EXHIBIT 1.1
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KIRKLAND'S, INC.
(a Tennessee corporation)
__________ Shares of Common Stock
PURCHASE AGREEMENT
Dated: June __, 2002
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Table of Contents
Page
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SECTION 1. Representations and Warranties..................................................................3
(a) Representations and Warranties by the Company...................................................3
(i) Compliance with Registration Requirements..............................................3
(ii) Independent Accountants................................................................4
(iii) Financial Statements...................................................................4
(iv) No Material Adverse Change in Business.................................................5
(v) Good Standing of the Company...........................................................5
(vi) Good Standing of Subsidiaries..........................................................5
(vii) Capitalization.........................................................................6
(viii) Authorization of Agreement.............................................................6
(ix) Authorization and Description of Securities............................................6
(x) Absence of Defaults and Conflicts......................................................7
(xi) Absence of Labor Disputes..............................................................7
(xii) Absence of Proceedings.................................................................8
(xiii) Accuracy of Exhibits...................................................................8
(xiv) Possession of Intellectual Property....................................................8
(xv) Absence of Further Requirements........................................................8
(xvi) Possession of Licenses and Permits.....................................................9
(xvii) Title to Property......................................................................9
(xviii) Investment Company Act.................................................................9
(xix) Environmental Laws.....................................................................9
(xx) Registration Rights...................................................................10
(xxi) Related Party Transactions............................................................10
(xxii) Suppliers.............................................................................10
(xxiii) Stabilization or Manipulation.........................................................10
(xxiv) Accounting Controls...................................................................10
(xxv) Tax Returns...........................................................................11
(xxvi) Pre-Offering Transactions.............................................................11
(xxvii) Off Balance Sheet Transactions........................................................11
(b) Representations and Warranties by the Selling Shareholders.....................................12
(i) Accurate Disclosure...................................................................12
(ii) Authorization of Agreements...........................................................12
(iii) Good and Marketable Title.............................................................13
(iv) Due Execution of Power of Attorney and Custody Agreement..............................13
(v) Absence of Manipulation...............................................................13
(vi) Absence of Further Requirements.......................................................13
(vii) Restriction on Sale of Securities.....................................................14
(viii) Certificates Suitable for Transfer....................................................14
(ix) No Association with NASD..............................................................14
(c) Officer's Certificates.........................................................................14
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SECTION 2. Sale and Delivery to Underwriters; Closing...................................................15
(a) Initial Securities.............................................................................15
(b) Option Securities..............................................................................15
(c) Payment........................................................................................16
(d) Denominations; Registration....................................................................16
(e) Appointment of Qualified Independent Underwriter...............................................16
SECTION 3. Covenants of the Company.....................................................................17
(a) Compliance with Securities Regulations and Commission Requests.................................17
(b) Filing of Amendments...........................................................................17
(c) Delivery of Registration Statements............................................................17
(d) Delivery of Prospectuses.......................................................................17
(e) Continued Compliance with Securities Laws......................................................18
(f) Blue Sky Qualifications........................................................................18
(g) Rule 158.......................................................................................18
(h) Use of Proceeds................................................................................18
(i) Listing........................................................................................18
(j) Restriction on Sale of Securities..............................................................19
(k) Reporting Requirements.........................................................................19
(l) Compliance with NASD Rules.....................................................................19
(m) Compliance with Rule 463.......................................................................19
SECTION 4. Payment of Expenses..........................................................................19
(a) Expenses.......................................................................................19
(b) Expenses of the Selling Shareholders...........................................................20
(c) Termination of Agreement.......................................................................20
(d) Allocation of Expenses.........................................................................20
SECTION 5. Conditions of Underwriters' Obligations......................................................20
(a) Effectiveness of Registration Statement........................................................21
(b) Opinion of Counsel for Company.................................................................21
(c) Opinion of Counsel for the Selling Shareholders................................................21
(d) Opinion of Counsel for Underwriters............................................................21
(e) Officers' Certificate..........................................................................22
(f) Certificate of Selling Shareholders............................................................22
(g) Accountant's Comfort Letter....................................................................22
(h) Bring-down Comfort Letter......................................................................22
(i) Approval of Listing............................................................................22
(j) No Objection...................................................................................22
(k) Lock-up Agreements.............................................................................23
(l) Pre-Offering Transactions......................................................................23
(m) Conditions to Purchase of Option Securities....................................................23
(i) Officers' Certificate.................................................................23
(ii) Certificate of Selling Shareholder....................................................23
(iii) Opinions of Counsel for Company.......................................................23
(iv) Opinion of Counsel for the Selling Shareholders.......................................23
(v) Opinion of Counsel for Underwriters...................................................23
(vi) Bring-down Comfort Letter.............................................................23
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(n) Additional Documents...........................................................................24
(o) Termination of Agreement.......................................................................24
SECTION 6. Indemnification..............................................................................24
(a) Indemnification of Underwriters................................................................24
(b) Indemnification of Company, Directors, Officers and Selling Shareholders.......................26
(c) Actions against Parties; Notification..........................................................26
(d) Settlement without Consent if Failure to Reimburse.............................................27
(e) Indemnification for Reserved Securities........................................................27
(f) Other Agreements with Respect to Indemnification...............................................27
SECTION 7. Contribution.................................................................................27
SECTION 8. Representations, Warranties and Agreements to Survive Delivery...............................29
SECTION 9. Termination of Agreement.....................................................................29
(a) Termination; General...........................................................................29
(b) Liabilities....................................................................................30
SECTION 10. Default by One or More of the Underwriters...................................................30
SECTION 11. Default by one or more of the Selling Shareholders or the Company............................31
SECTION 12. Notices......................................................................................31
SECTION 13. Parties......................................................................................32
SECTION 14. Governing Law and Time.......................................................................32
SECTION 15. Effect of Headings...........................................................................32
SCHEDULES
Schedule A - Name of Underwriters.........................................................Sch A-1
Schedule B - List of Selling Shareholders.................................................Sch B-1
Schedule C - Pricing Information..........................................................Sch C-1
Schedule D - List of Persons and Entities Subject to Lock-up..............................Sch D-1
Schedule E - Names of Selling Shareholder Counsel.........................................Sch E-1
EXHIBITS
Exhibit A - Form of Opinion of Pepper Hamilton LLP...........................................A-1
Exhibit B - Form of Opinion of Baker, Donelson, Bearman & Caldwell...........................B-1
Exhibit C - Form of Opinion of Counsel for the Selling Shareholders..........................C-1
Exhibit D - Form of Lock-up Letter...........................................................D-1
Exhibit E - Form of Comfort Letter of PricewaterhouseCoopers LLP.............................E-1
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KIRKLAND'S, INC.
(a Tennessee corporation)
__________ Shares of Common Stock
(No Par Value)
PURCHASE AGREEMENT
June ___, 2002
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
CIBC World Markets Corp.
SunTrust Capital Markets, Inc.
U.S. Bancorp Piper Jaffray Inc.
as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Kirkland's, Inc., a Tennessee corporation (the "Company"), and the
persons listed in Schedule B hereto (collectively, the "Selling Shareholders"),
confirm their respective agreements with Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and each of the other
Underwriters named in Schedule A hereto (collectively, the "Underwriters," which
term shall also include any underwriter substituted as hereinafter provided in
Section 10 hereof), for whom Merrill Lynch, CIBC World Markets Corp., SunTrust
Capital Markets, Inc. and U.S. Bancorp Piper Jaffray Inc., are acting as
representatives (in such capacity, the "Representatives"), with respect to (i)
the issue and sale by the Company and the Selling Shareholders, acting severally
and not jointly, and the purchase by the Underwriters, acting severally and not
jointly, of the respective numbers of shares of Common Stock, no par value per
share, of the Company ("Common Stock") set forth in Schedules A and B hereto,
and (ii) the grant by the Selling Shareholders to the Underwriters, acting
severally and not jointly, of the option described in Section 2(b) hereof to
purchase all or any part of __________ additional shares of Common Stock to
cover over-allotments, if any. The aforesaid __________ shares of Common Stock
(the "Initial Securities") to be purchased by the Underwriters and all or any
part
of the __________ shares of Common Stock subject to the option described in
Section 2(b) hereof (the "Option Securities") are hereinafter called,
collectively, the "Securities."
The Company and the Selling Shareholders understand that the
Underwriters propose to make a public offering of the Securities on the
effective date of the registration statement hereinafter referred to or as soon
thereafter as the Representatives deem advisable.
The Company, the Selling Shareholders and the Underwriters agree that
up to _______ of the Securities to be purchased by the Underwriters (the
"Reserved Securities") shall be reserved for sale by the Underwriters to the
Company's directors, officers, employees, business associates and other parties
related to the Company (collectively, the "Participants"), as part of the
distribution of the Securities by the Underwriters, subject to the terms of this
Agreement, the applicable rules, regulations and interpretations of the National
Association of Securities Dealers, Inc. and all other applicable laws, rules and
regulations. To the extent that such Reserved Securities are not orally
confirmed for purchase by any Participants by the end of the first business day
after the date of this Agreement, such Reserved Securities may be offered to the
public as part of the public offering contemplated hereby.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-86746) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The
information included in such prospectus or in such Term Sheet, as the case may
be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
statement, including the exhibits thereto and schedules thereto at the time it
became effective and including the Rule 430A Information and the Rule 434
Information, as applicable, is herein called the "Registration Statement." Any
registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations
is herein referred to as the "Rule 462(b) Registration Statement," and after
such filing the term "Registration Statement" shall include the Rule 462(b)
Registration Statement. The final prospectus in the form first furnished to the
Underwriters for use in connection with the offering of the Securities is herein
called the "Prospectus." If Rule 434 is relied on, the term "Prospectus" shall
refer to the preliminary prospectus dated ___________, 2002 together with the
Term Sheet and all references in this Agreement to the date of the Prospectus
shall mean the date of the Term Sheet. For purposes of this Agreement, all
references to the Registration
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Statement, any preliminary prospectus, the Prospectus or any Term Sheet or any
amendment or supplement to any of the foregoing shall be deemed to include the
copy filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval system ("EDGAR").
Immediately prior to the consummation of the sale of the Securities,
(1) a ____ -for-one stock split of the Common Stock will be effected, (2) the
Company's charter will be amended and restated to effect the stock split and as
otherwise described in the Prospectus, (3) the conversion of $____ million of
the aggregate stated value and accrued dividends of the outstanding shares of
the Company's Class A Preferred Stock, Class B Preferred Stock and/or Class D
Preferred Stock into _____ shares of Common Stock will be consummated, (4) the
Company will issue _____ shares of Common Stock upon the exercise of all
outstanding warrants and, pursuant to the Exchange Agreement dated as of
_______, 2002 (the "Exchange Agreement"), shares of Common Stock to Carl
Kirkland in exchange for his Series C Preferred Stock, and (5) the Company's
capitalization will consist of 100 million shares of Common Stock (of which ____
will be issued and outstanding) and 10 million shares of preferred stock (of
which none will be issued and outstanding) (collectively, in each case as more
precisely described in the Prospectus, the "Pre-Offering Transactions"). In
connection with the consummation of the sale of the Securities, the Company will
repurchase ________ shares of preferred stock and ________ shares of common
stock from existing shareholders (the "Company Repurchase") pursuant to a
repurchase agreement dated as of _________, 2002 (the "Repurchase Agreement").
