legally bound, hereby agree as follows:
ARTICLE I
The Merger
1.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the Delaware General Corporation Law,
as amended (the "DGCL"), Sub shall be merged with and into the Company at the
Effective Time. At the Effective Time, the separate corporate existence of Sub
shall cease, and the Company shall continue as the surviving corporation and a
direct wholly owned subsidiary of Parent (Sub and the Company are sometimes
hereinafter referred to as "Constituent Corporations" and, as the context
requires, the Company is sometimes hereinafter referred to as the "Surviving
Corporation"), and shall continue under the name "Tuesday Morning
Corporation."
1.2 Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
7.1, and subject to the satisfaction or waiver of the conditions set forth in
Article VI, the closing of the merger (the "Closing") shall take place at
10:00 a.m., Chicago time, on the first business day after satisfaction and/or
waiver of all of the conditions set forth in Article VI (the "Closing Date"),
at the offices of Kirkland & Ellis, 200 East Randolph Drive, Chicago, Illinois
60601, unless another date, time or place is agreed to in writing by the
parties hereto.
1.3 Effective Time of the Merger. Subject to the provisions of this
Agreement, the parties hereto shall cause the Merger to be consummated by
filing a certificate of merger (the "Certificate of Merger") with the
Secretary of State of the State of Delaware, as provided in the DGCL, on the
Closing Date. The Merger shall become effective upon such filing or at such
time thereafter as is provided in the Certificate of Merger (the "Effective
Time").
1.4 Effects of the Merger.
(a) The Merger shall have the effects as set forth in the applicable
provisions of the DGCL.
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(b) The directors of Sub and the officers of the Company immediately prior
to the Effective Time shall, from and after the Effective Time, be the initial
directors and officers of the Surviving Corporation until their successors
have been duly elected or appointed and qualified, or until their earlier
death, resignation or removal in accordance with the Surviving Corporation's
Certificate of Incorporation and Bylaws.
(c) The Certificate of Incorporation of the Company shall be amended and
restated in its entirety as set forth on Exhibit A hereto, and, from and after
the Effective Time, such amended and restated Certificate of Incorporation
shall be the Certificate of Incorporation of the Surviving Corporation, until
duly amended in accordance with the terms thereof and the DGCL.
(d) The Bylaws of the Company shall be amended and restated in their
entirety as set forth on Exhibit B hereto and, from and after the Effective
Time, such amended and restated Bylaws shall be the Bylaws of the Surviving
Corporation until thereafter amended as provided by applicable law, the
Certificate of Incorporation or the Bylaws.
ARTICLE II
Effect of the Merger on the Capital Stock of the Constituent Corporations;
Exchange of Certificates
2.1 Effect on Capital Stock. At the Effective Time, by virtue of the Merger
and without any action on the part of any holder of shares of Company Common
Stock or any holder of shares of capital stock of Sub:
(a) Capital Stock of Sub. Each share of the capital stock of Sub issued
and outstanding immediately prior to the Effective Time shall be converted
into and become one fully paid and nonassessable share of Common Stock, par
value $0.01 per share, of the Surviving Corporation or such other equity
securities of the Surviving Corporation as Parent shall specify.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. Each share of
Company Common Stock and all other shares of capital stock of the Company
that are owned by the Company and all shares of Company Common Stock and
other shares of capital stock of the Company owned by Parent or Sub shall
be canceled and retired and shall cease to exist and no consideration shall
be delivered or deliverable in exchange therefor.
2.2 Conversion of Securities. At the Effective Time, by virtue of the Merger
and without any action on the part of Sub, the Company or the holders of any
of the shares thereof:
(a) (i) Subject to the other provisions of this Section 2.2, each share
of Company Common Stock issued and outstanding immediately prior to the
Effective Time (excluding shares owned, directly or indirectly (other than
the shares covered by the Option), by the Company or by Parent, Sub or any
other Subsidiary of Parent and Dissenting Shares (as defined in Section
2.6)) shall be converted into the right to receive $25.00 per share, net to
the seller in cash, payable to the holder thereof, without any interest
thereon (the "Merger Consideration"), upon surrender and exchange of the
Certificate (as defined in Section 2.3) representing such share of Company
Common Stock. As used in this Agreement, the word "Subsidiary", with
respect to any party, means any corporation, partnership, joint venture or
other organization, whether incorporated or unincorporated, of which: (i)
such party or any other Subsidiary of such party is a general partner; (ii)
voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such corporation, partnership,
joint venture or other organization is held by such party or by any one or
more of its Subsidiaries, or by such party and any one or more of its
Subsidiaries; or (iii) at least 25% of the equity, other securities or
other interests is, directly or indirectly, owned or controlled by such
party or by any one or more of its Subsidiaries, or by such party and any
one or more of its Subsidiaries.
(ii) All such shares of Company Common Stock, when converted as provided
in Section 2.2(a)(i), no longer shall be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each
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Certificate previously evidencing such Shares shall thereafter represent
only the right to receive the Merger Consideration. The holders of
Certificates previously evidencing Shares outstanding immediately prior to
the Effective Time shall cease to have any rights with respect to the
Company Common Stock except as otherwise provided herein or by law and,
upon the surrender of Certificates in accordance with the provisions of
Section 2.3, shall only represent the right to receive for their Shares,
the Merger Consideration, without any interest thereon.
2.3 Payment for Shares.
(a) Paying Agent. Prior to the Effective Time, Sub shall appoint a United
States bank or trust company reasonably acceptable to the Company to act as
paying agent (the "Paying Agent") for the payment of the Merger Consideration,
and Sub shall deposit or shall cause to be deposited with the Paying Agent in
a separate fund established for the benefit of the holders of shares of
Company Common Stock, for payment in accordance with this Article II, through
the Paying Agent (the "Payment Fund"), immediately available funds in amounts
necessary to make the payments pursuant to Section 2.2(a)(i) and this Section
2.3 to holders (other than the Company or Parent, Sub or any other Subsidiary
of Parent, or holders of Dissenting Shares). The Paying Agent shall, pursuant
to irrevocable instructions, pay the Merger Consideration out of the Payment
Fund.
The Paying Agent shall invest portions of the Payment Fund as Parent directs
in obligations of or guaranteed by the United States of America, in commercial
paper obligations receiving the highest investment grade rating from both
Moody's Investors Services, Inc. and Standard & Poor's Corporation, or in
certificates of deposit, bank repurchase agreements or banker's acceptances of
commercial banks with capital exceeding $1,000,000,000 (collectively,
"Permitted Investments"); provided, however, that the maturities of Permitted
Investments shall be such as to permit the Paying Agent to make prompt payment
to former holders of Company Common Stock entitled thereto as contemplated by
this Section. The Surviving Corporation shall cause the Payment Fund to be
promptly replenished to the extent of any losses incurred as a result of
Permitted Investments. All earnings on Permitted Investments shall be paid to
the Surviving Corporation. If for any reason (including losses) the Payment
Fund is inadequate to pay the amounts to which holders of shares of Company
Common Stock shall be entitled under this Section 2.3, the Surviving
Corporation shall in any event be liable for payment thereof. The Payment Fund
shall not be used for any purpose except as expressly provided in this
Agreement.
(b) Payment Procedures. As soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall instruct the Paying Agent to
mail to each holder of record (other than the Company or Parent, Sub or any
other Subsidiary of Parent) of a Certificate or Certificates which,
immediately prior to the Effective Time, evidenced outstanding shares of
Company Common Stock (the "Certificates"), (i) 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 shall be in such form and have such
other provisions as the Surviving Corporation reasonably may specify) and (ii)
instructions for use in effecting the surrender of the Certificates in
exchange for payment therefor. Upon surrender of a Certificate for
cancellation to the Paying Agent together with such letter of transmittal,
duly executed, and such other customary documents as may be required pursuant
to such instructions, the holder of such Certificate shall be entitled to
receive in respect thereof cash in an amount equal to the product of (x) the
number of shares of Company Common Stock represented by such Certificate and
(y) the Merger Consideration, and the Certificate so surrendered shall
forthwith be canceled. Absolutely no interest shall be paid or accrued on the
Merger Consideration payable upon the surrender of any Certificate. If payment
is to be made to a person other than the person in whose name the surrendered
Certificate is registered, it shall be a condition of payment that the
Certificate so surrendered shall be properly endorsed or otherwise in proper
form for transfer and that the person requesting such payment shall pay any
transfer or other taxes required by reason of the payment to a person other
than the registered holder of the surrendered Certificate or established to
the satisfaction of the Surviving Corporation that such tax has been paid or
is not applicable. Until surrendered in accordance with the provisions of this
Section 2.3(b), each Certificate (other than Certificates representing Shares
owned by the Company or Parent, Sub or any other Subsidiary of Parent), shall
represent for all purposes only the right to receive the Merger Consideration.
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(c) Termination of Payment Fund; Interest. Any portion of the Payment Fund
which remains undistributed to the holders of Company Common Stock for 180
days after the Effective Time shall be delivered to the Surviving Corporation
upon demand, and any holders of Company Common Stock who have not theretofore
complied with this Article II and the instructions set forth in the letter of
transmittal mailed to such holder after the Effective Time shall thereafter
look only to the Surviving Corporation for payment of the Merger Consideration
to which they are entitled. All interest accrued in respect of the Payment
Fund shall inure to the benefit of and be paid to the Surviving Corporation.
(d) No Liability. Neither Parent nor the Surviving Corporation shall be
liable to any holder of shares of Company Common Stock for any cash from the
Payment Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
2.4 Stock Transfer Books. At the Effective Time, the stock transfer books of
the Company shall be closed and there shall be no further registration of
transfer of shares of Company Common Stock thereafter on the records of the
Company. On or after the Effective Time, any certificates presented to the
Paying Agent or Parent for any reason shall be converted into the Merger
Consideration.
