EXHIBIT 2.1
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AGREEMENT AND PLAN OF MERGER
dated as of February 5, 2004
among
GENESCO INC.,
HWC MERGER SUB, INC.
and
HAT WORLD CORPORATION
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INDS01 RKIXMILLER 644669v7
THIS AGREEMENT AND PLAN OF MERGER (together with the Schedules and
Exhibits hereto, this "AGREEMENT"), dated as of February 5, 2004, is among HWC
MERGER SUB, INC., a Delaware corporation ("NEWCO"), GENESCO INC., a Tennessee
corporation ("PARENT"), and HAT WORLD CORPORATION, a Delaware corporation (the
"COMPANY") (each sometimes referred to herein as a "PARTY" and collectively
sometimes referred to herein as the "PARTIES").
RECITALS
A. The Board of Directors of each of the Company and Newco
believes that it is in the best interests of each company and their respective
stockholders that the Company and Newco combine into a single company through
the statutory merger of Newco with and into the Company (the "MERGER") and, in
furtherance thereof, along with Parent as the sole stockholder of Newco, have
approved the Merger.
B. Pursuant to the Merger, among other things, the outstanding
shares of Company Stock and any unexercised options to purchase Company Stock
will be converted into the right to receive the Merger Consideration as
determined herein.
C. Concurrently with the execution and delivery of this
Agreement, and as a condition and inducement to the willingness of Parent and
Newco to enter into this Agreement, each of ▇▇▇▇▇▇▇▇ Hat World, LLC, ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, J. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, Bluestem Capital Partners I, LLC, Bluestem Capital Partners II, LP,
Bluestem Capital Partners III, LP and Hworld Investments, L.L.C. (collectively,
the "CONTROLLING STOCKHOLDERS") has executed and delivered to Parent an
irrevocable proxy dated the date hereof (the "PROXIES") pursuant to which such
holders have agreed, among other things, to vote all his, her or its shares of
Company Stock in favor of the Merger.
D. The Company, Parent and Newco desire to make certain
representations and warranties and other agreements in connection with the
Merger.
E. Certain capitalized terms used herein as defined terms are
defined in Schedule 1 attached hereto. Additionally, Schedule 1 references the
sections of this Agreement in which other capitalized terms that are used as
defined terms are defined.
AGREEMENTS
In consideration of the premises and the mutual representations,
warranties, covenants and agreements contained herein, and for other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the parties hereby agree
as follows:
ARTICLE 1. THE MERGER
SECTION 1.1 THE MERGER. At the Effective Time and on
the terms and subject to the conditions of this Agreement,
Newco shall be merged with and into the Company, at which time
the separate corporate existence of Newco shall cease and the
Company shall continue as the surviving corporation after the
Merger. The Company as the surviving corporation after the
Merger is hereinafter sometimes
AGREEMENT AND PLAN OF MERGER PAGE 2 INDS01 RKIXMILLER 644669v6
referred to as the "SURVIVING CORPORATION". The Surviving
Corporation shall continue to be governed by the laws of the
State of Delaware.
SECTION 1.2 EFFECTIVE TIME AND CLOSING. On the second
Business Day after the satisfaction or waiver of all of the
conditions to the obligations of the parties to consummate the
transactions contemplated hereby set forth in Article 5 (other
than conditions with respect to actions to be taken at the
Closing), the parties shall cause the Merger and other
transactions contemplated hereby to be consummated by (a)
executing and delivering to one another such agreements,
instruments, certificates and documents required by each of
them under this Agreement in order to satisfy their respective
obligations and conditions precedent to be satisfied by them,
and (b) by filing a Certificate of Merger with the Secretary
of State of the State of Delaware, in such form as required
by, and executed in accordance with the relevant provisions
of, Section 251(c) of the Delaware General Corporation Law
(the "DGCL") (the time of such filing with the Secretary of
the State of Delaware, or such other later time as the parties
mutually agree and set forth in the Certificate of Merger,
being the "EFFECTIVE TIME"). The consummation of the
transactions contemplated hereby (the "CLOSING") shall take
place at 10:00 a.m. at the offices of the Company's counsel,
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, in Indianapolis, Indiana on the date
provided above, unless another date is agreed to in writing by
the parties (the "CLOSING DATE").
SECTION 1.3 EFFECT OF THE MERGER. At the Effective
Time, the effect of the Merger shall be as provided under the
DGCL and this Agreement. Without limiting the generality of
the foregoing, at the Effective Time all the property, rights,
privileges, powers and franchises of the Company and Newco
shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Newco shall become
the debts, liabilities and duties of the Surviving
Corporation.
SECTION 1.4 CERTIFICATE OF INCORPORATION; BY-LAWS.
(a) Unless otherwise determined by Parent prior to the
Effective Time, at the Effective Time the Certificate of Incorporation
of Newco as in effect immediately prior to the Effective Time shall be
the Certificate of Incorporation of the Surviving Corporation until
thereafter amended as provided by Law and such Certificate of
Incorporation.
(b) Unless otherwise determined by Parent prior to the
Effective Time, the by-laws of Newco as in effect immediately prior to
the Effective Time shall be the by-laws of the Surviving Corporation
until thereafter amended.
SECTION 1.5 DIRECTORS AND OFFICERS. The directors and
committees of the Board of Directors (including the
composition thereof) of Newco immediately prior to the
Effective Time shall be the initial directors and committees
of the Board of Directors of the Surviving Corporation, each
to hold office in accordance with the Certificate of
Incorporation and by-laws of the Surviving Corporation, and
the officers of Newco immediately prior to the Effective Time
shall be the initial
AGREEMENT AND PLAN OF MERGER PAGE 3 INDS01 RKIXMILLER 644669v6
officers of the Surviving Corporation, in each case to hold
office until their respective successors are duly elected or
appointed and qualified.
SECTION 1.6 WARRANTS AND OPTIONS; EFFECT OF THE
MERGER ON THE CAPITAL STOCK OF THE COMPANY.
(a) Prior to or concurrently with the Closing, as
provided in this Section and in Section 4.7, all warrants, options or
other rights to acquire Company Stock, other than conversion rights
under outstanding preferred shares of Company Stock, shall be either
exercised or cancelled, or, in the case of unexercised options under
the Option Plan or otherwise, other property shall be substituted for
the Common Stock issuable upon the exercise thereof as set forth in the
following sentence. In that regard, prior to the Closing, the Company
will take appropriate action to elect to substitute the right to
receive the per share Merger Consideration payable to holders of Common
Stock, instead of the right to purchase shares of Common Stock, with
respect to all outstanding options to purchase Common Stock granted
under the Company's 2001 Stock Option Plan (the "OPTION PLAN") that
have not been exercised prior to the taking of the Company's actions in
that regard and may by agreement effect that same result with respect
to options issued and held outside the Option Plan (in either case, the
unexercised options as to which the per share Merger Consideration is
substituted for the right to purchase shares of Common Stock are the
"SUBSTITUTED OPTIONS"). Each Substituted Option will be cashed out
rather than exercised, and the holder thereof (an "OPTION HOLDER") will
not be obligated to pay the exercise price thereunder upon exercise
(but may defer payment of the exercise price thereof), and upon
submission of a Request for Payment pursuant to Section 1.10 will be
entitled to receive the per share Merger Consideration payable to
holders of Common Stock (excluding Dissenting Shares) as to that number
of shares potentially acquirable under the Substituted Option (the
"SUBSTITUTED OPTION SHARES") minus the exercise price otherwise payable
under such Substituted Options and less any applicable tax
withholdings. Accordingly, holders of Substituted Options will not be
entitled to receive certificates for shares of Common Stock under those
options but instead will be entitled after the Effective Time to share
in the Merger Consideration with respect to each of the Substituted
Option Shares as to which their Substituted Options have been
exercised, net of the exercise price of such options and applicable tax
withholdings. The Company will provide to Parent and Newco in
accordance with Section 1.9 a current list as of the Closing of all
Option Holders and, as to each Option Holder, the number of Substituted
Option Shares represented by his or her Substituted Options and the
applicable exercise price with respect thereto.
(b) At the Effective Time (a) each share of Company Stock
(other than Dissenting Shares and treasury or other shares held by the
Company) and each Substituted Option Share will be converted into the
right to receive, payable upon surrender of the certificates formerly
representing shares of Company Stock by the holders thereof in the
manner provided in Section 1.10 and, with respect to Substituted Option
Shares, upon the submission of a Request for Payment by the Option
Holder with respect thereto in accordance with Section 1.10, that
portion of the Merger Consideration payable by Parent (through the
Paying Agent and, as applicable, through the Stockholder Committee, the
Working Capital Escrow Agent and the Indemnification Escrow Agent),
AGREEMENT AND PLAN OF MERGER PAGE 4 INDS01 RKIXMILLER 644669v6
without interest, to the holders thereof at the times and in the
amounts determined pursuant to Sections 1.8, 1.9 and 1.10 hereof, (b)
any treasury shares or other shares held by the Company or any of its
Subsidiaries will be canceled and (c) notwithstanding anything in this
Agreement to the contrary, no Dissenting Shares will be deemed to be
converted into and to represent the right to receive cash as
contemplated by this Agreement (including Sections 1.8 and 1.9) and the
holders of Dissenting Shares, if any, will be entitled to payment,
solely from the Surviving Corporation, of the appraised value of such
Dissenting Shares to the extent permitted by and in accordance with the
provisions of Section 262 of the DGCL; provided, however, that (i) if
any holder of Dissenting Shares, under the circumstances permitted by
the DGCL, subsequently delivers a written withdrawal of his or her
demand for appraisal of such Dissenting Shares, (ii) if any holder
fails to establish his or her entitlement to rights to payment as
provided in such Section 262, or (iii) if neither any holder of
Dissenting Shares nor the Surviving Corporation has filed a petition
demanding a determination of the value of all Dissenting Shares within
the time provided in such Section 262, such holder will forfeit such
right to payment for such Dissenting Shares pursuant to such Section
262 and, as of the later of the Effective Time or the occurrence of
such event, such holder's certificate formerly representing shares of
Company Stock shall automatically be converted into and represent only
the right to receive that portion of the Merger Consideration payable
by Parent (through the Paying Agent and, as applicable, through the
Stockholder Committee, the Working Capital Escrow Agent and the
Indemnification Escrow Agent) at the times and in the amounts
determined by Sections 1.8, 1.9 and 1.10 hereof, without any interest
thereon, upon surrender of the certificates formerly representing such
shares of Company Stock.
SECTION 1.7 EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF NEWCO. Each share of common stock of Newco issued and
outstanding immediately prior to the Effective Time shall, at
the Effective Time, be converted into one validly issued,
fully paid and non-assessable share of common stock of the
Surviving Corporation. Each stock certificate of Newco
evidencing ownership of any such shares shall continue to
evidence ownership of such shares of capital stock of the
Surviving Corporation.
SECTION 1.8 MERGER CONSIDERATION.
(a) AMOUNT PAYABLE. Subject to the adjustments to be made
pursuant to Section 1.9 with respect to any Dissenting Shares, the
aggregate consideration payable to the holders of Company Stock and
Substituted Options in connection with the Merger is the sum of (i) One
Hundred Sixty-Five Million Dollars ($165,000,000), plus (ii) the
amount, if any, by which Closing Cash exceeds Closing Debt, minus (iii)
the amount, if any, by which Closing Debt exceeds Closing Cash, plus or
minus, as applicable, (iv) the net effect of the estimated and final
working capital adjustments described in Sections 1.8(b) and 1.8(c),
and plus (v) Three Million Dollars ($3,000,000) with respect to the
Stock Option Benefits (the "MERGER CONSIDERATION"). The Merger
Consideration will be paid by Parent (and Parent will receive refunds
of overpayments, if applicable) as follows:
AGREEMENT AND PLAN OF MERGER PAGE 5 INDS01 RKIXMILLER 644669v6
(i) the sum of Six Million Dollars ($6,000,000)
will be paid by Parent at Closing to the Working Capital
Escrow Agent, to be received, held and disbursed pursuant to
the terms of the Working Capital Escrow Agreement, with any
balance thereof remaining upon the termination of the Working
Capital Escrow Agreement to be distributed pursuant to the
terms thereof and Sections 1.8, 1.9 and 1.10 to the former
holders of Company Stock (excluding Dissenting Shares) and to
Option Holders who have surrendered their Certificates or
submitted a Request for Payment pursuant to Section 1.10;
(ii) the sum of Fifteen Million Dollars
($15,000,000.00) will be paid by Parent at Closing to the
Indemnification Escrow Agent to be received, held and
disbursed pursuant to the terms of the Indemnification Escrow
Agreement, with any balance thereof remaining upon the
termination of the Indemnification Escrow Agreement to be
distributed pursuant to the terms thereof and Sections 1.8,
1.9 and 1.10 to the former holders of Company Stock (excluding
Dissenting Shares) and to Option Holders who have surrendered
their Certificates or submitted a Request for Payment pursuant
to Section 1.10;
(iii) the sum of One Million Dollars ($1,000,000)
will be paid by Parent at Closing to the Stockholder Committee
(as the agent of the former holders of Company Stock
(excluding Dissenting Shares) and the Option Holders who have
surrendered their Certificates or submitted a Request for
Payment pursuant to Section 1.10) to be received, held and
disbursed pursuant to the authority of such agent described in
Exhibit C hereto;
(iv) the sum of One Hundred Forty-Three Million
Dollars ($143,000,000) (the "BASE CLOSING CASH") plus (A) the
amount, if any, by which Closing Cash exceeds Closing Debt,
minus (B) the amount, if any, by which Closing Debt exceeds
Closing Cash, plus (C) the Estimated Working Capital Excess
determined pursuant to Section 1.8(b), or minus (D) the
Estimated Working Capital Deficiency determined pursuant to
Section 1.8(b), as applicable, and plus (E) Three Million
Dollars ($3,000,000) with respect to the Stock Option Benefits
(the "CLOSING MERGER CONSIDERATION"), will be paid by Parent
at Closing as follows: (x) an amount equal to the Stock Option
Withholding will be paid by Parent to the Company or retained
by Parent for timely payment by the Company or Parent, as
applicable (and Parent shall cause the Company to make such
payment if Parent does not make it), of the Stock Option
Withholding to the appropriate taxing authorities on behalf of
the Persons from whom such amounts are withheld (provided,
that the Company shall cooperate with Parent prior to the
Closing to assist Parent in making or causing to be made such
payment on the Closing Date), (y) the aggregate exercise price
for all Substituted Option Shares will be retained by Parent
and/or paid by Parent to the Surviving Corporation, as Parent
shall elect, and (z) the balance thereof will be paid by
Parent to the Paying Agent for payment to the former holders
of Company Stock (excluding Dissenting Shares) and to the
Option Holders upon surrender of their Certificates or
submission of a Request for Payment pursuant to Section 1.10;
and
AGREEMENT AND PLAN OF MERGER PAGE 6 INDS01 RKIXMILLER 644669v6
(v) any Final Working Capital Excess determined
pursuant to Section 1.8(c) will be paid by Parent to the
Paying Agent within ten (10) Business Days after the amount
thereof has been determined for distribution to the former
holders of Company Stock (excluding Dissenting Shares) and to
the Option Holders who have surrendered their Certificates or
submitted a Request for Payment pursuant to Section 1.10.
(b) ESTIMATED WORKING CAPITAL ADJUSTMENT. At least five
Business Days prior to the Closing Date, the Company shall deliver to
Parent in writing its good faith estimate of the Closing Working
Capital, which shall include the accounts set forth on Exhibit G hereto
(the "ESTIMATED CLOSING WORKING CAPITAL"). The Company shall make
available to Parent all work papers and other books and records
utilized in calculating the Estimated Closing Working Capital and shall
use its reasonable efforts to make available to Parent the appropriate
personnel involved in the preparation of such estimate. The amount, if
any, by which the Estimated Closing Working Capital is less than the
applicable Target Closing Working Capital is the "ESTIMATED WORKING
CAPITAL DEFICIENCY", and the amount, if any, by which the Estimated
Closing Working Capital is greater than the Target Closing Working
Capital is the "ESTIMATED WORKING CAPITAL EXCESS". The amount
determined under this Section 1.8(b) shall be added or subtracted, as
applicable, to the Base Closing Cash in order to determine the cash
amount payable by Parent at Closing under Section 1.8(a), clause (iv).
(c) POST-CLOSING WORKING CAPITAL ADJUSTMENT; OTHER
ADJUSTMENTS. As promptly as practicable, but in no event later than
sixty (60) days after the Closing Date, the Stockholder Committee shall
notify Parent in writing of its final determination of the Company's
actual (rather than estimated) Closing Working Capital and of any
disagreement with the amounts used by the parties at Closing as the
Company's Closing Cash and Closing Debt (which notification is the
"COMMITTEE'S REPORT"), which determination shall set forth in
reasonable detail the Stockholder Committee's calculation of Closing
Working Capital and, if applicable, Closing Cash and/or Closing Debt.
