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SCHEDULE 14A
(RULE 14A-1)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SWISS CHALET, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
COMMON STOCK (NO PAR VALUE)
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(2) Aggregate number of securities to which transaction applies:
1,401,162
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
$22,463,950.80
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(5) Total fee paid:
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[X] Fee paid previously with preliminary materials:
Preliminary proxy materials were filed on June 9, 2000.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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SWISS CHALET, INC.
105 DE DIEGO AVENUE
SAN JUAN, PUERTO RICO 00911
(787) 721-1200
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NOTICE OF SPECIAL MEETING
TO BE HELD ON JULY 22, 2000
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TO THE STOCKHOLDERS OF SWISS CHALET, INC.:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Swiss
Chalet, Inc., a Puerto Rico corporation, will be held at the principal offices
of Swiss Chalet at 105 De Diego Avenue, San Juan, Puerto Rico 00911, on
Saturday, July 22, 2000 at 9:30 a.m. for the following purposes:
1. To consider and vote on the proposed merger of SCI Acquisition Inc.
with and into Swiss Chalet pursuant to an agreement and plan of merger,
dated as of May 8, 2000, among SCI Acquisition and Swiss Chalet. A copy of
the merger agreement is attached as Appendix A to the proxy statement
accompanying this notice.
2. To transact such other business as may properly come before this
special meeting of stockholders and any adjournment or postponement
thereof. Except with respect to procedural matters incident to the conduct
of the special meeting, management at present does not know of any other
business to be brought before the meeting.
Information relating to these matters is presented in the accompanying
proxy statement. Holders of record of Swiss Chalet common stock at the close of
business on June 9, 2000 are entitled to receive this notice and to vote their
shares at this special meeting or any adjournment or postponement thereof.
BY ORDER OF THE BOARD OF DIRECTORS
John Bradley
Chairman and Secretary
June 8, 2000
San Juan, Puerto Rico
YOU ARE CORDIALLY INVITED TO ATTEND THIS SPECIAL MEETING OF STOCKHOLDERS.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING REGARDLESS OF THE
NUMBER YOU OWN. EVEN IF YOU PLAN TO BE PRESENT IN PERSON, YOU ARE URGED TO
COMPLETE, SIGN, DATE AND RETURN, PROMPTLY, THE ENCLOSED PROXY CARD IN THE
ENVELOPE PROVIDED. IF YOU ATTEND THE MEETING, YOU MAY VOTE EITHER IN PERSON OR
BY PROXY. IF YOU PLAN TO ATTEND THE MEETING, YOU MUST NOTIFY THE SECRETARY OF
SWISS CHALET IN WRITING TEN DAYS IN ADVANCE AND SHOW AT THE ENTRANCE PROOF OF
OWNERSHIP OF SWISS CHALET COMMON STOCK OR A PROPER IDENTIFICATION CARD. IF YOUR
SHARES ARE NOT REGISTERED IN YOUR OWN NAME AND YOU PLAN TO ATTEND THE MEETING
AND VOTE YOUR SHARES IN PERSON, YOU MUST CONTACT YOUR BROKER OR AGENT IN WHOSE
NAME YOUR SHARES ARE REGISTERED TO OBTAIN A BROKER'S PROXY AND BRING IT TO THE
MEETING IN ORDER TO VOTE.
This proxy statement is dated June 8, 2000, and is first being mailed to
the stockholders of Swiss Chalet on or about June 22, 2000.
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TABLE OF CONTENTS
PAGE
----
SUMMARY..................................................... 1
The Companies............................................. 1
Recommendation to Stockholders............................ 1
Surviving Corporation..................................... 1
Offering Price............................................ 1
Management of the Surviving Corporation................... 1
Effective Date............................................ 1
Conditions for Completion................................. 1
Termination............................................... 1
Termination Fee........................................... 2
Regulatory Approvals...................................... 2
Shareholder Agreement..................................... 2
Appraisal Rights.......................................... 2
Certain Tax Consequences of the Merger.................... 2
Puerto Rico............................................ 2
United States.......................................... 3
PROXY STATEMENT............................................. 5
SOLICITATION OF PROXIES..................................... 5
VOTING STOCK OUTSTANDING AND VOTE REQUIRED FOR APPROVAL..... 6
THE COMPANIES............................................... 6
THE PROPOSED MERGER......................................... 6
General................................................... 6
Description of the Merger................................. 7
Merger Consideration...................................... 7
Financing of the Merger................................... 8
Background and Reasons for Engaging in the Merger......... 8
Shareholder Approval...................................... 8
Conditions for Completing the Merger...................... 8
Transfer of Shares........................................ 9
Exchange Procedures....................................... 9
Termination of Merger Agreement........................... 9
Termination Fee........................................... 10
Regulatory Approvals...................................... 10
SHAREHOLDER AGREEMENT....................................... 10
APPRAISAL RIGHTS............................................ 10
SELECTED FINANCIAL DATA..................................... 11
CERTAIN TAX CONSEQUENCES OF THE MERGER...................... 11
Puerto Rico Income Tax Consequences....................... 12
United States Federal Income Tax Consequences............. 12
United States Backup Withholding and Information
Reporting.............................................. 13
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 14
OTHER INTERESTS OF MANAGEMENT............................... 15
STOCKHOLDERS' PROPOSALS..................................... 15
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 15
WHERE YOU CAN FIND MORE INFORMATION......................... 16
APPENDIX A -- Agreement and Plan of Merger
APPENDIX B -- Shareholder Agreement
APPENDIX C -- Section 10.12 (Appraisal Rights) -- Puerto Rico General
Corporation Law of 1995
APPENDIX D -- Consent of Horwath Velez Semprit & Co. PSC
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SUMMARY
This summary highlights selected information from this proxy statement and
may not contain all of the information that is important to you. To understand
the merger fully and for a more complete description of the legal terms of the
merger agreement, you should carefully read this entire document and the
documents to which we refer you.
The Companies.............. Swiss Chalet, Inc. and SCI Acquisition Inc., which
are both corporations organized under Puerto Rico
law. See "THE COMPANIES."
Recommendation to
Stockholders............. Swiss Chalet's board of directors believes the
merger is advisable, fair to you and in your best
interests, and recommends that you vote "FOR" the
merger. See "THE PROPOSED MERGER -- Background
and Reasons for Engaging in the Merger."
Surviving Corporation...... Swiss Chalet will be the surviving corporation in
the merger. SCI Acquisition will merge with and
into Swiss Chalet, and the separate corporate
existence of SCI Acquisition will terminate.
However, SCI Acquisition may require the
amendment of the merger agreement to provide that
SCI Acquisition, and not Swiss Chalet, will be
the surviving corporation in the merger. See "THE
PROPOSED MERGER -- Description of the Merger."
Offering Price............. At the effective time of the merger, each share of
Swiss Chalet common stock will be converted into
the right to receive $12.63237227 per share plus
an extraordinary distribution that may be between
$2.40 and $3.40 per share. In addition, on the
18-month anniversary of the merger, Swiss Chalet
will distribute to the former stockholders of
Swiss Chalet, on a proportionate basis, any funds
remaining in a contingency escrow account
established by Swiss Chalet and SCI Acquisition.
See "THE PROPOSED MERGER -- Merger
Consideration."
Management of the Surviving
Corporation.............. The directors and officers of SCI Acquisition will
become the directors and officers of Swiss Chalet
after the merger. See "THE PROPOSED
MERGER -- Description of the Merger."
Effective Date............. The effective date of the merger is expected to be
July 31, 2000. See "THE PROPOSED
MERGER -- Description of the Merger."
Conditions for
Completion............... The completion of the merger depends upon the
satisfaction or waiver of a number of conditions,
including the approval of the merger by the
affirmative vote of the holders of a majority
(50% plus one share) of the issued and
outstanding shares of common stock of Swiss
Chalet and SCI Acquisition. See "THE PROPOSED
MERGER -- Conditions for Completing the Merger."
Termination................ The merger agreement may be terminated before its
effective date under several circumstances
including the following:
1. by either Swiss Chalet or SCI
Acquisition if the merger is not approved by the
stockholders of Swiss Chalet;
2. by either Swiss Chalet or SCI
Acquisition if the merger is not completed on or
before November 8, 2000;
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3. by SCI Acquisition if Swiss Chalet
engages in merger or acquisition negotiations with
another party;
4. by Swiss Chalet or SCI Acquisition if
SCI Acquisition does not obtain all the financing
required to complete the merger on or before
November 8, 2000;
5. by SCI Acquisition if there is a
material adverse change in the condition, financial
or otherwise, business, assets or prospects of
Swiss Chalet; and
6. by SCI Acquisition if the holders of
20% or more of Swiss Chalet common stock exercise
their appraisal rights. See "THE PROPOSED
MERGER -- Termination of Merger Agreement."
Termination Fee............ Swiss Chalet will have to pay a $250,000
termination fee to SCI Acquisition if Swiss
Chalet stockholders do not approve the merger, or
if Swiss Chalet engages in merger or acquisition
negotiations with another party or does not
recommend to its stockholders the approval of the
merger. See "THE PROPOSED MERGER -- Termination
Fee."
Regulatory Approvals....... None. See "THE PROPOSED MERGER -- Regulatory
Approvals."
Shareholder Agreement...... The directors of Swiss Chalet, who are also
stockholders of the company, and the estate of
David C. Baumgarten entered into a shareholder
agreement with SCI Acquisition pursuant to which
they agreed to vote all their shares in favor of
the merger and not to exercise their appraisal
rights. The shares owned by the directors and Mr.
Baumgarten's estate constitute a majority of the
issued and outstanding common stock of Swiss
Chalet. See "SHAREHOLDER AGREEMENT."
Appraisal Rights........... Holders of Swiss Chalet common stock who oppose the
merger and who are dissatisfied with the price
per share offered by SCI Acquisition have
appraisal rights under Puerto Rico law. This
would give them the right to demand the
determination of the fair value of their shares
by a court of law. See "APPRAISAL RIGHTS."
Certain Tax Consequences of
the Merger............... This summary of certain Puerto Rico and United
States Federal income tax consequences of the
merger is qualified in its entirety by the
complete discussion under "Certain Tax
Consequences of the Merger". Because the tax
consequences of the merger may vary depending on
an individual taxpayer's particular situation,
stockholders are urged to consult their own tax
advisors to determine the particular tax
consequences to them of these transactions.
Puerto Rico
The conversion of Swiss Chalet common stock into
cash pursuant to the merger will be a taxable
transaction for Puerto Rico income tax purposes.
A stockholder of Swiss Chalet will realize gain
or loss for Puerto Rico income tax purposes in an
amount equal to the difference between the cash
received upon surrender of such stockholder's
shares of Swiss Chalet common stock in connection
with the merger and the stockholder's basis in
such shares. With certain exceptions, such gain
will be subject to the payment of income taxes to
the extent of 10% of
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the portion of the gain attributable to the
exempt tourism development activities and on 100%
of the portion of the gain attributable to the
non-tourism development activities. See "CERTAIN
TAX CONSEQUENCES OF THE MERGER -- Puerto Rico
Income Tax Consequences."
United States
The conversion of Swiss Chalet common stock into
cash pursuant to the merger will be a taxable
transaction for United States Federal income tax
purposes and may also be taxable under applicable
state, local and other tax laws. In general, for
United States Federal income tax purposes, a
stockholder of Swiss Chalet that is a U.S.
Holder, as defined in this proxy statement under
"CERTAIN TAX CONSEQUENCES OF THE MERGER -- United
States Federal Income Tax Consequences," will
recognize gain or loss for United States Federal
income tax purposes in an amount equal to the
difference between the cash received upon
surrender of such stockholder's shares of Swiss
Chalet common stock in connection with the merger
and the stockholder's basis in such shares. See
"CERTAIN TAX CONSEQUENCES OF THE MERGER -- United
States Federal Income Tax Consequences".
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SWISS CHALET, INC.
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PROXY STATEMENT
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SATURDAY, JULY 22, 2000
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This proxy statement is furnished in connection with the solicitation by
the Board of Directors of Swiss Chalet of proxies to be voted at the special
meeting of stockholders to be held on Saturday, July 22, 2000, at 9:30 a.m., at
the company's principal offices at 105 De Diego Avenue, San Juan, Puerto Rico
00911, and at any adjournment or postponement of that meeting. Proxies solicited
may be exercised only at the special meeting (including any adjournment or
postponement thereof) and may not be used for any other meeting.
Each proxy, if properly signed and returned to the company and not revoked
before its exercise, will be voted in accordance with its instructions. Unless
stockholders give us different instructions, each proxy received will be voted
in favor of the matters described in this proxy statement. You may revoke your
proxy at any time before it is exercised by:
1. sending a written notice revoking the proxy to the Secretary of
Swiss Chalet (addressed to: Mr. John Bradley, Swiss Chalet, Inc., 105 De
Diego Avenue, San Juan, Puerto Rico 00911);
2. submitting a duly executed proxy with a later date; or
3. appearing in person at the meeting and informing the Secretary of
your intention to vote in person.
If you plan to attend the meeting in person, you must notify the Secretary
of Swiss Chalet in writing ten days in advance and show at the entrance proof of
ownership of Swiss Chalet common stock or a proper identification card. Also, if
your shares are not registered in your own name and you plan to attend the
meeting and vote your shares in person, you must contact your broker or agent in
whose name your shares are registered to obtain a broker's proxy and bring it to
the meeting in order to vote.
Each proxy also confers discretionary authority on the Board of Directors
to vote the proxy with respect to:
1. matters incident to the conduct of the meeting; and
2. such other matters as may properly come before the meeting.
Except with respect to procedural matters incident to the conduct of the
meeting, management is not aware of any business that may properly come before
the meeting other than those matters described in this proxy statement. However,
if any other matters are properly brought before the meeting, your shares will
be voted with respect to those other matters in accordance with the judgment of
the persons exercising your proxy.
SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by Swiss Chalet. The company
will make arrangements with brokerage firms and other custodians, nominees and
fiduciaries for the forwarding of proxy solicitation materials to certain
beneficial owners of Swiss Chalet common stock. The company will reimburse such
brokerage firms, custodians, nominees and fiduciaries for reasonable expenses
incurred by them in sending proxy materials to the beneficial owners of Swiss
Chalet common stock. In addition to solicitations by mail, directors, officers
and employees of the company may solicit proxies personally, by telephone or
other electronic means without additional compensation.
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VOTING STOCK OUTSTANDING
AND VOTE REQUIRED FOR APPROVAL
Only holders of common stock of record at the close of business on June 9,
2000 are entitled to vote at this special meeting. The total number of shares of
common stock eligible to cast votes at the meeting is 1,401,162. Each share is
entitled to one vote on each matter properly brought before the meeting. A list
of stockholders entitled to vote will be available at the meeting and for ten
days before the meeting, between the hours of 9:30 a.m. and 4:30 p.m. at the
company's principal offices. You should contact the Secretary of Swiss Chalet if
you wish to review the list of stockholders.
The presence, either in person or by proxy, of at least a majority of the
issued and outstanding shares of common stock entitled to vote is necessary to
constitute a quorum at the special meeting. For purposes of determining quorum,
abstentions and broker non-votes will be treated as shares that are present and
entitled to vote. A broker non-vote results when a broker or nominee has
expressly indicated that it does not have discretionary authority to vote on a
particular matter. Action with respect to the proposed merger will be taken by
the affirmative vote of the holders of a majority (50% plus one share) of the
company's issued and outstanding shares of common stock entitled to vote in
person or by proxy at the meeting. Therefore, abstentions and broker non-votes
will have the same effect as a vote against the proposed merger.
THE COMPANIES
Swiss Chalet was incorporated on April 9, 1952 under the laws of the
Commonwealth of Puerto Rico. It owns and operates the Best Western Hotel Pierre
in San Juan, Puerto Rico, which consists of 184 rooms and supporting facilities.
The hotel is located on a parcel of land of approximately 2.6 acres, which is
owned by the company. Portions of this property that are not being used for its
hotel operations are leased to an independently owned restaurant that operates
banquet facilities and to a pastry shop. The property also has parking areas and
an unoccupied theater building. The hotel and the company's principal offices
are located at 105 De Diego Avenue, San Juan, Puerto Rico 00911. Their telephone
number is (787) 721-1200.
Since April 1986, Swiss Chalet has operated under a grant of tax exemption
issued by the Government of Puerto Rico pursuant to the Tourism Incentives Act
of 1983. The grant provides partial tax exemption from Puerto Rico income and
property taxes. It also provides 100% exemption from license taxes imposed by
the Municipality of San Juan. The grant requires the company to invest at least
20% of its net income in certain training programs and improvements to the
property. The original term of the grant was ten years. In March 1993, the
company obtained an extension for an additional ten-year term.
SCI Acquisition was incorporated on March 14, 2000 under the laws of the
Commonwealth of Puerto Rico for the sole purpose of effecting the merger with
Swiss Chalet. It has no material operations and no operating history. The
holders of SCI Acquisition common stock are B.Fernandez & Hnos., Inc., a Puerto
Rico corporation and a food and wine distributor; Camape S.E., a Puerto Rico
special partnership indirectly controlled by Mr. Pedro Feliciano-Benitez, a
businessman; and Mr. Joseph P. McCloskey, a real estate developer and
businessman. As of May 8, 2000, the execution date of the merger agreement, SCI
Acquisition had total assets and stockholders' equity of $258,000. Pursuant to a
shareholders agreement, B.Fernandez and Camape have agreed to contribute to SCI
Acquisition a total of $3,750,000 in additional capital upon completion of the
merger. SCI Acquisition's address is as follows: SCI Acquisition Inc., c/o
Rogelio Munoz, Munoz Boneta & Gonzalez, 208 Banco Popular Center, Suite 800,
Hato Rey, Puerto Rico 00918, Attn.: Mr. Joseph P. McCloskey. Its telephone
number is (787) 751-9393.
THE PROPOSED MERGER
GENERAL
The Board of Directors unanimously approved the merger with SCI Acquisition
on May 6, 2000, and recommends to its holders of common stock that they vote
"FOR" the merger. Swiss Chalet is using this
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proxy statement to solicit proxies from its holders of common stock for use at
the special meeting in which approval of the merger will be considered and voted
by the company's stockholders.
DESCRIPTION OF THE MERGER
At the time the merger agreement or a certificate of merger is properly
filed with the Puerto Rico State Department, SCI Acquisition will merge with and
into Swiss Chalet, the separate corporate existence of SCI Acquisition will
cease, and Swiss Chalet will continue as the surviving corporation in the
merger. The parties expect to complete the merger on July 31, 2000. The merger
will be pursuant to and have the effects specified in the Puerto Rico General
Corporation Law of 1995. The charter and by-laws of Swiss Chalet will be amended
at the effective time of the merger to reflect the authorized capital of SCI
Acquisition. Also, at the effective time of the merger, the directors and
officers of SCI Acquisition will become the directors and officers of Swiss
Chalet. Notwithstanding the above, SCI Acquisition may require the amendment of
the merger agreement to provide that SCI Acquisition, and not Swiss Chalet, will
be the surviving corporation in the merger. In the event that any such amendment
is executed after the stockholders of Swiss Chalet have approved the merger, no
additional stockholder approval will be required for such amendment. As a result
of the merger, all the issued and outstanding shares of Swiss Chalet common
stock will be converted into the right to receive the cash amounts described
below in this proxy statement.