2.5 Stock Option Plans. At or about the Effective Time, the holders of then
outstanding options to purchase Shares under the Company's Restated Incentive
Stock Option Plan and Non-Qualified Stock Option Plan (the "Stock Option
Plans"), whether or not then exercisable (collectively, the "Employee
Options"), shall, in cancellation and settlement thereof, receive for each
Share subject to such Employee Option an amount (subject to any applicable
withholding tax) in cash equal to the difference between the Merger
Consideration and the per Share exercise price of such Employee Option to the
extent such difference is a positive number (such amount being hereinafter
referred to as, the "Option Consideration"). Upon receipt of the Option
Consideration, the Employee Option shall be canceled. The surrender of an
Employee Option to the Company in exchange for the Option Consideration shall
be deemed a release of any and all rights the holder had or may have had in
respect of such Employee Option. Prior to the Closing, the Company shall
obtain all necessary consents or releases from holders of Employee Options
under the Stock Option Plans and take all such other lawful action as may be
necessary to give effect to the transactions contemplated by this Section 2.5.
The Stock Option Plans shall terminate as of the Effective Time, and the
provisions in any other plan, program or arrangement providing for the
issuance or grant of any other interest in respect of the capital stock of the
Company or any Subsidiary thereof shall be canceled as of the Effective Time.
Prior to the Closing, the Company shall take all action necessary to (i)
ensure that, following the Effective Time, no participant in the Stock Option
Plans or any other plans, programs or arrangements shall have any right
thereunder to acquire equity securities of the Company, the Surviving
Corporation or any Subsidiary thereof and (ii) terminate all such plans,
programs and arrangements.
2.6 Dissenting Shares. Notwithstanding any other provisions of this
Agreement to the contrary, shares of Company Common Stock that are outstanding
immediately prior to the Effective Time and which are held by stockholders who
shall have not voted in favor of the Merger or consented thereto in writing
and who shall have demanded properly in writing appraisal for such shares in
accordance with Section 262 of the DGCL (collectively, the "Dissenting
Shares") shall not be converted into or represent the right to receive the
Merger Consideration. Such stockholders instead shall be entitled to receive
payment of the appraised value of such shares of Company Common Stock held by
them in accordance with the provisions of such Section 262 of the DGCL, except
that all Dissenting Shares held by stockholders who shall have failed to
perfect or who effectively shall have withdrawn or lost their rights to
appraisal of such shares of Company Common Stock under such Section 262 of the
DGCL shall thereupon be deemed to have been converted into and to have become
exchangeable, as of the Effective Time, for the right to receive, without any
interest thereon, the Merger Consideration upon surrender in the manner
provided in Section 2.3, of the Certificate or Certificates that, immediately
prior to the Effective Time, evidenced such shares of Company Common Stock.
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ARTICLE III
Representations and Warranties
3.1 Representations and Warranties of the Company. The Company represents
and warrants to Parent and Sub as follows:
(a) Organization, Standing and Power. Each of the Company and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of incorporation,
has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted, and is duly
qualified to do business as a foreign corporation and in good standing to
conduct business in each jurisdiction in which the business it is
conducting, or the operation, ownership or leasing of its properties, makes
such qualification necessary, other than in such jurisdictions where the
failure so to qualify would not (i) have a Material Adverse Effect (as
defined below) with respect to the Company or (ii) impair in any material
respect the ability of the Company to consummate the transactions
contemplated by this Agreement. The Company has heretofore delivered to
Parent complete and correct copies of its and its Subsidiaries' respective
Certificates of Incorporation and Bylaws. All Subsidiaries of the Company
and their respective jurisdictions of incorporation or organization are
identified on Schedule 3.1(a). As used in this Agreement: a "Material
Adverse Effect" shall mean, with respect to any party, the result of one or
more events, changes or effects which, individually or in the aggregate,
would have a material adverse effect on the business, operations, results
of operations, assets, condition (financial or otherwise) or prospects of
such party and its Subsidiaries, taken as a whole.
(b) Capital Structure. As of the date hereof, the authorized capital
stock of the Company consists of 20,000,000 Shares and 2,000,000 shares of
preferred stock, par value $1.00 per share (the "Preferred Stock"). As of
the date hereof: (i) 12,346,974 Shares are issued and 11,917,681 Shares are
outstanding; (ii) no shares of Preferred Stock are issued and outstanding;
and (iii) 1,248,863 Shares are reserved for issuance pursuant to Employee
Options outstanding under the Stock Option Plans. Except for the issuance
of Shares pursuant to the exercise of outstanding Employee Options, there
are no employment, executive termination or similar agreements providing
for the issuance of Shares. No Shares are held by the Company, and no
Shares are held by any Subsidiary of the Company. No bonds, debentures,
notes or other instruments or evidence of indebtedness having the right to
vote (or convertible into, or exercisable or exchangeable for, securities
having the right to vote) on any matters on which the Company stockholders
may vote ("Company Voting Debt") are issued or outstanding. All outstanding
Shares are validly issued, fully paid and nonassessable and are not subject
to preemptive or other similar rights. Except as set forth on Schedule
3.1(b), all outstanding shares of capital stock of the Subsidiaries of the
Company are owned by the Company or a direct or indirect Subsidiary of the
Company, free and clear of all liens, charges, encumbrances, claims and
options of any nature. Except as set forth in this Section 3.1(b), there
are outstanding: (i) no shares of capital stock, Company Voting Debt or
other voting securities of the Company; (ii) no securities of the Company
or any Subsidiary of the Company convertible into, or exchangeable or
exercisable for, shares of capital stock, Company Voting Debt or other
voting securities of the Company or any Subsidiary of the Company; and
(iii) no options, warrants, calls, rights (including preemptive rights),
commitments or agreements to which the Company or any Subsidiary of the
Company is a party or by which it is bound, in any case obligating the
Company or any Subsidiary of the Company to issue, deliver, sell, purchase,
redeem or acquire, or cause to be issued, delivered, sold, purchased,
redeemed or acquired, additional shares of capital stock or any Company
Voting Debt or other voting securities of the Company or of any Subsidiary
of the Company, or obligating the Company or any Subsidiary of the Company
to grant, extend or enter into any such option, warrant, call, right,
commitment or agreement. Except as set forth on Schedule 3.1(b), since June
30, 1997, the Company has not (i) granted any options, warrants or rights
to purchase shares of Company Common Stock or (ii) amended or repriced any
Employee Option or the Stock Option Plans. The Company has previously
delivered to Parent a complete and correct list of all outstanding options,
warrants and rights to purchase shares of Company Common Stock and the
exercise prices relating thereto. Except for the Option Agreements, there
are not as of the date hereof and there will not be at the Effective Time
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any stockholder agreements, voting trusts or other agreements or
understandings to which the Company is a party or by which it is bound
relating to the voting of any shares of the capital stock of the Company
which will limit in any way the solicitation of proxies by or on behalf of
the Company from, or the casting of votes by, the stockholders of the
Company with respect to the Merger. There are no restrictions on the
Company to vote the stock of any of its Subsidiaries.
(c) Authority; No Violations; Consents and Approvals.
(i) The Company has all requisite corporate power and authority to
enter into this Agreement and, subject to the approval of this
Agreement and the Merger by the holders of a majority of the
outstanding Shares ("Company Stockholder Approval"), to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part
of the Company, subject to the Company Stockholder Approval. This
Agreement has been duly executed and delivered by the Company and,
subject to the Company Stockholder Approval, constitutes a valid and
binding obligation of the Company enforceable in accordance with its
terms and conditions except that the enforcement hereof may be limited
by (a) applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws now or hereafter in effect
relating to creditors' rights generally and (b) general principles of
equity (regardless of whether enforceability is considered in a
proceeding at law or in equity).
(ii) Except as set forth on Schedule 3.1(c)(ii), the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby by the Company 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 termination, cancellation or
acceleration (including pursuant to any put right) of any obligation or
the loss of a material benefit under, or the creation of a lien,
pledge, security interest or other encumbrance on assets or property,
or right of first refusal with respect to any asset or property (any
such conflict, violation, default, right of termination, cancellation
or acceleration, loss, creation or right of first refusal, a
"Violation"), pursuant to, (A) any provision of the Certificate of
Incorporation or Bylaws of the Company or any of its Subsidiaries or
(B) except as to which requisite waivers or consents have been obtained
and assuming the consents, approvals, authorizations or permits and
filings or notifications referred to in paragraph (iii) of this Section
3.1(c) are duly and timely obtained or made and the Company Stockholder
Approval has been obtained, result in any Violation of (1) any loan or
credit agreement, note, mortgage, deed of trust, indenture, lease,
Benefit Plan (as defined in Section 3.1(i)), Company Permit (as defined
in Section 3.1(f)), or any other agreement, obligation, instrument,
concession, franchise, or license or (2) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company
or any of its Subsidiaries or their respective properties or assets
(collectively, "Laws"). The Board of Directors of the Company has taken
all actions necessary under the DGCL, including approving the
transactions contemplated by this Agreement, to ensure that Section 203
of the DGCL does not, and will not, apply to the transactions
contemplated in this Agreement.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, notice to, or permit from any
court, administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign (a "Governmental
Entity"), is required by or with respect to the Company or any of its
Subsidiaries in connection with the execution and delivery of this
Agreement by the Company or the consummation by the Company of the
transactions contemplated hereby, except for: (A) the filing of a pre-
merger notification and report form by the Company under the Hart-
Scott-Rodino Antitrust improvements Act of 1976, as amended (the "HSR
Act"), and the expiration or termination of the applicable waiting
period thereunder; (B) the filing with the United States Securities and
Exchange Commission (the "SEC") of (x) a proxy statement in definitive
form relating to a meeting of the holders of Company Common Stock to
approve the Merger (such proxy statement as amended or supplemented
from time to time being hereinafter referred to as the "Proxy
Statement") and (y) such reports under and such other compliance with
the Exchange Act and the rules and regulations thereunder as may be
required in connection with this Agreement and the transactions
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contemplated hereby; (C) the filing of the Certificate of Merger with
the Secretary of State of the State of Delaware; (D) such filings and
approvals as may be required by any applicable state securities, "blue
sky" or takeover laws; and (E) such filings in connection with any
state or local tax which is attributable to the beneficial ownership of
the Company's or its Subsidiaries' real property, if any (collectively,
the "Gains and Transfer Taxes").