The Committee's Report shall also set forth, and explain in reasonable
detail, any differences between the Stockholder Committee's calculation
of Closing Working Capital and the Estimated Closing Working Capital. A
copy of all work papers and other books and records utilized in the
preparation of the Committee's Report shall be made available to Parent
at such time. Parent will notify the Stockholder Committee in writing
(the "WORKING CAPITAL DISPUTE NOTICE"), within the later of (i) thirty
(30) days after receiving the Committee's Report and (ii) sixty (60)
days following the Closing Date, if Parent disagrees with the
Stockholder Committee's calculation of the Closing Working Capital as
set forth in the Committee's Report and/or if Parent disagrees with the
accuracy of the Closing Cash or Closing Debt amounts used at Closing to
calculate the Merger Consideration, which notice shall set forth in
reasonable detail the basis for such disagreement(s), the amounts
involved and Parent's calculation of the Closing Working Capital or, if
applicable, Closing Cash and/or Closing Debt. If no Working Capital
Dispute Notice is received by the Stockholder Committee within such
period, the Stockholder Committee's calculation of Closing Working
Capital as set forth in the Committee's Report and the amounts of
Closing Cash and Closing Debt used at the Closing to calculate the
Merger Consideration shall be final and binding upon the parties
AGREEMENT AND PLAN OF MERGER PAGE 7 INDS01 RKIXMILLER 644669v6
hereto. The Stockholder Committee and Parent will give each other and
their representatives reasonable access during normal business hours to
the personnel, books and records of the Surviving Corporation to assist
the Stockholder Committee in the preparation of the Committee's Report
and to assist Parent in the preparation of any Working Capital Dispute
Notice.
(d) Upon receipt by the Stockholder Committee of a
Working Capital Dispute Notice, the Stockholder Committee and Parent
shall negotiate in good faith to resolve any disagreement with respect
to Closing Working Capital, Closing Cash and/or Closing Debt set forth
in the Working Capital Dispute Notice. To the extent Parent and the
Stockholder Committee are unable to agree with respect to all such
matters within thirty (30) days after receipt by the Stockholder
Committee of the Working Capital Dispute Notice, Parent and the
Stockholder Committee shall promptly submit the unresolved issues as to
the proper amount of the Closing Working Capital, Closing Cash and/or
Closing Debt for a binding determination to a nationally recognized
accounting firm that is mutually acceptable to the Stockholder
Committee and Parent. Such accounting firm may consider only items
disputed by the Working Capital Dispute Notice and matters affected
thereby, and its determination of the Final Closing Working Capital
shall not be more than the Closing Working Capital set forth in
Committee's Report or less than the Closing Working Capital set forth
in the Working Capital Dispute Notice. The amount of the Closing
Working Capital plus or minus, as applicable, any appropriate
adjustments on account of changes to Closing Cash and/or Closing Debt,
as agreed upon by the Stockholder Committee and Parent, as deemed
agreed upon pursuant to the next-to-last sentence of Section 1.8(c), or
as determined by such accounting firm in accordance herewith, shall be
the "FINAL CLOSING WORKING CAPITAL". The fees and expenses of such
accounting firm shall be paid by the party (either the Stockholder
Committee or Parent) whose latest written offer or position as to an
acceptable amount for the Closing Working Capital at the time the issue
is submitted to such accounting firm is furthest away from the Final
Closing Working Capital as determined by such accounting firm.
(e) If the Final Closing Working Capital is greater than
the Estimated Closing Working Capital, the amount equal to the
difference between the two (the "FINAL WORKING CAPITAL EXCESS") shall
be paid by Parent to the Paying Agent within ten (10) Business Days
after the determination of such amount for distribution to the former
holders of Company Stock (excluding Dissenting Shares) and to the
Option Holders who have surrendered their Certificates or submitted a
Request for Payment pursuant to Section 1.10. If the Final Closing
Working Capital is less than the Estimated Closing Working Capital, the
amount equal to the difference between the two (the "FINAL WORKING
CAPITAL DEFICIENCY") shall be paid by the Working Capital Escrow Agent
(and by the Indemnification Escrow Agent from the funds held by such
agent under Indemnification Escrow if and to the extent the funds held
by the Working Capital Escrow Agent are not sufficient) on behalf of
the former holders of Company Stock and Substituted Options to Parent
within ten (10) Business Days after the amount of the Final Working
Capital Deficiency has been determined.
(f) Notwithstanding anything in this Agreement to the
contrary, the computation of Estimated Closing Working Capital, Target
Closing Working Capital,
AGREEMENT AND PLAN OF MERGER PAGE 8 INDS01 RKIXMILLER 644669v6
Closing Working Capital and Final Closing Working Capital shall not
include or reflect the impact of any change to the balance sheet
resulting from any Tax deduction or other Tax benefit to which the
Company may be entitled as a result of the exercise by any optionee of
any option to purchase Common Stock or as a result of the realization
of any other benefits with respect to which the optionee is entitled
pursuant to the Option Plan, in either case after December 31, 2003
(collectively, the "STOCK OPTION BENEFITS"). (This Section is not
intended to limit the Company's ability to reflect the non-Tax impact
of the exercise of the options and issuance of shares of Common Stock
pursuant thereto on its balance sheet.)
(g) As contemplated by Section 1.9(f), Parent shall
timely pay or shall cause the Surviving Corporation to timely pay on
behalf of the Persons as to whom the Company has tax withholding
obligations any applicable withholding taxes payable with respect to
the exercise by any optionee of any option to purchase Common Stock or
the realization of any other benefit to which the optionee is entitled
pursuant to the Option Plan or with respect to options to purchase
Common Stock outside the Option Plan (the "STOCK OPTION WITHHOLDING")
and shall deduct the amount of the Stock Option Withholding from the
Closing Merger Consideration payable to the Paying Agent pursuant to
Section 1.8(a)(iv).
SECTION 1.9 ALLOCATION AND PAYMENT OF MERGER
CONSIDERATION.
(a) At the Closing the Company will provide to Parent a
document prepared by the Company and signed by the Chief Financial
Officer of the Company (the "MERGER CONSIDERATION PAYMENT ALLOCATION")
that will list all holders of Company Securities as of the Closing
(names and addresses), that will reflect the type and number of shares
of Company Securities held by each of them, and that will reflect, as
determined pursuant to the Company's Certificate of Incorporation, this
Agreement and applicable law, the amount and/or proportion, on a per
share basis, of each component of the Merger Consideration payable or
potentially payable to each holder of Company Securities (excluding
Dissenting Shares but including, without limitation, Substituted Option
Shares) by Parent, the Paying Agent, the Working Capital Escrow Agent
and the Indemnification Escrow Agent. The provisions of this Section
1.9 will be followed in preparing the Merger Consideration Payment
Allocation.
(b) (i) If any former holder of Company Stock delivers a
written demand for appraisal pursuant to Section 262 of the DGCL, an
amount allocable to the shares of Company Stock held by such holder and
deposited pursuant to the Working Capital Escrow Agreement or the
Indemnification Escrow Agreement or deposited with the Stockholder
Committee or with the Paying Agent (each a "Disbursement Account")
shall be segregated and held separate pending a determination with
respect to whether such holder is entitled to rights to payment
pursuant to Section 262 of the DGCL. If such holder's rights to payment
pursuant to Section 262 of the DGCL has been forfeited pursuant to
Section 1.6(b) of this Agreement, such funds shall no longer be
segregated and shall be disbursed in accordance with the terms of
Sections 1.6, 1.8 and 1.9. If it is determined that such holder is
entitled to rights to payment as provided in Section 262 of the DGCL or
if no such determination has been made at the time all nonsegregated
AGREEMENT AND PLAN OF MERGER PAGE 9 INDS01 RKIXMILLER 644669v6
amounts in the applicable Disbursement Account have been or are being
disbursed, the amounts allocable to such holder's Dissenting Shares
shall be disbursed to the Company.
(ii) The amount of funds deposited into a Disbursement Account
allocable to such a holder's shares shall be an amount equal to (A) the
amount of funds deposited in such Disbursement Account (less any
amounts payable from such Disbursement Account to Parent or the
Surviving Corporation or other third parties and, in the case of funds
deposited with the Paying Agent, the $1,000,001 preference amount
payable to holders of Series A Preferred Stock and plus, in the case of
the Disbursement Account with the Paying Agent, the amount of the
exercise price for any Substituted Option and any Stock Option
Withholding withheld therefrom by Parent or paid to Parent, the Company
or the Surviving Corporation) divided by (B) the number of shares of
Common Stock of the Company as of the Closing Date viewing all Company
Securities on an as-converted, as-exercised basis (and including, for
this purpose, all Substituted Option Shares, shares underlying
Substituted Options and Dissenting Shares, but excluding any treasury
shares or shares otherwise held by the Company).
(c) The holders of the Company's Series A Preferred Stock
outstanding as of the Closing as a group will be entitled to receive
$5.27082 per share, or an aggregate total of One Million One Dollars
($1,000,001), of the Merger Consideration as a preferential amount
payable to such holders under the terms of the Series A Preferred Stock
as set forth in the Company's Certificate of Incorporation.
(d) The balance of the Merger Consideration, after
adjustment on account of Dissenting Shares (if any) and after
subtracting the $1,000,001 preference amount payable to the holders of
Series A Preferred Stock, will be payable prorata (subject to Section
1.9(e) and 1.9(f)) according to their respective shares of Common Stock
(or deemed ownership of Common Stock) to the holders of Company
Securities as of the Closing other than Dissenting Shares, viewing all
Company Securities on an as-exercised and as-converted basis; provided,
however, that if the Series B-1 Liquidation Preference (as defined in
the Company's Certificate of Incorporation) is greater than the per
share Merger Consideration payable to the holders thereof such holders
shall instead be entitled to receive an amount equal to the Series B-1
Liquidation Preference for each share of Common Stock into which such
holder's Series B-1 Preferred Stock is convertible, and if the Series
B-2 Liquidation Preference (as defined in the Company's Certificate of
Incorporation) is greater than the per share Merger Consideration
payable to the holders thereof such holders shall instead be entitled
to receive an amount equal to the Series B-2 Liquidation Preference for
each share of Common Stock into which such holder's Series B-2
Preferred Stock is convertible, and the amounts payable to the other
holders of Company Securities pursuant to this Section 1.9(d) will be
reduced accordingly. Such payment will occur at the various times and
from the various sources (such as the Paying Agent and the escrow
agents referred to herein) as described in this Agreement.
(e) Under the Option Plan, participants who exercise
options in anticipation of the Merger have the right to defer payment
of the exercise price for their shares of Common Stock so acquired
until the consummation of the Merger. The Company may grant similar
rights to the holders of options that have been issued outside the
Option
AGREEMENT AND PLAN OF MERGER PAGE 10 INDS01 RKIXMILLER 644669v6
Plan. With respect to any such participants or option holders who have
exercised options but who have not paid the exercise price in full for
any of their shares of Common Stock acquired from the Company, the
Paying Agent shall, as provided on the Merger Consideration Payment
Allocation (but only to the extent such amounts were not withheld by
Parent from its payments to the Paying Agent), pay directly to the
Company out of sums otherwise payable to such Persons the unpaid
exercise price payable by them to the Company with respect to their
shares of Common Stock and shall pay to each such Person only the net
remaining amount payable to such Person after deducting amounts paid to
the Company on behalf of such Person pursuant to this Section 1.9. With
respect to the holders of Substituted Options, the amount payable to
the holders of Substituted Option Shares shall also be only the net
amount payable to such Persons after deducting the exercise price that
would otherwise be payable by them with respect to their Substituted
Option Shares.
(f) The Company will have tax withholding obligations
with respect to certain of its employees or former employees who
exercise stock options or whose options are cashed out without being
exercised. If, prior to the Closing, the Company has not effected such
tax withholdings with respect to option holders who have exercised
options or who will be receiving Merger Consideration with respect to
Substituted Option Shares, the taxes required to be withheld from each
of said Persons will be deducted from the Merger Consideration
otherwise payable to them, and will be paid (or caused to be paid) by
Parent or the Surviving Corporation to the appropriate taxing
authorities as withheld taxes on their behalf as provided in this
Agreement, and they will be entitled to receive the amounts of Merger
Consideration otherwise payable to them hereunder after deducting any
such withheld tax amounts.
SECTION 1.10 PAYMENT AND SURRENDER OF CERTIFICATES.
(a) Simultaneous with the Effective Time, Parent will
furnish to SunTrust Bank, N.A. (the "PAYING AGENT") sufficient funds
for the payment of the Closing Merger Consideration, and Parent will
cause the Paying Agent to mail or otherwise provide (i) a letter of
transmittal (with instructions for its use) in the form attached hereto
as Exhibit D to each record holder of outstanding Company Stock (other
than Dissenting Shares) as of the Closing, and (ii) a Request for
Payment of Merger Consideration in the form attached hereto as Exhibit
E (a "REQUEST FOR PAYMENT") to each holder of Substituted Options as of
the Closing, for each holder to use in surrendering against payment of
the Closing Merger Consideration the certificates which represented
his, her or its shares of Company Stock other than Dissenting Shares
and/or in requesting payment of the per share amount of the Closing
Merger Consideration with respect to Substituted Option Shares held by
such holder.
(b) Upon surrender to the Paying Agent of the
certificates representing shares of Company Stock (the "CERTIFICATES")
other than Dissenting Shares, or upon submitting to the Paying Agent a
signed Request for Payment with respect to Substituted Option Shares
and to certain other participants under the Option Plan who have
previously exercised options, the Certificates so surrendered shall
forthwith be cancelled and payment of the Closing Merger Consideration
will be made by the Paying Agent (and any
AGREEMENT AND PLAN OF MERGER PAGE 11 INDS01 RKIXMILLER 644669v6
other portion of the Merger Consideration not then payable will be paid
as contemplated hereby) to the holders of surrendered Certificates and
to the Option Holders who submit a Request for Payment with respect to
each Substituted Option Share designated therein in accordance with the
terms of this Agreement, or to the Company in payment of the unpaid
exercise price payable upon the exercise of options under the Option
Plan and/or applicable tax withholdings in connection therewith, in the
amounts determined under Section 1.9. Until so surrendered, each
outstanding Certificate or right thereto shall be deemed, from and
after the Effective Time, to represent solely the right to receive upon
such surrender payment of the Merger Consideration, without interest,
at the times and in the amounts determined pursuant to this Article 1.
(c) If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed satisfactory
to Parent and complying with any other reasonable requirements imposed
by Parent, Parent will cause to be paid in exchange for such lost,
stolen or destroyed Certificate the Closing Merger Consideration (and
as applicable all other sums included in the Merger Consideration as
such sums become payable to holders of Company Stock other than
Dissenting Shares) for each share represented thereby; provided,
however, that Parent may not require the owner of such lost, stolen or
destroyed Certificate to give Parent a bond or other financial
instrument or collateral but may require a written indemnity against
any claim that may be made against Parent with respect to the
Certificate alleged to have been lost, stolen or destroyed.
SECTION 1.11 NO FURTHER OWNERSHIP RIGHTS IN COMPANY
STOCK. All payments of the Merger Consideration made upon
surrender of Certificates for Company Stock in accordance with
the terms hereof shall be deemed to have been made in full
satisfaction of all rights pertaining to such shares of
Company Stock, and there shall be no further registration of
transfers on the records of the Surviving Corporation of
shares of Company Stock which were outstanding as of the
Closing. If, after the Closing, Certificates are presented to
the Surviving Corporation for any reason, they shall be
canceled and exchanged as provided in this Article 1.
SECTION 1.12 STOCKHOLDER COMMITTEE. There is hereby
created and established a committee of two (2) persons
appointed by holders of Company Stock who were stockholders of
the Company prior to the Effective Time (the "STOCKHOLDER
COMMITTEE"), one member of which shall be appointed (and may
be removed and replaced) by HWorld Investments, LLC, a
Delaware limited liability company, and one member of which
shall be appointed (and may be removed and replaced) by
Bluestem Capital Company, LLC. The Stockholder Committee shall
have the power and authority to act for all purposes under
this Agreement on behalf of all of the former stockholders of
the Company who as of the Closing held shares of Company Stock
(other than Dissenting Shares) and all Option Holders. The
initial members of the Stockholder Committee, who shall be
members thereof until they are replaced as provided herein,
are F. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, III and ▇▇▇▇▇ ▇▇▇▇▇. Written notice of
a replacement of a member of the Stockholder Committee shall
be given by the Person entitled to appoint such member to
Parent and to the other Person entitled to appoint a member of
the Stockholder Committee. Each former
AGREEMENT AND PLAN OF MERGER PAGE 12 INDS01 RKIXMILLER 644669v6
stockholder of the Company and Option Holder shall be deemed
at the Effective Time to have irrevocably appointed the
Stockholder Committee, and each of the members thereof, as
his, her or its attorney-in-fact and agent to act for such
stockholder or Option Holder within the scope of the authority
given to the Stockholder Committee as described in Exhibit C
attached hereto and made a part hereof, including, without
limitation, the authority to receive, invest, spend and
distribute the portion of the Merger Consideration payable to
the Stockholder Committee pursuant to Section 1.8(a), clause
(iii). Parent and Newco shall be entitled to rely on the
written instructions of the Stockholder Committee and shall be
protected from any liability of any kind for actions taken in
reliance upon such written instructions.