MERGER CONSIDERATION
A. SCI Acquisition will pay an aggregate amount equal to $17,700,000 or
$12.63237227 per share in cash into an exchange account for distribution to the
holders of Swiss Chalet common stock. The exchange agent will be a commercial
bank selected by Swiss Chalet and SCI Acquisition with offices in Puerto Rico
and the United States. The exchange agent will effect the exchange of
certificates representing shares of Swiss Chalet common stock for the
consideration paid by SCI Acquisition.
B. In addition to the aforesaid, on the effective date of the merger and as
part of the merger consideration, Swiss Chalet will pay an extraordinary cash
distribution to its stockholders in an amount equal to its available cash
balance after deducting the amounts necessary to fund:
1. a cash reserve of $400,000 or $575,000 (depending on the status of
certain property tax issues) as working capital;
2. a contingency escrow account to cover any material liabilities
determined by Swiss Chalet and SCI Acquisition that were not reflected on
Swiss Chalet's audited balance sheet of April 30, 1999, and not reserved
for in the long-term liability reserve described below, and which relate to
events occurring or conditions existing before the effective date of the
merger;
3. any declared but unpaid dividends to Swiss Chalet stockholders;
4. any long-term material liabilities of Swiss Chalet existing on the
effective date of the merger, (i) which are of a type required to be
included in a balance sheet according to U.S. generally accepted accounting
principles, (ii) which were not reflected on the company's audited balance
sheet of April 30, 1999, (iii) which will remain outstanding at the
effective time of the merger, (iv) for which an asset of equal value that
was not reflected on such April 30, 1999 balance sheet will not exist on
the company's balance sheet as of the effective date of the merger, and (v)
which (in the case of a liability exceeding $100,000 not voluntarily
incurred by the company) the company agrees, at the request of SCI
Acquisition, to include in this reserve;
5. any severance payments to directors and executive officers of Swiss
Chalet as a result of the merger; and
6. any accrued unpaid taxes owed by Swiss Chalet with respect to the
fiscal year ended April 30, 2000 and the period from May 1, 2000 to the
effective date of the merger (excluding from this provision and from the
contingency escrow account and from the long-term liability reserve, any
income or property tax contingencies identified on or before May 8, 2000 by
SCI Acquisition).
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Based on the amount of cash held by the company on the date of this proxy
statement and on the company's estimate of the deductions listed above, the
company believes that the amount of this extraordinary distribution will be
between $2.40 and $3.40 per share. At the effective time of the merger, Swiss
Chalet will deliver the extraordinary distribution, if any, to the exchange
agent, who will then distribute such amount to Swiss Chalet's stockholders
together with the cash amount paid by SCI Acquisition on account of the merger.
C. In addition to the aggregate amount of $17,700,000 or $12.63237227 per
share in cash and the extraordinary cash distribution to the stockholders, any
unused portion of the contingency escrow account remaining 18 months after the
effective date of the merger will be distributed on a proportionate basis to the
former stockholders of Swiss Chalet as part of the merger consideration.
FINANCING OF THE MERGER
SCI Acquisition plans to finance the merger with Swiss Chalet with equity
contributed by its stockholders and a loan from a commercial bank. SCI
Acquisition has indicated to Swiss Chalet that it expects to have the bank
financing required to consummate the merger by the time the merger is submitted
for approval to the stockholders of Swiss Chalet.
BACKGROUND AND REASONS FOR ENGAGING IN THE MERGER
During 1998 and 1999, several interested parties approached Swiss Chalet
and expressed an interest in acquiring the company or its assets. In July 1999,
after several meetings between the management of Swiss Chalet and an interested
party, a non-binding understanding in principle was reached as to a price and
certain other material terms of a potential acquisition of Swiss Chalet. Such
understanding in principle was presented to the Board of Directors of Swiss
Chalet, and on July 12, 1999, Swiss Chalet and such party signed a letter of
intent regarding a possible acquisition of Swiss Chalet. A draft of a merger
agreement was presented to the Board of Directors of Swiss Chalet at a meeting
held on July 20, 1999. During the period from July 1999 to December 1999
representatives and legal advisors to both parties negotiated the terms of the
merger agreement. However, in December 1999, negotiations between the parties
were discontinued.
In January 2000, negotiations began with Mr. Joseph P. McCloskey acting on
his behalf and on behalf of other investors interested in a possible acquisition
of Swiss Chalet. On March 14, 2000, Mr. McCloskey and such investors
incorporated SCI Acquisition under Puerto Rico law for the sole purpose of
effecting the merger with Swiss Chalet.
On May 6, 2000, the Board of Directors approved the merger agreement that
was negotiated with Mr. McCloskey. At that meeting, they determined that the
merger is advisable and fair to, and in the best interests of, Swiss Chalet and
its stockholders. In the course of reaching its decision to approve the merger
agreement, the Board of Directors considered the recent and historical stock
price performance of Swiss Chalet common stock, which has never traded above $11
per share. The Board also considered hotel industry trends and market conditions
in Puerto Rico which are highly competitive. Based on these factors, they
concluded that SCI Acquisition's offer is advisable, fair and in the best
interests of the company and its stockholders.
SHAREHOLDER APPROVAL
The affirmative vote of the holders of a majority (50% plus one share) of
the outstanding shares of Swiss Chalet and SCI Acquisition common stock is
required to complete the merger.
CONDITIONS FOR COMPLETING THE MERGER
The completion of the merger depends upon the satisfaction or waiver of a
number of conditions, including the following:
1. approval of the merger by the affirmative vote of the holders of a
majority (50% plus one share) of the issued and outstanding shares of
common stock;
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2. no injunction or order is entered by a court of competent
jurisdiction which would prohibit the merger;
3. no law, rule or regulation is enacted which would prohibit the
merger; and
4. SCI Acquisition obtains all the financing required to complete the
merger.
TRANSFER OF SHARES
The stock ledgers or transfer books of Swiss Chalet will be closed at the
effective time of the merger. Registration or transfer of shares of Swiss Chalet
common stock will not be permitted after such time.
EXCHANGE PROCEDURES
You do not have to surrender your Swiss Chalet common stock certificates at
this time. The company will notify you in writing if the merger is approved by
the stockholders. At such time, the company will provide you a letter of
transmittal for you to surrender your certificates to the exchange agent prior
to receiving any merger consideration. You should carefully read and follow the
instructions that will be included with the letter of transmittal.
On the six-month anniversary of the effective date of the merger, the
exchange agent will transfer to Swiss Chalet the balance of the funds held by
it, which correspond to former Swiss Chalet stockholders who have not delivered
for cancellation and exchange their certificates of common stock. Swiss Chalet
will continue to cancel and exchange such certificates until the second
anniversary of the effective date of the merger. On that date, and to the extent
permitted by law, such funds will be retained by the company free and clear of
any claim by such former stockholders.
TERMINATION OF MERGER AGREEMENT
The merger agreement may be terminated before its effective date:
1. by mutual consent of Swiss Chalet and SCI Acquisition
2. by either Swiss Chalet or SCI Acquisition if the merger is not
approved by the stockholders of Swiss Chalet;
3. by either Swiss Chalet or SCI Acquisition if the merger is not
completed on or before November 8, 2000;
4. by SCI Acquisition if Swiss Chalet engages in merger or acquisition
negotiations with another party;
5. by SCI Acquisition if Swiss Chalet's Board of Directors does not
recommend to its stockholders the approval of the merger;
6. by SCI Acquisition if there is a breach of certain representations,
warranties or covenants by Swiss Chalet;
7. by Swiss Chalet if there is a breach of certain representations,
warranties or covenants by SCI Acquisition;
8. by Swiss Chalet or SCI Acquisition if SCI Acquisition does not
obtain all the financing required to complete the merger on or before
November 8, 2000;
9. by SCI Acquisition if there is a material adverse change in the
condition, financial or otherwise, business, assets or prospects of Swiss
Chalet;
10. by SCI Acquisition if Swiss Chalet fails to fund a cash reserve
for certain long-term liabilities of Swiss Chalet, or if Swiss Chalet and
SCI Acquisition cannot agree as to the amount of the contingency escrow
account; or
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11. by SCI Acquisition if the holders of 20% or more of Swiss Chalet
common stock exercise their appraisal rights.
TERMINATION FEE
Swiss Chalet agreed to pay a $250,000 termination fee to SCI Acquisition if
the merger is not approved by Swiss Chalet stockholders. The company also agreed
to pay such penalty if it negotiates with, provides nonpublic information to, or
enters into a merger or acquisition agreement with another party, or if it fails
to recommend to its stockholders the approval of the merger.
REGULATORY APPROVALS
No government regulatory approvals are required for the merger of SCI
Acquisition and Swiss Chalet.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE MERGER.
SHAREHOLDER AGREEMENT
On May 8, 2000, each of the directors of Swiss Chalet and the estate of
David C. Baumgarten, who collectively own 706,433 shares or 50.42% of the issued
and outstanding common stock of the company, entered into a shareholder
agreement with SCI Acquisition. The shares owned by the directors and Mr.
Baumgarten's estate constitute a majority of the issued and outstanding common
stock of the company. Pursuant to the shareholder agreement, the directors and
Mr. Baumgarten's estate agreed to vote all their shares of Swiss Chalet common
stock in favor of the merger and also agreed not to exercise their appraisal
rights with respect to their shares. They further agreed not to sell their
shares unless the buyer of such shares executes an irrevocable proxy to vote
such shares in favor of the merger or an agreement to vote in favor of the
merger identical to the agreement executed by the directors. Notwithstanding the
foregoing, the shareholder agreement will terminate in the event that the
stockholders, in their capacity as directors of the company, determine that
recommending or approving the merger agreement and the merger would result in a
breach of their fiduciary duties under Puerto Rico law. A copy of the
shareholder agreement is attached as Appendix B to this proxy statement.
APPRAISAL RIGHTS
Holders of Swiss Chalet common stock who oppose the merger and who are
dissatisfied with the consideration offered by SCI Acquisition have appraisal
rights under Puerto Rico law, which would give them the right to demand the
determination of the fair value of their shares by a court of law. Pursuant to
Section 10.12 of the Puerto Rico General Corporation Law of 1995, a copy of
which is attached as Appendix C to this proxy statement, any holder of Swiss
Chalet common stock who:
1. holds his or her shares on the date of making the demand for the
appraisal of his or her shares;
2. continuously holds such shares through the effective date of the
merger;
3. has perfected his or her appraisal rights (as explained below); and
4. has not voted in favor of or consented to the merger, is entitled
to an appraisal by the Court of First Instance of Puerto Rico (Superior
Part) of the fair value of his or her shares.
A stockholder electing to demand the appraisal of his or her shares may
perfect his or her appraisal rights by delivering to Swiss Chalet, before voting
with respect to the merger, a written demand for appraisal of his or her shares.
Such demand will be deemed legally sufficient if it reasonably informs Swiss
Chalet of the identity of the stockholder and that he or she intends thereby to
exercise his or her appraisal rights. The granting of a proxy to vote or a vote
against the merger will not constitute a demand for such purposes. The
stockholder electing to proceed in this manner must do so by a separate written
demand addressed to Swiss Chalet, Inc., 105 De Diego Avenue, San Juan, Puerto
Rico 00911, Attention: John Bradley, Chairman and Secretary.
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Within the 10 days following the effective date of the merger, if approved
by the stockholders, the surviving corporation will notify the effective date of
the merger to those who perfected their appraisal rights and who did not vote in
favor of the merger. Any stockholder who has complied with the requirements for
exercising his or her appraisal rights under Puerto Rico law will have 120 days
after the effective date of the merger to file a petition in the Court of First
Instance of Puerto Rico (Superior Part) in demand of a determination of the
total value of the stock of all such stockholders. Those stockholders who demand
their appraisal rights will not be entitled to vote their stock for any purpose
or to receive the payment of dividends or other distributions on their stock
after the effective date of the merger, except dividends or other distributions
payable to stockholders of record at a date prior to the effective date of the
merger.
SELECTED FINANCIAL DATA
The following table shows certain selected financial and operating data of
Swiss Chalet on a historical basis as of and for the nine-month periods ended
January 31, 2000 and 1999, and for each of the five fiscal years in the period
ended April 30, 1999. This information should be read together with the
company's financial statements and the related notes incorporated by reference
in this proxy statement. Financial information for the nine-month periods ended
January 31, 2000 and 1999 is derived from unaudited financial statements, which,
in the opinion of management, include all adjustments necessary for a fair
presentation of the results for those periods. These adjustments consist only of
normal recurring accruals. Results for the nine-month period ended January 31,
2000 are not necessarily indicative of results for the full fiscal year.
NINE-MONTH PERIOD
ENDED JANUARY 31, FISCAL YEAR ENDED APRIL 30,
----------------------- --------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
OPERATING RESULTS AND
DIVIDENDS PAID:
Net sales and other income........... $4,714,467 $3,867,134 $5,791,178 $5,320,145 $5,444,014 $5,150,376 $4,663,275
Net income........................... $1,672,514 $1,050,843 $1,927,835 $1,650,395 $1,738,842 $1,608,149 $1,206,468
Net income per share................. $ 1.19 $ 0.75 $ 1.38 $ 1.18 $ 1.24 $ 1.15 $ 0.86
Dividends per share.................. $ 0.90 $ 0.90 $ 0.90 $ 0.90 $ 0.90 $ 0.85 $ 0.70
PERIOD END BALANCES:
Total assets......................... $8,387,913 $7,006,791 $8,097,032 $7,258,895 $6,805,298 $6,203,591 $5,490,260
Deferred compensation plan
liability.......................... $ 125,100 $ 106,700 $ 109,100 $ 91,200 $ 48,600 $ 37,800 $ 13,600
Stockholders' equity................. $7,474,063 $6,185,603 $6,081,781 $5,414,992 $5,025,643 $4,547,847 $4,060,628
CERTAIN TAX CONSEQUENCES OF THE MERGER
The following is a general summary of certain Puerto Rico and United States
Federal income tax consequences of the merger and does not discuss all possible
tax consequences that may be relevant to the stockholders of Swiss Chalet in
light of each stockholder's particular circumstances and the special rules that
may be applicable to such stockholders. All stockholders should consult their
own tax advisors to determine the particular tax consequences to them of these
transactions.
The discussion below is based, in the case of Puerto Rico income tax
consequences, on the Puerto Rico Internal Revenue Code of 1994, as amended (the
"Puerto Rico Code"), and on the Puerto Rico Tourism Incentives Act of 1983, as
amended (the "Tourism Incentives Act"), both as interpreted by regulations and
rulings issued by the Puerto Rico Department of the Treasury and by judicial
decisions, and, in the case of United States Federal income tax consequences, on
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, Internal Revenue Service rulings and judicial decisions now in
effect, all of which are subject to change at any time by legislative, judicial
or administrative action. Any such changes may be retroactively applied in a
manner that could adversely affect holders of Swiss Chalet common stock. The
discussion below on Puerto Rico income tax consequences is also based on an
exemption resolution issued under the Tourism Incentives Act issued to Swiss
Chalet in Case No. 92-52-EXT.-7 (83-52-T-10). A ruling request will be submitted
to the Puerto Rico Department of the Treasury requesting various rulings
relating to certain Puerto Rico income tax consequences of the merger to the
stockholders of Swiss Chalet, and, unless
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otherwise noted, the discussion below under "Puerto Rico Income Tax
Consequences" assumes that such rulings will be granted as requested. No
assurance can be given that this ruling request will be granted by the Puerto
Rico Department of the Treasury. With respect to the discussion under "U.S.
Federal Income Tax Consequences" below, stockholders should note that this
summary is not binding on the Internal Revenue Service or the courts and that no
ruling has been or will be sought from the Internal Revenue Service as to the
U.S. Federal income tax consequences of the merger.
In general (except as set forth below), individuals who are bona fide
residents of Puerto Rico during the entire taxable year in which the merger
occurs, and Puerto Rico corporations, partnerships, trusts and estates, will not
be subject to U.S. Federal income tax on income or gain, if any, realized as a
result of the merger and should consult the discussion below under "Puerto Rico
Income Tax Consequences". Except as set forth in the next sentence, it is
anticipated that U.S. citizens (other than bona fide residents of Puerto Rico)
and U.S. corporations, partnerships, trusts and estates generally will not be
subject to Puerto Rico income tax on income or gain, if any, realized as a
result of the merger and should consult the discussion below under "United
States Federal Income Tax Consequences". Puerto Rico corporations and Puerto
Rico partnerships that hold shares of Swiss Chalet common stock in connection
with a U.S. trade or business should also consult the discussion below under
"United States Federal Income Tax Consequences." Aliens not residing in Puerto
Rico, U.S. corporations, and U.S. partnerships engaged in a trade or business in
Puerto Rico should also consult the discussion below under "Puerto Rico Income
Tax Consequences". All stockholders should consult the discussions below under
"United States Backup Withholding and Information Reporting".
PUERTO RICO INCOME TAX CONSEQUENCES
The conversion of Swiss Chalet common stock into cash pursuant to the
merger will be a taxable transaction for Puerto Rico income tax purposes.
Except as noted below, Swiss Chalet's stockholders will recognize any gain
or loss realized upon the conversion of their shares of Swiss Chalet common
stock for cash on 10% of the portion of the gain attributable to the exempt
tourism development activities of Swiss Chalet and on 100% of the portion of the
gain attributable to the non-tourism development activities of Swiss Chalet. The
amount of such gain or loss will be measured by the difference between the
amount of cash received by each stockholder, including the extraordinary cash
distribution and cash distributed from the contingency escrow account, if any,
and his or her adjusted basis in the Swiss Chalet common stock, and will
generally constitute a capital gain or loss (except for stockholders who hold
their common stock primarily for sale to customers in the ordinary course of
their trade or business). The taxable portion of any capital gain corresponding
to Swiss Chalet common stock held by the stockholder for more than six months
prior to the effective date of the merger will be subject to a maximum tax of
20% in cases of stockholders who are individuals, estates or trusts, or of 25%
if the stockholder is a corporation or partnership.