(d) SEC Documents. The Company has delivered to Parent a true and
complete copy of each report, schedule, registration statement and
definitive proxy statement filed by the Company with the SEC since January
1, 1994 and prior to the date of this Agreement (the "Company SEC
Documents"), which are all the documents (other than preliminary material)
that the Company was required to file with the SEC since such date. As of
their respective dates, the Company SEC Documents complied in all material
respects with the requirements of the Securities Act of 1933, as amended
(the "Securities Act"), or the Exchange Act, as the case may be, and the
rules and regulations of the SEC promulgated thereunder applicable to such
Company SEC Documents, and none of the Company SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
The financial statements of the Company included in the Company SEC
Documents complied as to form in all material respects with the published
rules and regulations of the SEC with respect thereto, were prepared in
accordance with generally accepted accounting principles ("GAAP") applied
on a consistent basis during the periods involved (except as may be
indicated in the notes thereto or, in the case of the unaudited statements,
as permitted by Rule 10-01 of Regulation S-X of the SEC) and fairly present
in accordance with applicable requirements of GAAP (subject, in the case of
the unaudited statements, to normal, recurring adjustments, which will not
be material, either individually or in the aggregate) the consolidated
financial position of the Company and its consolidated Subsidiaries as of
their respective dates and the consolidated results of operations and the
consolidated cash flows of the Company and its consolidated Subsidiaries
for the periods presented therein.
(e) Information Supplied. None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in the
Proxy Statement will, on the date it is first mailed to the holders of the
Company Common Stock 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 are made, not misleading. If, at any
time prior to the Effective Time, any event with respect to the Company or
any of its Subsidiaries, or with respect to other information supplied by
the Company for inclusion in the Proxy Statement, shall occur which is
required to be described in an amendment of, or a supplement to, the Proxy
Statement, such event shall be so described, and such amendment or
supplement shall be promptly filed with the SEC and, as required by law,
disseminated to the stockholders of the Company. The Proxy Statement,
insofar as it relates to the Company or its Subsidiaries or other
information supplied by the Company for inclusion therein will comply as to
form, in all material respects, with the provisions of the Exchange Act or
the rules and regulations thereunder.
(f) Compliance with Applicable Laws. The Company and its Subsidiaries
hold all material permits, licenses, variances, exemptions, orders,
franchises and approvals of all Governmental Entities necessary for the
lawful conduct of their respective businesses (the "Company Permits"). The
Company and its Subsidiaries are in compliance in all material respects
with the terms of the Company Permits (a list of which is set forth on
Schedule 3.1(f)). Except as disclosed in Schedule 3.1(f), the Company and
its Subsidiaries have complied in all material respects with all applicable
laws, ordinances and regulations of all Governmental Entities. As of the
date of this Agreement, no investigation or review by any Governmental
Entity with respect to the Company or any of its Subsidiaries is pending
or, to the knowledge of the Company, threatened.
(g) Litigation. Except as set forth on Schedule 3.1(g), there is no suit,
action or proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company or any Subsidiary of the
Company ("Company Litigation"), nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator
outstanding against the Company or any Subsidiary of the Company ("Company
Order").
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(h) Taxes. Except as set forth on Schedule 3.1(h) hereto:
(i) All Tax Returns required to be filed by or with respect to the
Company and each of its Subsidiaries have been duly and timely filed,
and all such Tax Returns are true, correct and complete in all material
respects. The Company and each of its Subsidiaries has duly and timely
paid (or there has been paid on its behalf) all Taxes that are due, or
claimed or asserted by any taxing authority to be due, from or with
respect to it. With respect to any period for which Taxes are not yet
due with respect to the Company or any Subsidiary, the Company and each
of its Subsidiaries has made due and sufficient current accruals for
such Taxes in accordance with GAAP in the most recent financial
statements contained in the Company SEC Documents. The Company and each
of its Subsidiaries has made (or there has been made on its behalf) all
required estimated Tax payments sufficient to avoid any material
underpayment penalties. The Company and each of its Subsidiaries has
withheld and paid all Taxes required by all applicable laws to be
withheld or paid in connection with any amounts paid or owing to any
employee, creditor, independent contractor or other third party.
(ii) There are no outstanding agreements, waivers, or arrangements
extending the statutory period of limitation applicable to any claim
for, or the period for the collection or assessment of, material Taxes
due from or with respect to the Company or any of its Subsidiaries for
any taxable period. No audit or other proceeding by any court,
governmental or regulatory authority, or similar person is pending or,
to the knowledge of the Company, threatened in regard to any Taxes due
from or with respect to the Company or any of the Subsidiaries or any
Tax Return filed by or with respect to the Company or any of its
Subsidiaries. No assessment of Taxes is proposed against the Company or
any of its Subsidiaries or any of their assets.
(iii) No election under Section 338 of the Code has been made or
filed by or with respect to the Company or any of its Subsidiaries. No
consent to the application of Section 341(f)(2) of the Code (or any
predecessor provision) has been made or filed by or with respect to the
Company or any of its Subsidiaries or any of their assets. None of the
Company or any of its Subsidiaries has agreed to make any adjustment
pursuant to Section 481(a) of the Code (or any predecessor provision)
by reason of any change in any accounting method, and there is no
application pending with any taxing authority requesting permission for
any changes in any accounting method of the Company or any of its
Subsidiaries. None of the assets of the Company or any of its
Subsidiaries is or will be required to be treated as being owned by any
person (other than the Company or its Subsidiaries) pursuant to the
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954,
as amended and in effect immediately before the enactment of the Tax
Reform Act of 1986.
(iv) None of the Company or any of its Subsidiaries is a party to, is
bound by, or has any obligation under, any Tax sharing agreement, Tax
allocation agreement or similar contract.
(v) There is no contract, agreement, plan or arrangement covering any
person that, individually or collectively, could give rise to the
payment of any amount that would not be deductible by the Company or
any of its Subsidiaries by reason of Section 280G of the Code.
(vi) Schedule 3.1(h) accurately sets forth (i) the amount of all
deferred intercompany gains for purposes of Treasury Regulation section
1.1502-13 (including any predecessor regulation) with respect to the
Company and its Subsidiaries; and (ii) the amount of any excess loss
account with respect to the stock of each of the Subsidiaries for
purposes of Treasury Regulation section 1.1502-19 (including any
predecessor regulation).
(vii) The term "Code" shall mean the internal Revenue Code of 1986,
as amended. The term "Taxes" shall mean all taxes, charges, fees,
levies, or other similar assessments or liabilities, including (a)
income, gross receipts, ad valorem, premium, excise, real property,
personal property, sales, use, transfer, withholding, employment,
payroll, and franchise taxes imposed by the United States of America,
or by any state, local, or foreign government, or any subdivision,
agency, or other similar person of the United States or any such
government; and (b) any interest, fines, penalties, assessments, or
additions to taxes resulting from, attributable to, or incurred in
connection with any Tax or any
8
contest, dispute, or refund thereof. The term "Tax Returns" shall mean
any report, return, or statement required to be supplied to a taxing
authority in connection with Taxes.
(i) Pension And Benefit Plans; ERISA.
(i) Schedule 3.1(i)(i) sets forth a complete and correct list of:
(A) all "employee benefit plans", as defined in Sections 3(3) and
4(b)(4) of ERISA, under which Company or any of its Subsidiaries has
any obligation or liability, contingent or otherwise ("Benefit Plans");
and
(B) all employment or consulting agreements, and all bonus or other
incentive compensation, deferred compensation, salary continuation
during any absence from active employment for disability or other
reasons, severance, sick days, stock award, stock option, stock
purchase, tuition assistance, club membership, employee discount,
employee loan, or vacation pay agreements, policies or arrangements
which the Company or any of its Subsidiaries maintains or has any
obligation or liability (contingent or otherwise) and each of which has
a cost to the Company or any of its Subsidiaries in excess of $10,000
for any year (the "Employee Arrangements").
(ii) with respect to each Benefit Plan and Employee Arrangement, a
complete and correct copy of each of the following documents (if
applicable) has been delivered to Parent or its representatives: (i) the
most recent plan and related trust documents, and all amendments thereto;
(ii) the most recent summary plan description, and all related summaries of
material modifications thereto; (iii) the most recent Form 5500 (including
schedules and attachments); (iv) the most recent IRS determination letter;
(v) the most recent actuarial reports (including for purposes of Financial
Accounting Standards Board report no. 87, 106 and 112).
(iii) The Company and its Subsidiaries have not during the preceding six
years had any obligation or liability (contingent or otherwise) with
respect to a Benefit Plan which is described in Section 3(35), 3(37),
4(b)(4), 4063 or 4064 of ERISA.
(iv) The Benefit Plans and their related trusts intended to qualify under
Sections 401(a) and 501(a) of the Code, respectively, are qualified under
such sections. Any voluntary employee benefit association which provides
benefits to current or former employees of the Company and its
Subsidiaries, or their beneficiaries, is and has been qualified under
Section 501(c)(9) of the Code.
(v) All contributions or other payments required to have been made by the
Company or any of its Subsidiaries to or under any Benefit Plan or Employee
Arrangement by applicable law or the terms of such Benefit Plan or Employee
Arrangement (or any agreement relating thereto) have been timely and
properly made.
(vi) The Benefit Plans and Employee Arrangements have been maintained and
administered in all material respects in accordance with their terms and
applicable laws.
(vii) Except as disclosed in Schedule 3.1(i)(vii), there are no pending
or, to the best knowledge of the Company, threatened actions, claims or
proceedings against or relating to any Benefit Plan or Employee Arrangement
other than routine benefit claims by persons entitled to benefits
thereunder.