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company
represents and warrants to each Underwriter as of the date hereof, as of the
Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery
(if any) referred to in Section 2(b) hereof, and agrees with each Underwriter,
as follows:
(i) Compliance with Registration Requirements. Each of
the Registration Statement and any Rule 462(b) Registration Statement
has become effective under the 1933 Act and no stop order suspending
the effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated by the Commission, and
any request on the part of the Commission for additional information
has been complied with. At the respective times the Registration
Statement, any Rule 462(b) Registration Statement and any
post-effective amendments thereto became or will become effective and
at the Closing Time (and, if any Option Securities are purchased, at
the Date of Delivery), the Registration Statement, the Rule 462(b)
Registration Statement and any amendments and supplements thereto
complied and will comply in all material respects with the requirements
of the 1933 Act and the 1933 Act Regulations and did not and will not
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and the Prospectus, any preliminary
prospectus and any supplement thereto or prospectus wrapper prepared in
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connection therewith, at their respective times of issuance and at the
Closing Time, complied and will comply in all material respects with
any applicable laws or regulations of foreign jurisdictions in which
the Prospectus and such preliminary prospectus, as amended or
supplemented, if applicable, are distributed in connection with the
offer and sale of Reserved Securities. Neither the Prospectus nor any
amendments or supplements thereto (including any prospectus wrapper),
at the time the Prospectus or any such amendment or supplement was or
will be issued and at the Closing Time (and, if any Option Securities
are purchased, at the Date of Delivery), included or will include an
untrue statement of a material fact or omitted or will omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
If Rule 434 is used, the Company will comply with the requirements of
Rule 434 and the Prospectus shall not be "materially different," as
such term is used in Rule 434, from the prospectus included in the
Registration Statement at the time it became effective. The
representations and warranties in this subsection shall not apply to
statements in or omissions from the Registration Statement or
Prospectus made in reliance upon and in conformity with information
furnished to the Company in writing by any Underwriter through Merrill
Lynch expressly for use in the Registration Statement or Prospectus.
Each preliminary prospectus and the prospectus filed as part
of the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the 1933 Act
Regulations and each preliminary prospectus and the Prospectus
delivered to the Underwriters for use in connection with this offering
was identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted
by Regulation S-T.
(ii) Independent Accountants. The accountants who
certified the financial statements and supporting schedules included in
the Registration Statement are independent public accountants as
required by the 1933 Act and the 1933 Act Regulations.
(iii) Financial Statements. The financial statements
included in the Registration Statement and the Prospectus, together
with the related schedules and notes, present fairly the financial
position of the Company and its consolidated subsidiaries at the dates
indicated and the statements of operations, changes in shareholders'
deficit and cash flows of the Company and its consolidated subsidiaries
for the periods specified; said financial statement have been prepared
in conformity with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the
periods involved. The supporting schedules included in the Registration
Statement present fairly in accordance with GAAP the information
required to be stated therein. The selected financial data and the
summary financial and other data included in the Registration Statement
and the Prospectus present fairly the information shown therein and
have been compiled on a basis consistent with that of the audited
financial statements included in the Registration Statement and the
Prospectus. The pro forma condensed financial statements and the other
pro forma and as adjusted financial information
4
included in the Registration Statement and the Prospectus present
fairly the information shown therein, have been prepared in accordance
with the Commission's rules and guidelines with respect to pro forma
financial statements and pro forma financial information and have been
properly compiled on the bases described therein, and the assumptions
used in the preparation thereof are reasonable and the adjustments used
therein are appropriate to give effect to the transactions and
circumstances referred to therein. All financial statements and pro
forma financial statements required to be included in the Registration
Statement and the Prospectus pursuant to the 1933 Act, the 1933 Act
Regulations and Regulation S-X have been included in the Registration
Statement and the Prospectus. Any reference herein to the financial
statements of the Company included in the Registration Statement shall
include such financial statements together with all related notes and
schedules included in the Registration Statement.
(iv) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, except as otherwise stated therein, (A)
there has been no material adverse change in the condition (financial
or otherwise), earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or
not arising in the ordinary course of business (a "Material Adverse
Effect"), (B) there have been no transactions entered into by the
Company or any of its subsidiaries, other than those in the ordinary
course of business, which are material with respect to the Company and
its subsidiaries considered as one enterprise, and (C) there has been
no dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
(v) Good Standing of the Company. The Company has been
duly organized and is validly existing as a corporation in good
standing under the laws of the State of Tennessee and has corporate
power and authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus and to enter into
and perform its obligations under this Agreement; and the Company is
duly qualified as a foreign corporation to transact business and is in
good standing in each other jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or
the conduct of business, except where the failure so to qualify or to
be in good standing would not result in a Material Adverse Effect.
(vi) Good Standing of Subsidiaries. Each subsidiary of the
Company (each a "Subsidiary" and, collectively, the "Subsidiaries") has
been duly organized and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, has
corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectus and is duly
qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in
good standing would not result in a Material Adverse Effect; except as
otherwise disclosed in the Registration Statement and except for a
pledge of all of the capital stock of each such Subsidiary to the
Company's senior bank lenders, all of the issued and outstanding
capital stock of each such Subsidiary has been duly authorized and
validly
5
issued, is fully paid and non-assessable and is owned by the Company,
directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity; none of
the outstanding shares of capital stock of any Subsidiary was issued in
violation of the preemptive or similar rights of any securityholder of
such Subsidiary. The only subsidiaries of the Company are the
subsidiaries listed on Exhibit 21 to the Registration Statement.
(vii) Capitalization. The authorized, issued and
outstanding capital stock of the Company is as set forth in the
Prospectus in the column entitled "Actual" under the caption
"Capitalization" and upon consummation of the sale of the Securities
will be as set forth in the Prospectus in the column entitled "Pro
Forma As Adjusted" under the caption "Capitalization." The shares of
issued and outstanding capital stock of the Company, including the
Securities to be purchased by the Underwriters from the Selling
Shareholders, have been duly authorized and validly issued and are
fully paid and non-assessable; none of the outstanding shares of
capital stock of the Company, including the Securities to be purchased
by the Underwriters from the Selling Shareholders, was issued in
violation of the preemptive or other similar rights of any
securityholder of the Company; the shares of Common Stock to be issued
by the Company in connection with the Pre-Offering Transactions,
including the Securities to be purchased by the Underwriters from the
Selling Shareholders, have been duly authorized and as of the Closing
Time will be validly issued and fully paid and non-assessable and will
not be issued in violation of the preemptive or other similar rights of
any securityholder of the Company; the sale of shares of Common Stock
by the Company to the Underwriters will not trigger any anti-dilution
rights of any securityholder of the Company and the sale of shares of
Common Stock by the Selling Shareholders to the Underwriters will not
trigger any co-sale or tag-along rights or other similar rights of any
other securityholder of the Company; the issuance of shares of Common
Stock by the Company pursuant to the Pre-Offering Transactions will not
trigger any anti-dilution rights of any securityholder of the Company;
and the sale of securities to the Company pursuant to the Company
Repurchase will not trigger any co-sale or tag-along rights or other
similar rights of any other securityholder of the Company.
(viii) Authorization of Agreement. This Agreement has been
duly authorized, executed and delivered by the Company.
(ix) Authorization and Description of Securities. The
Securities to be purchased by the Underwriters from the Company have
been duly authorized for issuance and sale to the Underwriters pursuant
to this Agreement and, when issued and delivered by the Company
pursuant to this Agreement against payment of the consideration set
forth herein, will be validly issued and fully paid and non-assessable;
the Common Stock conforms to all statements relating thereto contained
in the Prospectus and such description conforms to the rights set forth
in the instruments defining the same; no holder of the Securities will
be subject to personal liability by reason of being such a holder; and
the issuance of the Securities to be purchased by the Underwriters from
the Company is not subject to the preemptive or other similar rights of
any securityholder of the Company.
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(x) Absence of Defaults and Conflicts. Neither the
Company nor any of its subsidiaries is in violation of its charter or
by-laws or in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, deed of trust, loan or credit agreement, note,
lease or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which it or any of them may be bound,
or to which any of the property or assets of the Company or any of its
subsidiaries is subject (collectively, "Agreements and Instruments")
except for such violations or defaults that would not result in a
Material Adverse Effect; and the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated
herein and in the Registration Statement (including the consummation of
the Pre-Offering Transactions and the Company Repurchase and the
issuance and sale of the Securities and the use of the proceeds by the
Company from the sale of the Securities by the Company as described in
the Prospectus under the caption "Use of Proceeds") and compliance by
the Company with its obligations hereunder have been duly authorized by
all necessary corporate action and do not and will not, whether with or
without the giving of notice or passage of time or both, conflict with
or constitute a breach of, or default or Repayment Event (as defined
below) under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any
of its subsidiaries pursuant to, the Agreements and Instruments, and
will not result in the payment of any fee or an obligation to pay any
fee to any other broker, dealer or other similar institution other than
the Underwriters, nor will such action result in any violation of the
provisions of the charter or by-laws of the Company or any of its
subsidiaries or any applicable law, statute, rule, regulation,
judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over
the Company or any of its subsidiaries or any of their assets,
properties or operations. As used herein, a "Repayment Event" means any
event or condition which gives the holder of any note, debenture or
other evidence of indebtedness (or any person acting on such holder's
behalf) the right to require the repurchase, redemption or repayment of
all or a portion of such indebtedness by the Company or any of its
subsidiaries (except that the sale of Shares by the Company to the
Underwriters shall not constitute a "Repayment Event" with respect to
(i) the 12.5% subordinated notes due 2003, all of which are required to
be repaid and will be repaid with the proceeds received by the Company
at the Closing Time, and (ii) the Company's Series C Preferred Stock,
which will either be repurchased with the proceeds received by the
Company at the Closing Time or exchanged into Common Stock prior to or
at the Closing Time).
(xi) Absence of Labor Disputes. No labor dispute with the
employees of the Company or any of its subsidiaries exists or, to the
knowledge of the Company, is imminent, other than any disputes that
would not result in a Material Adverse Effect, and the Company is not
aware of any existing or imminent labor disturbance by the employees of
any of its or any of its subsidiaries' principal suppliers, vendors,
manufacturers, customers or contractors, which, in either case, may
reasonably be expected to result in a Material Adverse Effect.
7
(xii) Absence of Proceedings. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company, threatened, against or affecting the
Company or any of its subsidiaries, which is required to be disclosed
in the Registration Statement (other than as disclosed therein), or
which might reasonably be expected to result in a Material Adverse
Effect, or which might reasonably be expected to materially and
adversely affect the properties or assets thereof or the consummation
of the transactions contemplated in this Agreement (including the
Pre-Offering Transactions and the Company Repurchase) or the
performance by the Company of its obligations hereunder; the aggregate
of all pending legal or governmental proceedings to which the Company
or any of its subsidiaries is a party or of which any of their
respective property or assets is the subject which are not described in
the Registration Statement, including ordinary routine litigation
incidental to the business, could not reasonably be expected to result
in a Material Adverse Effect.