Stockholders of Swiss Chalet who are individuals, estates or trusts, not
residents of Puerto Rico, or that are non-Puerto Rico corporations or
partnerships, and that transfer their certificates representing shares of Swiss
Chalet common stock by delivering them to a designated New York office of the
exchange agent, will not be subject to Puerto Rico income or withholding taxes
on any gain realized on such transfer, unless the stockholder is an alien or a
non-Puerto Rico corporation or partnership and the gain is effectively connected
with the conduct of a Puerto Rico trade or business by such stockholder. In this
regard, if the ruling to be requested to such effect were to be denied by the
Puerto Rico Department of the Treasury, such stockholders would recognize gain
or loss on such transfer for Puerto Rico income tax purposes in the same manner
and to the extent described in the previous paragraph.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The conversion of Swiss Chalet common stock pursuant to the merger
generally will be a taxable transaction for United States Federal income tax
purposes and may also be taxable under applicable state, local and other tax
laws. For a discussion of the Puerto Rico income tax consequences for certain
stockholders, see "Puerto Rico Income Tax Consequences" above. In general, for
United States Federal income tax
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purposes, a stockholder of Swiss Chalet that is a U.S. Holder, as defined below,
that receives cash in exchange for his or her Swiss Chalet common stock will
recognize gain or loss for United States Federal income tax purposes in an
amount equal to the difference between the sum of the cash received and the
stockholder's basis in his or her shares of Swiss Chalet common stock.
Generally, such gain or loss will be long-term capital gain or loss if the U.S.
Holder's holding period for the shares of Swiss Chalet common stock surrendered
exceeds one year and the U.S. Holder holds such shares as a capital asset. For
purposes of this discussion, a "U.S. Holder" is any beneficial owner of Swiss
Chalet common stock that is (i) a citizen or resident of the United States
(other than an individual who is a bona fide resident of Puerto Rico during the
entire taxable year), (ii) a corporation organized under the laws of the United
States or any State or (iii) otherwise subject to United States Federal income
taxation on a net income basis in respect of a share of Swiss Chalet common
stock.
UNITED STATES BACKUP WITHHOLDING AND INFORMATION REPORTING
The exchange of Swiss Chalet common stock for cash pursuant to the merger
by the New York office of the exchange agent may be subject to both United
States backup withholding at a 31% rate and information reporting unless the
holder or beneficial owner provides his or her taxpayer identification number or
otherwise establishes an exemption in the manner required by United States law
and applicable regulations. United States information reporting and backup
withholding generally will not apply to the exchange of Swiss Chalet common
stock for cash pursuant to the merger outside the United States.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information as to the shares of Swiss Chalet
common stock beneficially owned, as of the voting record date, by the persons
known to the company to be the beneficial owners of 5% or more of the company's
common stock. Mr. David C. Baumgarten, who was the Chairman of the Board of
Directors and owner of 449,713 shares of Swiss Chalet common stock, died on
April 26, 1995. The co-executors of Mr. Baumgarten's estate are Mr. Harvey
Litwin and Mr. Robert Lasky. Until these shares are either distributed or
otherwise disposed of, their ownership is shown in our records as "Estate of
David C. Baumgarten." The shares of Mr. Pierre Lohner, one of the company's
founders, who died on July 6, 1999 are similarly shown in our records as "Estate
of Pierre Lohner." To our knowledge, and as of the date of this proxy statement,
none of the shares in Mr. Baumgarten's and Mr. Lohner's estate have been sold or
distributed.
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
OF COMMON STOCK PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER AS OF MAY 31, 2000(1) COMMON STOCK
- ------------------------------------ --------------------- ------------
Estate of David C. Baumgarten............................... 449,713 32.10%
c/o APA Harvey Litwin
APA 888 7th
Ave New York, NY 10106
Estate of Pierre Lohner..................................... 85,808 6.12%
c/o Philippe Lohner
P.O. Box 6608
Loiza Station
San Juan, PR 00914-6608
B. Chester Hryniewicz....................................... 70,299 5.02%
Apt. 82 500 S. Palm
Sarasota, FL 34236
- ---------------
(1) Based upon filings made pursuant to the Securities Exchange Act of 1934, as
amended, and information furnished by the respective individuals.
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The table below shows the number of shares of Swiss Chalet common stock
beneficially owned as of May 31, 2000 by each director and each named executive
officer of the company, and by all directors and named executive officers as a
group.
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP PERCENT
OF COMMON STOCK OF
NAME AS OF MAY 31, 2000(2) COMMON STOCK
- ---- --------------------- ------------
DIRECTORS
Patrick Baumgarten.......................................... 13,518 0.96%
John Bradley................................................ 15,212 1.09%
B. Chester Hryniewicz....................................... 70,299 5.02%
Harvey Litwin............................................... 64,345(3) 4.59%
Jose Ramirez-Garcia......................................... 8,000 0.57%
Peter D. Somech............................................. 55,365 3.95%
Gustavo Velez-Toro.......................................... 29,981 2.14%
NAMED EXECUTIVE OFFICERS
John Bradley................................................ 15,212 1.09%
Chairman and Secretary
B. Chester Hryniewicz....................................... 70,299 5.02%
President
Gustavo Velez-Toro.......................................... 29,981 2.14%
Vice President
Peter D. Somech............................................. 55,365 3.95%
Treasurer and Chief Financial Officer
DIRECTORS AND NAMED EXECUTIVE OFFICERS AS A GROUP........... 256,720 18.32%
- ---------------
(2) Includes securities owned by affiliates, wives and children. Each person has
sole voting and investment power with respect to the shares beneficially
owned by him.
(3) Mr. Litwin is the co-executor of the estate of David C. Baumgarten. The
amount of shares owned by Mr. Litwin excludes 449,713 shares owned of record
by Mr. Baumgarten's estate, which Mr. Litwin has the power to vote.
OTHER INTERESTS OF MANAGEMENT
Two of the directors of Swiss Chalet, Mr. Gustavo Velez-Toro and Mr. Peter
D. Somech, have employment contracts with the company. These contracts contain
severance clauses that will be activated if the merger is approved by the
stockholders. The expense of liquidating these settlements will be charged
against the company's cash prior to the effective date of the merger.
STOCKHOLDERS' PROPOSALS
The date of the next annual meeting of stockholders of Swiss Chalet will
depend on the outcome of this special meeting. Any stockholder proposal intended
to be included in Swiss Chalet's proxy statement and proxy card for presentation
at the company's 2000 annual meeting of stockholders had to have been received
by May 15, 2000. The company did not receive any such proposal for the 2000
annual meeting of stockholders.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Swiss Chalet hereby incorporates by reference the following documents filed
with the Securities and Exchange Commission:
1. The company's annual report on Form 10-KSB for the fiscal year ended
April 30, 1999.
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2. All other reports filed by the company pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended, since the end of the
fiscal year covered by the annual report for the fiscal year ended April 30,
1999.
All documents subsequently filed by Swiss Chalet pursuant to Sections
13(a), 13(c), 14, and 15(d) of the Securities Exchange Act of 1934, as amended,
prior to this special meeting of stockholders will also be deemed to be
incorporated by reference into this proxy statement and to be a part hereof from
the filing date of such documents. Any statement in a document incorporated or
deemed to be incorporated by reference in this proxy statement will be deemed to
be modified or superseded for purposes of this proxy statement to the extent
that another statement in this proxy statement or in any other subsequently
filed document, which is also incorporated or deemed to be incorporated by
reference herein, modifies or supersedes such statement. Any such statement,
except as modified or superseded, will not be deemed to be a part of this proxy
statement.
WHERE YOU CAN FIND MORE INFORMATION
Swiss Chalet files annual, quarterly and special reports, proxy statements
and other information with the SEC. You may read and copy any document filed by
us with the SEC at the SEC's Public Reference Room at 450 Fifth Street NW,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the Public Reference Room. We file such
materials electronically with the SEC. Therefore, you can also review our
filings by accessing the Internet site maintained by the SEC at
http://www.sec.gov. This site contains reports, proxy and information
statements, and other information about issuers that file electronically with
the SEC.
UPON RECEIPT OF A WRITTEN REQUEST, SWISS CHALET WILL PROVIDE TO ANY
STOCKHOLDER A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL
YEAR ENDED APRIL 30, 1999, AND A LIST OF THE EXHIBITS THERETO REQUIRED TO BE
FILED WITH THE SEC PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934. SUCH WRITTEN
REQUEST SHOULD BE DIRECTED TO MR. JOHN BRADLEY, SWISS CHALET, INC., 105 DE DIEGO
AVENUE, SAN JUAN, PUERTO RICO 00911.
BY ORDER OF THE BOARD OF DIRECTORS
John Bradley
Chairman and Secretary
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF MAY 8, 2000
BY AND AMONG
SCI ACQUISITION INC.
AND
SWISS CHALET, INC.
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AGREEMENT AND PLAN OF MERGER, dated as of May 8, 2000, by and between SCI
Acquisition Inc. ("Purchaser"), a corporation organized under the laws of the
Commonwealth of Puerto Rico (the "Commonwealth"), and Swiss Chalet, Inc. (the
"Company"), a corporation organized under the laws of the Commonwealth.
WITNESSETH:
WHEREAS the respective Boards of Directors of Purchaser and the Company
have determined that it is in the best interests of Purchaser and the Company
and their respective stockholders to combine their respective businesses through
the merger (the "Merger") of Purchaser with and into the Company, on the terms
and conditions set forth in this Agreement; and
WHEREAS, as a result of the Merger, all the outstanding shares of Common
Stock, no par value, of the Company ("Company Common Stock") will be converted
into the right to receive (i) an aggregate amount of $17,700,000, or
$12.63237227 per share in cash on account of the Merger, (ii) the Extraordinary
Distribution, as defined below, and (iii) any Contingency Escrow Consideration,
as defined in Section 1.6(e), subject to the terms and conditions set forth in
this Agreement.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants, promises and obligations contained herein, the parties hereto agree
as follows:
ARTICLE I
THE MERGER
1.1. The Merger. (a) At the Effective Time (as defined in Section 1.1(b)),
Purchaser shall merge with and into the Company, and the separate existence of
Purchaser shall cease. The Company shall be the surviving corporation in the
Merger (sometimes hereinafter referred to as the "Surviving Corporation"), and
the separate corporate existence of the Company, with all its rights, privileges
and franchises, shall continue unaffected by the Merger. The Merger shall be
pursuant to and have the effects specified in the Puerto Rico General
Corporation Law of 1995 (the "Corporation Law"). The Charter and Bylaws of the
Company, as amended at the Effective Time (as defined in Section 1.1(b)) to
reflect the authorized capital of Purchaser, shall be the Charter and the Bylaws
of the Surviving Corporation until further amended as provided therein. The
directors and officers of Purchaser at the Effective Time shall be the directors
and officers of the Surviving Corporation until their successors are elected and
qualified.
(b) On a date selected by Purchaser, which shall be no later than the 30th
day following the satisfaction or waiver of the conditions set forth in Article
6, the parties hereto shall cause this Agreement or a certificate of merger to
be properly filed in the office of the Secretary of State of the Commonwealth in
accordance with the Corporation Law. The Merger shall become effective at the
time (the "Effective Time") this Agreement or a certificate of merger is
properly filed in accordance with the Corporation Law. The date on which the
Effective Time shall occur is herein referred to as the "Effective Date").
(c) Purchaser shall have the right, subject to Section 7.4, to require the
amendment of this Agreement to provide that Purchaser, and not the Company,
shall be the Surviving Corporation in the Merger, and the Company agrees to
execute such amendment in the event of any such request by Purchaser. In the
event any such amendment is executed after the stockholders of the Company shall
have approved the Merger, no additional stockholder approval shall be required
for such amendment.
1.2. Effect of the Merger on Outstanding Shares of Company Common
Stock. Subject to the terms and conditions of this Agreement, to effectuate,
and automatically by virtue of, the Merger:
(a) (i) At the Effective Time, each share of Company Common Stock
issued and outstanding immediately prior to the Effective Time (other than
shares held as treasury stock of the Company) ("Outstanding Shares") shall
become and be converted into the right to receive (i) $12.63237227 in cash
(the "Consideration") (which amount is based on an aggregate amount of
Consideration equal to
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$17,700,000 and 1,401,162 shares outstanding) on account of the Merger,
(ii) the Extraordinary Distribution (calculated on a per share basis), and
(iii) any Contingency Escrow Consideration (calculated on a per share
basis);
(ii) Notwithstanding any other provision hereof, if the Company
effects a stock dividend, extraordinary dividend or distribution (other
than as contemplated by Section 1.4), reclassification,
recapitalization, split-up, combination, exchange of shares or similar
transaction after the date hereof and before the Effective Time, the
Consideration shall be appropriately adjusted.
(iii) At the Effective Time, each share of Company Common Stock
that, immediately prior to the Effective Time, is held as treasury stock
of the Company shall by virtue of the Merger be cancelled and retired
and shall cease to exist, and no exchange or payment shall be made
thereof.
(b) Not later than the 30th day prior to the anticipated Effective
Date or such other date as the parties may agree in writing (the "Mailing
Date"), Purchaser shall mail a letter of transmittal, substantially in the
form of Exhibit 1.2, to each person that was a holder of record of Company
Common Stock immediately prior to the Mailing Date. The letter of
transmittal shall be used by holders of Company Common Stock to surrender
the certificates representing shares of Company Common Stock prior to the
Effective Time ("Old Certificates") in exchange for the Consideration, and
must be accompanied by such Old Certificates.
1.3. Effect of Merger of Outstanding Shares of Capital Stock of
Purchaser. At and after the Effective Date, each share of Purchaser's common
stock issued and outstanding immediately prior to the Effective Date shall
remain an issued and outstanding share of common stock of the Surviving
Corporation and shall not be affected by the Merger.
1.4. Extraordinary Distribution. (a) Immediately prior to the Effective
Time, and subject to the terms of this Section 1.4 and compliance with all laws,
regulations and regulatory policies, the Company may declare and pay an
extraordinary cash distribution (the "Extraordinary Distribution") in an amount
equal to its available cash after deducting the amount necessary
(i) to fund a cash reserve (the "Cash Reserve") of (A) $400,000, in
the event that Purchaser is provided with evidence of the satisfaction of
the claim for property taxes on property number 040-050-191-35-901, or (B)
$575,000, in the event that Purchaser is not provided with such evidence,
which Cash Reserve the Company will maintain at such level until after the
consummation of the Merger and which will remain the property of the
Surviving Corporation after the consummation of the Merger,
(ii) to fund the Contingency Escrow contemplated by Section 1.6,
(iii) to fund an additional cash reserve in an amount certified by the
Company to be sufficient to pay any declared but unpaid dividends,
including dividends payable to stockholders with unknown addresses, which
reserve will remain the property of the Surviving Corporation after the
consummation of the Merger,
(iv) to fund an additional cash reserve (the "Liability Reserve"),
which will remain the property of the Surviving Corporation after the
Effective Time, to pay any long-term liability of the Company existing at
the Effective Time (A) which is of the type required to be included in a
balance sheet in accordance with U.S. generally accepted accounting
principles, (B) which was not reflected on the April 30, 1999 balance sheet
of the Company, (C) which will remain outstanding at the Effective Time,
(D) for which an asset of equal value that was not reflected on such April
30, 1999 balance sheet will not exist on the Closing Date Balance Sheet (as
defined below), and (E) which, in the case of a liability in an amount in
excess of $100,000 that is not voluntarily incurred by the Company, the
Company consents at the Effective Time to include for purposes of
calculating the Liability Reserve,
(v) to fund any payment due or to become due to Mr. Peter Somech, Mr.
Gustavo Velez, Mr. B. Chester Hryniewicz and any other officer of the
Company referred to in Schedule 3.14(b) under their agreements with the
Company (including the non-qualified deferred compensation plan referred to
in Schedule 3.14(b)), and
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(vi) to fund the payment of accrued unpaid taxes payable with respect
to the fiscal year ending April 30, 2000 and the period from May 1, 2000 to
the Effective Date, it being agreed that no provision or deposit will be
made hereunder, or in the Contingency Escrow or the Liability Reserve, with
respect to income or property tax contingencies identified on or prior to
the date hereof by Purchaser's due diligence investigation.
(b) The amount, if any, of the Liability Reserve shall be determined on the
basis of a balance sheet and supporting documentation prepared by the Company as
of the Effective Date (the "Closing Date Balance Sheet"), which shall take into
consideration the latest financial information available to the Company. Ten
days prior to the Effective Date, the Company shall provide to the Purchaser a
projected Closing Date Balance Sheet and supporting documentation.
(c) In the event that the Company does not consent at the Effective Time to
take into consideration a liability described in clause (a)(iv)(E) above for
purposes of calculating the Liability Reserve, the Purchaser may terminate this
Agreement pursuant to Section 7.1(i).
(d) The amount of the Extraordinary Distribution shall be delivered at the
Effective Time by the Company to the Exchange Agent mentioned in Section 1.5 and
distributed to shareholders together with the Consideration.
(e) The amount of the reserves described in clauses (i) through (vi) of
Section 1.4(a) shall not exceed the Company's available cash (including cash
equivalents and securities) on the Effective Date.
1.5. Appointment of Exchange Agent. Purchaser and the Company shall
appoint an exchange agent (the "Exchange Agent") to effect the exchange of Old
Certificates for the Consideration and shall enter into an escrow agreement with
the Exchange Agent that incorporates the terms hereof. Any fees and expenses of
the Exchange Agent payable prior to the Effective Time will be paid 85% by
Purchaser and 15% by the Company. On the Effective Date, Purchaser shall
transfer to the Exchange Agent an amount equal to the aggregate amount of the
Consideration minus the amount of the Deposit described in Section 1.9 in
immediately available funds. The Exchange Agent shall be a bank mutually agreed
by the Company and Purchaser with offices in Puerto Rico and the United States.
1.6. Establishment of Contingency Escrow. (a) Prior to the declaration and
payment of the Extraordinary Distribution, (i) the Company and Purchaser shall
establish by mutual agreement an escrow account (the "Contingency Escrow") with
the same entity acting as Exchange Agent and shall enter into an escrow
agreement (the "Contingency Escrow Agreement") with such entity incorporating
the relevant terms hereof, and (ii) the Company shall transfer to such escrow
account an amount agreed to between the Company and Purchaser.
(b) The Company shall withdraw funds from the Contingency Escrow from time
to time at any time prior to the 18-month anniversary of the Effective Date, to
pay material contingent liabilities identified in writing by Purchaser and the
Company on or prior to the Effective Date, which material contingent liabilities
are not reflected on the audited balance sheet of the Company as of April 30,
1999, and not reserved for in the Liability Reserve, and which relate to events
occurring or conditions existing prior to the Effective Date. These material
contingent liabilities shall include any material contingent liabilities arising
from or constituting a breach of any of the representations made by the Company
herein, and any other material contingent liability identified in writing by
Purchaser as a result of its labor, employee benefit, financial and
environmental due diligence investigation of the Company after the date hereof
and agreed to by the Company (it being understood that, for purposes of this
Section 1.6, contingent liabilities involving less than $5,000 individually or
less than $100,000 in the aggregate shall not be considered material).