(viii) Except as disclosed in Schedule 3.1(i)(viii), the Company and its
Subsidiaries do not maintain or have an obligation to contribute to retiree
life or retiree health plans which provide for continuing benefits or
coverage for current or former officers, directors or employees of the
Company or any of its Subsidiaries except (i) as may be required under Part
6 of Title I of ERISA) and at the sole expense of the participant or the
participant's beneficiary or (ii) a medical expense reimbursement account
plan pursuant to Section 125 of the Code.
(ix) Except as disclosed in Schedule 3.1(i)(ix) none of the assets of any
Benefit Plan is directly invested in stock of the Company or any of its
affiliates, or property leased to or jointly owned by the Company or any of
its affiliates.
9
(x) Except as disclosed in Schedule 3.1(i)(x) or in connection with
equity compensation, neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will (A)
result in any payment becoming due to any employee (current, former or
retired) of the Company and its Subsidiaries, (B) increase any benefits
under any Benefit Plan or Employee Arrangement or (C) result in the
acceleration of the time of payment of, vesting of or other rights with
respect to any such benefits.
(xi) The Company and its Subsidiaries have no liability (contingent or
otherwise) under Section 4069 of ERISA by reason of a transfer of an
underfunded pension plan.
(j) Absence of Certain Changes or Events. Since June 30, 1997, the
business of the Company and its Subsidiaries has been carried on only in
the ordinary and usual course and no event or events has or have occurred
that (either individually or in the aggregate) has had, or could have, a
Material Adverse Effect on the Company.
(k) No Undisclosed Liabilities. Except as specifically and individually
set forth on Schedule 3.1(k) or the other schedules hereto (specific
reference to which shall be made on Schedule 3.1(k)), there are no
liabilities of the Company or any Subsidiary of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable or
otherwise, that are material to the Company and its Subsidiaries considered
as a whole other than: (i) liabilities reflected on the Company's audited
financial statements (together with the related notes thereto) filed with
the Company's Annual Statement on Form 10-K for the year ended December 31,
1996 (as filed with the SEC) or unaudited financial statements contained in
the Company's Quarterly Report on Form 10-Q for the quarters ended March
31, 1997 and June 30, 1997 (such audited and unaudited financial statements
being referred to herein as the "Company Financial Statements"); and (ii)
liabilities under this Agreement.
(l) Opinion of Financial Advisor. The Company has received the opinion of
SBC Warburg Dillon Read Inc., (the "Financial Advisor") dated September 12,
1997, to the effect that, as of the date hereof, the Merger Consideration
to be received by the holders of Company Common Stock in the Merger is fair
from a financial point of view to such holders, a signed, true and complete
copy of which opinion shall be delivered to Parent, and such opinion has
not been withdrawn or modified. True and complete copies of all agreements
and understandings between the Company or any of its affiliates and the
Financial Advisor relating to the transactions contemplated by this
Agreement are attached hereto as Schedule 3.1(l).
(m) Vote Required. The affirmative vote of the holders of a majority of
the outstanding shares of Company Common Stock is the only vote of the
holders of any class or series of the Company's capital stock necessary
(under applicable law or otherwise) to approve the Merger, this Agreement
and the transactions contemplated hereby.
(n) Labor Matters.
(i) Neither the Company nor any of its Subsidiaries is a party to any
labor or collective bargaining agreement, and no employees of the Company
or any of its Subsidiaries are represented by any labor organization.
Within the preceding three years, there have been no representation or
certification proceedings, or petitions seeking a representation
proceeding, pending or, to the knowledge of the Company, threatened to be
brought or filed with the National Labor Relations Board or any other labor
relations tribunal or authority. Within the preceding three years, to the
knowledge of the Company, there have been no organizing activities
involving the Company or any of its Subsidiaries with respect to any group
of employees of the Company or any of its Subsidiaries.
(ii) There are no strikes, work stoppages, slowdowns, lockouts, material
arbitrations or material grievances or other material labor disputes
pending or, to the knowledge of the Company, threatened against or
involving the Company or any of its Subsidiaries. There are no unfair labor
practice charges, grievances or complaints pending or, to the knowledge of
the Company, threatened by or on behalf of any employee or group of
employees of the Company or any of its Subsidiaries.
10
(iii) Except as set forth on Schedule 3.1(g), there are no complaints,
charges or claims against the Company or any of its Subsidiaries pending
or, to the knowledge of the Company, threatened to be brought or filed with
any governmental authority, arbitrator or court based on, arising out of,
in connection with, or otherwise relating to the employment or termination
of employment of any individual by the Company or any of its Subsidiaries.
(iv) Each of the Company and its Subsidiaries is in material compliance
with all laws, regulations and orders relating to the employment of labor,
including all such laws, regulations and orders relating to wages, hours,
collective bargaining, discrimination, civil rights, safety and health,
workers, compensation and the collection and payment of withholding and/or
social security taxes and any similar tax.
(v) Since January 1, 1996, there has been no "mass layoff" or "plant
closing" (as defined by the Worker Adjustment Retraining and Notification
Act of 1988, as amended ("WARN Act") with respect to the Company or any of
its Subsidiaries.
(o) Intangible Property. Except as set forth on Schedule 3.1(o) attached
hereto, each of the Company and its subsidiaries owns or has a right to use
each material trademark, trade name, patent, service mark, brand mark,
brand name, computer program, database, industrial design and copyright
owned, used or useful in connection with the operation of its businesses,
including any registrations thereof and pending applications therefor, and
each license or other contract relating thereto (collectively, the "Company
Intangible Property"), free and clear of any and all liens, claims or
encumbrances. Schedule 3.1(o) hereto sets forth a complete list of the
Company Intangible Property. The use of the Company Intangible Property by
the Company or its Subsidiaries does not conflict with, infringe upon,
violate or interfere with or constitute an appropriation of any right,
title, interest or goodwill, including any intellectual property right,
trademark, trade name, patent, service mark, brand mark, brand name,
computer program, database, industrial design, copyright or any pending
application therefor of any other person.
(p) Environmental Matters.
(i) For purposes of this Agreement:
(A) "Environmental Costs and Liabilities" means any and all
losses, liabilities, obligations, damages, fines, penalties,
judgments, actions, claims, costs and expenses (including fees,
disbursements and expenses of legal counsel, experts, engineers and
consultants and the costs of investigation and feasibility studies
and the costs to clean up, remove, treat, or in any other way
address any Hazardous Materials) arising from or under any
Environmental Law.
(B) "Environmental Law" means any applicable law regulating or
prohibiting Releases of Hazardous materials into any part of the
natural environment, or pertaining to the protection of natural
resources, the environment and public and employee health and safety
from Hazardous Materials including the Comprehensive Environmental
Response, Compensation, and Liability Act ("CERCLA") (42 U.S.C. (S)
9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C.
(S) 1801 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. (S) 6901 et seq.), the Clean Water Act (33 U.S.C. (S) 1251 et
seq.), the Clean Air Act (33 U.S.C. (S) 7401 et seq.), the Toxic
Substances Control Act (15 U.S.C. (S) 7401 et seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. (S) 136 et
seq.), and the Occupational Safety and Health Act (29 U.S.C. (S) 651
et seq.) ("OSHA") and the regulations promulgated pursuant thereto,
and any such applicable state or local statutes, including the
Industrial Site Recovery Act ("IRSA"), and the regulations
promulgated pursuant thereto, as such laws have been and may be
amended or supplemented through the Closing Date;
(C) "Hazardous Material" means any substance, material or waste
which is regulated by any public or governmental authority in the
jurisdictions in which the applicable party or its Subsidiaries
conducts business, or the United States, including any material or
substance which is defined as a "hazardous waste," "hazardous
material," "hazardous substance," "extremely hazardous waste" or
"restricted hazardous waste," "contaminant," "toxic waste" or "toxic
substance" under any provision of Environmental Law and shall also
include petroleum, petroleum products, asbestos, polychlorinated
biphenyls and radioactive materials;
11
(D) "Release" means any release, spill, effluent, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching,
or migration into the environment, or into or out of any property; and
(E) "Remedial Action" means all actions, including any expenditures,
required by a governmental entity or required under any Environmental
Law, or voluntarily undertaken to (I) clean up, remove, treat, or in
any other way ameliorate or address any Hazardous Materials or other
substance in the environment; (II) prevent the Release or threat of
Release, or minimize the further Release of any Hazardous Material so
it does not endanger or threaten to endanger the public health or
welfare or the environment; (III) perform pre-remedial studies and
investigations or post-remedial monitoring and care pertaining or
relating to a Release; or (IV) bring the applicable party into
compliance with any Environmental Law.
(ii) (A) The operations of the Company and its Subsidiaries have been
and, as of the Closing Date, will be, in compliance with all
Environmental Laws;
(B) The Company and its Subsidiaries have obtained and will, as of
the Closing Date, maintain all permits required under applicable
Environmental Laws for the continued operations of their respective
businesses, except such permits the lack of which would not materially
impair the ability of the Company and its Subsidiaries to continue
operations;
(C) The Company and its Subsidiaries are not subject to any
outstanding written orders from, or written agreements with, any
Governmental Entity or other person respecting (I) Environmental Laws,
(II) Remedial Action or (III) any Release or threatened Release of a
Hazardous Material;
(D) The Company and its Subsidiaries have not received any written
communication alleging, with respect to any such party, the violation
of or liability under any Environmental Law, which violation or
liability is outstanding;
(E) Neither the Company nor any of its Subsidiaries has any
contingent liability in connection with the Release of any Hazardous
Material into the environment (whether on-site or off-site) which would
be reasonably likely to result in the Company and its Subsidiaries
incurring Environmental Costs and Liabilities in excess of $100,000;
(F) The operations of the Company or its Subsidiaries do not involve
the transportation, treatment, storage or disposal of hazardous waste,
as defined and regulated under 40 C.F.R. Parts 260-270 (in effect as of
the date of this Agreement) or any state equivalent;
(G) Except as set forth on Schedule 3.1(p) attached hereto, to the
knowledge of the Company, there is not now nor has there been in the
past, on or in any owned property of the Company or its Subsidiaries
any of the following: (I) any underground storage tanks or surface
impoundments, (II) any asbestos-containing materials in friable form or
(III) any polychlorinated biphenyls; and
(H) No judicial or administrative proceedings or governmental
investigations are pending or, to the knowledge of the Company,
threatened against the Company or any of its Subsidiaries alleging the
violation of or seeking to impose liability pursuant to any
Environmental Law.