(xiii) Accuracy of Exhibits. There are no contracts or
documents which are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits thereto which
have not been so described and filed as required.
(xiv) Possession of Intellectual Property. The Company and
its subsidiaries own or possess, or can acquire on reasonable terms,
adequate patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property") necessary
to carry on the business now operated by them, and neither the Company
nor any of its subsidiaries has received any notice or is otherwise
aware of any infringement of or conflict with asserted rights of others
with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or
inadequate to protect the interest of the Company or any of its
subsidiaries therein, and which infringement or conflict (if the
subject of any unfavorable decision, ruling or finding) or invalidity
or inadequacy, singly or in the aggregate, would result in a Material
Adverse Effect.
(xv) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company of
its obligations hereunder, in connection with the offering, issuance or
sale of the Securities hereunder or the consummation of the
transactions contemplated by this Agreement (including the Pre-Offering
Transactions, the Company Repurchase and the use of the proceeds of the
sale of the Securities as described in the Prospectus under "Use of
Proceeds"), except such as have been already obtained under the 1933
Act or the 1933 Act Regulations or state or foreign securities laws.
8
(xvi) Possession of Licenses and Permits. The Company and
its subsidiaries possess such permits, licenses, approvals, consents
and other authorizations (collectively, "Governmental Licenses") issued
by the appropriate federal, state, local or foreign regulatory agencies
or bodies necessary to conduct the business now operated by them; the
Company and its subsidiaries are in compliance with the terms and
conditions of all such Governmental Licenses, except where the failure
so to comply would not, singly or in the aggregate, have a Material
Adverse Effect; all of the Governmental Licenses are valid and in full
force and effect, except when the invalidity of such Governmental
Licenses or the failure of such Governmental Licenses to be in full
force and effect would not have a Material Adverse Effect; and neither
the Company nor any of its subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would result in a
Material Adverse Effect.
(xvii) Title to Property. The Company and its subsidiaries
have good and marketable title to all real property owned by the
Company and its subsidiaries and good title to all other properties
owned by them, in each case, free and clear of all mortgages, pledges,
liens, security interests, claims, restrictions or encumbrances of any
kind except (a) such as are described in the Prospectus, (b) a Deed of
Trust on the Company's principal executive offices in favor of the
Company's senior bank lenders or (c) such as do not, singly or in the
aggregate, materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by
the Company or any of its subsidiaries; and all of the leases and
subleases used in the business of the Company and its subsidiaries,
considered as one enterprise, are in full force and effect, and neither
the Company nor any of its subsidiaries has any notice of any claim of
any sort that has been asserted by anyone adverse to the rights of the
Company or any of its subsidiaries under any of the leases or subleases
mentioned above, except for such claims that would not result in a
Material Adverse Effect, or affecting or questioning the rights of the
Company or such subsidiary to the continued possession of the leased or
subleased premises under any such lease or sublease.
(xviii) Investment Company Act. The Company is not, and upon
the issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the
Prospectus will not be, an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in
the Investment Company Act of 1940, as amended (the "1940 Act").
(xix) Environmental Laws. Except as described in the
Registration Statement and except as would not, singly or in the
aggregate, result in a Material Adverse Effect, (A) neither the Company
nor any of its subsidiaries is in violation of any federal, state,
local or foreign statute, law, rule, regulation, ordinance, code,
policy or rule of common law or any judicial or administrative
interpretation thereof, including any judicial or administrative order,
consent, decree or judgment, relating to pollution or protection of
human health, the environment (including, without limitation, ambient
air, surface water, groundwater, land surface or subsurface strata) or
wildlife, including, without limitation, laws and regulations relating
to the release or threatened release of chemicals, pollutants,
9
contaminants, wastes, toxic substances, hazardous substances, petroleum
or petroleum products (collectively, "Hazardous Materials") or to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (B) the Company and its subsidiaries have all
permits, authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their requirements,
(C) there are no pending, or to the Company's or any of its
subsidiaries' knowledge threatened, administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, investigation or proceedings
relating to any Environmental Law against the Company or any of its
subsidiaries and (D) there are no events, facts or circumstances that
might reasonably be expected to form the basis of any liability or
obligation of the Company or any of its subsidiaries, including,
without limitation, any order, decree, plan or agreement requiring
clean-up or remediation, or any action, suit or proceeding by any
private party or governmental body or agency, against or affecting the
Company or any of its subsidiaries relating to any Hazardous Materials
or any Environmental Laws.
(xx) Registration Rights. There are no persons with
registration rights or other similar rights to have any securities (1)
registered pursuant to the Registration Statement (except for rights
which have been complied with or waived) or (2) otherwise registered by
the Company under the 1933 Act (except as described in the Prospectus).
(xxi) Related Party Transactions. No relationship, direct
or indirect, exists between or among the Company or any affiliate of
the Company, on the one hand, and any director, officer, stockholder,
customer or supplier of any of them, on the other hand, which is
required by the 1933 Act or by the 1933 Act Regulations (or by the
Commission's "Statement About Management's Discussion and Analysis of
Financial Condition and Results of Operations" (January 22, 2002) (the
"MD&A Release")) to be described in the Registration Statement or the
Prospectus which is not so described or is not described as required.
(xxii) Suppliers. No supplier of merchandise to the Company
or any of its subsidiaries has ceased shipments of merchandise to the
Company or indicated an interest in decreasing or ceasing its sales to
the Company or otherwise modifying its relationship with the Company,
other than in the normal and ordinary course of business consistent
with past practices.
(xxiii) Stabilization or Manipulation. Neither the Company
nor any of its officers, directors or controlling persons has taken,
directly or indirectly, any action designed to cause or to result in,
or that has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of any
security of the Company to facilitate the sale of the Securities.
(xxiv) Accounting Controls. The Company and its subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that (A) transactions are executed in accordance
with management's general or specific
10
authorization; (B) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to
maintain accountability for assets; (C) access to assets is permitted
only in accordance with management's general or specific authorization;
and (D) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(xxv) Tax Returns. The Company and its subsidiaries have
filed all federal, state, local and foreign tax returns that are
required to have been filed by them pursuant to applicable foreign,
federal, state, local or other law or have duly requested extensions
thereof, except insofar as the failure to file such returns or request
such extensions would not reasonably be expected to result in a
Material Adverse Effect, and have paid all taxes due pursuant to such
returns or pursuant to any assessment received by the Company and its
Subsidiaries, except for such taxes or assessments, if any, as are
being contested in good faith and as to which adequate reserves have
been provided or where the failure to pay would not reasonably be
expected to result in a Material Adverse Effect. The charges, accruals
and reserves on the books of the Company in respect of any income and
corporation tax liability of the Company and each of its subsidiaries
for any years not finally determined are adequate to meet any
assessments or re-assessments for additional income tax for any years
not finally determined, except to the extent of any inadequacy that
would not reasonably be expected to result in a Material Adverse
Effect.
(xxvi) Pre-Offering Transactions. The Pre-Offering
Transactions have been duly authorized by the Company and will be
consummated by the Company on or before the Closing Time. The Company's
Amended and Restated Charter as described in the Prospectus has been
approved by all necessary corporate, board and shareholder action, does
not require any governmental or third party approval and will be in
full force and effect on or before the Closing Time. The issuance of
Shares of Common Stock in accordance with the Pre-Offering Transactions
and the sale of securities pursuant to the Repurchase Agreement does
not require registration under the 1933 Act or the 1933 Act Regulations
and will not be integrated with the sale of the Securities hereunder.
The Repurchase Agreement and the Exchange Agreement have been
authorized, executed and delivered by the Company and constitutes valid
and binding obligations of the Company, enforceable in accordance with
their terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, fraudulent conveyance or similar laws affecting
creditors' rights generally.
(xxvii) Off Balance Sheet Transactions. There are no
transactions, arrangements and other relationships between and/or among
the Company, any of its affliates (as such term is described in Rule
405 under the Securities Act) and any unconsolidated entity, including,
but not limited to, any structural finance, special purpose or limited
purpose entity (each, an "Off Balance Sheet Transaction") that could
reasonably be expected to affect normally the company's liquidity or
the availability of or requirements for its capital resources,
including those Off Balance Sheet Transactions described in the
Commission's MD&A Release, which are required to be described in the
Prospectus and which have not been described as required.
11
(b) Representations and Warranties by the Selling Shareholders.
Each Selling Shareholder severally represents and warrants to each Underwriter
as of the date hereof, as of the Closing Time, and as of each Date of Delivery,
and agrees with each Underwriter, as follows:
(i) Accurate Disclosure. (A) To the best knowledge of
each Principal Selling Shareholder (as listed in Schedule B hereto),
the representations and warranties of the Company contained in Section
1(a) hereof are true and correct (it being acknowledged that the
representation in this clause (A) is not being made by any Other
Selling Shareholder (as listed in Schedule B hereto)). (B) Such Selling
Shareholder has reviewed and is familiar with the Registration
Statement and the Prospectus and to the knowledge of such Selling
Shareholder after due inquiry, neither the Prospectus nor any
amendments or supplements thereto (including any prospectus wrapper)
includes any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that with respect to each Other Selling Shareholder
(as listed in Schedule B hereto), this representation and warranty is
made solely with respect to information furnished in writing by such
Other Selling Shareholder to the Company or the Underwriters for use in
the Registration Statement and Prospectus, it being understood that
this information consists of the information under the caption
"Principal and Selling Stockholders" adjacent to the name of such Other
Selling Shareholder and in the related footnote.
(ii) Authorization of Agreements. Each Selling Shareholder
has the full right, power and authority to enter into this Agreement
and a Power of Attorney and Custody Agreement (the "Power of Attorney
and Custody Agreement") and the Repurchase Agreement (to the extent a
party thereto) and to sell, transfer and deliver the Securities to be
sold by such Selling Shareholder hereunder. The execution and delivery
of this Agreement and the Power of Attorney and Custody Agreement and
the Repurchase Agreement (to the extent a party thereto) and the sale
and delivery of the Securities to be sold by such Selling Shareholder
and the consummation of the transactions contemplated herein and
therein and compliance by such Selling Shareholder with its obligations
hereunder and thereunder have been duly authorized by such Selling
Shareholder and do not and will not, whether with or without the giving
of notice or passage of time or both, conflict with or constitute a
breach of, or default under, or result in the creation or imposition of
any tax, lien, charge or encumbrance upon the Securities to be sold by
such Selling Shareholder or any property or assets of such Selling
Shareholder pursuant to any contract, shareholders agreement,
registration rights agreement, indenture, mortgage, deed of trust, loan
or credit agreement, note, license, lease or other agreement or
instrument to which such Selling Shareholder is a party or by which
such Selling Shareholder may be bound, or to which any of the property
or assets of such Selling Shareholder is subject, nor will such action
result in any violation of the provisions of the charter or by-laws or
other organizational instrument of such Selling Shareholder, if
applicable, or any applicable treaty, law, statute, rule, regulation,
judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over
such Selling Shareholder or any of its properties. Such Selling
Shareholder has no registration rights with respect to the Registration
Statement
12
other than rights which have been complied with by the Company or
waived by such Selling Shareholder.