(c) The parties agree to negotiate in good faith the amount of the
Contingency Escrow. In the event that the Purchaser and the Company cannot agree
as to the amount of the Contingency Escrow, the Purchaser shall have the option
of terminating this Agreement pursuant to Section 7.1(i) or agreeing to the
amount proposed by the Company.
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(d) Any proceeding relating to any claim reserved for in the Contingency
Escrow shall be administered, and monies therein may be withdrawn by the
Company, as provided in the Contingency Escrow Agreement.
(e) Any funds remaining in the Contingency Escrow on the 18-month
anniversary of the Effective Date and not applied to pay contingencies as
provided in clauses (b) and (d) above, including any interest earned on such
funds, shall be considered additional Consideration ("Contingency Escrow
Consideration") and shall be distributed pro rata to the persons who were the
holders of record of Company Common Stock immediately prior to the Effective
Date, provided such persons have surrendered their Old Certificates. Any funds
in the Contingency Escrow, including any interest earned on such funds, relating
to Old Certificates that have not been surrendered shall be transferred to the
Surviving Corporation in accordance with Section 1.7(d).
1.7. Additional Exchange Procedures. (a) At and after the Effective Time,
each Old Certificate, and each share of Company Common Stock represented
thereby, shall represent for all purposes only the right to receive
Consideration as provided herein, and nothing else.
(b) If any Consideration is to be issued to a person other than the
registered holder of the shares of Company Common Stock formerly represented by
the Old Certificate or Certificates surrendered with respect thereto, it shall
be a condition to such issuance that the Old Certificate or Certificates so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the person requesting such issuance shall pay to the Exchange
Agent any transfer or other taxes required as a result of such issuance to a
person other than the registered holder of such shares of Company Common Stock
or shall establish to the satisfaction of the Exchange Agent that such tax has
been paid or is not payable.
(c) At and after the Effective Time, there shall be no further registration
or transfers of shares of Company Common Stock, and the stock ledgers of the
Company shall be closed. After the Effective Time, Old Certificates presented to
the Surviving Corporation for transfer shall be cancelled and exchanged for the
Consideration provided for, and in accordance with the procedures set forth, in
this Article 1.
(d) On the six-month anniversary of the Effective Date, the Exchange Agent
shall transfer to the Company the balance of the funds held by it corresponding
to former holders of Company Common Stock who have not delivered Old
Certificates to the Exchange Agent in accordance with this Article 1 prior to
that time. The Surviving Corporation shall continue to exchange Old Certificates
in accordance with this Article 1 until the second anniversary of the Effective
Date, at which time, to the extent permitted by law, such funds may be retained
by the Company free and clear of the claims of such former holders.
(e) None of the Company, the Surviving Corporation, Purchaser and the
Exchange Agent, or any of their respective current or former directors, shall be
liable to any former holder of Company Common Stock for any securities delivered
or any cash paid to a public official pursuant to applicable escheat or
abandoned property laws or for any securities or cash retained by any of them as
permitted by any such law or by this Agreement. The Surviving Corporation shall
indemnify any current or former director of the Company for any expenses
incurred as a result of any claim by a former Company stockholder arising from
Section 1.7(d).
(f) Except as set forth in Section 1.6 with respect to interest on the
Contingency Escrow, no interest will be paid or accrued on the Consideration.
(g) In the event that any Old Certificate shall have been lost, stolen or
destroyed, the Exchange Agent shall pay in respect of such lost, stolen or
destroyed certificate, upon the making of an affidavit of that fact by the
holder thereof, the Consideration as may be provided pursuant to this Agreement;
provided, however, that each of Purchaser and the Surviving Corporation may, in
its discretion and as a condition precedent to the payment thereof, require the
owner of such lost, stolen or destroyed certificate to deliver a bond in such
sum as it may direct as indemnity against any claim that may be made against
Purchaser, the Company, the Exchange Agent or any other party with respect to
the certificate alleged to have been lost, stolen or destroyed.
(h) The amount payable to a shareholder in exchange for his Old
Certificates shall be rounded down to the nearest dollar.
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1.8. Dissenting Shares. Notwithstanding any provision of this Agreement to
the contrary, if holders of shares of Company Common Stock are entitled to
demand appraisal for their shares under the Corporation Law, the following shall
apply:
(i) Any shares of Company Common Stock held by a holder who has
demanded appraisal of his shares and as of the Effective Date has neither
effectively withdrawn nor lost his right to such appraisal (the "Dissenting
Shares") shall not be converted in the manner set forth in Section 1.2, but
the holder thereof shall only be entitled to such rights as are granted by
the Corporation Law.
(ii) If after the Effective Date any holder of Dissenting Shares shall
effectively withdraw or lose (through failure to perfect or otherwise) his
right to appraisal, then such Dissenting Shares shall be converted into
Consideration.
1.9. Deposit. Simultaneously with the execution of this Agreement,
Purchaser has deposited $250,000 (the "Deposit") in immediately available funds
with an escrow agent in accordance with the Escrow Agreement included as Exhibit
1.9. If the Merger is consummated, the Deposit shall be transferred to the
Exchange Agent and shall be used as part of the Consideration. If the Merger is
not consummated and this Agreement is terminated in accordance with its
provisions because Purchaser is unable to obtain the financing required, because
Purchaser breaches any of its covenants or representations herein, or because
Purchaser refuses to consummate the Merger after all conditions precedent to its
obligations have been satisfied, Purchaser shall forfeit the Deposit and the
Company may keep the Deposit. Otherwise, the Deposit shall be returned to
Purchaser upon the termination of this Agreement.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to the Company as follows:
2.1. Organization and Qualification. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth (the "Commonwealth"), and it has the requisite corporate power to
carry on its business as now conducted.
2.2. Authority Relative to this Agreement; Non-Contravention. Purchaser
has the requisite corporate power and authority to enter into this Agreement, to
carry out its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery and performance of this
Agreement by Purchaser and the consummation by Purchaser of the transactions
contemplated hereby have been duly authorized by its Board of Directors, and no
other corporate proceedings on its part are necessary to authorize this
Agreement and such transactions. This Agreement has been duly executed and
delivered by Purchaser and constitutes a valid and binding obligation of
Purchaser, enforceable in accordance with its terms. Purchaser is not subject
to, or obligated under, any provision of (a) its Charter or Bylaws, (b) any
agreement, arrangement or understanding, (c) any license, franchise or permit or
(d) subject to obtaining the approvals referred to in the next sentence, any
law, regulation, order, judgment or decree, which would be breached or violated,
or in respect of which a right of termination or acceleration or any encumbrance
on any of its assets would be created, by its execution, delivery and
performance of this Agreement and the consummation by it of the transactions
contemplated hereby. Other than the filing of this Agreement in accordance with
the Corporation Law, compliance with and filings under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, if applicable, and the consent of the
Government of Puerto Rico to the change of control of the Company in connection
with the Company's tax exemption concession (the "Requisite Approvals"), no
authorization, consent or approval of, or filing with, any public body, court or
authority is necessary on its part for the consummation by Purchaser of the
transactions contemplated by this Agreement.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Purchaser as follows:
3.1. Organization and Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the Corporation Law and
it has the requisite corporate power and authority to carry on its business as
now conducted. The copies of the Charter and Bylaws of the Company which have
been made available to Purchaser on or prior to the date of this Agreement are
correct and complete and reflect all amendments made thereto through such date.
The Company is licensed or qualified to do business in every jurisdiction in
which the nature of its business or its ownership of property requires it to be
so licensed or qualified.
3.2. Authority Relative to this Agreement; Non-Contravention. The Company
has the requisite corporate power and authority to enter into this Agreement, to
carry out its obligations hereunder and, subject to obtaining shareholder
approval, to consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement by the Company and the consummation
by the Company of the transactions contemplated hereby have been duly authorized
by the Board of Directors of the Company (the "Company's Board") and, except for
approval of this Agreement and the Merger by the affirmative vote of the holders
of a majority of the outstanding shares of Company Common Stock, no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement and such transactions. This Agreement has been duly executed and
delivered by the Company and constitutes a valid and binding obligation of the
Company, enforceable in accordance with its terms. The Company is not subject
to, or obligated under, any provision of (a) its Charter or Bylaws, (b) any
agreement, arrangement or understanding, (c) any license, franchise or permit or
(d) to the best of its knowledge any law, regulation, order, judgment or decree,
which would be breached or violated, or in respect of which a right of
termination or acceleration or any encumbrance on any assets of the Company
would be created, by the execution, delivery or performance of this Agreement,
or the consummation of the transactions contemplated hereby. Other than in
connection with obtaining the Requisite Approvals and the filing of a proxy or
information statement and Rule 13e-3 Transaction Statement (if applicable) with
the Securities and Exchange Commission (the "SEC"), to the best of its knowledge
no authorization, consent or approval of, or filing with, any public body, court
or authority, or any other person, is necessary on the part of the Company for
the consummation by the Company of the transactions contemplated by this
Agreement.
3.3. Capitalization. (a) The authorized, issued and outstanding capital
stock of the Company as of the date hereof is as follows: 4,000,000 authorized
shares of Company Common Stock, of which 1,401,162 are outstanding. The issued
and outstanding shares of capital stock of the Company are duly authorized,
validly issued, fully paid and nonassessable and have not been issued in
violation of any preemptive or similar rights. There are no options, warrants,
conversion privileges, preemptive rights or other rights, agreements,
arrangements or commitments ("Rights") obligating the Company to issue, sell,
purchase or redeem any shares of its capital stock or securities or obligations
of any kind convertible into or exchangeable for any shares of its capital
stock, nor are there any stock appreciation, phantom or similar rights
outstanding based upon the book or market value or any other attribute of any of
the capital stock of the Company, or the earnings or other attributes of the
Company.
(b) No bonds, debentures, notes or other indebtedness of the Company having
the right to vote on or approve any of the transactions contemplated hereby
("Voting Debt") are issued or outstanding.
3.4. [Reserved]
3.5. Absence of Undisclosed Liabilities. Except as set forth in Schedule
3.5, all the material obligations or liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise, whether due or to become due, and
regardless of when asserted), including Taxes (as defined in Section 3.9)
(collectively, "Liabilities"), required to be reflected or reserved against in
the Company's audited balance sheet as of April 30, 1999 (the "1999 Balance
Sheet"), or in the notes thereto, in accordance with generally accepted
accounting principles have been so reflected. The Company has no other material
Liabilities, except: (a) Liabilities (other than for
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borrowed money) which have arisen in the ordinary course of business after the
date of the 1999 Balance Sheet (which Liabilities will be reflected on the
Closing Date Balance Sheet), and (b) as otherwise set forth on Schedule 3.5.
3.6. Absence of Certain Developments. Except as set forth on Schedule 3.6,
the Company has not agreed, promised or committed to take any action that, if
taken or agreed, promised or committed to after the date hereof, would violate
or conflict with Section 4.1 hereof.
3.7. Properties. (a) The Company owns good, marketable and insurable title
to all the real property and all the personal property, fixtures, furniture and
equipment reflected on the 1999 Balance Sheet or acquired since the date
thereof, free and clear of any liens, pledges, security, interests, encumbrances
or charges of any kind, except for (i) liens for current taxes and special
assessments not yet due and payable, (ii) those identified on Schedule 3.7(a),
(iii) property disposed of since the date of the 1999 Balance Sheet in the
ordinary course of business, and (iv) utility easements. The real property owned
by the Company includes a 184-room hotel in an approximately 2.6 acre site
located at De Diego Avenue and Loiza Street in San Juan, Puerto Rico, and
comprised of several adjacent parcels that include the hotel, its supporting
facilities, several retail establishments (including Tradicione Francaise and
Metropol), a theater building, and two parking lots. The Company appears as the
record owner of all such real property in the Registry of Property of Puerto
Rico.
(b) Except as set forth in Schedule 3.7(b), all the buildings, fixtures,
furniture and equipment necessary for the conduct of the business of the Company
are usable in the ordinary course of business. The Company owns all buildings,
fixtures, furniture, personal property, land improvements and equipment
necessary for the conduct of its business as it is presently being conducted.
3.8. Environmental Matters. Except as set forth in Schedule 3.8:
(a) To the best of the Company's knowledge, each of the Company, the
Participation Facilities and the Loan/Fiduciary Properties (each as
hereinafter defined) are, and have been, in material compliance with all
applicable Environmental Laws (as hereinafter defined), which compliance
includes, but is not limited to, the possession of all permits and
authorizations required under applicable Environmental Law, and compliance
with the terms and conditions thereof.
(b) To the best of the Company's knowledge, no transfer of permits or
other governmental authorizations under Environmental Laws, and no
additional permits or other governmental authorizations under Environmental
Laws, will be required to permit the Company to conduct its business in
full compliance with all applicable Environmental Laws after the Effective
Time.
(c) There is no suit, claim, action, proceeding, investigation or
notice pending or to the best of the Company's knowledge threatened (or
past or present actions, activities, circumstances, conditions, events or
incidents that to the best of the Company's knowledge could reasonably form
the basis of any such suit, claim, action, proceeding, investigation or
notice), before any governmental entity or other forum in which the
Company, any Participation Facility or any Loan/Fiduciary Property (or
person or entity whose liability for any such suit, claim, action,
proceeding, investigation or notice the Company, Participation Facility or
Loan/Fiduciary Property has or may have retained or assumed either
contractually or by operation of law), has been or, with respect to
threatened suits, claims, actions, proceedings, investigations or notices,
may be, named as a defendant or potentially responsible party (i) for
alleged noncompliance (including by any predecessor) with any Environmental
Law or (ii) relating to the Release (as hereinafter defined) or threatened
Release into the environment of any Hazardous Material (as hereinafter
defined) whether or not occurring at or on a site owned, leased or operated
by the Company, any Participation Facility or any Loan/Fiduciary Property.
(d) To the best of the Company's knowledge, during the period of: (i)
the Company's ownership or operation of any of its current properties, (ii)
the Company's participation, if any, in the management of any Participation
Facility, or (iii) the Company's holding of a security or other interest in
a Loan/Fiduciary Property, there has been no Release of or contamination by
any Hazardous Material in, on, under or affecting any such property,
Participation Facility or Loan/Fiduciary Property. To the best of the
Company's knowledge, prior to the period of (x) the Company's ownership or
operation of any of its
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respective currently or formerly owned or leased properties, (y) the
Company's participation in the management of any Participation Facility, or
(z) the Company's holding of a security or other interest in a
Loan/Fiduciary Property, there was no Release of or contamination by any
Hazardous Material in, on, under or affecting any such property,
Participation Facility or Loan/Fiduciary Property.
(e) To the best of the Company's knowledge, no part of any property
currently owned or leased by the Company, any Participation Facility or any
Loan/Fiduciary Property has been or is scheduled for investigation or
monitoring pursuant to any Environmental Law.
(f) The following definitions apply for purposes of this Section 3.8:
(i) "Environmental Laws" means all federal, Puerto Rico, state, local and
foreign laws and regulations relating to pollution or protection of human
health or the environment presently in effect or hereinafter adopted,
including without limitation, laws relating to Releases or threatened
Releases of Hazardous Materials into the indoor or outdoor environment
(including, without limitation, ambient air, surface water, ground water,
land surface or subsurface strata) or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, Release,
disposal, transport or handling of Hazardous Materials and all laws and
regulations with regard to recordkeeping, notification, disclosure and
reporting requirements respecting Hazardous Materials, and all laws
relating to endangered or threatened species of fish, wildlife and plants
and the management or use of natural resources; (ii) "Loan/Fiduciary
Property" means any property owned or controlled by the Company or in which
the Company holds a security or other interest, and, where required by the
context, said term means the owner or operator of such property; (iii)
"Participation Facility" means any facility in which the Company
participates in the management and, where required by the context, said
term means the owner or operator of such property; (iv) "Hazardous
Material" means materials which are: (A) listed, classified or regulated
pursuant to any Environmental Law, (B) petroleum, any petroleum products or
by-products, friable asbestos, airborne asbestos, asbestos containing
material, polychlorinated biphenyls ("PCBs"), radioactive materials or
radon gas, or (C) any other material or substance the presence of which is
prohibited, limited or regulated by any governmental entity or
Environmental Law; and (v) "Release" means any release, spill, emission,
discharge, leaking, pumping, injection, deposit, disposal, discharge,
dispersal, leaching or migration into the indoor or outdoor environment
(including, without limitation, ambient air, surface water, groundwater and
surface or subsurface strata) or into or out of any property, including the
movement of Hazardous Materials through or in, the air, soil, surface
water, groundwater or property.
3.9. Tax Matters. Except as set forth in Schedule 3.9, the Company has
filed or will file all Tax (as hereinafter defined) returns (including
information returns) or reports required to be filed (taking into account
permissible extensions) by it on or prior to the Effective Date, and has paid or
will pay, prior to the Effective Date, all Taxes relating to the time periods
covered by such returns and reports which are or will become due and payable
prior to the Effective Date. The accrued taxes payable accounts for Taxes and
provision for deferred income taxes, specifically identified as such, on the
1999 Balance Sheet or any balance sheet of the Company delivered to Purchaser
after the date hereof (including the Closing Date Balance Sheet) are or will be,
to the best of the Company's knowledge, sufficient for the payment of all unpaid
Taxes of the Company accrued for or applicable to all periods ended on or prior
to the date of such balance sheet or which may subsequently be determined to be
owing with respect to any such period. Except as disclosed on Schedule 3.9, the
Company has not waived any statute of limitations with respect to Taxes or
agreed to any extension of time with respect to an assessment or deficiency for
Taxes. The Company has paid or will pay in a timely manner and as required by
law all Taxes due and payable by it or which it is obligated to withhold from
amounts owing to any employee or third party. All Taxes which will be due and
payable, whether now or hereafter, for any period ending on, prior to or
including the Effective Date shall have been paid by or on behalf of the
Company. No Tax returns of the Company have been audited by any governmental
authority other than as disclosed on Schedule 3.9; and, except as set forth on
Schedule 3.9, there are no unresolved questions, claims or disputes asserted and
notified to the Company by any relevant taxing authority concerning the
liability for Taxes of the Company. The Company has not reached an agreement
under Section 6006 of the Puerto Rico Code for any taxable years not yet closed
for statute of limitations purposes. No demand or claim has been made, or, to
the best of the Company's knowledge, could be made, against the Company with
respect
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to any Taxes arising out of membership or participation in any consolidated,
affiliated, combined or unitary group of which the Company was at any time a
member. For purposes of this Agreement, the term "Tax" shall mean any
Commonwealth, U.S. federal, state, local or foreign income, gross receipts,
municipal license, deposit, license, payroll, employment, excise, municipal
excise, severance, stamp, occupation, premium, property or windfall profits tax,
environmental tax, customs duty, capital stock, franchise, employees' income
withholding, dividends withholding, foreign or domestic withholding (including
withholding on payments for services rendered), social security, unemployment,
disability, workers' compensation, employment-related insurance, real property,
personal property, sales, use, room occupancy, transfer, value added,
alternative or add-on minimum or other tax, assessment or governmental charge of
any kind whatsoever, including any interest, penalties or additions to, or
additional amounts in respect of, the foregoing.