(q) Real Property.
(i) The Company has previously provided to Parent a list of all of
the real property owned in fee by the Company and its Subsidiaries.
Each of the Company and its Subsidiaries has good and marketable title
to each parcel of real property owned by it free and clear of all
mortgages, pledges, liens, encumbrances and security interests, except
(1) those reflected or reserved against in the balance sheet of the
Company dated as of December 31, 1996, (2) taxes and general and
special assessments not in default and payable without penalty and
interest, (3) statutory liens arising or incurred in the ordinary
course of business with respect to which the underlying obligations are
not delinquent and (4) liens which are not substantial in character,
amount or extent and which do not detract from the value, or interfere
with the present use, of the property subject thereto or affected
thereby.
12
(ii) The Company has previously provided to Parent a list setting forth
each lease, sublease or other agreement (collectively, the "Real Property
Leases") under which the Company or any of its Subsidiaries uses or
occupies or has the right to use or occupy, now or in the future, any real
property. Each Real Property Lease is valid, binding and in full force and
effect, all rent and other sums and charges payable by the Company and its
Subsidiaries as tenants thereunder are current, no termination event or
condition or uncured default of a material nature on the part of the
Company or any Subsidiary of the Company or, to the Company's knowledge,
the landlord, exists under any Real Property Lease. Each of the Company and
its Subsidiaries has a good and valid leasehold interest in each parcel of
real property leased by it free and clear of all mortgages, pledges, liens,
encumbrances and security interests, except (1) those reflected or reserved
against in the balance sheet of the Company dated as of December 31, 1996,
(2) taxes and general and special assessments not in default and payable
without penalty and interest, (3) statutory liens arising or incurred in
the ordinary course of business with respect to which the underlying
obligations are not delinquent and (4) liens which are not substantial in
character, amount or extent and which do not detract from the value, or
interfere with the present use, of the property subject thereto or affected
thereby.
(r) Board Recommendation. The Board of Directors of the Company, at a
meeting duly called and held, has by the vote of those directors
participating (i) determined that this Agreement and the transactions
contemplated hereby, including the Merger, are fair to and in the best
interests of the stockholders of the Company and has approved the same, and
(ii) resolved to recommend that the holders of the shares of Company Common
Stock approve this Agreement and the transactions contemplated herein,
including the Merger.
(s) Material Contracts. The Company has delivered to Parent (i) true and
complete copies of all written contracts, agreements, commitments,
arrangements, leases (including with respect to personal property),
policies and other instruments to which it or any of its Subsidiaries is a
party or by which it or any such Subsidiary is bound which require payments
to be made in excess of $1,000,000 per year (other than purchase orders
entered into in the ordinary course of business, real estate leases or
agreements listed in any of the other disclosure schedules attached hereto)
(collectively, "Material Contracts") and (ii) a written description of each
Material Contract that has not been reduced to writing. Each of the
Material Contracts is listed on Schedule 3.1(s). Neither the Company nor
any of its Subsidiaries is, or has received any notice or has any knowledge
that any other party is, in default in any material respect under any such
Material Contract; and there has not occurred any event or events that with
the lapse of time or the giving of notice or both would constitute such a
material default.
(t) Related Party Transactions. Except as set forth in the Company SEC
Documents, no director, officer, "affiliate" or "associate" (as such terms
are defined in Rule 12b-2 under the Exchange Act) of the Company or any of
its Subsidiaries (i) has borrowed any monies from or has outstanding any
indebtedness or other similar obligations to the Company or any of its
Subsidiaries; (ii) owns any direct or indirect interest of any kind in, or
is a director, officer, employee, partner, affiliate or associate of, or
consultant or lender to, or borrower from, or has the right to participate
in the management, operations or profits of, any person or entity which is
(A) a competitor, supplier, customer, distributor, lessor, tenant, creditor
or debtor of the Company or any of its Subsidiaries, (B) engaged in a
business related to the business of the Company or any of its Subsidiaries,
or (C) participating in any transaction to which the Company or any of its
Subsidiaries is a party; or (iii) is otherwise a party to any contract,
arrangement or understanding with the Company or any of its Subsidiaries.
(u) Indebtedness. Except as set forth on Schedule 3.1(u) hereto (or
otherwise disclosed in the Company Financial Statements), neither the
Company nor any of its Subsidiaries has any outstanding indebtedness for
borrowed money or representing the deferred purchase price of property or
services or similar liabilities or obligations, including any guarantee in
respect thereof ("Indebtedness"), or is a party to any agreement,
arrangement or understanding providing for the creation, incurrence or
assumption thereof.
(v) Liens. Except as set forth on Schedule 3.1(v) (or otherwise disclosed
in the Company Financial Statements), neither the Company nor any of its
Subsidiaries has granted, created, or suffered to exist with
13
respect to any of its assets, any mortgage, pledge, charge, hypothecation,
collateral assignment, lien, encumbrance or security agreement of any kind
or nature whatsoever, except for statutory liens arising or incurred in the
ordinary course of business with respect to which the underlying
obligations are not delinquent and liens which are not substantial in
character, amount or extent and which do not detract from the value, or
interfere with the present use, of the property subject thereto or affected
thereby.
(w) Suppliers. There has been no material deterioration in the relations
of the Company and its Subsidiaries with any of their material suppliers
since June 30, 1997.
(x) Disclosure. Neither this Section 3 nor any schedule, attachment,
written statement, document, certificate or other item supplied to Parent
by or on behalf of the Company with respect to the transactions
contemplated by this Agreement contains any untrue statement of a material
fact or omits a material fact necessary to make each statement contained
herein or therein not misleading.
3.2 Representations and Warranties of Parent and Sub. Parent and Sub
represent and warrant to the Company as follows:
(a) Organization, Standing and Power. Parent is a limited partnership and
Sub is a corporation, and each is duly organized, validly existing and in
good standing under the laws of its state of organization, has all
requisite power and authority to own, lease and operate its properties and
to carry on its business as now being conducted, and is duly qualified to
do business as a foreign partnership or corporation and in good standing to
conduct business in each jurisdiction in which the business it is
conducting, or the operation, ownership or leasing of its properties, makes
such qualification necessary, other than in such jurisdictions where the
failure so to qualify could not have a Material Adverse Effect with respect
to Parent.
(b) Authority; No Violations; Consents and Approvals.
(i) Each of Parent and Sub has all requisite partnership or corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary partnership or corporate action on
the part of Parent and Sub. This Agreement has been duly executed and
delivered by each of Parent and Sub and assuming this Agreement constitutes
the valid and binding agreement of the Company, constitutes a valid and
binding obligation of Parent and Sub enforceable in accordance with its
terms and conditions except that the enforcement hereof may be limited by
(a) applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws now or hereafter in effect
relating to creditors' rights generally and (b) general principles of
equity (regardless of whether enforceability is considered in a proceeding
at law or in equity).
(ii) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby by each of Parent and Sub will not
result in any Violation pursuant to any provision of the respective
Partnership Agreement or Certificate of Incorporation or Bylaws of Parent
or Sub (as applicable) or, except as to which requisite waivers or consents
have been obtained and assuming the consents, approvals, authorizations or
permits and filings or notifications referred to in paragraph (iii) of this
Section 3.2(b) are duly and timely obtained or made, and the Company
Stockholder Approval has been obtained, result in any Violation of any loan
or credit agreement, note, mortgage, indenture, lease, or other agreement,
obligation, instrument, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Parent or
Sub or their respective properties or assets.
(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, notice to, or permit from any Governmental
Entity, is required by or with respect to Parent or Sub in connection with
the execution and delivery of this Agreement by each of Parent and Sub or
the consummation by each of Parent or Sub of the transactions contemplated
hereby, except for: (A) filings under the HSR Act; (B) the filing with the
SEC of such reports under and such other compliance with the Exchange Act
and the rules and regulations thereunder, as may be required in connection
with this Agreement and the transactions contemplated hereby; (C) the
filing of the Certificate of Merger with the Secretary of State of the
State of Delaware; (D) such filings and approvals as may be required by any
applicable state securities, "blue sky" or takeover laws; and (E) such
filings in connection with any Gains and Transfer Taxes.
14
(c) Information Supplied. None of the information supplied or to be
supplied by Parent or Sub for inclusion in the Proxy Statement will, at the
date it is first mailed to the Company's stockholders 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 are
made, not misleading. If, at any time prior to the Effective Time, any
event with respect to Parent or Sub, or with respect to information
supplied by Parent or Sub for inclusion in the Proxy Statement, shall occur
which is required to be described in an amendment of, or a supplement to,
any of such documents, such event shall be so described to the Company.
(d) Financing. Parent and Sub have delivered to the Company a true and
complete copy of the letters obtained by Parent and Sub from Merrill Lynch
& Co., Inc. to provide debt financing for the transactions contemplated
hereby (the "Financing Letters"). Parent and its Affiliates will provide
$115,000,000 in equity financing for the transactions contemplated hereby.
(e) Due Diligence. Parent and Sub acknowledge that they and their
representatives have conducted an independent due diligence investigation
of the Company and its Subsidiaries prior to the execution of this
Agreement and will continue to do so. At the time of the execution of this
Agreement, the officers of Parent are not aware of facts which would
currently entitle Parent and Sub to decline to effect the Merger pursuant
to Section 6.2(a). Parent and Sub agree to confirm to the Company in
writing at the time the Proxy Statement is mailed to the Company's
stockholders that such officers are not aware of any such facts.