(iii) Good and Marketable Title. Such Selling Shareholder
has good and marketable title to the shares of Common Stock, warrants
exercisable for shares of Common Stock or preferred stock convertible
into shares of Common Stock heretofore deposited with the Custodian and
such Selling Shareholder has or will at the Closing Time and on the
Date of Delivery have good and marketable title to the Securities to be
sold by such Selling Shareholder hereunder, in each case free and clear
of any security interest, mortgage, pledge, lien, charge, claim, equity
or encumbrance of any kind, other than pursuant to this Agreement; and
upon delivery of such Securities and payment of the purchase price
therefor as herein contemplated, assuming each such Underwriter has no
notice of any adverse claim, each of the Underwriters will receive good
and marketable title to the Securities purchased by it from such
Selling Shareholder, free and clear of any security interest, mortgage,
pledge, lien, charge, claim, equity or encumbrance of any kind.
(iv) Due Execution of Power of Attorney and Custody
Agreement. Such Selling Shareholder has duly authorized, executed and
delivered, in the form heretofore furnished to the Representatives, the
Power of Attorney and Custody Agreement with Robert E. Alderson and
David Mussafer, or any of them, as attorneys-in-fact (the
"Attorneys-in-Fact"), and StockTrans, Inc., as custodian (the
"Custodian"); the Custodian is authorized to deliver the Securities to
be sold by such Selling Shareholder hereunder and to accept payment
therefor; and each Attorney-in-Fact is authorized to execute and
deliver this Agreement and the certificate referred to in Section 5(f)
or that may be required pursuant to Sections 5(m) and 5(n) on behalf of
such Selling Shareholder, to sell, assign and transfer to the
Underwriters the Securities to be sold by such Selling Shareholder
hereunder, to determine the purchase price to be paid by the
Underwriters to such Selling Shareholder (subject to the limitations
set forth in such Power of Attorney and Custody Agreement), as provided
in Section 2(a) hereof, to authorize the delivery of the Securities to
be sold by such Selling Shareholder hereunder, to accept payment
therefor, and otherwise to act on behalf of such Selling Shareholder in
connection with this Agreement. To the extent such Selling Shareholder
is a party to the Repurchase Agreement, the Repurchase Agreement has
been duly authorized, executed and delivered by such Selling
Shareholder. To the extent such Selling Shareholder is a party to the
Exchange Agreement, the Exchange Agreement has been duly authorized,
executed and delivered by such Selling Shareholder.
(v) Absence of Manipulation. Such Selling Shareholder has
not taken, and will not take, directly or indirectly, any action which
is designed to or which has constituted or which might reasonably be
expected to cause or result in stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale
of the Securities.
(vi) Absence of Further Requirements. No filing with, or
consent, approval, authorization, order, registration, qualification or
decree of, any court or governmental
13
authority or agency, domestic or foreign, is necessary or required for
the performance by such Selling Shareholder of its obligations
hereunder or in the Power of Attorney and Custody Agreement or in the
Repurchase Agreement (to the extent a party thereto), or in connection
with the sale and delivery of the Securities of such Selling
Shareholder hereunder or thereunder or the consummation of the
transactions contemplated by this Agreement or the Repurchase Agreement
(to the extent a party thereto), except such as may have previously
been made or obtained or as may be required under the 1933 Act or the
1933 Act Regulations or state or foreign securities laws.
(vii) Restriction on Sale of Securities. During a period of
180 days from the date of this Agreement, such Selling Shareholder will
not, without the prior written consent of Merrill Lynch, (i) offer,
pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any share of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or
request that the Company file any registration statement under the 1933
Act with respect to any of the foregoing or (ii) enter into any swap or
any other agreement or any transaction that transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership of
the Common Stock, whether any such swap or transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock
or such other securities, in cash or otherwise, except to the extent
permitted by the letter included in Exhibit D hereto. The foregoing
sentence shall not apply to the Securities to be sold hereunder and
pursuant to the Repurchase Agreement and shall not be deemed to
prohibit the Pre-Offering Transactions.
(viii) Certificates Suitable for Transfer. Certificates for
all of the Securities to be sold by such Selling Shareholder pursuant
to this Agreement, in suitable form for transfer by delivery or
accompanied by duly executed instruments of transfer or assignment in
blank with signatures guaranteed, or warrants exercisable for such
Securities or preferred stock convertible into or which may be
exchanged for such Securities, have been placed in custody with the
Custodian with irrevocable conditional instructions to deliver such
Securities to the Underwriters pursuant to this Agreement.
(ix) No Association with NASD. Neither such Selling
Shareholder nor any of his, her or its affiliates (within the meaning
of NASD Conduct Rule 2720(b)(1)(a)) directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under
common control with, or is an associated person of (within the meaning
of Article I, Section 1(q) of the By-laws of the National Association
of Securities Dealers, Inc.), any member firm of the National
Association of Securities Dealers, Inc. other than as set forth as
Exhibit A to the Power of Attorney and Custody Agreement of such
Selling Shareholder.
(c) Officer's Certificates. Any certificate signed by any officer
of the Company or any of its subsidiaries delivered to the Representatives or to
counsel for the Underwriters shall be
14
deemed a representation and warranty by the Company to each Underwriter as to
the matters covered thereby; and any certificate signed by or on behalf of any
of the Selling Shareholders as such and delivered to the Representatives or to
counsel for the Underwriters shall be deemed a representation and warranty by
such Selling Shareholder to the Underwriters as to matters covered thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing.
(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company and each Selling Shareholder, severally and not jointly,
agree to sell to each Underwriter, severally and not jointly, and each
Underwriter, severally and not jointly, agrees to purchase from the Company and
each Selling Shareholder, at the price per share set forth in Schedule C, that
proportion of the number of Initial Securities set forth in Schedule B opposite
the name of the Company or such Selling Shareholder, as the case may be, which
the number of Initial Securities set forth in Schedule A opposite the name of
such Underwriter, plus any additional number of Initial Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof, bears to the total number of Initial Securities, subject, in
each case, to such adjustment among the Underwriters as the Representatives in
their sole discretion shall make to eliminate any sales or purchase of
fractional securities.
(b) Option Securities. In addition, on the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Selling Shareholders hereby grant an option to
the Underwriters, severally and not jointly, to purchase up to an additional
__________ shares of Common Stock set forth in Schedule B, at the price per
share set forth in Schedule C, less an amount per share equal to any dividends
or distributions declared by the Company and payable on the Initial Securities
but not payable on the Option Securities. The option hereby granted will expire
30 days after the date hereof and may be exercised in whole or in part from time
to time on one or more occasions only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Initial Securities upon notice by the Representatives to the
Company and the Selling Shareholders setting forth the number of Option
Securities as to which the several Underwriters are then exercising the option
and the time and date of payment and delivery for such Option Securities. Any
such time and date of delivery (a "Date of Delivery") shall be determined by the
Representatives, but shall not be later than seven full business days after the
exercise of said option, nor in any event prior to the Closing Time, as
hereinafter defined. If the option is exercised as to all or any portion of the
Option Securities, each of the Underwriters, acting severally and not jointly,
will purchase that proportion of the total number of Option Securities then
being purchased which the number of Initial Securities set forth in Schedule A
opposite the name of such Underwriter bears to the total number of Initial
Securities, subject in each case to such adjustments as the Representatives in
their discretion shall make to eliminate any sales or purchases of fractional
shares. If less than all of the Option Securities are to be sold, Option
Securities will be sold by the Selling Shareholders on a pro rata basis in
accordance with the number of Option Securities set forth in Schedule B.
15
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Fried,
Frank, Harris, Shriver & Jacobson, One New York Plaza, New York, New York 10004,
or at such other place as shall be agreed upon by the Representatives and the
Company, at 9:00 A.M. (Eastern time) on the third (fourth, if the pricing occurs
after 4:30 P.M. (Eastern Time) on any given day) business day after the date
hereof (unless postponed in accordance with the provisions of Section 10), or
such other time not later than ten business days after such date as shall be
agreed upon by the Representatives and the Company (such time and date of
payment and delivery being herein called "Closing Time").
In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
offices, or at such other place as shall be agreed upon by the Representatives
and the Company, on each Date of Delivery as specified in the notice from the
Representatives to the Company and the Selling Shareholders.
Payment shall be made to the Company and the Selling Shareholders by
wire transfer of immediately available funds to a bank account designated by the
Company and the Custodian, against delivery to the Representatives for the
respective accounts of the Underwriters of certificates for the Securities to be
purchased by them. It is understood that each Underwriter has authorized the
Representatives, for its account, to accept delivery of, receipt for, and make
payment of the purchase price for, the Initial Securities and the Option
Securities, if any, which it has agreed to purchase. Merrill Lynch, individually
and not as representative of the Underwriters, may (but shall not be obligated
to) make payment of the purchase price for the Initial Securities or the Option
Securities, if any, to be purchased by any Underwriter whose funds have not been
received by the Closing Time or the relevant Date of Delivery, as the case may
be, but such payment shall not relieve such Underwriter from its obligations
hereunder.
(d) Denominations; Registration. Certificates for the Initial
Securities and the Option Securities, if any, shall be in such denominations and
registered in such names as the Representatives may request in writing at least
one full business day before the Closing Time or the relevant Date of Delivery,
as the case may be. The certificates for the Initial Securities and the Option
Securities, if any, will be made available for examination and packaging by the
Representatives in The City of New York not later than 10:00 A.M. (Eastern time)
on the business day prior to the Closing Time or the relevant Date of Delivery,
as the case may be.
(e) Appointment of Qualified Independent Underwriter The Company
and the Selling Shareholders, severally and not jointly, hereby confirm their
engagement of Merrill Lynch as, and Merrill Lynch hereby confirms its agreement
with the Company and the Selling Shareholders to render services as, a
"qualified independent underwriter" within the meaning of Rule 2720 of the
Conduct Rules of the National Association of Securities Dealers, Inc. with
respect to the offering and sale of the Securities. Merrill Lynch, solely in its
capacity as qualified independent underwriter and not otherwise, is referred to
herein as the "Independent Underwriter."
16
SECTION 3. Covenants of the Company. The Company covenants with each
Underwriter as follows:
(a) Compliance with Securities Regulations and Commission
Requests. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify the
Representatives immediately, and confirm the notice in writing, (i) when any
post-effective amendment to the Registration Statement shall become effective,
or any supplement to the Prospectus or any amended Prospectus shall have been
filed, (ii) of the receipt of any comments from the Commission, (iii) of any
request by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information, and
(iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus, or of the suspension of the
qualification of the Securities for offering or sale in any jurisdiction, or of
the initiation or, to the Company's knowledge, threatening of any proceedings
for any of such purposes. The Company will promptly effect the filings necessary
pursuant to Rule 424(b) and will take such steps as it deems necessary to
ascertain promptly whether the form of prospectus transmitted for filing under
Rule 424(b) was received for filing by the Commission and, in the event that it
was not, it will promptly file such prospectus. The Company will make every
reasonable effort to prevent the issuance of any stop order and, if any stop
order is issued, to obtain the lifting thereof at the earliest possible moment.