3.10. Contracts and Commitments. (a) Except as set forth on Schedule 3.10
and Schedule 3.14, the Company (i) is not a party to any written or oral
agreement or understanding to repurchase assets previously sold (or to indemnify
or otherwise compensate the purchaser in respect of such assets), (ii) is not a
party to any (A) contract or group of related contracts with the same person for
the purchase or sale of products or services, under which the undelivered
balance of such products and services has a purchase price in excess of $10,000
for any individual contract or $20,000 for any group of related contracts in the
aggregate, (B) other contract which would be a "material contract" within the
meaning of Item 601(b)(10) of Regulation S-K promulgated by the SEC, or (C)
other agreement which was not entered into in the ordinary course of business
and which is not disclosed on Schedules 3.7(a) or 3.7(b), and (iii) does not
have any commitments for capital expenditures in excess of $10,000.
(b) Except as disclosed on Schedule 3.10, (i) the Company has performed all
obligations required to be performed by it prior to the date hereof in
connection with the contracts or commitments set forth on Schedule 3.10, and the
Company is not in receipt of any claim of default under any contract or
commitment set forth on Schedule 3.10 and (ii) the Company does not have any
present expectation or intention of not fully performing any obligation pursuant
to any contract or commitment set forth on Schedule 3.10.
3.11. Litigation. Except as set forth on Schedule 3.11, there are no
actions, suits, proceedings, orders or investigations pending or, to the best
knowledge of the Company, threatened against the Company, at law or in equity,
or before or by any Commonwealth, federal, state or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign.
3.12. No Brokers or Finders. Except as disclosed on Schedule 3.12 (as to
both identity and amount), there are no claims for brokerage commissions,
finders' fees, investment advisory fees or similar compensation in connection
with the transactions contemplated by this Agreement based on any arrangement,
understanding, commitment or agreement made by or on behalf of the Company.
3.13. Employees; Labor Matters. (a) Except as disclosed on Schedule
3.13(a), there is no (i) collective bargaining agreement or other labor
agreement to which the Company is a party or by which it is bound; (ii) written
or oral retainer, consulting, employment, severance, or incentive plan or
contract to which the Company is a party or by which it is bound; or (iii) plan
or agreement under which "fringe benefits" (including, but not limited to,
incentive performance bonus, vacation plans or programs, sick leave plans or
programs and related benefits, but not including those plans disclosed on
Schedule 3.14(a)) are afforded any of such employees of the Company. The Company
is not and, to the best of the Company's knowledge no other person who is a
party to any such agreement, plan or contract is in default with respect to any
material term or condition thereof, nor has any event occurred which through the
passage of time or the giving of notice, or both, would constitute a default
thereunder or would cause the acceleration of any obligation of any party
thereto.
(b) To the best of the Company's knowledge, except as disclosed on Schedule
3.13(b), the Company has complied in all material respects with all applicable
laws, rules and regulations relating to the employment of labor, including those
related to wages, salary withholdings, meal periods, sick leave, sexual
harassment, vacations, maternity, disabilities (including the Americans with
Disabilities Act) employee health and safety (including OSHA), Christmas bonus,
working hours and benefits for employees and former employees, equal
opportunity, collective bargaining, non-discrimination and the payment and
withholding of social security and
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other taxes (including social security taxes imposed upon any of the Benefit
Plans (as defined below)) and other sums as required by appropriate governmental
authorities, and has withheld and paid to the appropriate governmental
authorities or is holding for payment not yet due to such authorities, all
amounts required to be withheld from such employees and former employees of the
Company and is not liable to any person or entity (including any governmental
entity) for any arrears of wages, commissions and benefits for employees, taxes,
penalties or other sums for failure to comply with any of the foregoing. There
is no: (i) unfair labor practice complaint against the Company pending before
the National Labor Relations Board or any state or local agency; (ii) pending
labor strike or other labor trouble affecting the Company; (iii) labor grievance
pending against the Company; (iv) pending representation question respecting the
employees of the Company; or (v) pending arbitration proceedings arising out of
or under any collective bargaining agreement to which the Company is a party.
(c) The Company maintains an insurance policy in full force and effect with
the Puerto Rico State Insurance Fund; and the Company has paid all premiums on
said policy and has no outstanding debts with respect thereto. Except as
disclosed on Schedule 3.13(c), no work-related accidents have been reported to
the State Insurance Fund nor has any work-related accident occurred for which
the Company is or may be classified as an uninsured employer.
(d) The Company maintains an insurance policy under the Puerto Rico
Short-Term Disability Act (SINOT), which is in full force and effect.
(e) Except as disclosed on Schedule 3.13(e), there are no material
controversies pending or to the best of the Company's knowledge threatened
before any federal or local court or government agency, including the Equal
Employment Opportunity Commission or any similar agency of the Commonwealth of
Puerto Rico, the National Labor Relations Board, the United States Department of
Labor and the Antidiscrimination Unit, the Negotiation and Conciliation Board,
or any other unit of the Puerto Rico Department of Labor, between the Company
and any of its past or present employees or relating to the Company.
(f) Except as set forth on Schedule 3.13(f), the Company is not a party to
any employment contract or arrangement with respect to any of its employees
(including, without limitation, so-called "golden parachute" or severance
agreements), nor has the Company in any other manner limited its right to
terminate the employment relationship with its employees except as provided by
Act 80 of May 30, 1976.
(g) The Company has not been notified by any federal or Puerto Rico agency
of any labor or employee-related investigation involving the Company, nor, to
the best of the Company's knowledge, does any condition exist, which would
constitute a violation of any applicable federal or local labor law or
regulation.
3.14. Employee Benefit Plans. (a) All benefit plans, contracts or
arrangements covering current employees or former employees of the Company (the
"Employees"), including, but not limited to, "employee benefit plans" within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and plans of deferred compensation (the "Benefit Plans"),
are listed in Schedule 3.14(a). True and complete copies of all Benefit Plans,
including, but not limited to, any trust instruments and insurance contracts
forming a part of any Benefit Plans, and all amendments thereto or a description
in the case of any Benefit Plan not reduced to writing have been provided or
made available to Purchaser, with the exception of the documents related to the
multiemployer pension plan maintained by the Teamsters Union (the "Teamsters
Pension Plan") to which the Company contributes in accordance with the terms of
its collective bargaining agreement.
(b) Except as disclosed on Schedule 3.14(b), all employee benefit plans,
and the operation and administration of the same, covering Employees (the
"Plans"), are in substantial compliance with ERISA, to the extent subject to
ERISA, and all applicable laws and regulations, except that no representation is
made with respect to the Teamsters Pension Plan. None of the Plans is an
"employee pension benefit plan" within the meaning of Section 3(2) of ERISA
("Pension Plan") or is intended to be qualified under Section 165(a) of the
Puerto Rico Income Tax Act of 1954 or Section 1165(a) of the Puerto Rico
Internal Revenue Code of 1994, both statutes as amended (both statutes,
collectively, the "Puerto Rico Tax Code") or the United States Internal Revenue
Code of 1986, as amended, and therefore the trust which forms part of the same,
if any, is
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not a tax exempt trust, except that no representation is made with respect to
the Teamsters Pension Plan. There is no material pending or, to the best of the
Company's knowledge, threatened litigation relating to the Plans (other than the
Teamsters Pension Plan) or any administrator or fiduciary related to the Plans.
The Company has not been advised of any material pending or threatened
litigation relating to the Teamsters Pension Plan or any administrator or
fiduciary related to the Teamsters Pension Plan. Except as disclosed on Schedule
3.14, the Company has not engaged in a transaction with respect to any Plan
(other than the Teamsters Pension Plan), or to the best of the Company's
knowledge the Teamsters Pension Plan, that, assuming the taxable period of such
transaction expired as of the date hereof, could subject the Company to a tax or
penalty imposed pursuant to the Puerto Rico Tax Code or Section 502(i) of ERISA
in an amount which would be material or could result in the revocation of the
tax exemption of any Pension Plan's trust under the Puerto Rico Tax Code.
(c) The Company does not have and has never had any "single-employer plan",
within the meaning of Section 4001(a)(15) of ERISA. No entity could be
considered a single employer with the Company under Section 4001 of ERISA. The
Company has not incurred any withdrawal liability with respect to a
multiemployer plan under Subtitle E of Title IV of ERISA. No notice of a
"reportable event", within the meaning of Section 4043 of ERISA, for which the
30-day reporting requirement has not been waived, has been required to be filed
for any Pension Plan (other than the Teamsters Pension Plan), or to the best of
the Company's knowledge for the Teamsters Pension Plan, within the 12-month
period ending on the date hereof.
(d) Except as disclosed on Schedule 3.14(d) all contributions required to
be made under the terms of any Benefit Plan (other than the Teamsters Pension
Plan) have been timely made. All contributions required to be made to the
Teamsters Pension Plan pursuant to the Company's collective bargaining agreement
have been made.
(e) The Company does not have any obligations for retiree health and life
benefits under any Benefit Plan, except as set forth on Schedule 3.14. Except as
disclosed in Schedule 3.14, the Company may amend or terminate any such Benefit
Plan at any time without incurring any liability thereunder.
(f) Except as disclosed in Schedule 3.14, neither the execution of this
Agreement nor the consummation of the transactions contemplated hereby will,
whether under a Plan or any other arrangement or agreement, be a factor in
causing payments to be made by the Surviving Corporation, Purchaser or the
Company that are not deductible (in whole or in part) under the Puerto Rico Tax
Code or (i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute or otherwise) becoming due to any
director or any employee of the Company under any Plan or otherwise from the
Company, (ii) increase any benefits otherwise payable under any Plan, or (iii)
result in any acceleration of the time of payment or vesting of any such
benefit, except that no representation is made with respect to the Teamsters
Pension Plan.
3.15. Insurance. Schedule 3.15 hereto lists each insurance policy
maintained by the Company (or its lessees) with respect to its properties and
assets. The Company hereby covenants that it has delivered or shall deliver or
make available to Purchaser complete and accurate copies of each of such
insurance policies within ten business days of the date hereof. Each such policy
is in full force and effect and the Company has paid all premiums due thereon.
3.16. Interest of Certain Persons. Except as set forth on Schedule 3.16,
there are no loans from the Company to any officer or director of the Company or
any of their affiliates and no officer or director of the Company has any
material interest in any material contract or property (real or personal),
tangible or intangible, used in or pertaining to the business of the Company.
3.17. Compliance with Laws; Permits. To the best of its knowledge, except
as set forth in Schedule 3.17, the Company has complied in all material respect
with all applicable laws and regulations of the Commonwealth, foreign, federal,
state and local governments and all agencies thereof which affect or relate to
the business and operations or any owned or leased properties of the Company or
to which the Company may be subject; and no claims have been filed by any such
governments or agencies against the Company alleging such a material violation
of any such law or regulation which have not been resolved to the satisfaction
of such governments or agencies. To the best of its knowledge, the Company holds
all of the permits, licenses,
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certificates and other authorizations of the Commonwealth, foreign, federal,
state and local governmental agencies required for the conduct of its business.
Except as disclosed in Schedule 3.17, the Company is not subject to any cease
and desist order, written agreement or memorandum of understanding with, or is a
party to any commitment letter or similar undertaking to, or is subject to any
order or directive body, or is a recipient of any supervisory letter from, or
has adopted any board resolution at the request of, any Commonwealth or federal
governmental authorities, nor has the Company been advised by any governmental
authority that it is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order, directive, written
agreement, memorandum of understanding, commitment letter, board resolution or
similar undertaking.
3.18. Proxy Statement. At the time the Proxy Statement is mailed to the
stockholders of the Company and at all times subsequent to such mailing up to
and including the Effective Time, such Proxy Statement (including any
supplements thereto), will (a) comply as to form in all material respects with
applicable provisions of the 1933 Act and the 1934 Act and (b) not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements contained therein, in
light of the circumstances under which they are made, not misleading.
3.19. Noncompete Provisions. The Company is not subject to, or obligated
under, any agreement, arrangement or understanding that restricts its ability to
engage in any and all activities permissible for corporations under applicable
laws and regulations ("Permissible Activities"). No agreement, arrangement or
understanding would limit or restrict the ability of the Surviving Corporation
or its subsidiaries to engage in any and all Permissible Activities upon
consummation of the transactions contemplated hereby.
3.20. Equity Ownership. Except as disclosed on Schedule 3.20, the Company
does not own any stock, partnership interest, joint venture interest or any
other equity or similar security issued by any other corporation, organization
or entity.
3.21. Financial Statements and Reports. (a) The Company has timely filed
all reports and statements, and any amendments required to be made with respect
thereto, that it was required to file with Commonwealth Authorities, the SEC or
any other applicable federal or state regulatory authorities, and, as of their
respective dates (and, in the case of reports or statements filed prior to the
date hereof, without giving effect to any amendments or modifications filed
after the date hereof), each such report or statement, including the financial
statements and exhibits thereto, complied (or will comply, in the case of
reports or statements filed after the date hereof) in all material respects, to
the best of its knowledge, with all applicable statutes, rules and regulations.
Such reports, statements and amendments are referred to herein as the "Company's
Reports".
(b) As of their respective dates (and without giving effect to any
amendments or modifications filed after the date hereof), each of the Company's
Reports, including the financial statements, notes, exhibits and schedules
thereto, filed, used or circulated prior to the date hereof complied (and each
of the Company Reports filed, used or circulated after the date hereof, will
comply) in all material respects with the applicable laws and did not (or in the
case of the Company Reports filed, used or circulated after the date hereof,
will not) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they are made, not
misleading.
(c) The 1999 Balance Sheet, including the related notes and schedules,
fairly presents its financial position as of the date of such balance sheet and
each of the statements of income, cash flows and stockholders' equity for the
period then ended (collectively, the "1999 Financial Statements"), including any
related notes and schedules, fairly presents its results of operations, retained
earnings and cash flows, as the case may be, at the dates and for the periods
set forth therein in accordance with U.S. generally accepted accounting
principles.
(d) Since April 30, 1999, there has been no change, event, occurrence or
development in the business directly or indirectly conducted by it that has had
or would reasonably be expected to have a material adverse effect on the
Company.
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3.23. Tax Exemption Concession. The Company has a tax exemption concession
from the Department of Treasury of the Commonwealth of Puerto Rico issued
pursuant to the Tourism Incentives Act of 1983 that provides for the following
tax exemptions:
(a) Income Taxes: 90%, for ten years, of which five have been used.
The Company has the option to elect the ten specific years to be covered
under the income tax concession. Pursuant to this tax exemption concession,
the Company is required to invest at least 20% of its net income in certain
qualified activities that include marketing and promotion, training
programs and improvement of the property, among others.
(b) Property Taxes: 80%, until December 31, 2002.
(c) Municipal License Tax: 100%, from July 1, 1993 to June 30, 2003.
To the best of its knowledge, the Company is in compliance with all of the
terms of its tax concession and of the Tourism Incentives Act.
ARTICLE 4
CONDUCT OF BUSINESS PENDING THE MERGER
4.1. Conduct of Business of the Company. From the date of this Agreement
to the Effective Date, unless Purchaser shall otherwise agree in writing or as
otherwise expressly permitted by other provisions of this Agreement, including
this Section 4.1:
(a) The business of the Company will be conducted only in, and the
Company shall not take any action except in, the ordinary course, on an
arms-length basis and in accordance, in all material respects, with all
applicable laws, rules and regulation and past practices;
(b) The Company will not, directly or indirectly, (i) amend or propose
to amend its Charter or Bylaws; (ii) issue or sell any of its equity
securities, Voting Debt, securities convertible into or exchangeable for
its equity securities, warrants, options or other rights to acquire its
equity securities, or any bonds or other securities; (iii) redeem,
purchase, acquire or offer to acquire, directly or indirectly, any shares
of capital stock of the Company or other securities of the Company; (iv)
split, combine or reclassify any outstanding shares of capital stock of the
Company, or declare, set aside or pay any dividend or other distribution
payable in cash, property or otherwise with respect to shares of capital
stock of the Company, except the Extraordinary Distribution permitted by
Section 1.4 and its regular semi-annual dividend in June 2000 in an amount
consistent with past practices; (v) borrow any amount or incur or become
subject to any other material liability, except liabilities (other than
borrowings) incurred in the ordinary course of business consistent with
past practices; (vi) sell, assign, transfer, mortgage, pledge or subject to
or permit to be subject to any lien or other encumbrance any of its assets,
except liens and encumbrances for current property taxes not yet due and
payable; (vii) cancel any material debt or claims or waive any rights of
material value, except as set forth in Schedule 4.1(b); (viii) acquire (by
merger, exchange, consolidation, acquisition of stock or assets or
otherwise) any corporation, partnership, joint venture or other business
organization or division or material assets; (ix) other than as set forth
on Schedule 3.10, make any capital expenditures or commitments therefor in
an aggregate amount for all such capital expenditures in excess of $10,000
or enter into any lease; (x) modify its policy relating to the payment of
accounts payable or the collection of accounts receivable, it being agreed
that the Company will pay its accounts payable as they become due; or (xi)
enter into or propose to enter into, or modify or propose to modify, any
material agreement, or any agreement, arrangement or understanding with
respect to any of the matters set forth in this Section 4.1(b);
(c) Except as set forth in Schedule 4.1(c), the Company will not,
directly or indirectly, enter into or modify any employment, severance or
similar agreements or arrangements with, or grant any bonuses, wage, salary
or compensation increases, or severance or termination pay to, or promote,
any director, officer, employee, group of employees or consultant or hire
any employee, except as contemplated by the
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Company's existing collective bargaining agreement, and except that the
wages and salaries of non-union employees may be adjusted on a basis
consistent with prior practices;
(d) The Company will not adopt or amend any bonus, profit sharing,
stock option, pension, retirement, deferred compensation or other employee
benefit plan, trust, fund, contract or arrangement for the benefit or
welfare of any employees;
(e) The Company will use reasonable efforts to cause its current
insurance policies not to be cancelled or terminated or any of the coverage
thereunder to lapse, unless simultaneously with such termination,
cancellation or lapse, replacement policies providing coverage
substantially equal to the coverage under the cancelled, terminated or
lapsed policies are in full force and effect;
(f) The Company will not enter into any settlement or similar
agreement with respect to, or take any other significant action with
respect to the conduct of, any action, suit, proceeding, order or
investigation without prior consultation with Purchaser;
(g) The Company will use all reasonable efforts to preserve intact in
all material respects its business organization as a whole and the goodwill
of the Company and to keep available the services of its officers and
employees as a group and preserve intact material agreements, and the
Company will confer on a regular and frequent basis with representatives of
Purchaser, as reasonably requested by Purchaser, to report on operational
matters and the general status of ongoing operations;
(h) With respect to properties leased by the Company, the Company will
not renew, exercise an option to extend, cancel or surrender any lease of
real property or allow any such lease to lapse, without prior consultation
with Purchaser; and
(i) The Company will not agree or commit to do any of the foregoing.