ARTICLE IV
Covenants Relating to Conduct of Business
4.1 Covenants of the Company. During the period from the date of this
Agreement and continuing until the Effective Time, the Company agrees as to
the Company and its Subsidiaries that (except as expressly contemplated or
permitted by this Agreement, or to the extent that Parent shall otherwise
consent in writing):
(a) Ordinary Course. Each of the Company and its Subsidiaries shall carry
on its businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted and shall use all
reasonable efforts to preserve intact its present business organization,
keep available the services of its current officers and employees and
preserve its relationships with customers, suppliers and others having
material business dealings with it to the end that its goodwill and ongoing
business shall not be impaired in any material respect at the Effective
Time.
(b) Dividends; Changes in Stock. The Company shall not, nor shall it
permit any of its Subsidiaries to: (i) declare or pay any dividends on or
make other distributions in respect of any of its capital stock; (ii)
split, combine or reclassify any of its capital stock or issue or authorize
or propose the issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock; or (iii) repurchase or
otherwise acquire, or permit any Subsidiary to purchase or otherwise
acquire, any shares of its capital stock, except as required by the terms
of its securities outstanding on the date hereof.
(c) Issuance of Securities. The Company shall not, nor shall it permit
any of its Subsidiaries to, (i) grant any options, warrants or rights, to
purchase shares of Company Common Stock, (ii) amend the terms of or reprice
any option or amend the terms of the Stock Option Plans, or (iii) issue,
deliver or sell, or authorize or propose to issue, deliver or sell, any
shares of its capital stock of any class or series, any Company Voting Debt
or any securities convertible into, or any rights, warrants or options to
acquire, any such shares, Company Voting Debt or convertible securities,
other than the issuance of Shares upon the exercise of Employee Options
that are outstanding on the date hereof.
(d) Governing Documents. The Company shall not amend or propose to amend
its Certificate of Incorporation or Bylaws, except as contemplated hereby.
(e) No Solicitation. From and after the date hereof until the termination
of this Agreement, neither the Company or any of its Subsidiaries, nor any
of their respective officers, directors, employees,
15
representatives, agents or affiliates (including any investment banker,
advisor attorney or accountant retained by any of the above) (such
officers, directors, employees, representatives, agents, affiliates,
investment bankers, attorneys and accountants being referred to herein,
collectively, as "Representatives"), will, directly or indirectly, (i)
initiate, solicit or encourage (including by way of furnishing information
or assistance), or take any other action to facilitate, any inquiries or
the making of any proposal that constitutes, or could reasonably be
expected to lead to, any Acquisition Proposal (as defined below), (ii)
provide any information to any other person or entity concerning the
Company (other than information which the Company provides to other persons
in the ordinary course of its business, so long as the Company has no
reason to believe that such information will be used to make or evaluate an
Acquisition Proposal, or as required by law) or (iii) enter into or
maintain or continue discussions or negotiate with any person or entity in
furtherance of such inquiries or to obtain an Acquisition Proposal or agree
to or endorse any Acquisition Proposal; and neither the Company nor any of
its Subsidiaries will authorize or permit any of its Representatives to
take any such action, and the Company shall notify Parent orally (within
one business day) and in writing (as promptly as practicable) of all of the
relevant details relating to, and all material aspects of, all inquiries
and proposals which it or any of its Subsidiaries or any of their
respective Representatives may receive relating to any of such matters,
including the identity of the offeror and the terms and conditions of such
proposal, inquiry or contact, and, if such inquiry or proposal is in
writing, the Company shall deliver to Parent a copy of such inquiry or
proposal as promptly as practicable; provided, however, that nothing
contained in this Section 4.1(e) shall prohibit the Board of Directors of
the Company from responding to any unsolicited written, bona fide
Acquisition Proposal if, and only to the extent that, (A) the Board of
Directors of the Company, after consultation with and based upon the advice
of its Financial Advisor, determines in good faith that such Acquisition
Proposal is reasonably capable of being completed on the terms proposed and
would, if consummated, result in a transaction more favorable to the
Company's stockholders than the transaction contemplated herein, (B) the
Board of Directors of the Company, after consultation with and based upon
the advice of independent legal counsel (who may be the Company's regularly
engaged independent legal counsel), determines in good faith that such
action is necessary for the Board of Directors of the Company to comply
with its fiduciary duties to stockholders under applicable law, (C) prior
to taking such action, the Company (x) provides reasonable prior notice to
Parent to the effect that it is taking such action and (y) receives from
such person or entity an executed confidentiality agreement in reasonably
customary form, and (D) the Company shall promptly and continuously advise
Parent as to all of the relevant details relating to, and all material
aspects, of any such discussions or negotiations.
For purposes of this Agreement, "Acquisition Proposal" shall mean any of
the following (other than the transactions among the Company, Parent and
Sub contemplated hereunder) involving the Company or any of its
Subsidiaries: (i) any merger, consolidation, share exchange,
recapitalization, business combination, or other similar transaction; (ii)
any sale, lease, exchange, mortgage, pledge, transfer or other disposition
of all or substantially all of the assets of the Company and its
Subsidiaries, taken as a whole, in a single transaction or series of
transactions; (iii) any tender offer or exchange offer for all or
substantially all 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 (iv) any public announcement of a proposal, plan
or intention to do any of the foregoing or any agreement to engage in any
of the foregoing.
(f) No Acquisitions. The Company shall not, nor shall it permit any of
its Subsidiaries to, merge or consolidate with, or acquire any equity
interest in, any corporation, partnership, association or other business
organization, or enter into an agreement with respect thereto. The Company
shall not acquire or agree to acquire any assets of any corporation,
partnership, association or other business organization or division
thereof, except for the purchase of inventory and supplies in the ordinary
course of business.
(g) No Dispositions. Other than sales of inventory in the ordinary course
of business consistent with past practice, the Company shall not, nor shall
it permit any of its Subsidiaries to, sell, lease, encumber or otherwise
dispose of, or agree to sell, lease (whether such lease is an operating or
capital lease), encumber or otherwise dispose of, any of its assets
(including any capital stock or other ownership interest of any Subsidiary
of the Company).
16
(h) Governmental Filings. The Company shall promptly provide Parent (or
its counsel) with copies of all filings made by the Company with the SEC or
any other state or federal Governmental Entity in connection with this
Agreement and the transactions contemplated hereby.
(i) No Dissolution, Etc. The Company shall not authorize, recommend,
propose or announce an intention to adopt a plan of complete or partial
liquidation or dissolution of the Company or any of its Subsidiaries.
(j) Other Actions. The Company will not nor will it permit any of its
Subsidiaries to take or agree or commit to take any action that is
reasonably likely to result in any of the Company's representations or
warranties hereunder being untrue in any material respect or in any of the
Company's covenants hereunder or any of the conditions to the Merger not
being satisfied in all material respects.
(k) Certain Employee Matters. The Company and its Subsidiaries shall not
(without the prior written consent of Parent): (i) grant any increases in
the compensation of any of its directors, officers or key employees; (ii)
pay or agree to pay any pension, retirement allowance or other employee
benefit not required or contemplated to be paid prior to the Effective Time
by any of the existing Benefit Plans or Employee Arrangements as in effect
on the date hereof to any such director, officer or key employee, whether
past or present; (iii) enter into any new, or materially amend any
existing, employment or severance or termination agreement with any such
director, officer or key employee; or (iv) except as may be required to
comply with applicable law, become obligated under any new Benefit Plan or
Employee Arrangement, which was not in existence on the date hereof, or
amend any such plan or arrangement in existence on the date hereof if such
amendment would have the effect of materially enhancing any benefits
thereunder.
(l) Indebtedness; Agreements.
(i) The Company shall not, nor shall the Company permit any of its
Subsidiaries to, assume or incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or
warrants or rights to acquire any debt securities of the Company or any
of its Subsidiaries or guarantee any debt securities of others (other
than borrowings under the Company's existing revolving credit facility
in the ordinary course of business consistent with past practice) or
enter into any operating or capital lease (other than entering into
operating leases in connection with leasing additional retail space in
the ordinary course of business consistent with past practice) or
create any mortgages, liens, security interests or other encumbrances
on the property of the Company or any of its Subsidiaries, or enter
into any "keep well" or other agreement or arrangement to maintain the
financial condition of another person.
(ii) The Company shall not, nor shall the Company permit any of its
Subsidiaries to, enter into, modify, rescind, terminate, waive, release
or otherwise amend in any material respect any of the terms or-
provisions of any Material Contract.
(m) Accounting. The Company shall not take any action, other than in the
ordinary course of business, consistent with past practice or as required
by the SEC or by law, with respect to accounting policies, procedures and
practices.
(n) Capital Expenditures. The Company and its Subsidiaries shall not
incur any capital expenditures in excess of $100,000, except for capital
expenditures contemplated by the Company's budget previously supplied to
Parent.
(o) Requisite Consents. The Company and its Subsidiaries shall use all
commercially reasonable efforts to (i) obtain consents from third parties
to the consummation of the Merger and the transactions contemplated thereby
and hereby, which consents are material to the business of the Company (the
"Requisite Consents") and (ii) ensure that such Requisite Consents are in
full force and effect as of the Closing Date.
17
ARTICLE V
Additional Agreements
5.1 Preparation of the Proxy Statement; Company Stockholders Meeting.
(a) As soon as practicable following the date hereof, the Company and Parent
shall prepare the Proxy Statement. The Company will, as soon as practicable
following the date hereof, file the Proxy Statement with the SEC. The Company
will use all commercially reasonable efforts to respond to all SEC comments
with respect to the Proxy Statement and to cause the Proxy Statement to be
mailed to the Company's stockholders at the earliest practicable date.
(b) The Company will, as soon as practicable following the date hereof, duly
call, give notice of, convene and hold a meeting of the Company's stockholders
for the purpose of approving this Agreement and the transactions contemplated
hereby. At such stockholders meeting, Parent shall cause all of the shares of
Company Common Stock then owned by Parent and Sub to be voted in favor of the
Merger.
(c) Sub shall promptly submit this Agreement and the transactions
contemplated hereby for approval and adoption by Parent, as its sole
stockholder, by written consent.