(b) Filing of Amendments. The Company will give the
Representatives notice of its intention to file or prepare any amendment to the
Registration Statement (including any filing under Rule 462(b)), any Term Sheet
or any amendment, supplement or revision to either the prospectus included in
the Registration Statement at the time it became effective or to the Prospectus,
will furnish the Representatives with copies of any such documents a reasonable
amount of time prior to such proposed filing or use, as the case may be, and
will not file or use any such document to which the Representatives or counsel
for the Underwriters shall promptly object.
(c) Delivery of Registration Statements. The Company has furnished
or will deliver to the Representatives and counsel for the Underwriters, without
charge, signed copies of the Registration Statement as originally filed and of
each amendment thereto (including exhibits filed therewith) and signed copies of
all consents and certificates of experts, and will also deliver to the
Representatives, without charge, a conformed copy of the Registration Statement
as originally filed and of each amendment thereto (without exhibits) for each of
the Underwriters. The copies of the Registration Statement and each amendment
thereto furnished to the Underwriters will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR, except
to the extent permitted by Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to each
Underwriter, without charge, as many copies of each preliminary prospectus as
such Underwriter reasonably requested, and the Company hereby consents to the
use of such copies for purposes permitted by the 1933 Act. The Company will
furnish to each Underwriter, without charge, during the period when the
Prospectus is required to be delivered under the 1933 Act or the Securities
Exchange
17
Act of 1934 (the "1934 Act"), such number of copies of the Prospectus (as
amended or supplemented) as such Underwriter may reasonably request. The
Prospectus and any amendments or supplements thereto furnished to the
Underwriters will be identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will
comply with the 1933 Act and the 1933 Act Regulations so as to permit the
completion of the distribution of the Securities as contemplated in this
Agreement and in the Prospectus. If at any time when a prospectus is required by
the 1933 Act to be delivered in connection with sales of the Securities, any
event shall occur or condition shall exist as a result of which it is necessary,
in the reasonable opinion of counsel for the Underwriters or for the Company, to
amend the Registration Statement or amend or supplement the Prospectus in order
that the Prospectus will not include any untrue statements of a material fact or
omit to state a material fact necessary in order to make the statements therein
not misleading in the light of the circumstances existing at the time it is
delivered to a purchaser, or if it shall be necessary, in the reasonable opinion
of such counsel, at any such time to amend the Registration Statement or amend
or supplement the Prospectus in order to comply with the requirements of the
1933 Act or the 1933 Act Regulations, the Company will promptly prepare and file
with the Commission, subject to Section 3(b), such amendment or supplement as
may be necessary to correct such statement or omission or to make the
Registration Statement or the Prospectus comply with such requirements, and the
Company will furnish to the Underwriters such number of copies of such amendment
or supplement as the Underwriters may reasonably request.
(f) Blue Sky Qualifications. The Company will use its best
efforts, in cooperation with the Underwriters, to qualify the Securities for
offering and sale under the applicable securities laws of such states and other
jurisdictions (domestic or foreign) as the Representatives may designate;
provided, however, that the Company shall not be obligated to file any general
consent to service of process or to qualify as a foreign corporation or as a
dealer in securities in any jurisdiction in which it is not so qualified or to
subject itself to taxation in respect of doing business in any jurisdiction in
which it is not otherwise so subject.
(g) Rule 158. The Company will timely file such reports pursuant
to the 1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the purposes
of, and to provide the benefits contemplated by, the last paragraph of Section
11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds
received by it from the sale of the Securities by the Company in the manner
specified in the Prospectus under "Use of Proceeds." The Company will effect the
Company Repurchase in the manner specified in the Prospectus in accordance with
the Repurchase Agreement.
(i) Listing. The Company will use its best efforts to effect the
quotation of the Common Stock (including the Securities) on the Nasdaq National
Market and will file with the Nasdaq National Market all documents and notices
required by the Nasdaq National Market of
18
companies that have securities that are traded in the over-the-counter market
and quotations for which they are reported by the Nasdaq National Market.
(j) Restriction on Sale of Securities. During a period of 180 days
from the date of this Agreement, the Company will not, without the prior written
consent of Merrill Lynch, (i) directly or indirectly, offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of any share of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or file any registration
statement under the 1933 Act with respect to any of the foregoing or (ii) enter
into any swap or any other agreement or any transaction that transfers, in whole
or in part, directly or indirectly, the economic consequence of ownership of the
Common Stock, whether any such swap or transaction described in clause (i) or
(ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to (A)
the Securities to be sold hereunder, (B) any shares of Common Stock issued by
the Company upon the exercise of an option or warrant or the conversion of a
security outstanding on the date hereof and referred to in the Prospectus, (C)
any shares of Common Stock issued or options to purchase Common Stock granted
pursuant to existing employee benefit plans of the Company referred to in the
Prospectus or (D) any shares of Common Stock issued in connection with the
Pre-Offering Transactions as described in the Prospectus.
(k) Reporting Requirements. The Company, during the period when
the Prospectus is required to be delivered under the 1933 Act or the 1934 Act,
will file all documents required to be filed with the Commission pursuant to the
1934 Act within the time periods required by the 1934 Act and the rules and
regulations of the Commission thereunder.
(l) Compliance with NASD Rules. The Company hereby agrees that it
will ensure that the Reserved Securities will be restricted as required by the
National Association of Securities Dealers, Inc. (the "NASD") or the NASD rules
from sale, transfer, assignment, pledge or hypothecation for a period of three
months following the date of this Agreement. The Underwriters will notify the
Company as to which persons will need to be so restricted. At the request of the
Underwriters, the Company will direct the transfer agent to place a stop
transfer restriction upon such securities for such period of time. Should the
Company release, or seek to release, from such restrictions any of the Reserved
Securities, the Company agrees to reimburse the Underwriters for any reasonable
expenses (including, without limitation, legal expenses) they incur in
connection with such release.
(m) Compliance with Rule 463. The Company will file with the
Commission such information as may be required pursuant to Rule 463 of the 1933
Act Regulations.
SECTION 4. Payment of Expenses.
(a) Expenses. The Company will pay or cause to be paid all
expenses incident to the performance of its obligations under this Agreement,
including (i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally
19
filed and of each amendment thereto, (ii) the preparation, printing and
delivery to the Underwriters of this Agreement, any Agreement among Underwriters
and such other documents as may be required in connection with the offering,
purchase, sale, issuance or delivery of the Securities, (iii) the preparation,
issuance and delivery of the certificates for the Securities to the
Underwriters, including any stock or other transfer taxes and any stamp or other
duties payable upon the sale, issuance or delivery of the Securities to the
Underwriters, (iv) the fees and disbursements of the Company's counsel,
accountants and other advisors, (v) the qualification of the Securities under
securities laws in accordance with the provisions of Section 3(f) hereof,
including up to $5,000 of the filing fees and the reasonable fees and
disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation of the Blue Sky Survey and any supplement
thereto, (vi) the printing and delivery to the Underwriters of copies of each
preliminary prospectus, any Term Sheets and of the Prospectus and any amendments
or supplements thereto, (vii) the preparation, printing and delivery to the
Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii)
the fees and expenses of any transfer agent, registrar or custodian for the
Securities, (ix) the filing fees incident to, and the reasonable fees and
disbursements of counsel to the Underwriters in connection with, the review by
the NASD of the terms of the sale of the Securities, (x) the fees and expenses
incurred in connection with the quotation of the Securities on the Nasdaq
National Market, (xi) all costs and expenses of the Underwriters, including the
fees and disbursements of counsel for the Underwriters, in connection with
matters related to the Reserved Securities which are designated by the Company
for sale to Participants and (xii) the reasonable fees and expenses of the
Independent Underwriter. All underwriting discounts and commissions payable with
respect to the sale of Securities by the Selling Shareholders will be borne by
the Selling Shareholders.
(b) Expenses of the Selling Shareholders. The Selling
Shareholders, severally and not jointly, will pay all expenses incident to the
performance of their respective obligations hereunder, and the consummation of
the transactions contemplated by this Agreement, including (i) any stamp duties,
capital duties and stock transfer taxes, if any, payable upon the sale of the
Securities to the Underwriters, and their transfer between the Underwriters
pursuant to an agreement between such Underwriters, and (ii) the fees and
disbursements of their respective counsel and accountants.
(c) Termination of Agreement. If this Agreement is terminated by
the Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) or Section 11 hereof, the Company shall reimburse the Underwriters for
all of their out-of-pocket expenses, including the reasonable fees and
disbursements of counsel for the Underwriters.
(d) Allocation of Expenses. The provisions of this Section shall
not affect any agreement that the Company and any Selling Shareholder may make
for the sharing of such costs and expenses.
SECTION 5. Conditions of Underwriters' Obligations. The obligations
of the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company and the Selling Shareholders
contained in Section 1 hereof or in certificates of any officer of the Company
or any subsidiary of the Company or on behalf of any Selling
20
Shareholder, to the performance by the Company and the Selling Shareholders of
their respective covenants and other obligations hereunder, and to the following
further conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at the Closing Time no stop order suspending the effectiveness of
the Registration Statement shall have been issued under the 1933 Act or
proceedings therefor initiated or, to the knowledge of the Company, threatened
by the Commission, and any request on the part of the Commission for additional
information shall have been complied with to the reasonable satisfaction of
counsel to the Underwriters. A prospectus containing the Rule 430A Information
shall have been filed with the Commission in accordance with Rule 424(b) (or a
post-effective amendment providing such information shall have been filed and
declared effective in accordance with the requirements of Rule 430A) or, if the
Company has elected to rely upon Rule 434, a Term Sheet shall have been filed
with the Commission in accordance with Rule 424(b).
(b) Opinion of Counsel for Company. At the Closing Time, the
Representatives shall have received the opinion, dated as of Closing Time, of
each of (i) Pepper Hamilton LLP, counsel for the Company, in form and substance
reasonably satisfactory to counsel for the Underwriters, together with signed or
reproduced copies of such letter for each of the other Underwriters to the
effect set forth in Exhibit A hereto and to such further effect as counsel to
the Underwriters may reasonably request, and (ii) Baker, Donelson, Bearman &
Caldwell, counsel for the Company, in form and substance reasonably satisfactory
to counsel for the Underwriters together with signed or reproduced copies of
such letter for each of the other Underwriters to the effect set forth in
Exhibit B hereto and to such further effect as counsel for the Underwriters may
reasonably request. Each such counsel may also state that, insofar as such
opinion involves factual matters, they have relied, to the extent they deem
proper, upon certificates of officers of the Company and its subsidiaries and
certificates of public officials.
(c) Opinion of Counsel for the Selling Shareholders. At Closing
Time, the Representatives shall have received the opinion, dated as of the
Closing Time, of counsel for each of the Selling Shareholders, in form and
substance reasonably satisfactory to counsel for the Underwriters, together with
signed or reproduced copies of such letter for each of the other Underwriters to
the effect set forth in Exhibit C hereto and to such further effect as counsel
to the Underwriters may reasonably request. Counsel for each of the Selling
Shareholders are listed on Schedule E hereto. Such counsel may also state that,
insofar as such opinion involves factual matters, they have relied, to the
extent they deem proper, upon certificates of officers of the Selling
Shareholders and certificates of public officials.