SECTION 1.13 EBITDA LOSS ADJUSTMENT.
(a) As used herein:
(i) "LEASE CONSENT COST" means any amount the
Company or any of its Subsidiaries pays or agrees to pay in
order to obtain a Lease Consent from a landlord under a Lease
other than an Excluded Lease, either prior to the Closing or
at any time after the Closing prior to the end of the 210th
day following the Closing Date (whether such amount is paid or
payable by the Company or any of its Subsidiaries at, prior to
or after the Closing). If such amount is a one time payment,
the Lease Consent Cost shall be the amount of such payment. If
such amount is more than one payment (such as increased rent),
the Lease Consent Cost shall be the sum of such payments
becoming payable during the remaining term of the Lease and,
if applicable, any renewal or extension periods available to
the tenant as a matter of right without a renegotiation of the
rent or other terms applicable under the Lease;
(ii) "OTHER LEASE INCREASE COST" means any amount
the Company or any of its Subsidiaries is required to pay or
otherwise agrees to pay under any Lease as a result of the
occurrence of the Merger that (i) would not have been owed had
the Merger not occurred and (ii) is not a Lease Consent Cost.
If such amount is a one time payment, the Other Lease Increase
Cost shall be the amount of such payment. If such amount is
more than one payment (such as increased rent), the Other
Lease Increase Cost shall be the sum of such payments becoming
payable during the remaining term of the Lease and, if
applicable, any renewal or extension periods available to the
tenant as a matter of right without a renegotiation of the
rent or other terms applicable under the Lease; and
(iii) "LOST LEASE COST" means 3.5 times the Store
EBITDA reflected on Exhibit H hereto with respect to any
Leases that (i) are terminable by the landlord thereunder as a
result of the Merger and (ii) are in fact so terminated by
such landlord not later than 210 days after the Closing Date.
(b) If any Lease Consent Cost or Other Lease Increase
Cost is paid or accrued (but as to the amount accrued only to the
extent included as a current liability in Closing
AGREEMENT AND PLAN OF MERGER PAGE 13 INDS01 RKIXMILLER 644669v6
Working Capital) by the Company or any of its Subsidiaries at or prior
to the Closing, there shall be added as an asset of the Company for
purposes of calculating Closing Working Capital (and to Estimated
Closing Working Capital to the extent known) an amount equal to the
lesser of (i) the aggregate amount of such Lease Consent Costs and
Other Lease Increase Costs paid or accrued (but as to the amount
accrued only to the extent included as a current liability in Closing
Working Capital) and (ii) the Excess EBITDA Amount. If the aggregate
amount of the Lease Consent Costs and Other Lease Increase Costs paid
or accrued by the Company or any of its Subsidiaries at or prior to the
Closing is less than the amount of the Excess EBITDA Amount, the
difference shall be referred to as the "Unused Excess EBITDA Amount."
If the aggregate amount of the Lease Consent Costs and Other Lease
Increase Costs paid or accrued by the Company or any of its
Subsidiaries at or prior to the Closing is more than the amount of the
Excess EBITDA Amount, the difference shall be referred to as the "Price
Reduction Amount." If the Price Reduction Amount is more than $5
million, Parent shall further increase the Closing Working Capital by
such excess paid or accrued by the Company (but as to the amount
accrued only to the extent included as a current liability in Closing
Working Capital) and shall pay such amount to the Paying Agent at the
time the Closing Merger Consideration is paid or, to the extent not
then known, at the time the Final Closing Working Capital is
determined.
(c) If any Lease Consent Cost or Other Lease Increase
Cost is not paid or accrued by the Company or any of its Subsidiaries
at or prior to the Closing or if there is any Lost Lease Cost, Parent
shall be entitled to reimbursement from the funds held by the
Indemnification Escrow Agent under the Indemnification Escrow Agreement
an amount equal to the amount by which the sum of such Lease Consent
Costs, Other Lease Increase Costs and Lost Lease Costs exceeds any
Unused Excess EBITDA Amount; provided, however, that the amount Parent
may so receive shall not exceed $5 million minus the Price Reduction
Amount. The procedures set forth in Section 6.4(a) shall apply to a
claim for reimbursement under this Section as if it were a claim for
indemnification to which Section 6.4(a) is applicable. (The Deductible
limitation in Section 6.2(b) is not applicable to any such claim for
reimbursement under this Section.)
(d) The amount of any Lease Consent Cost or Other Lease
Increase Cost shall be determined on a "cash on cash" basis.
SECTION 1.14 LEASE CONSENTS.
(a) With respect to Leases other than Excluded Leases,
the provisions of this Section shall be applicable in connection with
the efforts of the parties to obtain Lease Consents.
(b) Prior to the Closing the Company may obtain Lease
Consents on such economic terms as the Company shall approve under the
provisions of this Section and without the approval or consent of
Parent or Newco so long as the aggregate Lease Consent Cost and Other
Lease Increase Cost (the "AGGREGATE PRE-CLOSING CONSENT COSTS") with
respect to those Leases as to which the Company has obtained Lease
Consents does not exceed the Excess EBITDA Amount. If the Aggregate
Pre-Closing
AGREEMENT AND PLAN OF MERGER PAGE 14 INDS01 RKIXMILLER 644669v6
Consent Costs equal or exceed (or would exceed if increased as a result
of a proposed Lease Consent) the Excess EBITDA Amount, then the Company
shall not incur any additional Aggregate Pre-Closing Consent Costs to
obtain additional Lease Consents without the advance written consent of
Parent, which consent will not be unreasonably withheld, conditioned or
delayed by Parent. If Parent has not disapproved in writing the form
and/or terms of any proposed Lease Consent within ten (10) days
following written notice thereof, Parent shall be deemed to have
consented in writing to the form and terms thereof. In addition,
anything to the contrary herein notwithstanding, in no event shall the
Company or any of its Subsidiaries agree to any non-economic terms or
conditions in connection with any Lease Consents without the prior
written consent of Parent, which consent shall not be unreasonably
withheld, conditioned or delayed by Parent.
(c) After the Closing and prior to the end of the 210th
day following the Closing Date Parent and the Surviving Corporation may
incur or agree to incur Lease Consent Costs and Other Lease Increase
Costs in connection with obtaining Lease Consents only with the advance
written approval of the Stockholder Committee (which approval shall not
be unreasonably withheld, conditioned or delayed by the Stockholder
Committee) and the costs so incurred shall be subject to the provisions
of Section 1.13. If the Stockholder Committee has not disapproved in
writing such costs within ten (10) days following written notice
thereof, the Stockholder Committee shall be deemed to have consented in
writing to such costs. Any such costs incurred or agreed to be incurred
by Parent or the Surviving Corporation without the written approval of
the Stockholder Committee shall be at the expense of Parent or the
Surviving Corporation and shall not be subject to the provisions of
Section 1.13.
(d) In connection with obtaining Lease Consents as to
which the advance consent or approval of the other party as to the
terms thereof is not required under this Section, each of the Company,
the Surviving Corporation and Parent shall exercise reasonable business
judgment in good faith with a view toward minimizing, to the extent
reasonably practicable, the costs to be borne by the other party (which
after the Closing is meant to refer to the Persons entitled to share in
the Merger Consideration being held by the Indemnification Escrow
Agent) under Section 1.13.
(e) Any damages allegedly resulting from a breach of the
covenant made in Section 1.14(d) shall be considered an indemnification
claim against the allegedly breaching party subject to the provisions
of Article 6.
(f) Each of the Company and Parent shall, during the
period of time that they are obtaining Lease Consents subject to the
provisions of this Section and Section 1.13, furnish a weekly report to
the other party (which will be the Stockholder Committee after the
Closing) as to the Lease Consents obtained since the prior weekly
report and the terms agreed to in connection therewith, and shall
otherwise furnish the other party from time to time with all other
information reasonably requested concerning the efforts made to obtain
Lease Consents.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AGREEMENT AND PLAN OF MERGER PAGE 15 INDS01 RKIXMILLER 644669v6
The Company hereby represents and warrants to Newco and Parent that:
SECTION 2.1 ORGANIZATION. The Company (i) is a
corporation duly incorporated, validly existing and in good
standing under the Laws of the State of Delaware, (ii) has all
requisite corporate power and authority to own, lease and
operate its assets and conduct its business as they are now
being operated and conducted, and (iii) is in good standing
and is duly qualified to transact business in each
jurisdiction in which the ownership or use of its assets or
the conduct of its business requires it to be so qualified
except where the lack of such qualifications reasonably would
not be expected to have a Material Adverse Effect. Except as
set forth in Section 2.4, the Company has no Subsidiaries or
equity investments in any other Person. The only U.S. states
in which neither the Company nor Hat World, Inc. is qualified
to transact business as a domestic or foreign corporation are
North Dakota, Montana, Idaho, Wyoming, Vermont and Utah.
SECTION 2.2 AUTHORIZATION. Except for the approvals
of the stockholders of the Company contemplated by Section 4.8
hereof, the Company has all requisite corporate power and
authority to execute and deliver this Agreement and all
agreements, instruments or documents contemplated herby and to
perform its obligations hereunder and thereunder, and to
consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement by the Company
and, subject only to the requisite approval of this Agreement
by the stockholders of the Company, the performance by the
Company of its obligations hereunder and the consummation of
the Merger and the other transactions provided for herein have
been duly and validly authorized by all necessary corporate
action on the part of the Company. This Agreement has been
duly executed and delivered by the Company and constitutes the
valid and legally binding obligation of the Company,
enforceable against the Company in accordance with its terms
and conditions except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium
or other Laws relating to or affecting the rights and remedies
of creditors generally and to general principles of equity
(regardless of whether in equity or at law). Except for the
filing of a Certificate of Merger with the Secretary of State
of the State of Delaware (as contemplated by Section 1.2
hereof) and any required actions under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇
Act, and except for any consents or approvals required under
Contracts with any Governmental Authority (all of which are
set forth on Schedule 2.2), and except where the failure to
give notice, to file, or to obtain any authorization, consent
or approval, reasonably would not be expected to have a
Material Adverse Effect, the Company need not give any notice
to, make any filing with, or obtain any authorization,
consent, or approval of any Government Authority in order to
consummate the transactions contemplated by this Agreement.
The affirmative vote of the shares of capital stock of the
Company owned by the Controlling Stockholders and subject to
the Proxies will be sufficient to approve the Merger in
accordance with the requirements of the DGCL and the Company's
Certificate of Incorporation and bylaws. The Proxies are
legal, valid and effective under the DGCL and the Certificate
of Incorporation and Bylaws of the Company.
AGREEMENT AND PLAN OF MERGER PAGE 16 INDS01 RKIXMILLER 644669v6
SECTION 2.3 NONCONTRAVENTION. Except as otherwise
provided in Schedule 2.3 hereto, and except for such matters
arising solely as a result of the consummation or anticipated
consummation of the Merger with respect to the Leases, the
execution, delivery and performance by the Company of this
Agreement and the other instruments and documents contemplated
hereby to be executed and delivered by the Company, and the
consummation by the Company of the transactions contemplated
hereby and thereby, do not and will not (i) violate or
conflict with or result in the breach of any provision of the
Certificate of Incorporation or by-laws of the Company, (ii)
whether after the giving of notice or lapse of time or both,
violate or conflict with any provision of, constitute a breach
of or default under, or result in the (or create in any Person
a right of) modification, cancellation, termination or
acceleration of any obligation under, or require any notice
under, or result in the imposition or creation of any
Encumbrances upon the Company or its assets pursuant to, (a)
any agreement or contract by which the Company or any of its
Subsidiaries or its or their assets is bound or (b) any
statute, law, rule or regulation applicable to the Company or
any Subsidiary, except where the violation, conflict, breach,
default, acceleration, termination, modification,
cancellation, failure to give notice or Encumbrance reasonably
could not be expected to have a Material Adverse Effect, or
(iii) violate or conflict with any Legal Requirement
applicable to or binding on the Company or its Subsidiaries or
its or their assets except where such violation reasonably
could not be expected to have a Material Adverse Effect.
SECTION 2.4 SUBSIDIARIES. The Company has two
directly and wholly-owned Subsidiaries, Hat World, Inc.
("HWI") and ▇▇▇▇▇▇▇▇.▇▇▇, Inc. ("▇▇.▇▇▇"). HWI has one
wholly-owned subsidiary, Hat Zone Franchising, L.L.C.
("FRANCHISING"). HWI (i) is a corporation duly incorporated,
validly existing and in good standing under the laws of the
State of Minnesota, (ii) has all requisite corporate power and
authority to own, lease and operate its assets and conduct its
business as they are now being operated and conducted, and
(iii) is in good standing and is duly qualified to transact
business in each jurisdiction in which the ownership or use of
its assets or the conduct of its business requires it to be so
qualified except where the lack of such qualification
reasonably would not be expected to have a material adverse
effect on HWI. ▇▇.▇▇▇ (i) is a corporation duly incorporated,
validly existing and in good standing under the laws of the
State of South Dakota, (ii) has all requisite corporate power
and authority to own, lease and operate its assets and conduct
its business as they are now being operated and conducted, and
(iii) is in good standing and is duly qualified to transact
business in each jurisdiction in which the ownership or use of
its assets or the conduct of its business requires it to be so
qualified except where the lack of such qualification
reasonably would not be expected to have a material adverse
effect on ▇▇.▇▇▇. Franchising (i) is a limited liability
company duly organized, validly existing and in good standing
under the laws of the State of Missouri, (ii) has all
requisite power and authority to own, lease and operate its
assets and conduct its business as they are now being operated
and conducted, and (iii) is in good standing and is duly
qualified to transact business in each jurisdiction in which
the ownership or use of its assets or the conduct of its
business requires it to be so qualified except where
AGREEMENT AND PLAN OF MERGER PAGE 17 INDS01 RKIXMILLER 644669v6
the lack of such qualification reasonably would not be
expected to have a material adverse effect on Franchising.
SECTION 2.5 CAPITALIZATION. As of the date of this
Agreement the authorized capital stock of the Company consists
of (a) 10,000,000 shares of Common Stock of which, 3,373,446
shares are issued and outstanding, (b) 189,724 shares of
Series A Preferred Stock of which, 189,724 shares are issued
and outstanding, and (c) 222,780 shares of Series B Preferred
Stock of which, 222,780 shares are issued and outstanding. As
of the date of this Agreement the holders of Common Stock,
Series A Preferred Stock, Series B Preferred Stock and
warrants to purchase Common Stock and the Option Holders, each
as set forth on Schedule 2.5 (collectively, the
"STOCKHOLDERS"), are the record and beneficial owners and
holders of the Company Stock, free and clear of any
Encumbrances thereto. As of the date of this Agreement (a) the
issued and outstanding Series A Preferred Stock is, in the
aggregate, convertible to 195,894 shares of Common Stock, and
(b) the issued and outstanding Series B Preferred Stock is, in
the aggregate, convertible to 2,227,800 shares of Common
Stock. All outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully
paid and non-assessable and free of preemptive rights. As of
the date of this Agreement, the Company has outstanding
options that were granted to its employees, directors and
consultants to purchase shares of Common Stock that are held
by, and that are exercisable for the number of shares and at
the exercise prices, as disclosed in Schedule 2.5 hereto.
Additionally, the Company has outstanding certain warrants to
purchase shares of Common Stock that are, as of the date of
this Agreement, held by and exercisable for the number of
shares as disclosed in Schedule 2.5. All issued and
outstanding shares of capital stock or other ownership
interest in HWI, ▇▇.▇▇▇ and Franchising are owned, directly or
indirectly, by the Company. Except as set forth in this
Section 2.5 and in Schedule 2.5, as of the date of this
Agreement there are no outstanding (i) shares of capital stock
or other securities of the Company or any of its Subsidiaries,
(ii) securities of the Company or any of its Subsidiaries
convertible into or exchangeable for shares of capital stock
or other securities of the Company or any of its Subsidiaries,
or (iii) options or other rights to acquire from the Company
or any of its Subsidiaries any capital stock or other
securities of the Company or any of its Subsidiaries (the
items in clauses (i), (ii) and (iii) being referred to
collectively as the "COMPANY SECURITIES"), and there are no
outstanding obligations of the Company or any of its
Subsidiaries, actual or contingent, to issue, transfer, sell
or deliver or to repurchase, redeem or otherwise acquire any
Company Securities. Except as disclosed on Schedule 2.5
hereto, there are no voting trusts or other agreements or
understandings to which the Company or any Stockholder is a
party with respect to the voting of capital stock of the
Company, other than the Proxies. At the Closing the Company
will furnish to Parent, pursuant to Section 1.9, the Merger
Consideration Payment Allocation which will contain a list of
all holders of Company Securities and the type and amount of
Company Securities held by each of them, as of the Closing,
which information thereon will be true, accurate and complete
as of the Closing.