5.2 Access to Information. Upon reasonable notice, each of the Company or
Parent, as the case may be, shall (and shall cause each of its Subsidiaries
to) afford to the officers, employees, accountants, counsel and other
representatives of the other party (including, in the case of Parent and Sub,
potential financing sources and their employees, accountants, counsel and
other representatives), access, during normal business hours during the period
prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, such party shall (and shall
cause each of its Subsidiaries to) furnish promptly to the other party,
(a) copy of each report, schedule, registration statement and other document
filed or received by it during such period pursuant to SEC requirements and
(b) all other information concerning its business, properties and personnel as
such other party may reasonably request. The Confidentiality Agreement
previously entered into between Parent and the Company (the "Confidentiality
Agreement") shall apply with respect to information furnished thereunder or
hereunder and any other activities contemplated thereby.
5.3 Settlements. Neither the Company nor any of its Subsidiaries shall
effect any settlements of any legal proceedings arising out of or related to
the execution, delivery or performance of this Agreement or the consummation
of any of the transactions contemplated hereby without the prior written
consent of Parent.
5.4 Fees and Expenses.
(a) Except as otherwise provided in this Section 5.4 and except with respect
to claims for damages incurred as a result of the breach of this Agreement,
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expense.
(b) The Company agrees to pay Parent a fee in immediately available funds
equal to $9,750,000 upon:
(i) the termination of this Agreement under Section 7.1(d) in the event
that any of the following events shall occur (each, a "Trigger Event"):
(1) the Board of Directors of the Company shall have (A) withdrawn or
modified, in a manner adverse to Parent or Sub, its recommendation of
the Agreement or the Merger or (B) failed to confirm its recommendation
of the Agreement or the Merger within two business days after a written
request by Parent to do so after the occurrence of an Acquisition
Proposal;
(2) the Board of Directors of the Company shall have approved,
endorsed or recommended to the stockholders of the Company an
Acquisition Proposal;
(3) the Company shall have entered into an agreement (other than a
confidentiality agreement as contemplated by Section 4.1(e)) with
respect to an Acquisition Proposal;
18
(4) any Person or group (other than Parent, Sub or any of their
Affiliates) shall have acquired Company Common Stock after the date of
this Agreement which, when added to Company Common Stock already owned
by such Person or group, constitutes a majority of the outstanding
Company Common Stock or a tender or exchange offer for Company Common
Stock shall have been commenced and such offer ultimately results,
including after the termination of this Agreement, in a Person or group
owning a majority of the outstanding Company Common Stock; or
(5) (A) an Acquisition Proposal is made and (B) the Company fails to
call and hold a stockholders meeting to approve the Agreement and the
Merger as promptly as is reasonably practicable having regard to the
expected timing of the financing of the Merger and, in any event, on or
prior to the 175th calendar day after the date hereof (such time period
shall be extended by an amount of time equal, in the reasonable
judgment of the Company, to any delays beyond the reasonable control of
the Company in obtaining any required regulatory approvals in
connection with the transactions contemplated hereby); or
(ii) the termination of this Agreement under Section 7.1(b) following a
material and willful breach by the Company of any covenant or agreement set
forth in this Agreement, which breach could reasonably be expected to aid
or encourage an Acquisition Proposal and shall not have been cured within
ten business days following receipt by the Company of notice of such
breach.
(c) Upon any termination of this Agreement (other than a termination by the
Company under Section 7.1(b)(i) hereof), the Company shall pay to Parent (not
later than one business day after receipt of reasonable documentation therefor
and in no event prior to January 2, 1998) such amounts as may be necessary to
reimburse Parent and Sub for their reasonable out-of-pocket fees and expenses
incurred or paid by or on behalf of Parent or Sub to third parties in
connection with the Merger or the consummation of any of the transactions
contemplated by this Agreement, including all costs and reasonable fees and
expenses of counsel, investment banking firms, accountants, experts and
consultants, provided that (x) reimbursement for such fees and expenses shall
be limited to $1,000,000 and (y) reimbursement under this sentence shall not
cover fees incurred or paid by or on behalf of Parent or Sub under the
Financing Letters. In addition, in the event the payment becomes due under
Section 5.4(b), the Company shall pay to Parent (not later than one business
day after receipt of reasonable documentation therefor) all fees and expenses
incurred or paid by or on behalf of Parent or Sub under the Financing Letters,
provided that reimbursement for fees and expenses under this sentence shall be
limited to $1,000,000. The Company shall in any event pay the amount requested
(subject to the limits in the preceding two sentences) within one business day
of receipt of reasonable documentation from Parent. The amounts payable to
Parent and Sub under this Section 5.4(c) shall be in addition to (and not an
offset against) the amount (if any) payable to Parent under Section 5.4(b).
(d) Any amounts due under this Section 5.4 that are not paid when due shall
bear interest at the rate of 12% per annum from the date due through and
including the date paid.
5.5 Brokers or Finders. (a) The Company represents, as to itself, its
Subsidiaries and its affiliates, that no agent, broker, investment banker,
financial advisor or other firm or person is or will be entitled to any
broker's or finders fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement, except the
Financial Advisor and Hatchett Capital Group, Inc., whose fees and expenses
will be paid by the Company in accordance with the Company's agreements with
such firms (copies of which have been delivered by the Company to Parent prior
to the date of this Agreement).
(b) Parent represents, as to itself, its Subsidiaries and its affiliates,
that no agent, broker, investment banker, financial advisor or other firm or
person is or will be entitled to any broker's or finders fee or any other
commission or similar fee in connection with any of the transactions
contemplated by this Agreement.
5.6 Indemnification; Directors' and Officers' Insurance.
(a) The Company shall, and from and after the Effective Time, the Surviving
Corporation shall, indemnify, defend and hold harmless each person who is now,
or has been at any time prior to the date hereof or who
19
becomes prior to the Effective Time, an officer or director of the Company or
any of its Subsidiaries (the "Indemnified Parties") against all losses,
claims, damages, costs, expenses (including attorneys' fees and expenses),
liabilities or judgments or amounts that are paid in settlement with the
approval of the indemnifying party (which approval shall not be unreasonably
withheld) of or in connection with any threatened or actual claim, action,
suit, proceeding or investigation based in whole or in part on or arising in
whole or in part out of the fact that such person is or was a director or
officer of the Company or any of its Subsidiaries whether pertaining to any
matter existing or occurring at or prior to the Effective Time and whether
asserted or claimed prior to, or at or after, the Effective Time ("Indemnified
Liabilities"), including all Indemnified Liabilities based in whole or in part
on, or arising in whole or in part out of, or pertaining to this Agreement or
the transactions contemplated hereby, in each case to the full extent a
corporation is permitted under the DGCL to indemnify its own directors or
officers as the case may be (and the Company and the Surviving Corporation, as
the case may be, will pay expenses in advance of the final disposition of any
such action or proceeding to each Indemnified Party to the full extent
permitted by law). Without limiting the foregoing, in the event any such
claim, action, suit, proceeding or investigation is brought against any
Indemnified Parties (whether arising before or after the Effective Time), the
Company shall defend the Indemnified Parties in such matter with counsel of
the Company's choosing and the Indemnified Parties will use all reasonable
efforts to assist in the vigorous defense of any such matter. In no event will
the Company or the Surviving Corporation be liable for any settlement effected
without its prior written consent which consent shall not unreasonably be
withheld. Any Indemnified Party wishing to claim indemnification under this
Section 5.6, upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify the Company (or after the Effective Time,
the Surviving Corporation) (but the failure so to notify shall not relieve a
party from any liability which it may have under this Section 5.6 except to
the extent such failure prejudices such party), and shall deliver to the
Company (or after the Effective Time, the Surviving Corporation) the
undertaking contemplated by Section 145(e) of the DGCL. The Company and Sub
agree that the foregoing rights to indemnification, including provisions
relating to advances of expenses incurred in defense of any action or suit,
existing in favor of the Indemnified Parties with respect to matters occurring
through the Effective Time, 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; provided, however, that all rights to indemnification in
respect of any Indemnified Liabilities asserted or made within such period
shall continue until the disposition of such Indemnified Liabilities.
(b) For a period of six years after the Effective Time, the Surviving
Corporation shall cause to be maintained in effect the current policies of
directors' and officers' liability insurance maintained by the Company and its
Subsidiaries (provided that Parent may substitute therefor policies of at
least the same coverage and containing terms and conditions which are not
materially less advantageous to the Indemnified Parties) with respect to
matters arising before the Effective Time, provided that Parent shall not be
required to pay an annual premium for such insurance in excess of 200% of the
last annual premium paid by the Company prior to the date hereof, but in such
case shall purchase as much coverage as possible for such amount. The last
annual premium paid by the Company was $105,000.
(c) The provisions of this Section 5.6 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his heirs and his
personal representatives and shall be binding on all successors and assigns of
Sub, the Company and the Surviving Corporation.
5.7 Commercially Reasonable Efforts. Subject to the terms and conditions of
this Agreement, each of the parties hereto agrees to use all commercially
reasonable efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable, under applicable
laws and regulations or otherwise, to consummate and make effective the
transactions contemplated by this Agreement, subject to the Company
Stockholder Approval, including cooperating fully with the other party,
including by provision of information and making of all necessary filings in
connection with, among other things, approvals under the HSR Act. In case at
any time after the Effective Time, any further action is necessary or
desirable to carry out the purposes of this Agreement or to vest the Surviving
Corporation with full title to all properties, assets, rights, approvals,
immunities and franchises of either of the Constituent Corporations, the
proper officers and directors of each
20
party to this Agreement shall take all such necessary action. Without limiting
the generality of the foregoing, the Company agrees to cooperate with Parent's
and Sub's efforts to secure the financing contemplated by the Financing
Letters, such cooperation to include providing such information to Parent's
and Sub's financing sources as Parent or Sub may reasonably request and making
available management and such other employees of the Company as Parent and Sub
may reasonably request to participate in any marketing and sales efforts
relating to sales of securities in connection with the Financing Letters.
5.8 Conduct of Business of Sub. During the period of time from the date of
this Agreement to the Effective Time, Sub shall not engage in any activities
of any nature except as provided in or contemplated by this Agreement.