The term "prior consultation" means, with respect to any action, advance
notice of such proposed action and a reasonable opportunity to discuss with
Purchaser such action in good faith prior to taking such action.
ARTICLE 5
ADDITIONAL COVENANTS AND AGREEMENTS
5.1. Filing and Approvals. Each party will use all reasonable efforts and
will cooperate with the other party in the preparation and filing, as soon as
practicable, of all applications, proxy statements or other documents required
to obtain regulatory approvals and consents from any applicable regulatory
authorities and provide copies of such applications, filings and related
correspondence to the other party. Prior to filing each application, proxy
statement or other document with the applicable regulatory authority, each party
will provide the other party with an opportunity to review and comment on such
application, proxy statement or other document. Each party will use all
reasonable efforts and cooperate with the other party in taking any other
actions necessary to obtain such regulatory or other approvals and consents,
including participating in any required hearings or proceedings.
5.2. Financial Statements. The Company shall furnish Purchaser with the
Company's balance sheets as of the end of each calendar month ending after the
date hereof and the related statements of income, not later than the 15th day
after the end of each such calendar month, and shall furnish Purchaser with the
Company's audited financial statements as of and for the year ended April 30,
2000, not later than June 30, 2000. Such financial statements shall be prepared
on a basis consistent with the 1999 Financial Statements and on a consistent
basis during the periods involved and shall fairly present the financial
condition of the Company as of the dates thereof and the results of operations
of the Company for the periods then ended in accordance with U.S. Generally
Accepted Accounting Principles (except as specifically noted in such financial
statements).
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5.3. Expenses. All costs and expenses incurred in connection with this
Agreement and the transaction contemplated hereby shall be paid by the party
incurring such costs and expenses; provided, however, that in the event that
this Agreement is terminated pursuant to clause (b), (d), (e) or (h) of Section
7.1, the Company shall reimburse to Purchaser all of Purchaser's reasonable
out-of-pocket expenses incurred in connection with this Agreement and the
transactions contemplated hereby. The provisions of this Section shall survive
the termination of this Agreement.
5.4. No Negotiations. The Company will not, directly or indirectly,
solicit the submission of any proposal, offer, tender offer or exchange offer
from any person or entity relating to any liquidation, dissolution,
recapitalization, merger, consolidation or acquisition or purchase of all or a
material portion of the assets of, or any equity interest in, the Company or
other similar transaction or business combination involving the Company (any of
the foregoing, an "Acquisition Proposal"). The Company shall promptly notify
Purchaser if any Acquisition Proposal, or any inquiry from or contact with any
person with respect thereto, is made, and shall keep Purchaser informed on a
timely basis as to the status of such Acquisition Proposal, inquiry or contact,
including the identity of the person or persons making the Acquisition Proposal,
inquiry or contact, and the material terms thereof. As of the date hereof, the
Company has not received and is not considering any outstanding Acquisition
Proposal.
5.5. Notification of Certain Matters. Each party shall give prompt notice
to the other party of (a) the occurrence or failure to occur of any event or the
discovery of any information, which occurrence, failure, discovery or
information would result in or would reasonably be expected to result in any
representation or warranty on its part contained in this Agreement to be untrue
or inaccurate when made, at the Effective Date or at any time prior to the
Effective Date and (b) any material failure of such party to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder.
5.6. Access to Information; Confidentiality. (a) The Company shall permit
Purchaser full access on reasonable notice and at reasonable hours to its
properties and shall disclose and make available (together with the right to
copy), to Purchaser and to the internal auditors, employees, attorneys,
accountants and other representatives of Purchaser all books, papers and records
relating to the assets, stock, properties, operations, obligations and
liabilities of the Company, including, without limitation, all books of account
(including, without limitation, the general ledger), tax records, minute books
of directors' and stockholders' meetings, organizational documents, bylaws,
contracts and agreements, filings with any regulatory authority, accountants'
work papers, litigation files (including, without limitation, legal research
memoranda), documents relating to assets and title thereto (including, without
limitation, abstracts, title insurance policies, surveys, environmental reports,
opinions of title and other information relating to its real and personal
property), plans affecting employees, securities transfer records and
stockholder lists, and any books, papers and records relating to other assets,
business activities or prospects in which Purchaser may have a reasonable
interest, including, without limitation, its interest in planning for transition
with respect to the business of the Company; provided, however, that the
foregoing rights granted to Purchaser shall, whether or not and regardless of
the extent to which such rights may be exercised, in no way affect the nature or
scope of the representations, warranties and covenants of the Company set forth
herein.
(b) All information furnished by the Company pursuant hereto shall be
treated as the sole property of the Company until the Effective Date, and, if
the Effective Date shall not occur, Purchaser shall, at the option of the
Company, return to the Company, or destroy, all documents or other materials
(including copies thereof) containing, reflecting or referring to such
information. In addition, Purchaser shall keep confidential all such information
and shall not directly or indirectly use such information for any competitive or
other commercial purpose. In the event that this Agreement shall terminate,
neither party shall disclose, except as required by law or pursuant to the
request of an administrative agency or other regulatory body, the basis or
reason for such termination, without the consent of the other party. The
obligation to keep such information confidential shall not apply to (i) any
information which (A) was already in Purchaser's possession prior to the
disclosure thereof to Purchaser by the Company, (B) was then generally known to
the public, (C) became known to the public through no fault of Purchaser or its
representatives or (D) was disclosed to Purchaser by a third party not bound by
an obligation of confidentiality or (ii) disclosures required by law or
governmental or regulatory authority.
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5.7. Filing of Tax Returns and Adjustments. (a) The Company will file (or
cause to be filed) at its own expense, on or prior to the due date, all Tax
returns for all Tax periods ending on or before the Effective Date where the due
date for such returns or reports (taking into account valid extensions of the
respective due dates) falls on or before the Effective Date; provided, however,
that the Company shall not file any such Tax returns, or other returns,
elections or information statements with respect to any liabilities for Taxes
(other than federal, state or local sales, use, withholding or employment tax
returns or statements), or consent to any adjustment or otherwise compromise or
settle any matters with respect to Taxes, without prior consultation with
Purchaser; provided, further, that the Company shall not make any election or
take any other discretionary position with respect to Taxes, in a manner
inconsistent with past practices, without the prior written approval of
Purchaser. The Company will provide Purchaser with a copy of appropriate work
papers, schedules, drafts and final copies of each federal and state income Tax
return or election of the Company (including returns of all Plans) at least
seven days before filing such return or election and shall reasonably cooperate
with any request by Purchaser in connection therewith.
(b) Purchaser, in its sole and absolute discretion, and at its sole cost
and expense, will file (or cause to be filed) all Tax returns of the Company due
after the Effective Date. After the Effective Date, the Surviving Corporation,
in its sole and absolute discretion and at its sole cost and expense, and to the
extent permitted by law, shall have the right to amend, modify or otherwise
change all Tax returns of the Company for all Tax periods.
5.8. Proxy Statement. (a) For the purposes of holding the meeting of the
stockholders of the Company to approve this Agreement and the Merger (the
"Meeting"), the parties hereto will cooperate in the preparation of an
appropriate information or proxy statement satisfying all applicable
requirements of the 1934 Act, applicable Commonwealth and state securities laws
and the rules and regulations thereunder (such information or proxy statement,
together with any and all amendments or supplements thereto being herein
referred to as the "Proxy Statement").
(b) Purchaser will furnish the Company with such information concerning
Purchaser as is necessary in order to cause the Proxy Statement, insofar as it
relates to Purchaser, to be prepared in accordance with Section 5.8(a).
Purchaser agrees promptly to advise the Company if at any time prior to the
Meeting any information provided by Purchaser in the Proxy Statement becomes
incorrect or incomplete in any material respect, and to provide the information
needed to correct such inaccuracy or omission.
(c) The Company will promptly prepare and file the Proxy Statement with the
SEC and applicable Commonwealth and state securities agencies. Purchaser shall
have the right to review and comment on the Proxy Statement. The Company will
advise Purchaser promptly of any supplements or amendments to the Proxy
Statement, and shall furnish Purchaser with copies of all such documents.
(d) The Company will deliver to Purchaser letters relating to the Proxy
Statement from Horwath Velez Semprit & Co., PSC, the Company's independent
auditors, one dated a date within two business days before the date on which the
Proxy Statement shall be mailed to the Company's shareholders and the other
dated a date within two business days before the Effective Date, each addressed
to Purchaser, in form and substance reasonably satisfactory to Purchaser and
customary in scope and substance for letters delivered by independent public
accountants in connection with similar proxy statements.
5.9. Directors. Immediately prior to the Effective Time, the existing
directors of the Company shall submit their written resignations, effective
immediately after the Effective Time, at which time the directors of the
Purchaser will become the directors of the Surviving Corporation.
5.10. Reports. The Company will provide to Purchaser copies of all Forms
10-K, 10-Q, and 8-K filed with the SEC by it, between the date hereof and the
Effective Date, within two days after the date such reports are so filed.
5.11. Stockholder Approval. The Company will call the Meeting as promptly
as practicable after the date hereof. The Board of Directors of the Company will
recommend approval of this Agreement and the Merger, and use its best efforts
(including, without limitation, soliciting proxies for such approvals) to obtain
such shareholder approval, unless it determines that recommending such approval
or using its best efforts to
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obtain such shareholder approval would result in a breach of its fiduciary
duties established under the laws of the Commonwealth.
5.12. Efforts to Consummate. Subject to the terms of this Agreement, each
of Purchaser and the Company agrees to use reasonable efforts to take, or cause
to be taken, all actions, and to do, or cause to be done, all things necessary,
proper or advisable to consummate and make effective, as soon as practicable
after the date of this Agreement, the transactions contemplated hereby.
5.13. Non-Qualified Deferred Compensation Plan. The Surviving Corporation
will not take any action that would affect the rights of the beneficiaries under
the non-qualified deferred compensation plan referred to in Schedule 3.14(b)
hereto under "Pension Plans".
ARTICLE 6
CONDITIONS
6.1. Conditions to Obligations of Each Party. The respective obligations
of each party to effect the transactions contemplated hereby shall be subject to
the satisfaction at or prior to the Effective Date of the following conditions:
(a) Regulatory Approvals. Regulatory approvals for the consummation
of the transactions contemplated hereby shall have been obtained from each
governmental authority from which approval is required, and all statutory
and regulatory waiting periods shall have expired (it being understood by
the parties that the only regulatory approvals that the parties believe may
be applicable is expiration of the Hart-Scott-Rodino waiting period). None
of such approvals shall contain any condition or restriction that would so
materially and adversely impact the economic or business benefits to
Purchaser of the transactions contemplated by this Agreement that, had such
condition or requirement been known, Purchaser would not, in its reasonable
judgment, have entered into this Agreement.
(b) No Injunction. No injunction or other order entered by a
Commonwealth or federal court of competent jurisdiction shall have been
issued and remain in effect which would prohibit the consummation of the
transactions contemplated hereby.
(c) No Positive Change of Law. There shall have been no law, statute,
rule or regulation, domestic or foreign, enacted or promulgated which would
prohibit the consummation of the transactions contemplated hereby.
(d) Stockholder Approval. This Agreement and the Merger shall have
been approved by the affirmative vote of the holders of a majority of the
outstanding shares of the Company Common Stock (50% plus one share), being
the portion of the Company capital stock required for such approval under
the provision of the Company's Charter and Bylaws and the laws of the
Commonwealth.
(e) Financing. Purchaser shall have obtained all the financing
required by it to consummate the Merger.
6.2. Additional Conditions to Obligation of the Company. The obligation of
the Company to consummate the transactions contemplated hereby in accordance
with the terms of this Agreement is also subject to the following conditions:
(a) Representations and Compliance. The representations and
warranties of Purchaser set forth in Article 2 shall have been true and
correct as of the date hereof, and shall be true and correct as of the
Effective Date as if made at and as of the Effective Date; and the
Purchaser shall in all material respects have performed each obligation and
agreement and complied with each covenant to be performed and complied with
by it hereunder at or prior to the Effective Time.
(b) Officers' Certificate. Purchaser shall have furnished to the
Company a certificate of the President of the Purchaser, dated as of the
Effective Date, to the effect set forth in Section 6.2(a).
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(c) Solvency Certificate. Purchaser shall have furnished to the
Company a certificate from an officer of Purchaser to the effect that, at
the Effective Time, after giving effect to the consummation of the Merger,
the Surviving Corporation will be "solvent" for purposes of fraudulent
conveyance analysis under the U.S. Bankruptcy Code.
6.3. Additional Conditions to Obligation of Purchaser. The obligation of
Purchaser to consummate the transactions contemplated hereby in accordance with
the terms of this Agreement are also subject to the following conditions:
(a) Representations and Compliance. The representations and
warranties of the Company set forth in Article 3 of this Agreement shall
have been true and correct as of the date hereof, and such representations
and warranties shall be true and correct as of the date hereof, and such
representations and warranties shall be true and correct as of the
Effective Date as if made at and as of the Effective Date; and the Company
shall in all material respects have performed each obligation and agreement
and complied with each covenant to be performed and complied with by it
hereunder at or prior to the Effective Date.
(b) Officers' Certificate. The Company shall have furnished to
Purchaser a certificate of the Chief Executive Officer and Chief Financial
Officer of the Company, dated as of the Effective Date, to the effect set
forth in Section 6.3(a).
(c) Secretary's Certificates. The Company shall have furnished to
Purchaser (i) copies of the text of the resolutions by which the corporate
action on the part of the Company necessary to approve this Agreement and
the transactions contemplated hereby were taken, (ii) certificates, dated
as of the Effective Date, executed on behalf of the Company by its
corporate secretary or one of its assistant corporate secretaries,
certifying to Purchaser that such copies are true, correct and complete
copies of such resolutions and that such resolutions were duly adopted and
have not been amended or rescinded and (iii) an incumbency certificate,
dated as of the Effective Date, executed on behalf of the Company by its
corporate secretary or one of its assistant corporate secretaries,
certifying the signature and office of each officer executing this
Agreement or any other agreement, certificate or other instrument executed
pursuant hereto.
(d) Opinion of Counsel to the Company. Purchaser shall have received
an opinion letter, dated as of the Effective Date, addressed to Purchaser
from Moreda & Moreda, counsel to the Company, in customary form and subject
to customary qualifications, to the effect that:
(i) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the Commonwealth.
(ii) The Company has the requisite corporate and other power and
authority (including all licenses, permits and authorizations) to own
and operate its properties and to carry on its business as now
conducted. The Company is licensed or qualified to do business in Puerto
Rico which, given the nature of its business and its ownership of
property, is the only jurisdiction where the Company is required to be
licensed or qualified.
(iii) The execution and delivery of this Agreement by the Company
and the consummation of the transactions contemplated hereby and thereby
will not constitute a breach, default or violation under the respective
Charter or Bylaws of the Company or, to such counsel's knowledge, (A)
any material agreement, arrangement or understanding to which the
Company is a party, (B) any material license, franchise or permit or (C)
any law, regulation, order, judgment or decree.
(iv) The authorized capital of the Company consists of 4,000,000
shares of the Company Common Stock, 1,401,162 of which are outstanding;
all of the issued and outstanding shares of the capital stock of the
Company are duly authorized.
(v) The Company has the corporate power to consummate the
transactions on its part contemplated by this Agreement. The Company has
duly taken all requisite corporate action to authorize this Agreement
and this Agreement has been duly executed and delivered by the
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Company and constitutes the valid and binding obligation of the Company
enforceable in accordance with its terms, subject as to the enforcement
of remedies to applicable bankruptcy, insolvency, moratorium and other
laws affecting the rights of creditors generally and to judicial
limitations on the enforcement of the remedy of specific performance.
(e) Best Western Contract. Purchaser shall have received a written
acknowledgement from Best Western consenting to the Merger, confirming that
the agreement with Best Western shall remain in full force and effect after
the Merger, and confirming that no defaults exist under such agreement.
(f) Tax Exemption. Purchaser shall have received the consent of the
Government of Puerto Rico to the change of control of the Company pursuant
to the terms of its tax exemption concession.
(g) Environmental Matters. Purchaser shall have received an
environmental study of the property of the Company (which shall be paid by
Purchaser) that shall not have revealed any material liability (i) not
reflected in the Company's 1999 Balance Sheet or otherwise disclosed
(including as to the amount thereof) in Schedule 3.8, and (ii) not reserved
against to the satisfaction of Purchaser in the Contingency Escrow or
remedied to the satisfaction of Purchaser prior to the Effective Date.
(h) No Material Adverse Change. There shall not have occurred any
material adverse change in the condition, financial or otherwise, business,
assets or prospects of the Company since April 30, 1999, and Purchaser
shall not have become aware of any condition or event not disclosed to
Purchaser (including in the Schedules hereto) prior to the date hereof or
otherwise known to Purchaser on the date hereof that could reasonably be
expected to have a material adverse effect on the condition, financial or
otherwise, business, assets or prospects of the Company.
(i) Director Resignation Letters. The existing directors of the
Company shall have submitted their written resignations as contemplated by
Section 5.9.
(j) Audited Financial Statements. The Company shall have delivered to
Purchaser its audited financial statements as of and for the year ended
April 30, 2000, together with the report of its auditors relating to such
financial statements.
(k) Opinion as to Tax Withholding of Consideration and Extraordinary
Distribution. The Purchaser shall have received an opinion of O'Neill &
Borges to the effect that the withholding tax treatment of the
Consideration and the Extraordinary Distribution proposed by the Company is
the appropriate one under applicable law. O'Neill & Borges may require
rulings from the appropriate government agencies in connection with such
opinion.
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
7.1. Termination. This Agreement may be terminated prior to the Effective
Date:
(a) by mutual consent of Purchaser and the Company;
(b) by either Purchaser or the Company, if this Agreement and the
Merger are not duly approved by the stockholders of the Company at the
meeting of stockholders (or any adjournment thereof) duly called and held
for such purpose, or such approval is subsequently revoked;
(c) by either Purchaser or the Company, if the Effective Date is not
on or before the six-month anniversary of the date hereof (unless the
failure to consummate the Merger by such date shall be due to the action or
failure to act of the party seeking to terminate this Agreement in breach
of such party's obligations under this Agreement);
(d) by Purchaser, (i) if the Company participates in negotiations
with, provides nonpublic information to, or enters into any agreement with
another party regarding an Acquisition Proposal, or (ii) if the Company's
Board fails to recommend to shareholders of the Company approval (or
withdraws
A-19
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its recommendation of approval) of the Merger, or (iii) if there shall have
occurred any breach of either Section 5.4 or Section 5.11;
(e) by Purchaser, if there shall have occurred any breach of any
representation, warranty, covenant or agreement of the Company contained
herein that would result in the failure to satisfy the closing condition
set forth in Section 6.3(a) and such breach cannot be or has not been cured
within 30 days after the giving of a written notice to the Company of such
breach;
(f) by the Company, if there shall have occurred any breach of any
representation, warranty, covenant or agreement of Purchaser contained
herein that would result in the failure to satisfy the closing condition
set forth in Section 6.2(a) and such breach cannot be or has not been cured
within 30 days after the giving of a written notice to Purchaser of such
breach;
(g) by the Company or by the Purchaser if Purchaser shall not have
obtained all the financing required by it to consummate the Merger on or
before the six-month anniversary of the date hereof;
(h) by Purchaser if the closing condition set forth in Section 6.3(h)
shall have become incapable of being satisfied;
(i) by Purchaser under the circumstances set forth in Section 1.4(c)
or 1.6(c); or
(j) by Purchaser if the holders of 20% or more of the shares of Common
Stock of the Company shall have exercised appraisal rights.