SECTION 2.6 FINANCIAL STATEMENTS; CONTROLS; NO
UNDISCLOSED LIABILITY.
AGREEMENT AND PLAN OF MERGER PAGE 18 INDS01 RKIXMILLER 644669v6
(a) The Company has furnished Parent and Newco true and
complete copies of (i) audited consolidated balance sheets of the
Company and its Subsidiaries as of December 31, 2000, December 31,
2001, January 31, 2002, December 31, 2002 and January 31, 2003 and the
related audited consolidated statements of income and cash flows for
the Company and its Subsidiaries for the twelve (12) month periods then
ended, together with an opinion thereon by the Company's independent
auditors (the "AUDITED FINANCIAL STATEMENTS"), and (ii) an unaudited
interim consolidated balance sheet for the Company and its Subsidiaries
as of December 31, 2003, and the related unaudited consolidated
statement of income for the eleven month period then ended which is
attached hereto as Schedule 2.6 (together with the Audited Financial
Statements, the "FINANCIAL STATEMENTS"). The Financial Statements have
been prepared in accordance with GAAP, applied consistently with prior
periods, and present fairly in all material respects the consolidated
financial position and consolidated results of operations of the
Company and its Subsidiaries as of the dates and for the periods
indicated; provided however, that the unaudited interim financial
statements are subject to normal year-end adjustments and lack
footnotes and other presentation items (which, if presented, would not
differ materially from those included in the Audited Financial
Statements).
(b) The Company and its Subsidiaries maintain accurate
books and records reflecting their assets and liabilities and maintain
proper and adequate internal accounting controls which provide
assurance that (i) transactions are executed with management's
authorization; (ii) transactions are recorded as necessary to permit
preparation of the consolidated financial statements of the Company and
to maintain accountability for the Company's assets; (iii) access to
the Company's and the Subsidiaries' assets is permitted only in
accordance with management's authorization; (iv) the reporting of the
Company's and its Subsidiaries' assets is compared with existing assets
at regular intervals; and (v) accounts, notes and other receivables are
recorded accurately, and proper and adequate procedures are implemented
to effect the collection thereof on a current and timely basis.
(c) Except as and to the extent of the amounts
specifically reflected or reserved against in the most recent balance
sheet included in the Financial Statements or disclosed in the notes
thereto, the Company does not have any liabilities or obligations of
any nature, whether absolute, accrued, contingent or otherwise and
whether due or to become due (including, without limitation,
liabilities for taxes and interest, penalties and other charges payable
with respect thereto), that are required in accordance with GAAP to be
disclosed in the Financial Statements, other than liabilities incurred
since such date in the ordinary course of business.
SECTION 2.7 LITIGATION. Except as disclosed in
Schedule 2.7 hereto, there is no Action pending, or to the
Knowledge of the Company threatened, against the Company or
any of its Subsidiaries, before or by any court or other
Government Authority. The matters listed on Schedule 2.7 could
not reasonably be expected to result in a Material Adverse
Effect. There is no judgment, decree, injunction, rule or
order of any court or governmental body specifically
applicable to the Company or any Subsidiary. To the Knowledge
of the Company neither the Company nor any Subsidiary is
subject to any judgment, decree, injunction, rule or order of
any court or governmental body of general applicability, that
in any such case (i) would
AGREEMENT AND PLAN OF MERGER PAGE 19 INDS01 RKIXMILLER 644669v6
require a change in the manner in which the Company or any
Subsidiary presently conducts its business and (ii) which
change could reasonably be expected to have a Material Adverse
Effect. There is not pending against the Company or any of its
Subsidiaries any Action (i) seeking to restrain or prohibit
the consummation of the transactions contemplated by this
Agreement, or (ii) seeking to prohibit or limit the ownership
or operation by the Surviving Corporation of any portion of
the assets or business of the Company or its Subsidiaries.
SECTION 2.8 COMPLIANCE WITH LAWS; PERMITS; CONSENTS.
(a) Except as disclosed in Schedule 2.8, the Company and
its Subsidiaries are in compliance with all applicable Laws, except for
such non-compliance as reasonably could not be expected to have a
Material Adverse Effect.
(b) The Company and its Subsidiaries own, or have full
rights under, all licenses, permits and authorizations of any
Government Authority which are necessary for the conduct of their
business as currently conducted, except for any such licenses, permits,
consents and authorizations that, if not so held, reasonably could not
be expected to result in a Material Adverse Effect. Each of the
foregoing is in full force and effect, and the Company and its
Subsidiaries are in compliance with all of their obligations with
respect thereto, with such exceptions as reasonably would not be
expected to have a Material Adverse Effect.
SECTION 2.9 TITLE TO ASSETS. The Company and its
Subsidiaries have good title to, or valid and existing leases
or licenses for, all of the assets used by them or required
for use in their business operations or included in the most
recent Financial Statements (unless disposed of since the date
of the most recent Financial Statements), free and clear of
all Encumbrances except for (i) liens for Taxes, assessments
and other governmental charges which are not due and payable
or which may hereafter be paid without penalty, (ii) the title
and other interests of lessors under capital or operating
leases or of licensors under licenses or royalty agreements,
(iii) Encumbrances listed in Schedule 2.9, (iv) liens of
mechanics, materialmen and similar liens (provided that for
any of such liens that exist on the Closing Date, the
liability therefor will be accrued as a current liability in
the calculation of Closing Working Capital), and (v) such
minor imperfections in title as do not detract in any material
respect from the value or utility of the subject property in
the conduct of business (collectively, the "PERMITTED
ENCUMBRANCES").
SECTION 2.10 INTELLECTUAL PROPERTY. Schedule 2.10
sets forth a correct and complete list of (i) all patents,
trademarks, trade names and registered copyrights owned by the
Company or any of the Subsidiaries (collectively, the
"PROPRIETARY INTELLECTUAL PROPERTY") and (ii) all material
patents, trademarks, trade names, copyrights, technology and
processes used by the Company and the Subsidiaries in their
respective businesses which are used pursuant to a license or
other right granted by a third party pursuant to a written
agreement signed by the Company or any of the Subsidiaries
(collectively, the "LICENSED INTELLECTUAL PROPERTY", and
AGREEMENT AND PLAN OF MERGER PAGE 20 INDS01 RKIXMILLER 644669v6
together with the Proprietary Intellectual Property herein
referred to as "INTELLECTUAL PROPERTY"). The Company and each
Subsidiary owns all Proprietary Intellectual Property, and the
consummation of the transactions contemplated hereby will not
alter or impair any such rights. To the Knowledge of the
Company, the Company and each Subsidiary has the right to use
pursuant to valid and effective agreements, all Licensed
Intellectual Property, and the consummation of the
transactions contemplated hereby will not alter or impair any
such rights. No claims are pending or, to the Knowledge of the
Company, threatened against the Company or any Subsidiary by
any person with respect to the use of any Intellectual
Property or challenging or questioning the validity or
effectiveness of any license or agreement relating to the
same. The current use by the Company and each Subsidiary of
the Proprietary Intellectual Property does not infringe on the
rights of any person, except for such infringements which in
the aggregate could not reasonably be expected to have a
Material Adverse Effect upon the Company's ownership or use of
such Proprietary Intellectual Property. To the Knowledge of
the Company, the current use by the Company and each
Subsidiary of the Licensed Intellectual Property does not
infringe on the rights of any Person, except for such
infringements which in the aggregate could not reasonably be
expected to have a Material Adverse Effect on the Company's
use of such Licensed Intellectual Property. There are no
pending claims or charges brought by the Company or any
Subsidiaries against any person with respect to the use of any
material Intellectual Property or the enforcement of any of
the Company's or any Subsidiaries' rights relating to the
material Intellectual Property.
SECTION 2.11 LABOR; EMPLOYEE BENEFITS.
(a) Each of the Company and the Subsidiaries is in
compliance in all material respects with all applicable federal and
state Laws respecting employment and employment practices, terms and
conditions of employment, wages and hours, and is not engaged in any
material unfair labor or unlawful employment practice. In the past five
(5) years, no material wage and hour claims have been brought against
the Company or any Subsidiary by any Person and, to the Knowledge of
the Company, there does not exist any basis for the assertion against
the Company or any of its Subsidiaries of any material claim with
respect to wages and hours. Except as set forth in Schedule 2.11 there
is no: (a) unlawful employment practice discrimination charge that is
pending before the Equal Employment Opportunity Commission (the "EEOC")
or EEOC recognized state "referral agency" or, to the Knowledge of the
Company, threatened, against or involving or affecting the Company or
any of the Subsidiaries; (b) unfair labor practice charge or complaint
against the Company or any of the Subsidiaries pending before the
National Labor Relations Board (the "NLRB") or, to the Knowledge of the
Company, threatened, against or involving or affecting the Company or
any of the Subsidiaries; (c) and there has not been in the past three
years, any organized labor strike, dispute, slowdown or stoppage
actually pending or, to the Knowledge of the Company, threatened
against or involving or affecting the Company or any of the
Subsidiaries; (d) collective bargaining agreement that is binding on
the Company or any of the Subsidiaries; or (e) material labor or
employment-related grievance. To the Knowledge of the Company, no union
organizational efforts are presently being made involving any
AGREEMENT AND PLAN OF MERGER PAGE 21 INDS01 RKIXMILLER 644669v6
of the Company's or any of the Subsidiaries' employees and, to the
Knowledge of the Company, for the past five (5) years, none have been
made. No union or other collective bargaining unit has been certified
or recognized by the Company as representing any of the Company's or
any of the Subsidiaries' employees during the past five years. To the
Knowledge of the Company, during the past five years, no union or
collective bargaining unit has sought such certification or
recognition, and, to the Knowledge of the Company, no union or
collective bargaining unit is seeking or currently contemplating
seeking any such certification or recognition, and no written notice of
any such attempt or contemplation has been received by the Company
during such period.
(b) Schedule 2.11 sets forth a complete and correct list
of each employment, bonus, deferred compensation, pension, stock
option, stock appreciation right, profit-sharing or retirement plan,
arrangement or practice, each medical, vacation, retiree medical,
severance pay plan, and each other similar agreement or fringe benefit
plan, arrangement or practice, of the Company, whether legally binding
or not, including each "employee benefit plan" within the meaning of
Section 3(3) of ERISA, that is sponsored or maintained by the Company
or any of its Subsidiaries, or to which the Company or any of its
Subsidiaries contributes or is required to contribute on behalf of
current or former Employees, directors or consultants of the Company or
any of its Subsidiaries or their beneficiaries or dependents ("BENEFIT
PLANS").
(c) The Company has delivered to Parent complete and
correct copies, with respect to each Benefit Plan, of the plan
documents including any related trust, insurance contract or fund and
any amendments (or a written description of any unwritten plan), any
current summary plan description, and the three most recent Form 5500
annual reports.
(d) The Company has received no written notice of any,
and to the Knowledge of the Company, there is currently no, audit or
investigation by any Government Authority or any claim (other than
routine claims for benefits in the ordinary course), action, suit or
proceeding against or involving any Benefit Plan and, to the Knowledge
of the Company, no such audit, investigation, claim, action, suit or
proceeding is threatened.
(e) To the Knowledge of the Company, each Benefit Plan
(and each related trust, insurance contract, or fund) has been
maintained, funded and administered, in all material respects, in
accordance with the terms of such Benefit Plan and complies in form and
in operation in all material respects with the applicable requirements
of ERISA and the Code.
(f) All contributions and premium payments required to
have been paid under or with respect to any Benefit Plan have been
timely paid or accrued.
(g) Each Benefit Plan which is intended to meet the
requirements of a "qualified plan" under Code Section 401(a) has
received a determination letter from the Internal Revenue Service to
the effect that it meets the requirements of Code Section 401(a).
AGREEMENT AND PLAN OF MERGER PAGE 22 INDS01 RKIXMILLER 644669v6
(h) The Company does not have any commitment, whether
formal or informal and whether legally binding or not, (i) to create
any additional such Benefit Plan; (ii) to modify or change any such
Benefit Plan; or (iii) to maintain for any period of time any such
Benefit Plan, except as accurately and completely described in Schedule
2.11.
(i) Except as disclosed in Schedule 2.11, the
consummation of the transactions contemplated by this Agreement will
not entitle any employee or former employee of the Company to severance
pay, unemployment compensation or any other payment, or accelerate the
time of payment or vesting of any stock option, stock appreciation
right, deferred compensation or other employee benefits under any
Benefit Plan (including vacation and sick pay).
(j) Except as disclosed in Schedule 2.11, none of the
Benefit Plans which are "welfare benefit plans," within the meaning of
Section 3(1) of ERISA, provide for continuing benefits or coverage
after termination or retirement from employment, except for COBRA
rights under a "group health plan" as defined in Section 4980B(g) of
the Code and Section 607 of ERISA.
(k) Neither the Company nor any entity required to be
aggregated with the Company under Section 414(b), (c), (m) or (o) of
the Code ("ERISA AFFILIATE") has ever sponsored, participated in, or
contributed to either a plan subject to Title IV of ERISA or Section
412 of the Code or a multiemployer plan as defined in Section
4001(a)(3) of ERISA, and neither the Company nor any ERISA Affiliate
has ever withdrawn from such a multiemployer plan nor incurred any
liability as a result of any partial or complete withdrawal by any
employer from a multiemployer plan as described under Sections 4201,
4203, or 4205 of ERISA.
SECTION 2.12 BROKERS, FINDERS, ETC. Except for U.S.
Bancorp ▇▇▇▇▇ ▇▇▇▇▇▇▇, Inc. whose fees and expenses will be
paid by the Company prior to the Closing (which payment will
reduce Closing Cash that would otherwise exist absent such
payment), there is no broker, finder or investment banker that
is entitled to any brokerage, finder's or other fee or
commission in connection with this Agreement, the other
documents contemplated by this transaction or the transactions
contemplated hereby or thereby, based upon any agreements,
written or oral, made by or on behalf of the Company or any of
its Subsidiaries or the Stockholders.
SECTION 2.13 ENVIRONMENTAL MATTERS. Except as set
forth in Schedule 2.13, to the Knowledge of the Company and
except for such exceptions as reasonably would not be expected
to have a Material Adverse Effect, (a) the Company and each of
its Subsidiaries have complied with and are currently in
compliance with the provisions of all applicable Environmental
Laws, (b) neither the Company nor any of its Subsidiaries has
released any Hazardous Materials into the environment at, on
or from any real property owned, used or leased by the Company
or its Subsidiaries, (c) the Company has not assumed
liabilities relating to Hazardous Materials or Environmental
Laws of any Person, and (d) there is no past or present
action, activity, event, condition or circumstance that could
give rise
AGREEMENT AND PLAN OF MERGER PAGE 23 INDS01 RKIXMILLER 644669v6
to any liability of the Company for violation of or requiring
remediation or investigation under any Environmental Law.
SECTION 2.14 ABSENCE OF CERTAIN CHANGES. Except as
set forth in Schedule 2.14, and except for the taking of
actions specifically permitted or contemplated by this
Agreement, since December 31, 2003, neither the Company nor
any Subsidiary has:
(a) as of the date of this Agreement suffered any
Material Adverse Effect, or suffered any material casualty loss
(whether or not insured);
(b) made any change in its business or operations or in
the manner of conducting its business other than immaterial changes in
the ordinary course of business;
(c) experienced any change in any assumptions underlying
or methods of calculating any reserves, provisions or accruals;
(d) paid, discharged or satisfied any claim, lien,
encumbrance or liability (whether absolute, accrued, contingent or
otherwise and whether due or to become due), other than claims,
encumbrances or liabilities (i) which are reflected or reserved against
in the Financial Statements or (ii) which were incurred after the date
of the Financial Statements and paid, discharged or satisfied since the
date thereof in the ordinary course of business and consistent with
past practice;
(e) written down the value of any inventory in excess of
$500,000 in the aggregate, or written off as uncollectible any notes or
accounts receivable or any portion thereof in excess of $50,000 in the
aggregate;
(f) canceled any other debts or claims, or waived any
rights of substantial value;
(g) sold, transferred or conveyed any of its properties
or assets (whether real, personal or mixed, tangible or intangible),
except in the ordinary course of business and consistent with past
practice;
(h) disposed of or permitted to lapse, or otherwise
failed to preserve the exclusive rights of the Company to use any
patent, trademark, trade name, logo or copyright or any such
application, or disposed of or permitted to lapse any license, permit
or other form of authorization, or disposed of or disclosed to any
person any trade secret, formula, process or know-how;
(i) excluding increases in compensation to employees
whose annual base compensation as of December 31, 2003 does not exceed
$75,000, and excluding bonuses payable to executive management, field
and home office employees in accordance with the bonus plans applicable
to those three groups of employees for the year ending January 31, 2004
(copies of which have been provided to Parent) and bonuses payable
under employment agreements disclosed on Schedule 2.17, granted any
increase in the compensation of any officer, director, employee or
agent (including, without limitation, any increase pursuant to any
bonus, pension, profit sharing or other plan or commitment) in excess
of 10% of the prior year's compensation, or adopted or amended any such
plan
AGREEMENT AND PLAN OF MERGER PAGE 24 INDS01 RKIXMILLER 644669v6
or other arrangements; and no such increase, or the adoption or
amendment of any such plan or arrangement, is planned or required;
(j) made any capital expenditures or commitments in
excess of $3,200,000 in the aggregate for replacements or additions to
property, plant, equipment or intangible capital assets;
(k) declared, paid or made or set aside for payment or
making, any dividend or other distribution in respect of its capital
stock or other securities, or directly or indirectly redeemed,
purchased or otherwise acquired any of its capital stock or other
securities;
(l) made any change in any method of accounting or
accounting practice;
(m) paid, loaned or advanced any amount to or in respect
of, or sold, transferred or leased any properties or assets (real,
personal or mixed, tangible or intangible) to, or entered into any
agreement, arrangement or transaction with, any of the stockholders of
the Company or the officers or directors of the Company, any Affiliates
or associates of any stockholder of the Company or the Company or any
of their respective officers or directors, or any business or entity in
which any of such persons has any direct or material indirect interest,
except for compensation to the officers and employees of the Company at
rates not exceeding the rates of compensation in effect at December 31,
2003 and pursuant to bonus plans and Benefit Plans in effect at
December 31, 2003 and advances to employees in the ordinary course of
business for travel and expense disbursements in accordance with past
practice, but not in excess of $5,000 at any one time outstanding and
lease payments pursuant to existing lease agreements disclosed on
Schedule 2.20;
(n) agreed, whether in writing or otherwise, to take any
action described in this Section 2.14.