(d) Opinion of Counsel for Underwriters. At the Closing Time, the
Representatives shall have received the opinion, dated as of Closing Time, of
Fried, Frank, Harris, Shriver & Jacobson, counsel for the Underwriters, together
with signed or reproduced copies of such letter for each of the other
Underwriters with respect to the matters set forth in clauses (i), (ii), (v),
(vi) (solely as to preemptive or other similar rights arising under the charter
or by-laws of the Company), (vii) through (ix), inclusive, and the penultimate
paragraph of Exhibit A hereto. In giving such opinion such counsel may rely, as
to all matters governed by the laws of jurisdictions other than the law of the
State of New York, the federal law of the United States and the General
21
Corporation Law of the State of Delaware, upon the opinions of counsel
satisfactory to the Representatives. Such counsel may also state that, insofar
as such opinion involves factual matters, they have relied, to the extent they
deem proper, upon certificates of officers of the Company and its subsidiaries
and certificates of public officials.
(e) Officers' Certificate. At the Closing Time, there shall not
have been, since the date hereof or since the respective dates as of which
information is given in the Prospectus, any material adverse change in the
condition (financial or otherwise), earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business, and the
Representatives shall have received a certificate of the Chief Executive
Officer of the Company and of the Chief Financial Officer of the Company, dated
as of the Closing Time, to the effect that (i) there has been no such material
adverse change, (ii) the representations and warranties in Section 1(a) hereof
are true and correct with the same force and effect as though expressly made at
and as of the Closing Time, (iii) the Company has complied with all agreements
and satisfied all conditions on its part to be performed or satisfied at or
prior to the Closing Time, and (iv) no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or are, to their knowledge,
contemplated by the Commission.
(f) Certificate of Selling Shareholders. At Closing Time, the
Representatives shall have received a certificate of an Attorney-in-Fact on
behalf of each Selling Shareholder, dated as of Closing Time, to the effect
that (i) the representations and warranties of each Selling Shareholder
contained in Section 1(b) hereof are true and correct in all respects with the
same force and effect as though expressly made at and as of Closing Time and
(ii) each Selling Shareholder has complied in all material respects with all
agreements and all conditions on its part to be performed under this Agreement
at or prior to Closing Time.
(g) Accountant's Comfort Letter. At the time of the execution of
this Agreement, the Representatives shall have received from
PricewaterhouseCoopers LLP a letter in the form of Exhibit E hereto, dated such
date, in form and substance satisfactory to the Representatives, together with
signed or reproduced copies of such letter for each of the other Underwriters
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the financial
statements and certain financial information contained in the Registration
Statement and the Prospectus.
(h) Bring-down Comfort Letter At the Closing Time, the
Representatives shall have received from PricewaterhouseCoopers LLP a letter,
dated as of Closing Time, to the effect that they reaffirm the statements made
in the letter furnished pursuant to subsection (g) of this Section, except that
the specified date referred to shall be a date not more than three business
days prior to the Closing Time.
(i) Approval of Listing. At the Closing Time, the Securities
shall have been approved for inclusion in the Nasdaq National Market, subject
only to official notice of issuance.
(j) No Objection. The NASD has confirmed that it has not raised
any objection with respect to the fairness and reasonableness of the
underwriting terms and arrangements.
22
(k) Lock-up Agreements. At the date of this Agreement, the
Representatives shall have received an agreement substantially in the form of
Exhibit D hereto signed by each director, officer, shareholder, warrantholder
and optionholder of the Company listed on Schedule D hereto.
(l) Pre-Offering Transactions.At Closing Time, the Pre-Offering
Transactions and the Company Repurchase as described in the Prospectus shall
have been consummated in a manner reasonably satisfactory to the Underwriters.
(m) Conditions to Purchase of Option Securities. In the event
that the Underwriters exercise their option provided in Section 2(b) hereof to
purchase all or any portion of the Option Securities, the representations and
warranties of the Company and the Selling Shareholders contained herein and the
statements in any certificates furnished by the Company, any subsidiary of the
Company and the Selling Shareholders hereunder shall be true and correct as of
each Date of Delivery and, at the relevant Date of Delivery, the
Representatives shall have received:
(i) Officers' Certificate. A certificate, dated such
Date of Delivery, of the Chief Executive Officer of the Company and of
the Chief Financial Officer of the Company confirming that the
certificate delivered at the Closing Time pursuant to Section 5(e)
hereof remains true and correct as of such Date of Delivery.
(ii) Certificate of Selling Shareholders. A certificate,
dated such Date of Delivery, of an Attorney-in-Fact on behalf of each
Selling Shareholder confirming that the certificate delivered at
Closing Time pursuant to Section 5(f) remains true and correct as of
such Date of Delivery.
(iii) Opinions of Counsel for Company. The opinions of
each of (i) Pepper Hamilton LLP, counsel for the Company, and (ii)
Baker, Donelson, Bearman & Caldwell, counsel for the Company, in form
and substance reasonably satisfactory to counsel for the Underwriters,
dated such Date of Delivery, relating to the Option Securities to be
purchased on such Date of Delivery and otherwise to the same effect as
the opinions required by Section 5(b) hereof.
(iv) Opinion of Counsel for the Selling Shareholders. The
opinion of counsel for each of the Selling Shareholders, in form and
substance reasonably satisfactory to counsel for the Underwriters,
dated such Date of Delivery, relating to the Option Securities to be
purchased on such Date of Delivery and otherwise to the same effect as
the opinion required by Section 5(c) hereof.
(v) Opinion of Counsel for Underwriters. The opinion of
Fried, Frank, Harris, Shriver & Jacobson, counsel for the
Underwriters, dated such Date of Delivery, relating to the Option
Securities to be purchased on such Date of Delivery and otherwise to
the same effect as the opinion required by Section 5(d) hereof.
(vi) Bring-down Comfort Letter. A letter from
PricewaterhouseCoopers LLP, in form and substance satisfactory to the
Representatives and dated such Date of Delivery, substantially in the
same form and substance as the letter furnished to the
23
Representatives pursuant to Section 5(g) hereof, except that the
"specified date" in the letter furnished pursuant to this paragraph
shall be a date not more than five days prior to such Date of Delivery.
(n) Additional Documents. At the Closing Time and at each Date of
Delivery, counsel for the Underwriters shall have been furnished with such
documents and opinions as they may reasonably require for the purpose of
enabling them to pass upon the issuance and sale of the Securities as herein
contemplated, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company and the Selling
Shareholders in connection with the issuance and sale of the Securities as
herein contemplated shall be reasonably satisfactory in form and substance to
the Representatives and counsel for the Underwriters; and the Company shall
have obtained all consents and/or waivers which may be required in order to
consummate the issuance and sale of the Securities as herein contemplated.
(o) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled,
this Agreement, or, in the case of any condition to the purchase of Option
Securities, on a Date of Delivery which is after the Closing Time, the
obligations of the several Underwriters to purchase the relevant Option
Securities, may be terminated by the Representatives by written notice to the
Company at any time at or prior to Closing Time or such Date of Delivery, as
the case may be, and such termination shall be without liability of any party
to any other party except as provided in Section 4 and except that Sections 1,
6, 7 and 8 shall survive any such termination and remain in full force and
effect.
SECTION 6. Indemnification.
(a) Indemnification of Underwriters. (1) Subject to the
Provisions at the end of this Section, the Company and the Selling
Shareholders, jointly and severally, agree to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of any untrue
statement or alleged untrue statement of a material fact contained in
the Registration Statement (or any amendment thereto), including the
Rule 430A Information and the Rule 434 Information, if applicable, or
the omission or alleged omission therefrom of a material fact required
to be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of (A) the violation
of any applicable laws or regulations of foreign jurisdictions where
Reserved Securities have been offered and (B) any untrue statement or
alleged untrue statement of a material fact included in the supplement
or
24
prospectus wrapper material distributed in connection with the
reservation and sale of the Reserved Securities to eligible employees
of the Company and other persons or the omission or alleged omission
therefrom of a material fact necessary to make the statements therein,
when considered in conjunction with the Prospectus or preliminary
prospectus, not misleading;
(iii) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or
omission or in connection with any violation of the nature referred to
in Section 6(a)(1)(ii)(A) hereof, provided that (subject to Section
6(d) below) any such settlement is effected with the written consent
of the Company; and
(iv) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission or in connection with any
violation of the nature referred to in Section 6(a)(1)(ii)(A) hereof,
to the extent that any such expense is not paid under (i), (ii) or
(iii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto); provided, further, that
the indemnification contained in this Section 6(a)(1) with respect to, based on
or arising out of an untrue statement or omission of a material fact or alleged
untrue statement or omission of a material fact in any preliminary prospectus
shall not inure to the benefit of any Underwriter or other person indemnified
under this Section 6(a)(1) with respect to a claim made by a third party to the
extent that the third party sustains the burden of proving that (i) copies of
the Prospectus, as amended or supplemented, were provided to the Underwriters
and the Company complied with Sections 3(c), 3(d) and 3(e) hereof, (ii) a copy
of the Prospectus, as amended or supplemented, was not delivered or sent to
such third party making claims or seeking damages within the time required by
the 1933 Act and the 1933 Act Regulations, and (iii) the untrue statement or
omission or the alleged untrue statement or omission was corrected in the
Prospectus, as amended or supplemented; provided, further, however, that the
liability of any Selling Shareholder under this Section shall be limited to an
amount not exceeding the proceeds received by such Selling Shareholder from the
sale of Securities hereunder (after deducting the underwriting discount but
before expenses). Notwithstanding the foregoing, the liability of each Other
Selling Shareholder shall be several and not joint and shall be limited to
information furnished in writing by such Other Selling
25
Shareholder to the Company or the Underwriters expressly for use in the
Registration Statement or any preliminary prospects or the Prospectus, it being
understood that this information consists of the information under "Principal
and Selling Shareholders" adjacent to the name of such Other Selling
Shareholder and in the related footnote.
(2) In addition to and without limitation of the
Company's obligation to indemnify Merrill Lynch as an Underwriter, the Company
agrees to indemnify and hold harmless the Independent Underwriter and each
person, if any, who controls the Independent Underwriter within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act, from and against any
and all loss, liability, claim, damage and expense whatsoever, as incurred,
incurred as a result of the Independent Underwriter's participation as a
"qualified independent underwriter" within the meaning of Rule 2720 of the
Conduct Rules of the National Association of Securities Dealers, Inc. in
connection with the offering of the Securities.
(b) Indemnification of Company, Directors, Officers and Selling
Shareholders. Each Underwriter severally agrees to indemnify and hold harmless
the Company, its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act, and each Selling
Shareholder and each person, if any, who controls any Selling Shareholder
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
against any and all loss, liability, claim, damage and expense described in the
indemnity contained in subsection (a)(1) of this Section, as incurred, but only
with respect to untrue statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any amendment thereto),
including the Rule 430A Information and the Rule 434 Information, if
applicable, or any preliminary prospectus or the Prospectus (or any amendment
or supplement thereto) in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through Merrill Lynch
expressly for use in the Registration Statement (or any amendment thereto) or
such preliminary prospectus or the Prospectus (or any amendment or supplement
thereto).