5.9 Publicity. The parties will consult with each other and will mutually
agree upon any press release or public announcement pertaining to the Merger
and shall not issue any such press release or make any such public
announcement prior to such consultation and agreement, except as may be
required by applicable law, in which case the party proposing to issue such
press release or make such public announcement shall use reasonable efforts to
consult in good faith with the other party before issuing any such press
release or making any such public announcement.
5.10 Withholding Rights. Sub and the Surviving Corporation, as applicable,
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Company Common
Stock such amounts as Sub or the Surviving Corporation, as applicable, is
required to deduct and withhold with respect to the making of such payment
under the Code or any provision of state, local or foreign tax law. To the
extent that amounts are so withheld by Sub or the Surviving Corporation, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the holder of the shares of Company Common Stock in respect of
which such deduction and withholding was made by Sub or the Surviving
Corporation, as applicable.
ARTICLE VI
Conditions Precedent
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to
the satisfaction prior to the Closing Date of the following conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have been
approved and adopted by the affirmative vote of the holders of a majority
of the outstanding Shares entitled to vote thereon.
(b) HSR Act. The waiting period (and any extension thereof) applicable to
the Merger under the HSR Act shall have been terminated or shall have
expired, and no restrictive order or other requirements shall have been
placed on the Company, Parent, Sub or the Surviving Corporation in
connection therewith.
(c) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition (an
"Injunction") preventing the consummation of the Merger shall be in effect;
provided, however, that prior to invoking this condition, each party shall
use all commercially reasonable efforts to have any such decree, ruling,
injunction or order vacated.
(d) Statutes. No statute, rule, order, decree or regulation shall have
been enacted or promulgated by any government or governmental agency or
authority which prohibits the consummation of the Merger.
6.2 Conditions of Obligations of Parent and Sub. The obligations of Parent
and Sub to effect the Merger are subject to the satisfaction of the following
conditions, any or all of which may be waived in whole or in part by Parent
and Sub:
(a) Representations and Warranties. The representations and warranties of
the Company set forth in this Agreement shall be true and correct as of the
date of this Agreement and as of the Closing Date as
21
though made on and as of the Closing Date, except as otherwise contemplated
by this Agreement and except in those instances where the aggregate amounts
represented by all breaches (other than breaches for which the Company has
obtained the consent of Parent and Sub) of such representations and
warranties are not likely to result in a Material Adverse Effect on the
Company; and Parent shall have received a certificate signed on behalf of
the Company by the chief executive officer and by the chief financial
officer of the Company to such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and Parent
shall have received a certificate signed on behalf of the Company by the
chief executive officer and by the chief financial officer of the Company
to such effect.
(c) Financing. Parent and Sub shall have received the debt financing for
the transactions contemplated hereby on terms substantially as outlined in
the Financing Letters.
(d) Employment Matters. Lloyd L. Ross shall have entered into a two-year
consulting agreement with the Surviving Corporation on terms consistent
with the letter dated September 12, 1997 from Parent to him. Jerry M. Smith
shall have entered into a three-year employment agreement with the
Surviving Corporation on terms consistent with the letter dated September
12, 1997 from Parent to him and shall have made the investment in Sub as
contemplated therein.
(e) No Litigation. There shall be no action, suit or proceeding pending
against Parent, Sub or the Company seeking to restrain or enjoin the
Merger, or seeking a material amount of damages in connection with the
Merger, which action, suit or proceeding has, in the opinion of legal
counsel to Parent, a reasonable possibility of success.
(f) Consents. The Company and the Subsidiaries shall have obtained all of
Requisite Consents.
(g) Dissenting Shares. No more than five percent (5.0%) of the shares of
Company Common Stock outstanding immediately prior to the Effective Time
shall be Dissenting Shares.
6.3 Conditions of Obligations of the Company. The obligation of the Company
to effect the Merger is subject to the satisfaction of the following
conditions, any or all of which may be waived in whole or in part by the
Company:
(a) Representations and Warranties. The representations and warranties of
Parent and Sub set forth in this Agreement shall be true and correct as of
the date of this Agreement and (except to the extent such representations
and warranties speak as of an earlier date) as of the Closing Date as
though made on and as of the Closing Date, except as otherwise contemplated
by this Agreement, and the Company shall have received a certificate signed
on behalf of Parent by the chief executive officer and by the chief
financial officer of Parent to such effect.
(b) Performance of Obligations of Parent and Sub. Parent and Sub shall
have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date, and
the Company shall have received a certificate signed on behalf of Parent by
the Chief Executive officer and by the Chief Financial Officer of Parent to
such effect.
ARTICLE VII
Termination and Amendment
7.1 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after
approval of the matters presented in connection with the Merger by the
stockholders of the Company or by Parent:
(a) by mutual written consent of the Company and Parent, or by mutual
action of their respective Boards of Directors;
22
(b) by either the Company or Parent (i) so long as such party is not then
in material breach of its obligations hereunder, if there has been a breach
of any representation, warranty, covenant or agreement on the part of the
other set forth in this Agreement which breach has not been cured within
five business days following receipt by the breaching party of notice of
such breach, or (ii) if any permanent injunction or other order of a court
or other competent authority preventing the consummation of the Merger
shall have become final and non-appealable;
(c) by either the Company or Parent, so long as such party is not then in
material breach of its obligations hereunder, if the Merger shall not have
been consummated on or before the 180th calendar day following the date
hereof; provided, that the right to terminate this Agreement under this
Section 7.1(c) shall not be available to any 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; or
(d) by Parent in the event that a Trigger Event has occurred under
Section 5.4(b) prior to the Closing.
7.2 Effect of Termination. In the event of termination of this Agreement by
either the Company or Parent as provided in Section 7.1, this Agreement shall
forthwith become void and there shall be no liability or obligation on the
part of Parent, Sub or the Company or their respective affiliates, officers,
directors or shareholders except (i) with respect to (A) this Section 7.2, (B)
the second sentence of Section 5.2 and (C) Section 5.4, and (ii) to the extent
that such termination results from the material breach by a party hereto of
any of its representations or warranties, or of any of its covenants or
agreements, in each case, as set forth in this Agreement.
7.3 Amendment. Subject to applicable law, this Agreement may be amended,
modified or supplemented only by written agreement of Parent, Sub and the
Company at any time prior to the Effective Date with respect to any of the
terms contained herein; provided, however, that, after this Agreement is
approved by the Company's stockholders, no such amendment or modification
shall reduce the amount or change the form of consideration to be delivered to
the holders of Shares.
7.4 Extension; Waiver. At any time prior to the Effective Time, the parties
hereto, by mutual action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed: (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto; (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto; and (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in a written instrument signed on behalf of such
party. The failure of any party hereto to assert any of its rights hereunder
shall not constitute a waiver of such rights.
ARTICLE VIII
General Provisions
8.1 Nonsurvival of Representations, Warranties and Agreements. None of the
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time, except for the agreements contained in Article II and Section 5.6
hereof. The Confidentiality Agreement shall survive the execution and delivery
of this Agreement, and the provisions of the Confidentiality Agreement shall
apply to all information and material delivered by any party hereunder.
8.2 Notices. Any notice or communication required or permitted hereunder
shall be in writing and either delivered personally, telegraphed or telecopied
or sent by certified or registered mail, postage prepaid, and shall be deemed
to be given, dated and received when so delivered personally, telegraphed or
telecopied or, if mailed, five business days after the date of mailing to the
following address or telecopy number, or to such other address or addresses as
such person may subsequently designate by notice given hereunder:
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(a)if to Parent or Sub, to:
Madison Dearborn Partners II, L.P.
Three First National Plaza
Chicago, Illinois 60602
Attn: Benjamin D. Chereskin
Telephone: (312) 732-5115
Telecopy: (312) 732-4098
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Carter W. Emerson, P.C.
Telephone: (312) 861-2000
Telecopy: (312) 861-2200
(b) if to the Company, to:
Tuesday Morning Corporation
14621 Inwood Rd.
Dallas, Texas 75244
Attn: Jerry M. Smith
Telephone: (972) 450-8267
Telecopy: (972) 387-2344
with copies to:
Crouch & Hallet, L.L.P.
717 N. Harwood Suite 1400
Dallas, TX 775201
Attn: Bruce Hallett
Telephone: (214) 953-0053
Telecopy: (214) 953-0576
8.3 Interpretation. When a reference is made in this Agreement to Sections,
such reference shall be to a Section of this Agreement unless otherwise
indicated. The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the word "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". The phrase "made available" in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available.
8.4 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each
of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
8.5 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership. This Agreement (together with the Confidentiality Agreement and any
other documents and instruments referred to herein) constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof and,
except as provided in Section 5.6, is not intended to confer upon any person
other than the parties hereto any rights or remedies hereunder.
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8.6 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without giving effect to
the principles of conflicts of law thereof.
8.7 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the
other parties, except that (a) Sub may assign, in its sole discretion, any or
all of its rights, interests and obligations hereunder to (i) any newly-formed
direct wholly-owned Subsidiary of Parent or Sub or (ii) any institutional
lender who provides funds to Parent, Sub or the Surviving Corporation for the
consummation of the transactions contemplated hereby and (b) Parent may
assign, in its sole discretion, any or all of its rights, interests and
obligations hereunder to Madison Dearborn Capital Partners II, L.P. or any
subsidiary of the type contemplated in clause (a)(i) above. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit
of and be enforceable by the parties and their respective successors and
assigns.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
PARENT:
Madison Dearborn Partners II, L.P.
By: Madison Dearborn Partners, Inc.
/s/ Benjamin Chereskin
By: _________________________________
Benjamin D. Chereskin
SUB:
Tuesday Morning Acquisition Corp.
/s/ Benjamin D. Chereskin
By: _________________________________
Benjamin D. Chereskin
Vice President
COMPANY:
Tuesday Morning Corporation
/s/ Lloyd L. Ross
By: _________________________________
Lloyd L. Ross
Chief Executive Officer
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