SECTION 2.15 TAXES.
(a) Except as otherwise disclosed in Schedule 2.15, the
Company and its Subsidiaries have filed all Returns which are required
to be filed by them and paid or accrued all Taxes that are shown as due
pursuant to such Returns, except where a failure to file or pay or
accrue reasonably could not be expected to have a Material Adverse
Effect, and, to the Knowledge of the Company, such Returns are true,
complete and correct in all material respects. Except as accrued, no
other Taxes are payable by the Company or its Subsidiaries with respect
to items or periods covered by such Returns (whether or not shown on or
reportable on such Returns) or with respect to any period prior to the
date of this Agreement. There are no liens on any of the assets of the
Company or its Subsidiaries with respect to Taxes, other than liens for
Taxes not yet due and payable or for Taxes that the Company or a
Subsidiary is contesting in good faith through appropriate proceedings
and for which appropriate reserves have been established.
(b) Except as otherwise disclosed in Schedule 2.15 and
except for routine sales tax audits conducted from time to time with
respect to the Company's retail outlets in various states, to the
Knowledge of the Company there is no pending active audit by
AGREEMENT AND PLAN OF MERGER PAGE 25 INDS01 RKIXMILLER 644669v6
the IRS or other Government Authority relating to any Taxes. Except as
disclosed on Schedule 2.15, neither the Company nor any Subsidiary does
business in or derives income from any state, local, territorial or
foreign jurisdiction, other than those for which Returns have been
filed, in such a manner that would subject the Company or such
Subsidiary to the taxing jurisdiction of such state, local, territorial
or foreign authority.
(c) The Company and its Subsidiaries have complied with
all applicable Laws, rules and regulations with respect to the
withholding of Taxes from Employee wages and other payments and paid
over or accrued for payment to the proper taxing authorities all
amounts required to be so withheld and paid over for all periods under
all applicable Laws.
(d) The Company is not a foreign person subject to
withholding under Section 1445 of the Code and the regulations
promulgated thereunder, and the Company will provide certification to
that effect to Parent at the Closing if requested by Parent to do so.
Neither the Company nor any Subsidiary has entered into any
compensatory agreements that would result in a nondeductible expense to
the Company or such Subsidiary pursuant to Section 280G of the Code or
an excise tax to the recipient of such payment pursuant to Section 4999
of the Code. The Company has not been the "distributing corporation"
(within the meaning of Section 355(c)(2) of the Code) with respect to a
transaction described in Section 355 of the Code within the three year
period ending as of the date of this Agreement.
SECTION 2.16 INSURANCE. Schedule 2.16 lists and
provides a brief description (including policy numbers,
deductibles, carriers and effective and termination dates) all
insurance policies in effect with respect to the Company and
its Subsidiaries (including, without limitation, fire,
liability, workmen's compensation, health and title). All such
policies are in full force and effect, all premiums with
respect thereto have been paid to the extent due, and no
notice of cancellation or termination has been received with
respect to any such policy. All such policies will remain in
full force and effect at least through the respective dates
set forth in Schedule 2.16 without the payment of additional
premiums and will not in any way be affected by, or terminate
or lapse by reason of, the transactions contemplated by this
Agreement. Schedule 2.16 contains an accurate and complete
description of any provision contained in the policies
identified on Schedule 2.16 which provides for retrospective
premium adjustment. Schedule 2.16 identifies all risks which
the Company has designated as being self-insured and the
amount of reserves set aside by the Company to cover such
risks.
SECTION 2.17 CONTRACTS. Schedule 2.17 sets forth a
list as of the date of the Agreement of all written, and a
description of all oral, Material Contracts to which the
Company or any Subsidiary of the Company is a party that
cannot be terminated on not more than sixty (60) days' notice
without penalty. Except as set forth on Schedule 2.17:
(a) all of the Material Contracts are in full force and
effect and are valid and binding on and enforceable by the Company or
its Subsidiaries (as applicable) in
AGREEMENT AND PLAN OF MERGER PAGE 26 INDS01 RKIXMILLER 644669v6
accordance with their terms against the other parties thereto, except
as such enforceability may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization or other similar Laws affecting
the enforcement of creditors' rights generally and except to the extent
that injunctive or other equitable relief is within the discretion of a
court of competent jurisdiction;
(b) neither the Company nor any of its Subsidiaries, nor
to the Knowledge of the Company any other party thereto, is in material
breach or default under any Material Contract;
(c) neither the Company nor any of its Subsidiaries has
waived any material right under any Material Contract;
(d) no event has occurred that, with the giving of notice
or the lapse of time or both, would constitute a material breach or
default by the Company or any of its Subsidiaries, or to the Knowledge
of the Company by any other party thereto, under any Material Contract;
and
(e) except for such matters arising solely as a result of
the consummation or anticipated consummation of the Merger with respect
to the Leases (i) there are no material unresolved disputes under any
of the Material Contracts, (ii) there are no renegotiations of or
attempts to renegotiate, or outstanding rights to renegotiate, any
amounts paid to or payable by the Company under any Material Contract,
and (iii) to the Knowledge of the Company, no Person has made a demand
for such renegotiation.
SECTION 2.18 TRANSACTIONS WITH AFFILIATES. Except as
set forth in Schedule 2.18, there are no Contracts that will
be in effect after the Effective Time to which any holder of
more than 5% of any class of Company Securities, or any such
stockholder's Associates or Relatives (the "INSIDERS"), is a
party. Except as set forth in Schedule 2.18, no Stockholder,
any Affiliate of the Company or any Stockholder nor any
Insider has any interest in any property, real or personal,
tangible or intangible, used in or pertaining to the business
of the Company. From and after the Closing, the Stockholders
of the Company (in their capacity as such) will not have any
claim or right against the Company except the right to receive
the Merger Consideration (and the other benefits of this
Agreement) pursuant to the terms and conditions of this
Agreement and their rights under applicable law to assert
appraisal rights in lieu of accepting the Merger Consideration
hereunder.
SECTION 2.19 INDEBTEDNESS. Schedule 2.19 sets forth a
description of all of the Company's and its Subsidiaries'
outstanding indebtedness for borrowed money as of the date of
this Agreement, whether secured or unsecured. Except as set
forth in Schedule 2.19, as of the date of this Agreement
neither the Company nor any of its Subsidiaries is a party to
any loan agreement or the maker or obligor under any
promissory note or other similar undertaking, including any
guaranty, for the repayment of borrowed money.
AGREEMENT AND PLAN OF MERGER PAGE 27 INDS01 RKIXMILLER 644669v6
SECTION 2.20 REAL PROPERTY.
(a) The Company and its Subsidiaries do not own any real
property.
(b) Schedule 2.20 sets forth the location of each parcel
of real property leased by the Company or its Subsidiaries as of the
date of this Agreement, and a true and complete list as of the date of
this Agreement of all written or oral leases or rental arrangements
(individually, a "LEASE" and collectively, the "LEASES") for each such
parcel (including the date and name of the parties to each Lease). The
Company has delivered to Parent and Newco a true and complete copy of
each Lease (including all extensions, amendments and other
modifications thereto) and, in the case of any oral Lease, a written
summary of the material terms of such oral Lease. Except as otherwise
disclosed on Schedule 2.20, the Company or its Subsidiaries is now in
possession of each parcel of such real property and has not assigned or
transferred any Lease, in whole or in part, or sublet all or part of
such real property. Except for the rights of the subtenants with
respect to the Leases occupied by subtenants, and except for any such
matters arising solely as a result of the consummation or anticipated
consummation of the Merger with respect to the Leases, neither the
Company nor any of its Subsidiaries has received any notice or written
threat of, nor is a party to, any Action that could reasonably be
expected to interfere with the Surviving Corporation's quiet enjoyment
of such real property pursuant to the terms of the Leases.
SECTION 2.21 INVENTORY. All inventory of the Company, whether reflected
in the Financial Statements or otherwise, is of good and merchantable quality
and consists of a quantity and quality usable and saleable in the ordinary
course of business, except for items which have been written off or down in the
Financial Statements to realizable market value or for which adequate reserves
have been provided therein. Except as set forth on Schedule 2.21, the Company is
not under any liability or obligation with respect to the return of inventory or
merchandise in the possession of wholesalers, retailers or other customers in
excess of its historical experience, and there are no purchase commitments in
excess of historical experience.
SECTION 2.22 BOOKS AND RECORDS. The books of account, minute books,
stock record books, and other records of the Company and its Subsidiaries, all
of which have been made available to Parent, are complete and correct and have
been maintained in accordance with sound business practices, and the
requirements of Section 13(b)(2) of the Securities Exchange Act of 1934, as
amended (regardless of whether or not the Company and its Subsidiaries are
subject to that Section), including the maintenance of an adequate system of
internal controls. The minute books of the Company and its Subsidiaries contain
accurate and complete records of all meetings held of, and corporate action
taken by, the stockholders, the Boards of Directors, and committees of the
Boards of Directors of the Company and the Subsidiaries, and no meeting of any
such stockholders, Boards of Directors, or committee has been held for which
minutes have not been prepared and are not contained in such minute books. At
the Closing, all of those books and records will be in the possession of the
Company and the Subsidiaries.
AGREEMENT AND PLAN OF MERGER PAGE 28 INDS01 RKIXMILLER 644669v6
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF NEWCO AND PARENT
Each of Newco and Parent hereby represents and warrants to and for the
benefit of the Company and its stockholders as follows:
SECTION 3.1 INCORPORATION AND POWERS. Newco is a
corporation duly incorporated, validly existing and in good
standing under the Laws of the State of Delaware and is a
wholly-owed subsidiary of Parent. Parent is a corporation duly
incorporated, validly existing and in good standing under the
Laws of the State of Tennessee. Each of Newco and Parent has
all requisite corporate power and authority to own and operate
its properties and assets and conduct its business as they are
now being operated and conducted.
SECTION 3.2 AUTHORIZATION. Each of Newco and Parent
has all requisite corporate power and authority to execute,
deliver and perform this Agreement and the other instruments
and documents contemplated hereby to be executed by Newco or
Parent (as the case may be) and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and
performance by Newco and Parent of this Agreement and the
other instruments and documents contemplated hereby to be
executed by Newco or Parent have been duly authorized by all
necessary corporate action on the part of Newco or Parent (as
the case may be). This Agreement has been, and the other
instruments and documents contemplated hereby to be executed
by Newco or Parent at the Closing will at the Closing have
been, duly executed and delivered by Newco or Parent (as the
case may be). This Agreement constitutes, and each other
instrument and document contemplated hereby to be executed by
Newco or Parent at the Closing will at the Closing constitute,
a legal, valid and binding obligation of Newco or Parent,
enforceable against it in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other Laws relating
to or affecting the rights and remedies of creditors generally
and to general principles of equity (regardless of whether in
equity or at law).
SECTION 3.3 NONCONTRAVENTION. The execution, delivery
and performance by Newco and Parent of this Agreement and the
other documents contemplated by this Agreement to which Newco
or Parent is a party, and the consummation by Newco and Parent
of the transactions contemplated hereby and thereby, do not
and will not (i) violate, conflict with or result in the
breach of any provision of the certificate of incorporation,
charter or by-laws of Newco or Parent or (ii) violate or
conflict with any Legal Requirement applicable to Newco or
Parent or any other restriction of any kind or character to
which Newco or Parent is subject, except as reasonably would
not be expected to have a material adverse effect on the
ability of Newco or Parent to perform its obligations under
this Agreement.
SECTION 3.4 CONSENTS, ETC. No filing, consent,
waiver, approval or authorization of any Government Authority
on the part of Newco or Parent is required to be obtained or
made by Newco or Parent in connection with the execution,
delivery and performance by Newco or Parent of this Agreement
or the
AGREEMENT AND PLAN OF MERGER PAGE 29 INDS01 RKIXMILLER 644669v6
other documents contemplated by this Agreement to which Newco
or Parent is a party or the consummation by Newco or Parent of
any of the transactions contemplated hereby or thereby, other
than any required actions under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act, the
filing of a Certificate of Merger with the Secretary of State
of the State of Delaware, any filings required by the
Securities Exchange Act of 1934 (including any Form 8-K), and
such other filings, consents, waivers, approvals or
authorizations as reasonably would not be expected to have a
material adverse effect on the ability of Newco or Parent to
perform its obligations under this Agreement.
SECTION 3.5 BROKERS, FINDERS, ETC. Except for Banc of America
Securities LLC, whose fees and expenses will be paid by Parent, no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with this Agreement, the other documents
contemplated by this Agreement or the transactions contemplated hereby and
thereby based upon any agreements, written or oral, made by or on behalf of
Newco, Parent or any of their Affiliates or by or on behalf of any director,
officer, employee or agent of Newco, Parent or any of their Affiliates.
SECTION 3.6 FINANCING. Parent reasonably believes that it will be able
to satisfy the conditions precedent listed in the fourth paragraph of the
commitment letter from Bank of America, N.A. dated January 22, 2004, as amended
by a letter agreement dated February 4, 2004, a true and complete copy of which
has been provided to the Company, except for those conditions which relate to
(a) the business assets, liabilities (actual or contingent), operations,
condition (financial or otherwise) or prospects of the Company and the
Subsidiaries (including any condition related to Consolidated EBITDA of the
Company), (b) a material adverse change in or material disruptions in the market
for syndicated bank credit facilities, or the financial, banking or capital
markets, and (c) the Senior Credit Facilities (as defined in the commitment
letter) having received a debt rating from ▇▇▇▇▇'▇ Investor Service, Inc. and
Standard & Poor's.
ARTICLE 4. COVENANTS
SECTION 4.1 CONDUCT OF BUSINESS. Except (i) as
otherwise specifically permitted or contemplated by this
Agreement, (ii) as disclosed on Schedule 4.1, or (iii) with
the prior written consent of Parent, from and after the date
of this Agreement and until the Closing Date, the Company
agrees that:
(a) the Company and its Subsidiaries shall conduct their
business in the ordinary course of business consistent with past
practice;
(b) the Company and its Subsidiaries shall use
commercially reasonable efforts to preserve intact the business
organization of the Company and its Subsidiaries, to keep available the
services of their key employees, and to preserve the goodwill of those
having material business relationships with the Company and its
Subsidiaries; and
(c) the Company and its Subsidiaries shall not:
AGREEMENT AND PLAN OF MERGER PAGE 30 INDS01 RKIXMILLER 644669v6
(i) change or modify in any material respect
existing inventory management or credit and collection
policies, procedures and practices with respect to accounts
receivable;
(ii) except for working capital draws (net of
repayments) on its revolving line of credit in an amount not
exceeding $4,200,000, incur any indebtedness for borrowed
money or mortgage, pledge or subject to any Encumbrance (other
than Permitted Encumbrances) any of their assets;
(iii) change any compensation or benefits or grant
any material new compensation or benefits payable to or in
respect of any Employee except (A) as may be required under
existing agreements or by Law, (B) pursuant to normal
severance policies or practices of the Company and its
Subsidiaries as in effect as of the date of this Agreement,
(C) increases in salary or wages payable or to become payable
in the ordinary cause of business, or (D) as set forth on
Schedule 4.1(c);
(iv) except for dispositions of inventory in the
ordinary course of business or assets having an aggregate
value not in excess of $100,000, sell, lease or otherwise
transfer any assets necessary in, or otherwise material to the
conduct of, its or their business;
(v) change its method of accounting or keeping
its books of account or accounting practices, except as
required by GAAP or applicable law;
(vi) issue any Company Securities or any
securities of any Subsidiary or enter into any arrangement or
contract with respect to the issuance or sale of any Company
Securities or any securities of any Subsidiary, other than
shares of Common Stock issued upon the exercise of any
purchase or conversion rights under Company Securities
outstanding as of the date of this Agreement, or make changes
to the capital structure of the Company or any of its
Subsidiaries;
(vii) amend its certificate of incorporation,
articles of organization, bylaws or operating agreement, as
applicable;
(viii) acquire or enter into an agreement to
acquire, by merger, consolidation, or purchase of stock or
assets, any business or entity;
(ix) except for such matters occurring in the
ordinary course of business, amend, modify or waive any rights
under any Material Contract or under any confidentiality,
nonsolicitation or noncompetition agreement or any agreement
with any party relating to the sale or possible sale of the
Company; or
(x) declare, pay or make or set aside for
payment or making, any dividend or other distribution in
respect of its capital stock or other securities, or directly
or indirectly redeem, purchase or otherwise acquire any of its
capital stock or other securities.