(c) Actions against Parties; Notification. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent it
is not materially prejudiced as a result thereof and in any event shall not
relieve it from any liability which it may have otherwise than on account of
this indemnity agreement. In the case of parties indemnified pursuant to
Section 6(a)(1) above, counsel to the indemnified parties shall be selected by
Merrill Lynch, and, in the case of parties indemnified pursuant to Section 6(b)
above, counsel to the indemnified parties shall be selected by the Company and
the Selling Shareholders, as the case may be. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances; provided, that, if
26
indemnity is sought pursuant to Section 6(a)(2), then, in addition to the fees
and expenses of such counsel for the indemnified parties, the indemnifying
party shall be liable for the reasonable fees and expenses of not more than one
counsel (in addition to any local counsel) separate from its own counsel and
that of the other indemnified parties for the Independent Underwriter in its
capacity as a "qualified independent underwriter" and all persons, if any, who
control the Independent Underwriter within the meaning of Section 15 of the
1933 Act or Section 20 of 1934 Act in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances if, in the reasonable judgment of
the Independent Underwriter, there may exist a conflict of interest between the
Independent Underwriter and the other indemnified parties. Any such separate
counsel for the Independent Underwriter and such control persons of the
Independent Underwriter shall be designated in writing by the Independent
Underwriter. No indemnifying party shall, without the prior written consent of
the indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 6 or Section 7 hereof (whether or not the indemnified
parties are actual or potential parties thereto), unless such settlement,
compromise or consent (i) includes an unconditional release of each indemnified
party from all liability arising out of such litigation, investigation,
proceeding or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act by or on behalf of any indemnified
party.
(d) Settlement without Consent if Failure to Reimburse. If at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 6(a)(1)(iii) effected without its written
consent if (i) such settlement is entered into more than 45 days after receipt
by such indemnifying party of the aforesaid request, (ii) such indemnifying
party shall have received notice of the terms of such settlement at least 30
days prior to such settlement being entered into and (iii) such indemnifying
party shall not have reimbursed such indemnified party in accordance with such
request prior to the date of such settlement.
(e) Indemnification for Reserved Securities. In connection with
the offer and sale of the Reserved Securities, the Company agrees, promptly
upon a request in writing, to indemnify and hold harmless the Underwriters from
and against any and all losses, liabilities, claims, damages and expenses
incurred by them as a result of the failure of eligible employees of the
Company and its subsidiaries and other persons to pay for and accept delivery
of Reserved Securities which, by the end of the first business day following
the date of this Agreement, were subject to a properly confirmed agreement to
purchase.
(f) Other Agreements with Respect to Indemnification. The
provisions of this Section shall not affect any agreement among the Company and
the Selling Shareholders with respect to indemnification.
SECTION 7. Contribution. If the indemnification provided for in
Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any
27
losses, liabilities, claims, damages or expenses referred to therein, then each
indemnifying party shall contribute to the aggregate amount of such losses,
liabilities, claims, damages and expenses incurred by such indemnified party,
as incurred, (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Selling Shareholders on the one hand
and the Underwriters on the other hand from the offering of the Securities
pursuant to this Agreement or (ii) if the allocation provided by clause (i) is
not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Company and the Selling Shareholders on the one hand
and of the Underwriters on the other hand in connection with the statements or
omissions, or in connection with any violation of the nature referred to in
Section 6(a)(1)(ii)(A) hereof, which resulted in such losses, liabilities,
claims, damages or expenses, as well as any other relevant equitable
considerations.
The relative benefits received by the Company and the Selling
Shareholders on the one hand and the Underwriters on the other hand in
connection with the offering of the Securities pursuant to this Agreement shall
be deemed to be in the same respective proportions as the total net proceeds
from the offering of the Securities pursuant to this Agreement (before
deducting expenses) received by the Company and the Selling Shareholders and
the total underwriting discount received by the Underwriters, in each case as
set forth on the cover of the Prospectus, or, if Rule 434 is used, the
corresponding location on the Term Sheet, bear to the aggregate initial public
offering price of the Securities as set forth on such cover.
The relative fault of the Company and the Selling Shareholders on the
one hand and the Underwriters on the other hand shall be determined by
reference to, among other things, whether any such untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company or the Selling
Shareholders or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission or any violation of the nature referred to in Section
6(a)(1)(ii)(A) hereof.
The Company, the Selling Shareholders and the Underwriters agree that
Merrill Lynch will not receive any additional benefits hereunder for serving as
the Independent Underwriter in connection with the offering and sale of the
Securities.
The Company, the Selling Shareholders and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 7
were determined by pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to above in this
Section 7. The aggregate amount of losses, liabilities, claims, damages and
expenses incurred by an indemnified party and referred to above in this Section
7 shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
28
Notwithstanding the provisions of this Section 7, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter,
and each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company or
any Selling Shareholder within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as the
Company or such Selling Shareholder, as the case may be. The Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Initial Securities set forth opposite their
respective names in Schedule A hereto and not joint.
The liability of each Principal Selling Shareholder with respect to
its representations and warranties contained in Section 1(b)(i) hereof and
under the indemnity and contribution agreements contained herein shall not
exceed the product of the number of Securities sold by such Principal Selling
Shareholder and the initial public offering of the Securities as set forth in
the Prospectus.
The provisions of this Section shall not affect any agreement among
the Company and the Selling Shareholders with respect to contribution.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company or any of its
subsidiaries or any of the Selling Shareholders submitted pursuant hereto,
shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or controlling person, or
by or on behalf of the Company or any of the Selling Shareholders, and shall
survive delivery of the Securities to the Underwriters.
SECTION 9. Termination of Agreement.
(a) Termination; General. The Representatives may terminate this
Agreement, by notice to the Company and the Selling Shareholders, at any time
at or prior to Closing Time (i) if there has been, since the time of execution
of this Agreement or since the respective dates as of which information is
given in the Prospectus (exclusive of any supplement thereto), any material
adverse change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its subsidiaries
considered as one enterprise, whether or not arising in the ordinary course of
business, or (ii) if there has occurred any material adverse change in the
financial markets in the United States or the international financial markets,
any outbreak of hostilities or escalation thereof or other calamity or crisis
or any change or development involving a prospective change in national or
international political, financial or economic conditions, in each case the
effect of which is such as to make it, in the judgment of the Representatives,
impracticable or inadvisable to market the Securities or to enforce contracts
for the sale of the Securities, or (iii) if trading in any securities of the
Company has been
29
suspended or materially limited by the Commission or the Nasdaq National
Market, or if trading generally on the American Stock Exchange or the New York
Stock Exchange or in the Nasdaq National Market has been suspended or
materially limited, or minimum or maximum prices for trading have been fixed,
or maximum ranges for prices have been required, by any of said exchanges or by
such system or by order of the Commission, the National Association of
Securities Dealers, Inc. or any other governmental authority, or a material
disruption has occurred in commercial banking or securities settlement or
clearance securities in the United States, or (iv) if a banking moratorium has
been declared by either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that
Sections 1, 6, 7 and 8 shall survive such termination and remain in full force
and effect.
SECTION 10. Default by One or More of the Underwriters. If one or more
of the Underwriters shall fail at Closing Time or a Date of Delivery to
purchase the Securities which it or they are obligated to purchase under this
Agreement (the "Defaulted Securities"), the Representatives shall have the
right, within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting Underwriters, or any other underwriters, to purchase all, but
not less than all, of the Defaulted Securities in such amounts as may be agreed
upon and upon the terms herein set forth; if, however, the Representatives
shall not have completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of
the number of Securities to be purchased on such date, each of the
non-defaulting Underwriters shall be obligated, severally and not jointly, to
purchase the full amount thereof in the proportions that their respective
underwriting obligations hereunder bear to the underwriting obligations of all
non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of Securities to be purchased on such date, this Agreement or, with
respect to any Date of Delivery which occurs after the Closing Time, the
obligation of the Underwriters to purchase and of the Selling Shareholders to
sell the Option Securities to be purchased and sold on such Date of Delivery,
shall terminate without liability on the part of any non-defaulting
Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement or, in the case of a Date of Delivery which is
after the Closing Time, which does not result in a termination of the
obligation of the Underwriters to purchase and the Selling Shareholders to sell
the relevant Option Securities, as the case may be, either (i) the
Representatives or (ii) the Company and any Selling Shareholder shall have the
right to postpone Closing Time or the relevant Date of Delivery, as the case
may be, for a period not exceeding seven days in order to effect any required
changes in the Registration Statement or Prospectus or in any other
30
documents or arrangements. As used herein, the term "Underwriter" includes any
person substituted for an Underwriter under this Section 10.
SECTION 11. Default by one or more of the Selling Shareholders or the
Company. (a) If a Selling Shareholder shall fail at Closing Time or at a Date
of Delivery to sell and deliver the number of Securities which such Selling
Shareholder is obligated to sell hereunder, and the remaining Selling
Shareholders do not exercise the right hereby granted to increase, pro rata or
otherwise, the number of Securities to be sold by them hereunder to the total
number to be sold by all Selling Shareholders as set forth in Schedule B
hereto, then the Underwriters may, at option of the Representatives, by notice
from the Representatives to the Company and the non-defaulting Selling
Shareholders, either (a) terminate this Agreement without any liability on the
fault of any non-defaulting party except that the provisions of Sections 1, 4,
6, 7 and 8 shall remain in full force and effect or (b) elect to purchase the
Securities which the non-defaulting Selling Shareholders and the Company have
agreed to sell hereunder. No action taken pursuant to this Section 11 shall
relieve any Selling Shareholder so defaulting from liability, if any, in
respect of such default.
In the event of a default by any Selling Shareholder as referred to in
this Section 11, each of the Representatives, the Company and the
non-defaulting Selling Shareholders shall have the right to postpone Closing
Time or Date of Delivery for a period not exceeding seven days in order to
effect any required change in the Registration Statement or Prospectus or in
any other documents or arrangements.
(b) If the Company shall fail at Closing Time or at the Date of
Delivery to sell the number of Securities that it is obligated to sell
hereunder, then this Agreement shall terminate without any liability on the
part of any nondefaulting party; provided, however, that the provisions of
Sections 1, 4, 6, 7 and 8 shall remain in full force and effect. No action
taken pursuant to this Section shall relieve the Company from liability, if
any, in respect of such default.
SECTION 12. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication (including, without
limitation, email or facsimile). Notices to the Underwriters shall be directed
to the Representatives at North Tower, World Financial Center, New York, New
York 10281-1201, attention of Equity Capital Markets; with a copy to Fried,
Frank, Harris, Shriver & Jacobson, One New York Plaza, New York, New York
10004, attention of Valerie Ford Jacob, Esq.; and notices to the Company shall
be directed to it at Kirkland's, Inc., 805 North Parkway, Jackson, Tennessee
38305, attention of Robert E. Alderson, with a copy to Pepper Hamilton LLP,
3000 Two Logan Square, Philadelphia, Pennsylvania 19103-2799, attention of
Barry M. Abelson, Esq. and Robert A. Friedel, Esq.; and notices to any or all
of the Selling Shareholders shall be directed to the care of Advent
International Corp., 75 State Street, Boston, Massachusetts, 02109, attention
of David M. Mussafer; with a copy to Pepper Hamilton, LLP, 3000 Two Logan
Square, Philadelphia, Pennsylvania 19103-2799, attention of Barry M. Abelson,
Esq. and Robert A. Friedel, Esq.