Any party desiring to terminate this Agreement shall give written notice of
such termination and the reasons therefor to the other party.
7.2. Effect of Termination. If this Agreement is terminated as permitted
by Section 7.1, such termination shall be without liability or obligation of any
party to the other party to this Agreement, except (a) as provided in Sections
1.9, 5.3, 7.3 and 8.6 and (b) that termination shall not relieve any party from
liability for any breach of this Agreement.
7.3. Termination Fee. The Company hereby agrees to pay to Purchaser, and
Purchaser shall be entitled to payment of, a fee of $250,000 if Purchaser
terminates this Agreement pursuant to Section 7.1(b) or 7.1(d).
7.4. Amendment. This Agreement may be amended, but only by an instrument
in writing approved by the parties to this Agreement and signed on behalf of
each of the parties hereto. Notwithstanding anything to the contrary contained
in this Agreement, prior to the Effective Time, Purchaser shall (A) be entitled
to revise the structure of the Merger and related transactions, including by
requiring that Purchaser be the Surviving Corporation in the Merger; provided
that each of the transactions comprising such revised structure shall (i) not
subject any of the stockholders of the Company to adverse tax consequences or
reduce the amount of Consideration to be received by any such stockholders and
(ii) not result in any material delay of the consummation of the transactions
contemplated hereby. This Agreement and any related documents shall be
appropriately amended in order to reflect any such revised structure.
7.5. Waiver. At any time prior to the Effective Date, either party hereto
may (a) extend the time for the performance of any of the obligations or other
acts of the other party hereto or (b) waive compliance with any of the
agreements of the other party or with any conditions to its own obligations, in
each case only to the extent such obligations, agreements and conditions are
intended for its benefit. 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, but such extension or waiver or
failure to insist on strict compliance with an obligation, covenant, agreement
or condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure.
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ARTICLE 8
GENERAL PROVISIONS
8.1. Public Statements. Neither the Company nor Purchaser shall make any
public announcement or statement with respect to the Merger, this Agreement or
any related transactions without the approval of the other party; provided,
however, that either Purchaser or the Company may, upon reasonable notice to the
other party, make any public announcement or statement that it believes is
required by law. To the extent practicable, each of Purchaser and the Company
will consult with the other with respect to any such public announcement or
statement.
8.2. Notices. All notices and other communications hereunder shall be in
writing and shall be sufficiently given if made by hand delivery, by telecopier,
by overnight delivery service, or by registered or certified mail (postage
prepaid and return receipt requested) to the parties at the following addresses
(or at such other address for a party as shall be specified by it by like
notice):
If to Purchaser:
SCI Acquisition Inc.
c/o Rogelio Munoz
Munoz Boneta & Gonzalez
208 Banco Popular Center, Suite 800
Hato Rey, Puerto Rico 00918
Attention: Mr. J.P. McCloskey
Telecopier: (787) 751-0910
With copies to:
Roberto Corretjer Piquer
373 Hostos Avenue
San Juan Puerto Rico
Telecopier: (787) 759-6503
and
O'Neill & Borges
250 Munoz Rivera Avenue
Hato Rey, Puerto Rico 00918
Attention: Julio Pietrantoni, Esq.
Telecopier: (787) 753-8944
If to the Company:
Swiss Chalet, Inc.
105 De Diego Avenue
Santurce, Puerto Rico 00911
Attention: Peter Somech and Gustavo Velez
Telecopier: (787) 721-3118
With a copy to:
McConnell Valdes
270 Munoz Rivera Avenue
Hato Rey, Puerto Rico 00918
Attention: Silvestre Miranda, Esq.
Telecopier: (787) 759-8282
All such notices and other communications shall be deemed to have been duly
given as follows: when delivered by hand, if personally delivered; on the fifth
business day after being deposited in the mail, postage prepaid, if delivered by
mail; when receipt acknowledged, if telecopied; and the next day after being
delivered to an overnight delivery service.
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8.3. Interpretation. When a reference is made in this Agreement to
"previously disclosed", it means disclosed in writing to the other party hereto,
which writing refers to the relevant Section of this Agreement. The headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. References to
Sections and Articles refer to Sections and Articles of this Agreement unless
otherwise stated. Words such as "herein", "hereinafter", "hereof", "hereto",
"hereby" and "hereunder", and words of like import, unless the context requires
otherwise, refer to this Agreement (including the Exhibits and Schedules
hereto). As used in this Agreement, the masculine, feminine and neuter genders
shall be deemed to include the others if the context requires.
8.4. Severable. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated, and the parties shall negotiate
in good faith to modify this Agreement and to preserve each party's anticipated
benefits under this Agreement.
8.5. Miscellaneous. This Agreement (a) is not intended to, and shall not,
confer upon any person other than each party hereto any rights or remedies
hereunder; (b) shall be governed in all respects, including validity,
interpretation and effect, by the internal laws of the Commonwealth applicable
to agreements made and wholly to be performed in the Commonwealth; and (c) shall
not be assigned by operation of law or otherwise (and any purported assignment
shall be null and void). This Agreement may be executed in two or more
counterparts which together shall constitute a single agreement.
8.6. Survival of Representations, Warranties and Covenants. The
representations, warranties and covenants of the parties set forth herein shall
survive the consummation of the Merger for a period of 18 months after the
Effective Date. In addition, if this Agreement is terminated pursuant to Section
7.1, the covenants contained in Sections 5.3 and 5.6(b) shall survive such
termination.
IN WITNESS WHEREOF, the Corporation and the Company have caused this
Agreement to be executed on the date first written above by their respective
officers.
SCI ACQUISITION INC.
By:
--------------------------------------
Name:
Title:
SWISS CHALET, INC.
By:
--------------------------------------
Name:
Title:
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EXHIBIT 1.2
TO AGREEMENT AND
PLAN OF MERGER
LETTER OF TRANSMITTAL
FOR THE SURRENDER OF CERTIFICATES
REPRESENTING SHARES OF THE COMMON STOCK OF
SWISS CHALET, INC.
IN EXCHANGE FOR CASH
PLEASE CAREFULLY FOLLOW THE ACCOMPANYING INSTRUCTIONS
This Letter of Transmittal should be promptly (i) completed and signed in
the space provided below, and on the Substitute Form W-9, if applicable, and
(ii) mailed or delivered with your certificates representing shares of Common
Stock of Swiss Chalet, Inc. to , acting as exchange agent (the
"Exchange Agent") at either of the following addresses:
IN PUERTO RICO:
By mail: By overnight courier: By hand:
IN THE MAINLAND UNITED STATES:
By mail: By overnight courier: By hand:
To: [Exchange Agent]
[address]
Ladies and Gentlemen:
Pursuant to an Agreement and Plan of Merger dated as of May , 2000
(the "Merger Agreement"), SCI Acquisition Inc. (the "Purchaser") is expected to
merge (the "Merger") with Swiss Chalet, Inc. (the "Company") on or about
, 2000. As a result of the Merger, existing shareholders of the
Company will cease to be shareholders of the Company and will be entitled to
receive, in exchange for each share of common stock of the Company ("Company
Common Stock") owned by them, (i) a cash payment equal to $12.63237227 per
share, (ii) the Extraordinary Distribution, as defined in the Merger Agreement,
and (iii) any Contingency Escrow Consideration, as defined in the Merger
Agreement (the "Merger Consideration"). A copy of the Merger Agreement was
included as Exhibit A to the Proxy Statement, dated as of , 2000,
mailed to the shareholders of the Company in connection with the meeting of the
shareholders of the Company at which the Merger was approved. The undersigned
hereby acknowledges the receipt of such proxy statement and of the Merger
Agreement.
The undersigned, the registered holder of the certificates referred to on
Schedule I attached hereto, which represented, prior to the effective date of
the Merger, shares of Company Common Stock (the "Certificates"), hereby
surrenders to you such Certificates in exchange for the Merger Consideration
pursuant to the terms of the Merger Agreement.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to submit, sell, assign and transfer the Certificates
referred to on Schedule I and that, when the same are
A-23
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accepted for exchange by the Exchange Agent, the Company will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claims, other than as set forth
on Schedule I. The undersigned will, upon request, execute and deliver any
additional documents deemed by the Company to be necessary or desirable to
complete the sale, assignment and transfer of the certificates submitted hereby.
The undersigned hereby irrevocably appoints the Exchange Agent, as agent of the
undersigned, to effect the exchange. The undersigned represents that he or she
has read and agrees to all the terms and conditions set forth herein. Delivery
of the enclosed certificates shall be effected, and risk of loss and title to
such certificates shall pass, only upon proper delivery thereof to the Exchange
Agent.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned, and any and all obligations of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned.
Unless otherwise indicated below under Special Payment Instructions, in
exchange for the enclosed certificates, the undersigned requests issuance of a
check for the Merger Consideration in the name of the undersigned. Similarly,
unless otherwise indicated under Special Delivery Instructions, please mail such
check to the undersigned at the address shown above. In the event that both the
Special Delivery Instructions and the Special Payment Instructions are
completed, please issue such check in the name of, and mail such check to, the
person or entity so indicated at the address so indicated. Appropriate signature
guarantees have been included with respect to shares for which Special Delivery
Instructions and/or Special Payment Instructions have been given.
------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 7)
To be completed ONLY if the check representing the Merger
Consideration is to be issued in the name of someone other than the
undersigned.
Issue the check representing the Merger Consideration to:
Name
----------------------------------------------
(PLEASE PRINT)
Address
--------------------------------------------
------------------------------------------------------
(INCLUDE ZIP CODE)
------------------------------------------------------
(TAX IDENTIFICATION OR
SOCIAL SECURITY NUMBER)
------------------------------------------------------
------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 7)
To be completed ONLY if the check representing the Merger
Consideration is to be sent to someone other than the undersigned or to
the undersigned at an address other than that shown above.
Send the check representing the Merger Consideration to:
Name
----------------------------------------------
(PLEASE PRINT)
Address
--------------------------------------------
------------------------------------------------------
(INCLUDE ZIP CODE)
------------------------------------------------------
(TAX IDENTIFICATION OR
SOCIAL SECURITY NUMBER)
------------------------------------------------------
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PLEASE SIGN HERE
- --------------------------------------------------------------------------------
(SIGNATURE OF RECORD OWNER)
Dated:
---------------
(Must be signed by registered holder as name appears on stock certificates.
If signature is by an officer on behalf of a corporation or by an executor,
administrator, trustee, guardian, attorney-in-fact, agent or other person acting
in a fiduciary or representative capacity, please provide the following
information, and see Instruction 4 below).
Name:
- --------------------------------------------------------------------------------
(PRINT NAME)
Capacity (full title):
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PRINT ADDRESS, INCLUDING ZIP CODE)
Area Code and Telephone Number:
- --------------------------------------------------------------------------
Employer Identification Number:
- -----------------------------------------------------------------------------
Social Security Number:
- --------------------------------------------------------------------------------
SIGNATURE GUARANTEE
(REQUIRED ONLY IF EITHER "SPECIAL PAYMENT INSTRUCTIONS"
OR "SPECIAL DELIVERY INSTRUCTIONS" ARE PROVIDED ABOVE.)
(SEE INSTRUCTION 5)
Signature(s) Guaranteed:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(NAME OF FIRM PROVIDING SIGNATURE GUARANTEE -- PLEASE PRINT)
- --------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
Dated:
- --------------------------------------------------------------------------------
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INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS
OF THIS LETTER OF TRANSMITTAL
1. GENERAL
In accordance with the Merger Agreement, each stockholder of the Company
will be entitled, upon consummation of the Merger and surrender of Certificates,
to receive in exchange therefor (i) a cash payment equal to $12.63237227 per
share, (ii) the Extraordinary Distribution, as defined in the Merger Agreement,
and (iii) any Contingency Escrow Consideration, as defined in the Merger
Agreement (the "Merger Consideration"), on the terms and subject to the
conditions set forth in the Merger Agreement. Following the consummation of the
Merger, shares of the Company Common Stock outstanding prior to the consummation
of the Merger will no longer be transferable of record and, under the terms of
the Merger Agreement, will be automatically canceled and retired and cease to
exist. Following the consummation of the Merger, all rights previously
represented by the Certificates will cease to exist, except the right to receive
the Merger Consideration in accordance with the terms and conditions of the
Merger Agreement and this Letter of Transmittal.
2. EXECUTION AND DELIVERY
This Letter of Transmittal or a facsimile hereof must be properly
completed, dated and signed, and must be delivered with the Certificates and any
other required documents to the Exchange Agent at the addresses set forth in
this Letter of Transmittal. Delivery of your Certificates will not be complete
until actually received by the Exchange Agent.
The method of delivery of Certificates and all other required documents is
at the election and risk of the owner. However, if Certificates are sent by
mail, it is recommended that they be sent by certified mail, appropriately
insured, with return receipt requested.
3. SCHEDULE I
Complete Schedule I to this Letter of Transmittal, including Certificate
numbers and the number of shares represented by each Certificate, and including
any exceptions to title to such shares (identified by the Certificate numbers of
the Certificates to which such exceptions relate).
4. SIGNATURES
The signature on this Letter of Transmittal or facsimile should correspond
exactly with the name as written on the face of the Certificates surrendered,
without alteration, enlargement or any change whatsoever.
If this Letter of Transmittal or facsimile or any Certificates are signed
by a trustee, executor, administrator, guardian, officer of a corporation,
attorney-in-fact, or agent in any other representative or fiduciary capacity,
the person signing must give such person's full title in such capacity, and
appropriate evidence of authority to act in such capacity must be made available
to the Company if so requested.
If the Certificates surrendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any surrendered shares are registered in different names on several
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of Certificates.
5. GUARANTEE OF SIGNATURES
A signature guarantee on this Letter of Transmittal is required if the
holder has completed either the box entitled "Special Delivery Instructions" or
the box entitled "Special Payment Instructions" on the Letter of Transmittal or
both. Such guarantee must be made by an Eligible Institution.
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Eligible Institutions include: (i) a bank (as the term is defined in
Section 3(a) of the Federal Deposit Insurance Act); (ii) a broker, dealer,
municipal securities dealer, municipal securities broker, government securities
dealer, or government securities broker, as those terms are defined under the
Securities Exchange Act of 1934, as amended (the "Act"); (iii) a credit union
(as the term is defined in Section 19(b)(1)(A) of the Federal Reserve Act); (iv)
a national securities exchange, registered securities association, or clearing
agency, as those terms are used under the Act; or (v) a savings association (as
that term is defined in Section 3(b) of the Federal Deposit Insurance Act).
Public notaries cannot execute acceptable guarantees of signatures.
6. STOCK TRANSFER TAXES
In the event that any transfer or other taxes become payable by reason of
the payment of Merger Consideration in any name other than that of the record
holder, such transferee or assignee must pay such tax to the Company or must
establish to the satisfaction of the Company that such tax has been paid.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS
Indicate the name and/or address of the person to whom the check
representing the Merger Consideration is to be issued or sent, if different from
the name and/or address of the person signing this Letter of Transmittal.
8. SUBSTITUTE FORM W-9
Each surrendering shareholder tendering shares to the New York address of
the Exchange Agent is required to provide the Exchange Agent with such holder's
correct Taxpayer Identification Number ("TIN") on the Substitute Form W-9 which
is a part of this Letter of Transmittal and to certify whether the shareholder
is subject to backup withholding. Failure to provide the information on the form
may subject the surrendering shareholder to 31% U.S. federal income tax
withholding on payments made to such surrendering shareholder with respect to
the shares. A holder must cross out item (2) in the Certification box of
Substitute Form W-9 if such holder has been notified by the U.S. Internal
Revenue Service that such holder is currently subject to backup withholding. The
box in Part 3 of the form should be checked if the surrendering holder has not
been issued a TIN and has applied for a TIN or intends to apply for a TIN in the
near future. If the box in Part 3 is checked and the Exchange Agent is not
provided with a TIN within 60 days thereafter, the Company will withhold 31% of
the Merger Consideration.
9. LOST, STOLEN OR DESTROYED CERTIFICATES
If your Certificates have been either lost, stolen or destroyed, unless you
take certain actions as advised by the Exchange Agent, you may not receive the
Merger Consideration. You are urged to call the Company at [ ] immediately
to receive instructions regarding replacement.
10. WAIVER OF CONDITIONS
The Company reserves the absolute right to waive any of the conditions set
forth herein or any defect with respect to the transmittal of Certificates.
11. MISCELLANEOUS
The Company is under no duty to give notification of defects in any Letter
of Transmittal or facsimile or in any other required documents and shall not
incur any liability for failure to give such notification. Any and all Letters
of Transmittal or facsimiles (including any other required documents) not in
proper form are subject to rejection. The terms and conditions of the Merger
Agreement are incorporated herein by reference and are deemed to form part of
the terms and conditions of this Letter of Transmittal.
A-27
48
IMPORTANT TAX INFORMATION
Under Puerto Rico income tax laws, a holder that is an individual resident
of Puerto Rico or a corporation or partnership organized under the laws of
Puerto Rico (each, a "Puerto Rico Holder") is not required to provide the
Exchange Agent any form, statement or other report in connection with the Merger
other than this Letter of Transmittal. Under Puerto Rico income tax laws, a
non-Puerto Rico Holder that tenders his or her shares to the Puerto Rico address
of the Exchange Agent may be subject to Puerto Rico income tax on the gain to be
recognized on the exchange. In addition, the Exchange Agent would be required to
withhold Puerto Rico income tax from the amounts transferred to such holder
unless the holder presents to the Exchange Agent a withholding tax exemption
certificate issued by the Puerto Rico Secretary of the Treasury. For these
reasons, a non-Puerto Rico Holder should consider tendering his or her shares to
the New York address of the Exchange Agent.