AGREEMENT AND PLAN OF MERGER PAGE 31 INDS01 RKIXMILLER 644669v6
SECTION 4.2 FURTHER ASSURANCES. Each party covenants
from the date of this Agreement to the Closing Date (and
subject to the other terms of this Agreement):
(a) to cooperate with each other in determining whether
filings are required to be made with or consents required to be
obtained from any Government Authority in any jurisdiction in
connection with the consummation of the transactions contemplated by
this Agreement and (except for the filing of a Certificate of Merger
with the Secretary of State of the State of Delaware (as contemplated
by Section 1.2 hereof)) in making or causing to be made any such
filings promptly and to obtain timely any such consents (each party
shall furnish to the other and to the other's counsel all such
information as may be reasonably required in order to effectuate the
foregoing action);
(b) to keep the other parties informed in all material
respects of any material communications received by such party from, or
given by such party to, any Government Authority in connection with the
matters described in Section 4.2(a) and to consult with the other
parties in advance of any meeting or conference with any Government
Authority in connection therewith; and
(c) without limiting the specific obligations of any
party hereto under any covenant or agreement hereunder, to use
reasonable best efforts to take all actions and do all things necessary
in order to promptly consummate the transactions contemplated hereby on
the terms set forth herein, including, without limitation,
satisfaction, but not waiver, of the Closing conditions set forth in
Article 5; provided, however, that nothing in this Agreement shall
require Parent to pursue financing on terms materially less favorable
to Parent than those set forth in the financing commitment of Bank of
America N.A. provided to the Company. Notwithstanding the foregoing,
nothing in this Agreement shall require Parent or Newco to agree to
hold separate or to divest of any of the businesses, product lines or
assets of Parent or the Company or any of their respective Subsidiaries
or Affiliates or to agree to any restriction on Parent's ability to
exercise its right as sole stockholder of the Company after the
Effective Time.
SECTION 4.3 PUBLIC ANNOUNCEMENTS. Except as may
otherwise be required by applicable law or applicable rules of
the New York Stock Exchange, neither the Company, on the one
hand, nor Parent or Newco, on the other hand, shall issue, or
permit any of its agents or Affiliates to issue, any press
releases or otherwise make, or permit any of its respective
agents or Affiliates to make, any public or other statements,
with respect to this Agreement and the transactions
contemplated hereby without the prior written consent of
Parent or the Company, as applicable, which consent will not
be unreasonably withheld, conditioned or delayed.
SECTION 4.4 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ ACT. Each of the
parties will file and will cause each of their Subsidiaries to
file all applications, notifications, reports and other
instruments and related material that it may be required to
file with the Federal Trade Commission and the Anti-Trust
Division of the United States Department of Justice under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act in order to consummate the transactions
contemplated hereby, will use reasonable efforts and will
cause each
AGREEMENT AND PLAN OF MERGER PAGE 32 INDS01 RKIXMILLER 644669v6
of its Subsidiaries to use their reasonable efforts to obtain
an early termination of the applicable waiting period under
the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act, and will make and will cause each
of its Subsidiaries to make any further filings or take any
other actions pursuant thereto that may be necessary, proper
or advisable.
SECTION 4.5 INVESTIGATION. From the date hereof until
the Closing, the Company shall give Newco and Parent and their
representatives (including their accountants, consultants,
counsel, employees and authorized agents), upon reasonable
notice and during normal business hours, reasonable access to
the properties, contracts, executive officers, books, records
and affairs of the Company, and shall cause its officers,
directors, agents, representatives, accountants and counsel to
furnish to Parent all documents, records and information (and
copies thereof) as Parent may reasonably request. Parent and
Newco will treat and hold as confidential any information they
receive from the Company or any of its Subsidiaries in the
course of the reviews contemplated by this Section 4.5 in
accordance with the provisions of the agreement, dated October
6, 2003, between the Company and Parent (the "CONFIDENTIALITY
AGREEMENT"), will not use any of such information except in
connection with this Agreement, and, if this Agreement is
terminated for any reason whatsoever, will return to the
Company all tangible embodiments (and all copies) of such
information which are in their possession. Without the
Company's prior consent, which shall not be unreasonably
withheld, neither Newco nor Parent will contact, nor will they
permit their officers, directors, agents, employees,
representatives, accountants or counsel to contact, any
employee of the Company other than the executive officers of
the Company; provided that the Company shall give access to
Parent, its agents and representatives to such employees of
the Company to enable Parent to make an evaluation of the
assets of the Company and its Subsidiaries for accounting
purposes.
SECTION 4.6 CONFIDENTIALITY. The parties hereto shall
continue to observe the terms of, and perform their
obligations under the Confidentiality Agreement.
SECTION 4.7 OPTIONS AND WARRANTS. The Company shall,
at or prior to the Closing, take the actions described in
Section 1.6 with respect to all outstanding options, warrants
and other rights to acquire Company Securities.
SECTION 4.8 MEETING OF COMPANY STOCKHOLDERS. The
Company shall cause a special meeting of its stockholders (the
"SPECIAL MEETING") to be duly called and held as soon as
reasonably practicable, with written notice thereof to be
given in accordance with applicable Law, for the purpose of
voting on the approval and adoption of this Agreement as
required by applicable Law and in accordance with the
Certificate of Incorporation and Bylaws of the Company,
including, without limitation, the approval thereof by the
holders of a majority of the outstanding shares of Company
Stock (with the holders of the Series A Preferred Stock and
the Series B Preferred Stock voting on an "as-converted"
basis); provided, however, that the holders voting to approve
this Agreement must include the holders of a majority of the
outstanding shares of Series A Preferred Stock and
AGREEMENT AND PLAN OF MERGER PAGE 33 INDS01 RKIXMILLER 644669v6
the holders of a majority of the outstanding shares of Series
B Preferred Stock. The written materials submitted to the
Company's stockholders will contain the affirmative
recommendation of the board of directors of the Company in
favor of the adoption of this Agreement; provided, however,
that no director or officer of the Company shall be required
to violate any fiduciary duty or other requirement imposed by
law in connection therewith. The Company will not take any
action to delay, postpone or adjourn the Special Meeting
without the prior written consent of Parent.
SECTION 4.9 NOT A REORGANIZATION. No party shall take
any action to treat the Merger as a reorganization under
Section 368 of the Code.
SECTION 4.10 DIRECTOR AND OFFICER INDEMNIFICATION.
The Surviving Corporation and/or Parent will provide each
individual who served as a director or officer of the Company
or any Subsidiary of the Company at any time prior to the
Effective Time with liability insurance for a period of
forty-eight (48) months after the Effective Time at coverage
limits not less than those provided by the Company as of the
date hereof as described on Schedule 4.10 hereto. The
Certificate of Incorporation and Bylaws of Newco and the
Surviving Corporation will contain exculpatory or
indemnification provisions substantially similar to those
contained in the Company's Certificate of Incorporation and
Bylaws in effect as of the Effective time (and neither Parent,
Newco nor the Surviving Corporation will take any action to
alter or impair any exculpatory or indemnification provisions
now existing in the Articles of Incorporation or Bylaws of any
Subsidiary of the Company, or that will be existing in the
Certificate of Incorporation or Bylaws of the Surviving
Corporation) applicable to and for the benefit of any
individual in respect of their service as a director or
officer of the Company or any Subsidiary of the Company at any
time prior to the Effective Time. The Surviving Corporation
will indemnify in accordance with applicable Law each
individual who served as a director or officer of the Company
or of any Subsidiary of the Company at any time prior to the
Effective Time from and against any and all actions, suit,
proceedings, hearings, investigations, charges, complaints,
claims, demands, injunctions, judgments, orders, decrees,
rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, liabilities, obligations, taxes, liens, losses,
expenses and fees, including court costs and attorneys' fees
and expenses, resulting from, arising out of, relating to, in
the nature of, or caused by this Agreement or any of the
transactions contemplated herein.
SECTION 4.11 SUBSEQUENT DISCLOSURES. Not later than
five (5) days prior to the Closing Date (and subject to the
rights of Parent to terminate this Agreement under Section
7.1(g)), the Company by written notice to Parent shall modify
the representations and warranties (whether or not such
representations or warranties are qualified by a reference to
a Schedule) made by the Company herein with respect to (a) any
matter of which the Company has knowledge that arises
hereafter if, had it existed or occurred on or prior to the
date hereof, such matter would have been required to be listed
or described on a Schedule to this Agreement or would have
constituted a breach of a representation or warranty of the
Company, or (b)
AGREEMENT AND PLAN OF MERGER PAGE 34 INDS01 RKIXMILLER 644669v6
any matter of which the Company has knowledge, the disclosure
of which is necessary to correct any information on a Schedule
to this Agreement or to make accurate any representation and
warranty of the Company contained herein; provided that Parent
shall remain entitled to indemnification pursuant to Article 6
for any matters disclosed pursuant to this Section 4.11 after
the date hereof.
SECTION 4.12 NEGOTIATIONS. From the date hereof until
the termination of this Agreement in accordance with its
terms, the Company agrees that the Company and its
Subsidiaries will negotiate exclusively and in good faith with
Newco and Parent with respect to any transaction involving the
sale, transfer or other disposition (by merger or otherwise)
of the Company or any of its Subsidiaries or its or their
assets and will not (i) initiate or solicit, directly or
indirectly, any proposal with respect to a Competing
Transaction; (ii) initiate, directly or indirectly, any
contact with any Person in an effort to or with a view towards
soliciting a proposal with respect to a Competing Transaction;
(iii) furnish information concerning the Company's business,
properties or assets to any Person under any circumstances
that could reasonably be expected to relate to a Competing
Transaction; or (iv) negotiate or enter into discussions,
directly or indirectly, with any Person with respect to any
actual or potential Competing Transaction. Notwithstanding the
foregoing, the Company may engage or participate in
discussions or negotiations with, or provide information to,
any Person in connection with any such transaction if outside
counsel to the Company advises the Company's Board of
Directors that any such action is required for the Company's
directors to satisfy their fiduciary duties to the Company and
its constituencies under applicable Law.
SECTION 4.13 ESCROW AGREEMENTS. Parent shall, and the
Company shall cause the Stockholder Committee to, prior to or
as of the Closing, execute and deliver each of the Working
Capital Escrow Agreement and the Indemnification Escrow
Agreement.
SECTION 4.14 TERMINATION OF 401(K) PLAN. Unless otherwise specified by
Parent in writing prior to Closing, the Company shall terminate its 401(k) Plan
by appropriate corporate action immediately prior to Closing, and Parent shall
assume no liability therefor. However, Parent shall, or shall cause the
Surviving Corporation to, complete the termination of such 401(k) Plan and the
liquidation and distribution to the participants therein of all assets held
pursuant thereto in accordance with applicable law, all at Parent's or the
Surviving Corporation's expense.
SECTION 4.15 PHYSICAL INVENTORY. At Parent's option and at Parent's
expense, representatives of Parent and the Company shall take a physical
inventory of the Company's assets prior to Closing.
SECTION 4.16 CONSENTS. Prior to the Closing the Company shall use its
reasonable efforts to obtain Lease Consents with respect to each Lease other
than the Excluded Leases and to obtain all required consents under or with
respect to each license, agreement or other instrument listed on Schedule 2.3
hereto. The Company shall submit the form of the request letter to be sent to
landlords requesting Lease Consents to Parent for Parent's approval thereof,
AGREEMENT AND PLAN OF MERGER PAGE 35 INDS01 RKIXMILLER 644669v6
which approval will not be unreasonably withheld, conditioned or delayed by
Parent. Parent shall cooperate fully with all reasonable requests of the Company
for information relating to, or the assistance of, Parent in connection with the
Company's efforts to obtain such consents and Lease Consents.
SECTION 4.17 APPRAISAL RIGHTS EXPENSES. In the event there are
Dissenting Shares with respect to the Merger, Parent or the Surviving
Corporation shall be entitled to reimbursement of one-half of the reasonable
legal and litigation expenses (but not the liability itself for the value of
their Dissenting Shares under applicable law) incurred to resolve the liability
of the Company to the holders thereof from the funds held under the
Indemnification Escrow Agreement. The procedures set forth in Section 6.4(a)
shall apply to a claim for reimbursement under this Section as if it were a
claim for indemnification to which Section 6.4(a) is applicable. (The Deductible
set forth in Section 6.2(b) shall not be applicable to reimbursement claims
under this Section.)
SECTION 4.18 TAX FILINGS. If the Closing has not occurred on or before
March 31, 2004, the Company shall timely file with the Internal Revenue Service
a Form 1138 to secure the carryback to the fiscal year ended January 31, 2004 of
the projected net operating loss of the short tax period for the period between
February 1, 2004 and the Closing Date.
ARTICLE 5. CONDITIONS PRECEDENT
SECTION 5.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF
NEWCO AND PARENT. The obligations of Newco and Parent to
consummate and effect the Merger are subject to the
satisfaction, at or prior to the Closing, of each of the
following conditions (any one or more of which may be waived
in writing in whole or in part by Newco and Parent in their
sole discretion):
(a) REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of the Company contained in this
Agreement or in any certificate, document or instrument delivered
pursuant to this Agreement shall be true and correct in all material
respects on and as of the date of this Agreement and at and as of the
Closing with the same effect as though such representations and
warranties had been made at and as of the Closing, except for
representations and warranties that speak as of a specific date or time
other than the Closing (which need only be true and correct in all
material respects as of such date or time); provided, however, that if
any portion of any such representation or warranty is already qualified
by materiality, for purposes of determining whether this condition has
been satisfied with respect to such portion of such representation or
warranty, such portion of such representation or warranty as so
qualified shall be true and correct in all respects.
(b) COVENANTS. The Company shall have performed and
complied in all material respects with all covenants and agreements
required by this Agreement to be performed or complied with by it at or
prior to the Closing.
(c) INJUNCTION. No order or injunction restraining or
prohibiting the consummation of the transactions contemplated hereby
shall have been issued by any Government Authority and be in effect.
AGREEMENT AND PLAN OF MERGER PAGE 36 INDS01 RKIXMILLER 644669v6
(d) CERTIFICATES. The Company shall furnish Newco and
Parent a certificate dated the Closing Date and signed by a senior
executive officer of the Company to the effect that the conditions set
forth in Section 5.1(a)-(b) have been satisfied.
(e) DOCUMENTS. The Company shall have executed (as
applicable) and delivered the certificates, instruments, contracts and
other documents specified to be delivered by it hereunder, and all
other documents reasonably requested by Parent or its counsel.
(f) ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ ACT. All applicable waiting periods
(and any extensions thereof) under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act shall have
expired or otherwise been terminated.
(g) DISSENTING SHARES. The number of Dissenting Shares
(on an as-converted basis with respect to any convertible Company Stock
included therein) shall not exceed ten percent (10%) of the total
number of shares of Company Stock (on an as-converted basis with
respect to any convertible Company Stock) plus Substituted Option
Shares outstanding (or subject to Substituted Options) as of the
Closing.
(h) CONSENTS. As of the Closing, Leases for retail store
locations (including kiosks) representing in the aggregate store
locations responsible for not less than eighty percent (80%) of the
aggregate Store EBITDA, all as determined by reference to Exhibit H
attached hereto, shall be included in one of the following categories
of Leases:
(i) Excluded Leases;
(ii) Required Consent Leases as to which Lease
Consents in form and substance reasonably satisfactory to
Parent or its counsel shall have been obtained (in this
regard, the approval of a Lease Consent as to form and
substance by Parent or Parent's counsel shall not be
unreasonably withheld, conditioned or delayed); or
(iii) Preferred Consent Leases as to which a
letter describing the pending merger and requesting a Lease
Consent was mailed to the landlord (or other appropriate
notice party) at least thirty (30) days prior to the Closing
and as of the Closing no negative response (which would be a
response indicating that a Lease Consent must be obtained)
shall have been received from such landlord (or other notice
party).