31
SECTION 13. Parties. This Agreement shall each inure to the benefit of
and be binding upon the Underwriters, the Company and the Selling Shareholders
and their respective successors. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person, firm or
corporation, other than the Underwriters, the Company and the Selling
Shareholders and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 and their heirs and
legal representatives, any legal or equitable right, remedy or claim under or
in respect of this Agreement or any provision herein contained. This Agreement
and all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Underwriters, the Company and the Selling Shareholders
and their respective successors, and said controlling persons and officers and
directors and their heirs and legal representatives, and for the benefit of no
other person, firm or corporation. No purchaser of Securities from any
Underwriter shall be deemed to be a successor by reason merely of such
purchase.
SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 15. Effect of Headings. The Article and Section headings
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.
32
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company and the Attorney-in-Fact for
the Selling Shareholders a counterpart hereof, whereupon this instrument, along
with all counterparts, will become a binding agreement among the Underwriters,
the Company and the Selling Shareholders in accordance with its terms.
Very truly yours,
KIRKLAND'S, INC.
By:
----------------------------------------
Name:
Title:
CARL KIRKLAND
ROBERT E. ALDERSON
GLOBAL PRIVATE EQUITY II, L.P.
ADVENT DIRECT INVESTMENT PROGRAM
LIMITED PARTNERSHIP
ADVENT PARTNERS LIMITED PARTNERSHIP
THE CARL T. KIRKLAND GRANTOR RETAINED
ANNUITY TRUST 2001-1
THE ALLISON LEIGH ALDERSON TRUST
THE AMY KATHERINE ALDERSON TRUST
CAPITAL TRUST INVESTMENTS, LTD.
CT/KIRKLAND EQUITY PARTNERS, L.P.
R-H CAPITAL PARTNERS, L.P.
SSM VENTURES PARTNERS, L.P.
JOSEPH R. HYDE, III
JOHNSTON C. ADAMS, JR.
CRESCENT/MACH 1 PARTNERS, L.P.
THE MARLBOROUGH CAPITAL INVESTMENT FUND, L.P.
CAPITAL RESOURCE LENDERS II, L.P.
ALLIED CAPITAL CORPORATION
By:
----------------------------------------
Name:
Title: Attorney-in-fact
33
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
CIBC WORLD MARKETS CORP.
SUNTRUST CAPITAL MARKETS, INC.
U.S. BANCORP PIPER JAFFRAY INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
---------------------------------------
Authorized Signatory
For themselves and as Representatives of the
other Underwriters named in Schedule A hereto.
34
SCHEDULE A
Number of
Initial
Name of Underwriters Securities
- -------------------- ----------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...........................................
CIBC World Markets Corp............................................
SunTrust Capital Markets, Inc......................................
U.S. Bancorp Piper Jaffray Inc. ...................................
Total..............................................................
==========
Sch A-1
SCHEDULE B
LIST OF SELLING SHAREHOLDERS
Number of Initial Maximum Number of Option Securities
Securities to be Sold to be Sold
--------------------- ------------------------------------
Kirkland's, Inc.
Principal Selling Shareholders
- ------------------------------
Carl Kirkland
Robert E. Alderson
The Carl T. Kirkland Grantor Retained Annuity Trust
2001-1
The Allison Leigh Alderson Trust
The Amy Katherine Alderson Trust
Other Selling Shareholders
- --------------------------
Global Private Equity, II L.P.
Advent Direct Investment Program Limited Partnership
Advent Partners Limited Partnership
Capital Trust Investments, Ltd.
CT/Kirkland Equity Partners, L.P.
R-H Capital Partners, L.P.
SSM Venture Partners, L.P.
Joseph R. Hyde, III
Johnston C. Adams, Jr.
Crescent/Mach I Partners, L.P.
The Marlborough Capital Investment Fund, L.P.
Capital Resource Lenders II. L.P.
Sch B-1
Allied Capital Corporation
Total..........................................................
Sch B-2
SCHEDULE C
KIRKLAND'S, INC.
__________ Shares of Common Stock
(No Par Value Per Share)
1. The initial public offering price per share for the
Securities, determined as provided in Section 2, shall be $ .
2. The purchase price per share for the Securities to be paid by
the several Underwriters shall be $ , being an amount equal to the
initial public offering price set forth above less $ per share;
provided that the purchase price per share for any Option Securities purchased
upon the exercise of the over-allotment option described in Section 2(b) shall
be reduced by an amount per share equal to any dividends or distributions
declared by the Company and payable on the Initial Securities but not payable
on the Option Securities.
Sch C-1
SCHEDULE D
List of persons and entities subject to lock-up
Kirkland Holdings L.L.C.
Carl Kirkland
Robert E. Alderson
Reynolds C. Faulkner
H.R. Harvey
Ed Wise
David M. Mussafer
R. Wilson Orr, III
John P. Oswald
Alexander S. McGrath
Murray Spain
Christopher T. LaFont
Grey Satterfield
Toni Warren
James W. Harris
Janna B. Alford
Deborah A. McDonald
Connie Scoggins
Lowell E. Pugh, II
Mona Smith
The Allison Leigh Alderson Trust
The Amy Katherine Alderson Trust
The Carl T. Kirkland Grantor Retained Annuity Trust 2001-1
Robert Kirkland
Steven Collins
Global Private Equity II, L.P.
Advent Direct Investment Program Limited Partnership
Advent Partners Limited Partnership
CT/Kirkland Equity Partners, L.P.
R-H Capital Partners, L.P.
SSM Venture Partners, L.P.
Joseph R. Hyde, III
Johnston C. Adams, Jr.
John H. Pontius
Crescent/Mach I Partners, L.P.
Capital Resource Lenders II, L.P.
Allied Capital Corporation
Capital Trust Investment, Ltd.
The Marlborough Capital Investment Fund, L.P.
Sch D-1
Robert C. Grayson & Associates, Inc.
Charles Taylor
Dianna Clark
Deborah J. Gilmore
Chuck Guthrie
James W. Harris
Steve Horn
Robert L. Hyde
Carey A. Kirkland
Ronnie Earl Leonard
Mike Madden
Mary LaFont Mount
Vivian P. Nance
Jimmy Nicholson
Kim Oberman
Tracey Parker
Tami Rene Shelby
Marilyn Kennedy Wells
Barbara Whitmer
Steve Diffee
Elizabeth Maner
Sch D-2
Schedule E
Selling Shareholder Counsel
- ------------------- -------
Carl Kirkland Baker, Donelson, Bearman & Caldwell
Robert E. Alderson Baker, Donelson, Bearman & Caldwell
Global Private Equity, II L.P. Pepper Hamilton LLP
Advent Direct Investment Program Limited Partnership Pepper Hamilton LLP; Conyers, Dill & Pearman
Advent Partners Limited Partnership Pepper Hamilton LLP
The Carl T. Kirkland Grantor Retained
Annuity Trust 2001-1 Baker, Donelson, Bearman & Caldwell
The Allison Leigh Alderson Trust Baker, Donelson, Bearman & Caldwell
The Amy Katherine Alderson Trust Baker, Donelson, Bearman & Caldwell
Capital Trust Investments, Ltd. LeBoeuf, Lamb, Greene & McRae, L.L.P.;
Ogier & LeMasurier
CT/Kirkland Equity Partners, L.P. LeBoeuf, Lamb, Greene & McRae, L.L.P.
R-H Capital Partners, L.P. David Prince, Esq.
SSM Ventures Partners, L.P. Bass Berry & Simms PLC
Joseph R. Hyde, III Bass Berry & Simms PLC
Johnston C. Adams, Jr. Bass Berry & Simms PLC
Crescent/Mach I Partners, L.P. O'Melveny & Myers LLP
The Marlborough Capital Investment Fund, L.P. Testa, Hurwitz & Thibeault, LLP
Capital Resource Lenders II, L.P. Testa, Hurwitz & Thibeault, LLP
Allied Capital Corporation Sutherland, Asbill & Brennan
Sch E-1
FORM OF LOCK-UP LETTER PURSUANT TO SECTION 5(K)
Exhibit D
, 2002
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
CIBC World Markets Corp.
SunTrust Capital Markets, Inc.
U.S. Bancorp Piper Jaffray Inc.
as Representatives of the several
Underwriters to be named in the
within-mentioned Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Re: Proposed Public Offering by Kirkland's, Inc.
Dear Sirs:
The undersigned, a stockholder, optionholder, warrantholder, officer and/or
director of Kirkland's, Inc., a Tennessee corporation (the "Company"), or a
member of a stockholder of the Company, understands that Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), CIBC
World Markets Corp., SunTrust Capital Markets, Inc. and U. S. Bancorp Piper
Jaffray Inc. propose to enter into a Purchase Agreement (the "Purchase
Agreement") with the Company providing for the public offering of shares (the
"Securities") of the Company's common stock, no par value per share (the
"Common Stock"). In recognition of the benefit that such an offering will
confer upon the undersigned, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the undersigned
agrees with each underwriter to be named in the Purchase Agreement that, during
a period of 180 days from the date of the Purchase Agreement, the undersigned
will not, without the prior written consent of Merrill Lynch, directly or
indirectly, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant for the sale of, or otherwise dispose of or transfer
any shares of the Company's Common Stock or any securities convertible into or
exchangeable or exercisable for Common Stock, whether now owned or hereafter
acquired by the undersigned or with respect to
D-1
which the undersigned has or hereafter acquires the power of disposition, or
request that the Company file any registration statement under the Securities
Act of 1933, as amended, with respect to any of the foregoing or (ii) enter
into any swap or any other agreement or any transaction that transfers, in
whole or in part, directly or indirectly, the economic consequence of ownership
of the Common Stock, whether any such swap transaction is to be settled by
delivery of Common Stock or other securities, in cash or otherwise.
Notwithstanding the foregoing, nothing herein shall prevent or prohibit (1)
bona fide gifts by the undersigned, (2) transfers by the undersigned to his or
her family members or related trusts for the benefit of his or her family
members, or (3) transfers by the undersigned to its affiliates (as defined in
the rules and regulations of the Securities Act of 1933), provided that in the
case of each of (1), (2) and (3) the transferee agrees in writing to the terms
of this letter. It is understood that, if the Company notifies Merrill Lynch
that it does not intend to proceed with the Offering, if the Purchase Agreement
does not become effective, or if the Purchase Agreement (other than the
provisions thereof which survive termination) shall terminate or be terminated
prior to payment for and delivery of the Securities, the undersigned will be
released from his, her or its obligations under this Lock-Up Letter Agreement.
Very truly yours,
Signature:
-----------------------------
Print Name:
-----------------------------
D-2