Under U.S. Federal income tax laws, a holder tendering shares to the New
York address of the Exchange Agent who receives payment (whether in stock or
cash) pursuant to the Merger is required by law to provide the Exchange Agent
(as payer) with such holder's correct TIN or Substitute Form W-9 below. If such
holder is an individual, the TIN is his or her social security number. If the
holder is a business or other entity, such holder's TIN number will be the same
as such holder's employer identification number. If the Exchange Agent is not
provided with the correct TIN, a $50 penalty may be imposed by the U.S. Internal
Revenue Service; and the Merger Consideration may be subject to backup
withholding.
Certain holders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. Exempt holders should indicate their exempt status on Substitute
Form W-9. In order for a foreign individual to qualify as an exempt recipient,
such individual must submit a statement, signed under penalties of perjury,
attesting to such individual's exempt status. Forms of such statements can be
obtained from the Exchange Agent. See the enclosed "Guidelines for Certification
of Taxpayer Identification Number, on Substitute Form W-9" for additional
instructions.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any payments made to the holder or other payee. Backup withholding is not
an additional tax. Rather, the U.S. federal income tax liability of persons
subject to backup withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a refund may be obtained from
the U.S. Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments made with respect to
Certificates, the holder is required to notify the Exchange Agent of such
holder's correct TIN by completing the form below, certifying that the TIN
provided on the Substitute Form W-9 is correct (or that such holder is awaiting
a TIN) and that (a) such holder is exempt from backup withholding, (b) such
holder has not been notified by the U.S. Internal Revenue Service that he is
subject to backup withholding as a result of a failure to report all interest or
dividends or (c) the U.S. Internal Revenue Service has notified such holder that
such holder is no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The holder is required to give the Exchange Agent the TIN (i.e., social
security number or employee identification number) of the holder of the
Certificates tendered hereby. If the Certificates are held in more than one name
or are not held in the name of the actual owner, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional guidance on which number to report.
[attach substitute Form W-9 and Instructions]
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SCHEDULE I
TO LETTER OF TRANSMITTAL
Certificate Number Number of Shares
- ------------------ ----------------
Total Number of Shares:
- --------------------------------------------------------------------------------
Exceptions to Title:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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APPENDIX B
SHAREHOLDER AGREEMENT
AGREEMENT dated as of May 8, 2000, by and among SCI Acquisition, Inc.
("Purchaser") and the shareholders of Swiss Chalet, Inc. (the "Company") listed
as signatories hereto (the "Shareholders").
WHEREAS, Purchaser is prepared to enter into a merger agreement with the
Company substantially in the form of Exhibit A hereto (the "Merger Agreement")
simultaneously with the execution of this Agreement;
WHEREAS, Purchaser would not enter into the Merger Agreement unless the
Shareholders entered into this Agreement;
WHEREAS, each of the Shareholders is a significant shareholder of the
Company and will benefit directly and substantially from the Merger Agreement;
NOW, THEREFORE, in consideration of Purchaser's entry into the Merger
Agreement, the Shareholders agree with Purchaser as follows:
1. Each of the Shareholders represents and warrants that he or she
owns the number of shares of the Company set forth in his signature page
(for each Shareholder, "his/her Owned Shares") free from any lien,
encumbrance or restriction whatsoever, other than those identified in such
signature page, and with full power to vote the Owned Shares without the
consent or approval of any other person, other than those identified in
such signature page.
2. Each of the Shareholders agrees that he or she will vote all of
his/her Owned Shares in favor of the Merger Agreement and the Merger
provided for therein at the meeting or meetings of the Company's
shareholders called to vote upon the Merger Agreement and the Merger.
3. Each of the Shareholders agrees that he or she will not sell any of
his/her Owned Shares unless he or she receives (i) an irrevocable proxy, in
form and substance satisfactory to Purchaser, to vote such Owned Shares
with respect to the Merger Agreement and the Merger, and such Shareholder
will vote such proxy as provided in Section 2 of this Agreement or (ii) an
agreement identical in all respects to this agreement executed by the buyer
of the Owned Shares being sold.
4. Each of the Shareholders agrees that he or she shall not exercise
any dissenter's or appraisal rights that he or she may have with respect to
his/her Owned Shares.
5. Each of the Shareholders agrees to take all reasonable actions and
make such reasonable efforts to consummate the Merger and other
transactions contemplated by the Merger Agreement.
6. Notwithstanding any other provision to the contrary herein, this
Agreement shall terminate in the event that the Shareholder, in his
capacity as a director of the Company, determines that recommending or
approving the Merger Agreement and the Merger would result in a breach of
his fiduciary duties under the laws of Puerto Rico.
SCI ACQUISITION, INC.
By:
------------------------------------
Name:
Title:
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SHAREHOLDER SIGNATURE PAGE TO AGREEMENT DATED
AS OF MAY 8, 2000 BY AND AMONG SCI ACQUISITION, INC.
AND CERTAIN SHAREHOLDERS OF SWISS CHALET, INC.
NAME OF SHAREHOLDER:
- --------------------------------------------------------------------------------
NUMBER OF SHARES OF SWISS CHALET, INC.
OWNED BY SAID SHAREHOLDER:
- --------------------------------------------------------------------------------
LIENS, ENCUMBRANCES OR RESTRICTIONS AFFECTING SUCH SHARES (DESCRIBE):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONSENT REQUIRED BY SHAREHOLDER IN ORDER TO EXECUTE AGREEMENT (DESCRIBE):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURE OF SHAREHOLDER:
- --------------------------------------------------------------------------------
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURE OF SHAREHOLDER IN NEXT PAGE]
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APPENDIX C
PUERTO RICO GENERAL CORPORATION LAW OF 1995
Section 10.12 Appraisal Rights. A. Any stockholder of a corporation
organized in the Commonwealth who (i) holds shares of capital stock on the date
of the making of a demand pursuant to the provisions of subsection D of this
Section with respect to such shares, (ii) continuously holds such shares through
the effective date of the merger or consolidation, (iii) has complied with the
provisions of subsection D of this Section, and (iv) has not voted in favor of
the merger or consolidation nor consented in writing to the merger or
consolidation, in accordance with Section 7.17 of this Act, shall be entitled to
an appraisal by the Court of First Instance (Superior Part) of the fair value of
his shares of stock under the circumstances described in subsections B and C of
this Section. As used in this Section, the term "stockholder" means a holder of
record of stock of a capital stock corporation, and also a member of record of a
nonstock corporation. The terms "capital stock" and "share" mean and include
what is generally understood by such terms, as well as the status of members or
the interest which members of a nonstock corporation have therein. The words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, of the
stock of a corporation which is deposited with such depository.
B. The shares of any class or series of stock of a constituent corporation
in a merger to be carried out in accordance with the provisions of Sections
10.01, 10.02, 10.04, 10.07 or 10.08 of this Act, shall have appraisal rights:
1. As long as the appraisal rights conferred under this Section are
not made available to the shares of any class or series of stock if such
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of a meeting of
the stockholders and to vote thereat to take action with respect to the
agreement of merger or consolidation, were:
(i) registered in a national securities exchange or in the national
market quotation system of the National Association of Securities
Dealers (NASDAQ-NMS); or
(ii) recorded on the books of the corporation in favor of more than
two thousand (2,000) stockholders. No appraisal right shall be made
available to the shares of stock of the constituent corporation
surviving a merger, if such merger did not require the approval of the
vote of the stockholders of the surviving corporation, as provided in
subsection F of Section 10.01 of this Act.
2. Notwithstanding the provisions of clause 1 of this subsection, the
appraisal rights granted by this Section shall be made available to the
shares of any class or series of stock of a constituent corporation, if the
terms of the agreement of merger or consolidation pursuant to Sections
10.01, 10.02, 10.04, 10.07 and 10.08 of this Act, require the stockholders
of the constituent corporation to accept everything in exchange for such
stock, except:
(i) shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
(ii) shares of stock of any other corporation, or depository
receipts in respect thereof, which at the effective date of the merger
or consolidation will be listed on a national securities exchange or in
the national market quotation system of the National Association of
Securities Dealers (NASDAQ-NMS), or are shares recorded, as stated in
the books of the corporation, in favor of more than two thousand (2,000)
stockholders;
(iii) cash in lieu of fractional shares of the corporations or
fractional depository receipts described in paragraphs (i) and (ii) of
this subsection; or
(iv) any combination of shares of stock and cash in lieu of such
fractional shares or fractional depository receipts described in
paragraphs (i), (ii) and (iii) of this subsection.
3. In the event not all of the stock of a subsidiary domestic
corporation which is a party to a merger governed by Section 10.03 of this
Act is owned by the parent corporation immediately prior to the merger,
appraisal rights shall be made available for the shares of the subsidiary
domestic corporation.
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C. Any corporation may provide in its certificate of incorporation the
granting of appraisal rights under this Section to shares of any class or series
of its stock, as a result of an amendment to the certificate of incorporation or
any merger or consolidation in which the corporation is a constituent
corporation, or the sale of all or substantially all of the assets of the
corporation. If the certificate of incorporation contains such a provision, the
procedures of this Section, including those set forth in subsections D and E of
this Section, shall apply to the extent practicable.
D. Appraisal rights shall be perfected as follows:
1. When a meeting of the stockholders contemplates submitting for
approval a merger or consolidation plan for which appraisal rights are
intended to be recognized as provided by this Section, the corporation, at
least twenty (20) days prior to the meeting, shall notify each of the
stockholders of record at the record date for such meeting with respect to
the shares for which appraisal rights are available pursuant to subsections
B and C of this Section, which appraisal rights are available for any or
all of the shares of the constituent corporations, and such notice shall
include a copy of this Section. Each stockholder electing to demand the
appraisal of his shares shall deliver to the corporation, before voting
with respect to the merger or consolidation, a written demand for appraisal
of his shares. Such demand shall be deemed legally sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of his shares.
The granting of a proxy to vote or a vote against the merger or
consolidation shall not constitute a demand for such purposes. The
stockholder electing to proceed in this manner must do so by a separate
written demand as herein provided. Within the ten (10) days following the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify the effective date of such merger or consolidation
to the stockholders of each constituent corporation who have complied with
this clause and have not voted in favor of the merger or consolidation or
consented thereto; or
2. If the merger or consolidation was approved pursuant to Sections
7.17 and 10.03 of this Act, the surviving or resulting corporation shall
notify, before the effective date of the merger or consolidation, or within
the following ten (10) days, notify each of the stockholders entitled to
appraisal rights of the effective date of the merger or consolidation, and
that all of the shares of the constituent corporation may exercise
appraisal rights. Such notice shall include a copy of this Section. The
notice shall be sent by certified mail, return receipt requested, addressed
to the stockholder at the address of record appearing on the books of the
corporation. Every stockholder entitled to appraisal rights may, within
twenty (20) days after the date of mailing the notice, demand in writing
the appraisal of his shares from the surviving or resulting corporation.
Such demand shall be deemed legally sufficient if it informs the
corporation of the identity of the stockholder and his intention to demand
the appraisal of his shares.
E. Within the one hundred and twenty (120) days after the effective date of
the merger or consolidation, the surviving or resulting corporation or any
stockholder who has complied with subsections A and D, and who otherwise
acquires appraisal rights, may file a petition in the Court of First Instance
(Superior Part) in demand of a determination of the value of the total stock of
all such stockholders. However, during the sixty (60) days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within one hundred and twenty (120) days after the
effective date of the merger or consolidation, any stockholder who has complied
with the requirements of subsections A and D mentioned herein, and by written
request, shall be entitled to receive from the corporation surviving the merger
or resulting from the consolidation, a statement setting forth the aggregate
number of shares which did not vote in favor of the merger or consolidation and
for which demands for appraisal have been received, and the aggregate number of
the holders of such shares. Such written statement shall be mailed to the
stockholder within the ten (10) days after his written request for such a
statement is received by the surviving or resulting corporation or within ten
(10) days after the expiration of the period for delivery of demands for
appraisal under subsection D, whichever is later.
F. Upon the filing of the petition by the stockholder, a copy thereof shall
be delivered to the surviving or resulting corporations which shall within
twenty (20) days after such delivery, file at the Department of State
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a duly-verified list of the names and addresses of all stockholders who have
demanded payment for their shares and with whom an agreement as to the value of
their shares has not been reached by the surviving or resulting corporation. If
the petition is filed by the surviving or resulting corporation, such petition
shall be accompanied by the aforementioned list. The Department of State, if so
ordered by the court, shall notify by certified mail the time and place fixed
for the hearing of the petition to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses stated therein. Such notice
shall be published in one or more newspapers of general circulation in the city
of San Juan, Puerto Rico, or in any other publication which the court deems
convenient, at least one week before the date of the hearing. The manner of
notifying by mail and by publication shall require the approval of the court,
and the cost thereof shall be borne by the surviving or resulting corporation.
G. At the hearing, the Court of First Instance (Superior Part) shall
determine the stockholders who have complied with the requirements of this
Section and who have acquired the right to have their shares appraised. The
court may require the stockholders who have demanded an appraisal for their
shares and who hold stock represented by certificates to submit those stock
certificates to the Department of State for notation thereon of the pending
appraisal procedures. If any stockholder fails to comply with such direction,
the court may dismiss the procedures as to such stockholder.
H. After determining which stockholders are entitled to an appraisal of
their shares, the Court of First Instance (Superior Part) shall determine the
fair value thereof, taking into consideration the fair rate of interest, if any
is to be paid upon the estimated fair value. In determining such fair value, the
court shall take into account all relevant factors. In determining the fair rate
of interest, the court shall take into account all relevant factors, including
the rate of interest which the surviving or resulting corporation would have had
to pay to borrow money during the course of the procedures. In determining the
value of the shares, the court shall not take into account any element of value
arising out of the merger or consolidation or the expectation of execution.
Upon application by the surviving or resulting corporation, or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery, or other pretrial proceeding, and may
proceed to judge the matter of appraisal prior to the final determination of the
stockholder entitled to the appraisal of his shares. Any stockholder whose name
appears on the list filed by the surviving or resulting corporation, pursuant to
subsection F of this Section, and who has submitted his certificates of stock to
the Department of State, if so required, may participate fully in all procedures
until it is finally determined that he is not entitled to appraisal rights
pursuant to this Section.
I. The court shall order the surviving or resulting corporation to pay the
fair value of the shares, in addition to interest, if any, to the stockholders
entitled thereto. In case of holders of uncertificated stock, the payments shall
be made immediately, and in case of the holders of shares represented by stock
certificates, they shall be made upon surrender of such certificates to the
corporation. The decree of the Court may be enforced as other decrees of the
Court of First Instance (Superior Part), whether the surviving or resulting
corporation is a domestic or foreign corporation.
J. The court may determine the costs of the procedure and charge them to
the parties, as it deems equitable under the prevailing circumstances. Upon
application by a stockholder, the court may order all of the expenses or a
portion thereof incurred by any stockholder in connection with the appraisal
procedures, including, but not limited to, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
shares entitled to appraisal.
K. As of the effective date of the merger or consolidation, no stockholder
who has demanded his appraisal right; as provided in subsection D of this
Section, shall be entitled to vote such stock for any purpose, or to receive
payment of dividends or other distributions on its stock (except dividends or
other distributions payable to the stockholders of record at a date prior to the
effective date of the merger or consolidation). If no petitions for appraisal
are filed within the time provided in subsection E of this Section, or if such
stockholder delivers to the surviving or resulting corporation a written
withdrawal of his demand for an appraisal and an acceptance of the merger or
consolidation, either within the sixty (60) days after the effective date of the
merger or consolidation, as provided in subsection E of this Section, or after
such date with the written
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approval of the corporation, then the right of such stockholder to an appraisal
of his shares shall cease. Notwithstanding the foregoing, no appraisal procedure
in the Court of First Instance (Superior Part) shall be dismissed regarding any
stockholder without the approval of the court, and such approval may be
conditioned upon such terms as the court deems equitable.
L. The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they consented to
the merger or consolidation, shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
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APPENDIX D
HORWATH VELEZ SEMPRIT & CO. PSC BankTrust Plaza
Certified Public Accountants / Business 255 Ponce de Leon Ave. Suite 201
Advisors San Juan, Puerto Rico 00917-1992
A member of Horwath International
Telephone: (787) 751-6500
Fax: (787) 767-1197
E-mail: 105521.2017@compuserv.com
CONSENT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Swiss Chalet, Inc.
San Juan, Puerto Rico
We hereby consent to the incorporation by reference in the proxy statement
of Swiss Chalet, Inc. (the "Company"), with respect to the proposed merger of
SCI Acquisition Inc. and the Company, of our report dated June 4, 1999, which
appears on the Company's 1999 annual report on Form 10-KSB, insofar at it
relates to the financial statements and schedules of the Company as of April 30,
1999 and for the fiscal year then ended.
/s/ HORWATH VELEZ SEMPRIT & CO. PSC
- --------------------------------------
Horwath Velez Semprit & Co. PSC
San Juan, Puerto Rico
June 6, 2000
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SWISS CHALET, INC. REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY FOR
USE ONLY AT THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON JULY 22, 2000 AND
ANY ADJOURNMENT OR POSTPONEMENT OF THAT MEETING.
THIS PROXY MAY BE REVOKED BY THE UNDERSIGNED STOCKHOLDER AT ANY TIME BEFORE IT
IS EXERCISED.
The undersigned, being a stockholder of Swiss Chalet, Inc., hereby appoints
the members of the Board of Directors of the company, or any successors in their
respective positions, as proxies with full powers to appoint their substitutes,
and hereby authorizes them to represent and to vote, as indicated below, all the
shares of Swiss Chalet common stock held on record by the undersigned on June 9,
2000 at the special meeting of stockholders to be held at the company's
principal offices at 105 De Diego Avenue, San Juan, Puerto Rico 00911, at 9:30
a.m., on Saturday, July 22, 2000, or any adjournment or postponement of that
meeting, and thereat to act with respect to all votes that the undersigned would
be entitled to cast, if then personally present.
1. PROPOSAL: To consider and approve the merger of SCI Acquisition Inc. with and
into Swiss Chalet, Inc. pursuant to an Agreement and Plan of Merger, dated as
of May 8, 2000, by and among SCI Acquisition and Swiss Chalet.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE MERGER.
(continued on other side)
(continued from other side)
In their discretion, the proxies are authorized to vote this proxy upon such
matters incident to the conduct of the special meeting and such other business
as may properly come before the meeting. Except with respect to the matters
described herein and procedural matters incident to the conduct of the special
meeting, management at present knows of no other business to be brought before
the meeting.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy will
be voted "FOR" the merger.
The undersigned stockholder hereby acknowledges receipt of the notice of
special meeting of stockholders of Swiss Chalet, Inc. called for July 22, 2000
and of a proxy statement for that meeting prior to the signing of this proxy
card.
Date: , 2000
----------------------
------------------------------
Signature
------------------------------
Signature if held jointly
Please sign exactly as your
name(s) appear(s) on this
proxy card and when signing in
a representative capacity,
please give title.
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD USING THE ENCLOSED
ENVELOPE.