(i) LITIGATION. On the date of Closing, except as set
forth Schedule 2.7, none of Parent, the Company nor any Subsidiary
shall be a party to, nor will there otherwise be pending or overtly
threatened, any judicial, administrative, or other action, proceeding
or investigation which, if adversely determined might, in the
reasonable opinion of Parent, have a Material Adverse Effect on the
Company, any Subsidiary, Parent or the transactions contemplated
hereby.
(j) OPINION OF COUNSEL FOR THE COMPANY. Parent shall have
received an opinion of counsel for the Company, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇,
dated the Closing Date, in
AGREEMENT AND PLAN OF MERGER PAGE 37 INDS01 RKIXMILLER 644669v6
substantially the form of, and subject to the assumptions,
qualifications and reliance provisions customarily included in,
opinions given in similar transactions, expressing the opinions and
assurances described in Exhibit F hereto.
(k) FUNDING CONDITION. Parent and Newco shall have (i)
received no less than $175,000,000 of debt financing as contemplated by
the financing commitment of Bank of America, N.A., a copy of which has
been provided to the Company, or (ii) obtained no less than such amount
from another source on terms not materially less favorable to Parent
and Newco than those contemplated by such commitment letter.
(l) AUDIT; TAX RETURNS. Parent shall have received the
audited consolidated balance sheets of the Company and its Subsidiaries
as of January 31, 2004, and the related audited consolidated statements
of income and cash flows for the twelve (12) month period then ended,
together with an unqualified opinion thereon by KPMG LLP (the "2004
FINANCIAL STATEMENTS"). The 2004 Financials Statements will not contain
any adjustments which reflect any material adverse changes to the
Company's results of operations or financial condition from those
previously reported in the Company's financial statements for the
eleven month period ended December 31, 2003.
(m) MATERIAL ADVERSE EFFECT. The Company shall not have
suffered any Material Adverse Effect.
SECTION 5.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF
THE COMPANY. The obligation of the Company to consummate and
effect the Merger are subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any one
or more of which may be waived in writing in whole or in part
by the Company in its sole discretion):
(a) REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of Newco and Parent contained in this
Agreement or in any certificate, document or other instrument delivered
pursuant to this Agreement shall be true and correct in all material
respects on and as of the date of this Agreement and at and as of the
Closing with the same effect as though such representations and
warranties had been made at and as of the Closing, except for
representations and warranties that speak as of a specific date or time
other than the Closing (which need only be true and correct in all
material respects as of such date or time); provided, however, that if
any portion of any such representation or warranty is already qualified
by materiality, for purposes of determining whether this condition has
been satisfied with respect to such portion of such representation or
warranty, such portion of such representation or warranty as so
qualified shall be true and correct in all respects.
(b) COVENANTS. Newco and Parent shall have performed and
complied in all material respects with all covenants and agreements
required by this Agreement to be performed and complied with by them at
or prior to the Closing.
AGREEMENT AND PLAN OF MERGER PAGE 38 INDS01 RKIXMILLER 644669v6
(c) INJUNCTION. No order or injunction restraining or
prohibiting the consummation of the transactions contemplated hereby
shall have been issued by any Government Authority and be in effect.
(d) CERTIFICATES. Newco and Parent shall furnish the
Company a certificate dated the Closing Date and signed by senior
executive officers of Newco and Parent to the effect that the
conditions set forth in Section 5.2(a) and (b) have been satisfied.
(e) DOCUMENTS. Newco and Parent shall have executed (as
applicable) and delivered all the certificates, instruments, contracts
and other documents specified to be delivered by them hereunder. and
all other documents reasonably requested by the Company or its counsel.
(f) ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ ACT. All applicable waiting periods
(and any extensions thereof) under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act shall have
expired or otherwise been terminated.
(g) STOCKHOLDER APPROVAL. The stockholders of the Company
shall have approved this Agreement and the Merger in accordance with
applicable law.
(h) DISSENTING SHARES. The number of Dissenting Shares
(on an as-converted basis with respect to any convertible Company Stock
included therein) shall not exceed ten percent (10%) of the total
number of shares of Company Stock (on an as-converted basis with
respect to any convertible Company Stock) plus Substituted Option
Shares outstanding (or subject to Substituted Options) as of the
Closing.
ARTICLE 6. SURVIVAL; INDEMNIFICATION
SECTION 6.1 SURVIVAL. All of the representations,
warranties, covenants and agreements of the Company, Parent
and Newco contained in this Agreement or in any certificate,
document or other instrument delivered pursuant to this
Agreement shall survive (and not be affected in any respect
by) the Closing, but the representations and warranties of the
Company, Parent and Newco shall terminate on, and no claim or
Action with respect thereto may be brought, after the later of
(i) the first anniversary of the Closing Date and (ii) April
30, 2005. The right to indemnification, payment of Losses or
other remedy based on such representations, warranties,
covenants, and agreements will not be affected by any
investigation conducted with respect to, or any knowledge
acquired (or capable of being acquired) at any time, whether
before or after the Closing Date, with respect to the accuracy
or inaccuracy of or compliance with, any such representation
or warranty, covenant or agreement. The waiver of any
condition based on the accuracy of any representation or
warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to
indemnification, payment of Losses, or other remedy based on
such representations, warranties, covenants, and agreements.
SECTION 6.2 POST-CLOSING INDEMNIFICATION.
AGREEMENT AND PLAN OF MERGER PAGE 39 INDS01 RKIXMILLER 644669v6
(a) From and after the Closing, and subject to Section
6.1 and to this Section 6.2, including the limitations herein, Newco
and Parent and their directors, officers, employees, agents,
Affiliates, successor and assigns (each a "PARENT INDEMNIFIED PERSON"
and, collectively, the "PARENT INDEMNIFIED PERSONS") will be
indemnified and held harmless from the funds held by the
Indemnification Escrow Agent pursuant to the Indemnification Escrow
Agreement for, from, and against all demands, claims, actions or causes
of action, assessments, losses, damages, liabilities, costs and
expenses, including, without limitation, interest, penalties,
disbursements and expenses (including any reasonable Legal Expenses)
not otherwise paid by or recovered from an applicable policy (or
policies) of insurance (collectively, "LOSSES") (i) arising out of the
breach of any representation or warranty of the Company contained in or
made pursuant to this Agreement, (ii) arising out of the breach by the
Company of, or the failure by the Company to perform, any of the
covenants or other agreements contained in this Agreement to be
performed by the Company prior to or at the Closing, or (iii) relating
to Taxes for any period ending on or before the Closing Date except
accrued Taxes included in the calculation of Final Closing Working
Capital. For purposes of this Section 6.2, any breach of any
representation, warranty or covenant shall be determined without regard
to any materiality or Material Adverse Effect qualification. With
respect to any Losses potentially recoverable under an applicable
policy or policies of insurance, (i) Parent or the Surviving
Corporation will make a claim with respect thereto under the applicable
insurance policy or policies if Parent in good faith and in its
reasonable judgment determines that the Losses in question are covered
in whole or in part by such insurance policy or policies, and (ii) with
respect to any Losses for which Parent and/or the Surviving Corporation
are indemnified pursuant to this Agreement from the funds held pursuant
to the Indemnification Escrow Agreement, Parent and/or the Surviving
Corporation will upon written request to do so assign to the
Stockholder Committee, or permit the Stockholder Committee at its own
expense to pursue in the name of Parent and/or the Surviving
Corporation for the benefit of the former stockholders of the Company
(other than holders of Dissenting Shares) and the holders of
Substituted Options, any claim or claims that the Stockholder Committee
decides it will pursue under any applicable policy or policies of
insurance to recover some or all of such Losses.
(b) If any Parent Indemnified Person becomes potentially
entitled to any indemnification arising out of the breach of any
representation or warranty of the Company contained or made in this
Agreement, the breach of Section 4.11 or relating to Taxes for any
period on or prior to the Closing Date (or any indemnification
obligation relating to any of the foregoing) pursuant to Section 6.2(a)
of this Agreement, the amount that such Parent Indemnified Person is
entitled to recover in connection therewith shall nevertheless be
limited as follows:
(i) first, no Losses (A) arising out of the
breach of any representation or warranty of the Company
contained or made in this Agreement or the breach of Section
4.11, or (B) relating to Taxes for any period ending on or
prior to the Closing Date (or any indemnification obligation
relating to any of the foregoing), shall be payable until the
total of all such Losses exceeds One Million Dollars
($1,000,000) (the "DEDUCTIBLE"), and then only the excess
amounts above the Deductible shall be payable; and
AGREEMENT AND PLAN OF MERGER PAGE 40 INDS01 RKIXMILLER 644669v6
(ii) second, the only available source of payment
for any Losses (A) arising out of the breach of any
representation or warranty of the Company contained or made in
this Agreement or the breach of Section 4.11, or (B) relating
to Taxes for any period ending on or prior to the Closing Date
(or any indemnification obligation relating to any of the
foregoing) shall be the funds held by the Indemnification
Escrow Agent that have not yet become distributable to the
former holders of Company Stock (excluding Dissenting Shares)
and to Option Holders under the terms hereof and/or the
Indemnification Escrow Agreement. The former stockholders of
the Company and the members of the Stockholder Committee,
individually or as a group, shall not have any personal
liability for the payment of any indemnification obligations
hereunder.
SECTION 6.3 STOCKHOLDER INDEMNIFICATION.
(a) From and after the Closing, and subject to Section
6.1 and this Section 6.3, including the limitations herein, Newco and
Parent hereby jointly and severally agree to indemnify and hold
harmless the former stockholders of the Company and the Option Holders
and their directors, officers and employees (each a "STOCKHOLDER
INDEMNIFIED PERSON" and, collectively, the "STOCKHOLDER INDEMNIFIED
PERSONS") (a Parent Indemnified Person or a Stockholder Indemnified
Person, as applicable, are referred to herein as an "INDEMNIFIED
PERSON") for, from and against any Losses arising out of (i) the breach
of any representation or warranty of Newco or Parent contained in or
made pursuant to this Agreement, (ii) the breach by Newco or Parent of,
or the failure by Newco or Parent to perform, any of its or their
covenants or other agreements contained in this Agreement, or (iii) any
obligation or liability of the Company or any of its Subsidiaries which
is included in the Financial Statements or in the calculation of Final
Closing Working Capital. For purposes of this Section 6.3, any breach
of any representation, warranty or covenant shall be determined without
regard to any materiality or material adverse effect qualification.
(b) If any Stockholder Indemnified Person becomes
potentially entitled to any indemnification arising out of the breach
of any representation or warranty of Newco or Parent contained or made
in this Agreement (or any indemnification obligation relating thereto)
pursuant to Section 6.3(a) of this Agreement, the amount that such
Stockholder Indemnified Person is entitled to recover in connection
therewith shall nevertheless be limited as follows:
(i) first, no Losses arising out of the breach
of any representation or warranty of Newco or Parent contained
or made in this Agreement (or any indemnification obligation
relating thereto) shall be payable until the total of all such
Losses exceeds the Deductible, and then only the excess
amounts above the Deductible shall be payable; and
(ii) second, the aggregate limit of Parent's and
Newco's liability for all Losses arising out of the breach of
any representation or warranty of Newco or Parent contained or
made in this Agreement (or any indemnification obligation
relating thereto) shall be limited to $15,000,000.00.
AGREEMENT AND PLAN OF MERGER PAGE 41 INDS01 RKIXMILLER 644669v6
SECTION 6.4 PROCEDURES.
(a) An Indemnified Person that has (or believes that it
has) a claim for indemnification under this Article 6, other than a
claim for indemnification that involves a Third Party Claim, shall give
written notice to Parent or the Stockholder Committee (as the
representative of the former stockholders of the Company (other than
Dissenting Shares) and Option Holders), as applicable (each, an
"INDEMNIFYING PARTY", as applicable) (a "CLAIM NOTICE"), requesting
indemnification and describing in reasonable detail to the extent then
known the nature of the indemnification claim being asserted by the
Indemnified Person, providing therein an estimate of the amount of
Losses attributable to the claim to the extent feasible (which estimate
may be but shall not necessarily be conclusive of the final amount of
such claim), and also providing therein the basis for and factual
circumstances surrounding the Indemnified Person's request for
indemnification under this Article 6. The Indemnifying Person shall,
within thirty (30) days after its receipt of a Claim Notice, notify the
Indemnified Person in writing as to whether the Indemnifying Person
admits or disputes the claim described in the Claim Notice. If the
Indemnifying Person gives written notice that it admits the
indemnification claim described in such Claim Notice, then the
Indemnified Person shall be entitled to indemnification pursuant to the
provisions of this Article 6, and subject to the limitations hereof,
with respect to the estimated amount of Losses stated in the Claim
Notice. If the Indemnifying Person notifies the Indemnified Person in
writing that it disputes such claim for indemnification, or that it
admits the entitlement of the Indemnified Person to indemnification
under this Article 6 with respect thereto but disputes the amount of
the Losses in connection therewith, or if the Indemnifying Person fails
to notify the Indemnified Person within such thirty (30) day period
that it either admits or disputes such claim for indemnification, then
in either of such cases the indemnification claim described in the
Claim Notice shall be a disputed indemnification claim that must be
resolved by settlement between the Indemnified Person and the
Indemnifying Person, or by proceedings commenced in an appropriate
court of competent jurisdiction by either the Indemnifying Person or
the Indemnified Person, or by any other mutually agreeable method.
Payment of all amounts determined pursuant to this Section 6.4(a) to be
owed to a Parent Indemnified Person shall be made by the
Indemnification Escrow Agent, upon the written instruction for the
making of such payment by both the Stockholder Committee and Parent,
within ten (10) days after (i) the making of a binding settlement
approved by the Stockholder Committee and Parent, or (ii) the
expiration of all appeal rights from a final adjudication of a court of
competent jurisdiction with respect thereto, or (iii) the final and
nonappealable determination of such liability and amount by any other
resolution method undertaken pursuant to the mutual written agreement
of the Parent and the Stockholder Committee. Payment of all amounts
determined pursuant to this Section 6.4(a) to be owed to a Stockholder
Indemnified Person shall be made by Parent within ten (10) days after
(i) the making of a binding settlement approved by the Stockholder
Indemnified Person, the Stockholder Committee and Parent, or (ii) the
expiration of all appeal rights from a final adjudication of a court of
competent jurisdiction with respect thereto, or (iii) the final and
nonappealable determination of such liability and amount by any other
resolution method undertaken pursuant to the mutual written agreement
of the Stockholder Indemnified Person, the Parent and the Stockholder
Committee.
AGREEMENT AND PLAN OF MERGER PAGE 42 INDS01 RKIXMILLER 644669v6
(b) If a claim is asserted against an Indemnified Person
by a person other than a party to this Agreement and is based on
factual allegations which, if true, would entitle the Indemnified
Person to indemnification under Section 6.2(a) and (b) taken together
or 6.3(a) and (b) taken together (any such claim is a "THIRD PARTY
CLAIM"), the Indemnified Person against whom the Third Party Claim is
asserted shall give written notice (a "CLAIM NOTICE") to the
Indemnifying Person of the assertion of such Third Party Claim,
describing in such notice in reasonable detail to the extent then known
the nature of the Third Party Claim and the factual basis and
circumstances surrounding same and estimating the amount of Losses
attributable to such Third Party Claim to the extent feasible (which
estimate shall not be conclusive of or binding as to the final amount
of such indemnification claim). A copy of all papers served on or
received by the Indemnified Person with respect to such Third Party
Claim, if any, shall be attached to the Claim Notice. The failure of an
Indemnified Person to properly deliver a Claim Notice to the
Indemnifying Person shall not defeat or prejudice the indemnification
rights under this Article 6 of such Indemnified Person with respect to
the related Third Party Claim unless and except to the extent that the
resulting delay is materially prejudicial to the defense of the Third
Party Claim or the amount of Losses associated therewith. Within
fifteen (15) days after receipt of any Claim Notice with respect to a
Third Party Claim (the "ELECTION PERIOD"), the Indemnifying Person
shall notify the Indemnified Person who provided the Claim Notice in
writing that the Indemnifying Person either (i) disputes the right of
the Indemnified Person to indemnification under this Article 6 with
respect to that Third Party Claim, or (ii) admits the right of the
Indemnified Person to indemnification under this Article 6 with respect
to Losses arising in connection with that Third Party Claim. The
failure of the Indemnifying Person to respond to the Indemnified Person
within such fifteen (15) day period after receipt of a Claim Notice by
the shall be deemed to constitute a response by the Indemnifying Person
that it denies the right of such Indemnified Person to indemnification
under this Article 6 with respect to that Third Party Claim.
(c) If the Indemnifying Person admits that an Indemnified
Person is entitled to indemnification under this Article 6 with respect
to a Third Party Claim, then in such event (i) the Indemnifying Person
shall vigorously defend the Third Party Claim with counsel approved by
the Indemnified Person (which approval shall not be unreasonably
withheld), and (ii) the Indemnifying Person shall not enter into any
settlement of the Third Party Claim unless such settlement is approved
in writing by the Indemnified Person (which approval may not be
unreasonably withheld or delayed). (If the Stockholder Committee is the
Indemnifying Person defending a Third Party Claim, the costs and
expenses of such defense shall be payable by (or the Stockholder
Committee shall be entitled to reimbursement therefor upon demand to)
the Indemnification Escrow Agent from the funds held pursuant to the
Indemnification Escrow Agreement, and Parent and the Stockholder
Committee shall each so instruct the Indemnification Escrow Agent in
writing to that effect.) If the Indemnifying Person disputes the right
of the Indemnified Person to indemnification under this Article 6 with
respect to the Third Party Claim described in a Claim Notice, then in
such event (i) the Indemnified Person may defend the Third Party Claim
with counsel of its choice and may enter into a settlement thereof
without seeking or obtaining approval of the Indemnifying Person as to
counsel employed or for the making of such settlement, and (ii) the
amount of Losses incurred by
AGREEMENT AND PLAN OF MERGER PAGE 43 INDS01 RKIXMILLER 644669v6
the Indemnified Person in connection with such Third Party Claim, and
the Indemnified Person's right to indemnification under this Article 6
with respect thereto, shall be a disputed indemnification claim to be
resolved by settlement between the Indemnifying Person and the
Indemnified Person, or by appropriate proceedings in any court of
competent jurisdiction. Payment of all amounts determined pursuant to
this subsection (c) to be owed to a Parent Indemnified Person shall be
made by the Indemnification Escrow Agent, upon the written instruction
for the making of such payment by both the Stockholder Committee and
Parent, within ten (10) days after (i) the making of a binding
settlement approved in writing by the Stockholder Committee and the
Parent Indemnified Person, or (ii) the expiration of all appeal rights
from a final adjudication of a court of competent jurisdiction with
respect thereto, or (iii) the final and nonappealable determination of
such liability and amount by any other resolution method undertaken
pursuant to the mutual written agreement of the Stockholder Committee
and the Parent Indemnified Person. Payment of all amounts determined
pursuant to this subsection (c) to be owed to a Stockholder Indemnified
Person shall be made by Parent, within ten (10) days after (i) the
making of a binding settlement, or (ii) the expiration of all appeal
rights from a final adjudication of a court of competent jurisdiction
with respect thereto, or (iii) the final and nonappealable
determination of such liability and amount by any other resolution
method undertaken pursuant to the mutual written agreement of Parent
and the Stockholder Indemnified Person.
SECTION 6.5 EXCLUSIVE POST-CLOSING REMEDY. After the Closing, and
except for any non-monetary, equitable relief to which any Indemnified Person
may be entitled, the rights and remedies set forth in this Article 6 shall
constitute the sole and exclusive rights and remedies of the Indemnified Persons
under or with respect to the subject matter of this Agreement; provided,
however, that nothing in this Agreement is intended to limit any right of any
Person with respect to a common law fraud claim against another Person.
SECTION 6.6 LIABILITY LIMITATIONS. In no event shall any Indemnified
Person be, under or in respect of this Agreement (but not with respect to
matters appropriately pursued outside of the provisions of this Agreement),
entitled to recover punitive or exemplary damages. Additionally, Parent, Newco
and the Company hereby waive as to each former officer and director of the
Company, from and after the Closing, any and all claims and any causes of action
for monetary damages under or with respect to the subject matter of this
Agreement (other than any claims or causes of action arising out of the express
provisions of this Article 6) or any breach or alleged breach of fiduciary
obligation by such officer or director to the Company that Parent, Newco or the
Company might otherwise be entitled to assert against any such former officer or
director, including under any Law.
ARTICLE 7. TERMINATION AND REMEDIES
SECTION 7.1 TERMINATION OF AGREEMENT. Subject to Section 8.4
hereof, either of the Company and Parent may terminate this Agreement
with the prior authorization of its board of directors (whether before
or after stockholder approval) as follows:
AGREEMENT AND PLAN OF MERGER PAGE 44 INDS01 RKIXMILLER 644669v6
(a) the Company, Newco and Parent may terminate this Agreement by
mutual written consent at any time prior to the Effective Time;
(b) Parent may terminate this Agreement by giving written
notice thereof to the Company at any time prior to the Effective Time (i) in
the event the Company has breached any representation, warranty or covenant
contained in this Agreement in any material respect, Parent has notified the
Company in writing of such breach, and such breach has continued without
cure for a period of thirty (30) days after the notice of breach was given
to the Company, or (ii) if the Closing shall not have occurred on or before
April 30, 2004, by reason of the failure of any condition precedent under
Section 5.1 hereof unless such failure results primarily from Newco or
Parent breaching any representation, warranty or covenant contained in this
Agreement;
(c) the Company may terminate this Agreement by giving
written notice thereof to Parent at any time prior to the Effective Time (i)
in the event Newco or Parent has breached any representation, warranty or
covenant contained in this Agreement in any material respect, the Company
has notified Parent in writing of such breach, and such breach has continued
without cure for a period of thirty (30) days after the notice of breach was
given to Parent, or (ii) if the Closing shall not have occurred on or before
April 30, 2004, by reason of the failure of any condition precedent under
Section 5.2 hereof unless such failure results primarily from the Company
breaching any representation, warranty or covenant contained in this
Agreement;
(d) either the Company or Parent may terminate this
Agreement by giving written notice to the other at any time after the
Special Meeting, as adjourned or postponed, in the event this Agreement and
the Merger fail to receive the required number of votes for approval thereof
under applicable law;
(e) either Parent or the Company may terminate this
Agreement by giving written notice to the other, if any court of competent
jurisdiction or other Government Authority shall have permanently enjoined,
restrained or otherwise prohibited the consummation of the transactions
contemplated hereby and such injunction, restraint or prohibition shall have
become final and nonappealable, provided that the party seeking to terminate
this Agreement shall have used reasonable efforts to prevent and remove such
injunction, restraint or prohibition;
(f) the Company may terminate this Agreement by giving
written notice thereof to Parent if the Board of Directors of the Company
determines that it will not recommend approval of the Merger by the
Company's stockholders (or if such recommendation is withdrawn) based upon
the advice of outside counsel that such action is necessary for the Board of
Directors to comply with its fiduciary duties to stockholders under
applicable law;
(g) Parent may terminate this Agreement by giving written
notice thereof to the Company if the Company has within the five previous
Business Days given Parent any notice pursuant to Section 4.11 and the
matter that is the subject of the notice results in (i) the Company being in
breach in any material respect of any covenant contained in
AGREEMENT AND PLAN OF MERGER PAGE 45 INDS01 RKIXMILLER 644669v6
this Agreement or (ii) the representations and warranties of the Company
contained in this Agreement being breached in any material respect; or
(h) Parent may terminate this Agreement by giving written
notice thereof to the Company if (i) the Board of Directors of the Company
shall have determined to not recommend or shall withdraw, modify or change
its recommendation relating to the Merger in a manner materially adverse to
Parent, or (ii) the Board of Directors of the Company shall have recommended
to the stockholders of the Company that they accept or approve, or the
Company or any of its subsidiaries shall have agreed to engage in, a
Competing Transaction.
SECTION 7.2 EFFECT OF TERMINATION. If any party terminates
this Agreement pursuant to Section 7.1, except as set forth in Section
8.4, all rights and obligations of the parties hereunder shall
terminate without any liability of any party to any other party except
that a party then in breach of any representation, warranty or covenant
herein made by or applicable to such party shall not be relieved of
liability in connection with such breach. The confidentiality
provisions contained in Section 4.6 of this Agreement and the
provisions of Sections 7.2, 7.3 and 8.4 of this Agreement shall survive
any such termination.
SECTION 7.3 LEGAL EXPENSES. In any Action or proceeding before
any Government Authority commenced to enforce this Agreement or any of
the provisions hereof, or to obtain damages or other relief on account
of the breach thereof (including without limitation redress for the
improper assertion of an indemnification claim or other amount by an
Indemnified Person against amounts held by the Indemnification Escrow
Agent), the prevailing party in any such Action or proceeding shall be
entitled, in addition to any award or relief granted, to recover its
reasonable Legal Expenses from the non-prevailing party or parties.
ARTICLE 8. MISCELLANEOUS
SECTION 8.1 COUNTERPARTS. This Agreement may be executed in
one or more counterparts, all of which shall be considered one and the
same agreement, and shall become effective when one or more
counterparts have been signed by a party and delivered to the other
parties. Copies of executed counterparts transmitted by telecopy,
telefax or other electronic transmission service shall be considered
original executed counterparts for purposes of this Section, provided
that receipt of copies of such counterparts is confirmed.
SECTION 8.2 GOVERNING LAW. This Agreement shall for all
purposes be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any of its conflicts of laws
provisions, as those laws are applied to contracts entered into and to
be performed entirely in the State of Delaware.
SECTION 8.3 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARY.
Except for the Confidentiality Agreement, this Agreement contains the
entire agreement between the parties with respect to the subject matter
hereof and all prior
AGREEMENT AND PLAN OF MERGER PAGE 46 INDS01 RKIXMILLER 644669v6
negotiations, writings and understandings relating to the subject
matter of this Agreement are merged in and are superseded and canceled
by, this Agreement. This Agreement is not intended to confer upon any
Person not a party hereto (and their successors and assigns permitted
hereby), other than the Indemnified Persons under Article 6, the
stockholders of the Company and the Stockholder Committee on behalf of
the stockholders of the Company any rights or remedies hereunder.
SECTION 8.4 EXPENSES; TERMINATION FEE. Whether or not the
Merger is consummated, all Legal Expenses, investment banking fees and
all other costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses (and where the Company has agreed to
pay and reimburse any expense of any Stockholder, the Company may do
so); provided that all filing fees in connection with compliance with
the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act shall be paid by Parent; and provided,
however, that upon the termination of this Agreement by the Company
pursuant to Section 7.1(d) or (f) hereof, or by Parent pursuant to
Section 7.1(d) or (h) hereof, the Company shall promptly pay to Newco
$6,000,000 in cash.
SECTION 8.5 NOTICES. All notices and other communications
hereunder shall be in writing and given by certified or registered
mail, overnight delivery service such as Federal Express, telecopy (or
like transmission) or personal delivery to the party to whom it is
given at such party's address or telecopier number set forth below or
such other address or telecopier number as such party may hereafter
specify by notice to the other parties hereto given in accordance
herewith. Any such notice or other communication shall be deemed to
have been given as of the date so personally delivered or transmitted
by telecopy or like transmission, on the next business day when sent by
overnight delivery service or five days after the date so mailed.
If to the Company prior to the Effective Time:
Hat World Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chairman and Chief Executive Officer
with a copy to:
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
If to the Stockholder Committee:
AGREEMENT AND PLAN OF MERGER PAGE 47 INDS01 RKIXMILLER 644669v6
SKM Growth Investors
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attention: (current HWorld Investments appointee)
Bluestem Capital Company, LLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attention: (current Bluestem appointee)
with a copy to:
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
and a copy to:
▇▇▇▇▇ Day
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
and a copy to:
▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
If to Newco or Parent:
Genesco Inc.
Genesco Park
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇▇▇▇▇
with copies to:
AGREEMENT AND PLAN OF MERGER PAGE 48 INDS01 RKIXMILLER 644669v6
Bass, ▇▇▇▇▇ & ▇▇▇▇ PLC
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇. ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
SECTION 8.6 SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns; provided, however, that no
party hereto may assign his, her or its rights or delegate his, her or
its obligations, in whole or in part, under this Agreement without the
prior written consent of the other parties hereto. Any assignment in
violation of this Agreement shall be null and void ab initio.
Notwithstanding the foregoing, the parties hereto acknowledge and agree
that each of Parent and the Company may pledge its respective rights
under this Agreement and all related documents to the extent reasonably
necessary to secure financing for the transactions contemplated by this
Agreement.
SECTION 8.7 HEADINGS. The Section, Article and other headings
contained in this Agreement are inserted for convenience of reference
only and will not affect the meaning or interpretation of this
Agreement.
SECTION 8.8 AMENDMENTS AND WAIVERS. This Agreement may not be
modified or amended except by an instrument or instruments in writing
signed by the party against whom enforcement of any such modification
or amendment is sought. Any party hereto may, only by an instrument in
writing, waive compliance by any other parties hereto with any term or
provision hereof on the part of such other party or parties hereto to
be performed or complied with. The waiver by any party hereto of a
breach of any term or provision hereof shall not be construed as a
waiver of any subsequent breach.
SECTION 8.9 INTERPRETATION; ABSENCE OF PRESUMPTION.
(a) For the purposes hereof, (i) words in the singular shall be
held to include the plural and vice versa and words of one gender shall be
held to include the other gender as the context requires, (ii) the terms
"hereof," "herein," and "herewith" and words of similar import shall, unless
otherwise stated, be construed to refer to this Agreement as a whole
(including the Disclosure Schedule and all of the other Schedules and
Exhibits hereto) and not to any particular provision of this Agreement, and
Article, Section, paragraph, Exhibit and Schedule references are to the
Articles, Sections, paragraphs, Exhibits, and Schedules to this Agreement
unless otherwise specified, (iii) the word "including" and words of similar
import when used in this Agreement shall mean "including, without
limitation," unless the context otherwise requires or unless otherwise
specified, and (iv) the word "or" shall not be exclusive. Items or
information may be disclosed in the Disclosure Schedule which the Company is
not required to disclose under this Agreement; disclosure of such items or
information shall not affect (directly or indirectly) the interpretation of
this Agreement or the scope of the disclosure
AGREEMENT AND PLAN OF MERGER PAGE 49 INDS01 RKIXMILLER 644669v6
obligation under this Agreement. In addition, inclusion of such information
herein shall not be construed as an admission that such information is
"material" for any purpose.
(b) With regard to each and every term and condition of this
Agreement and any and all agreements and instruments subject to the terms
hereof, the parties hereto understand and agree that the same have or has
been mutually negotiated, prepared and drafted, and if at any time the
parties hereto desire or are required to interpret or construe any such term
or condition or any agreement or instrument subject hereto, no consideration
shall be given to the issue of which party hereto actually prepared, drafted
or requested any term or condition of this Agreement or any agreement or
instrument subject hereto.
SECTION 8.10 SEVERABILITY. Any provision hereof which is
invalid or unenforceable shall be ineffective only to the extent of
such invalidity or unenforceability, without affecting in any way the
remaining provisions hereof, provided, however, that the parties shall
attempt in good faith to reform this Agreement in a manner consistent
with the intent of any such ineffective provision for the purpose of
carrying out such intent.
SECTION 8.11 BUSINESS DAYS. If any date provided for in this
Agreement shall fall on a day which is not a Business Day, the date
provided for shall be deemed to refer to the next Business Day.
SECTION 8.12 RELIANCE. The representations and warranties of
the Company, Parent and Newco contained in this Agreement constitute
the sole and exclusive representations and warranties of the Company to
Parent and Newco and of Parent and Newco to the Company in connection
with this Agreement and the transactions contemplated hereby, and each
of the Company, Parent and Newco acknowledges that all other
representations and warranties are specifically disclaimed and may not
be relied upon or serve as a basis for the claim against the Company,
Parent and Newco. EACH OF THE COMPANY, PARENT AND NEWCO ACKNOWLEDGES
(I) THAT EACH OF THE COMPANY, PARENT AND NEWCO DISCLAIMS ALL WARRANTIES
OTHER THAN THOSE EXPRESSLY CONTAINED IN THIS AGREEMENT AS TO PARENT AND
NEWCO AND AS TO THE COMPANY AND ITS SUBSIDIARIES AND THEIR RESPECTIVE
BUSINESSES, ASSETS, LIABILITIES, FINANCIAL CONDITION, RESULTS OF
OPERATIONS AND PROSPECTS, EITHER EXPRESS OR IMPLIED, INCLUDING ANY
WARRANTY OF MERCHANTABILITY OR WARRANTY OF FITNESS FOR A PARTICULAR
PURPOSE AND (II) THAT NO REPRESENTATION OR WARRANTY HAS BEEN GIVEN BY
ANY STOCKHOLDER OF THE COMPANY.
SECTION 8.13 SUBMISSION TO JURISDICTION. Each of the parties
submits to the jurisdiction of any state or federal court sitting in
New York City, New York, in any action or proceeding arising out of or
relating to this Agreement and agrees that all claims in respect of the
action or proceeding may be heard and determined in any such court.
Each party also agrees not to bring any action or proceeding
AGREEMENT AND PLAN OF MERGER PAGE 50 INDS01 RKIXMILLER 644669v6
arising out of or relating to this Agreement in any other court. Each
of the parties waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought.
SECTION 8.14 JURY TRIAL WAIVER. Each of the parties, after
consulting or having had the opportunity to consult with counsel,
knowingly, voluntarily, intentionally, irrevocably and unconditionally
waives any right such party may have to a trial by jury in any action
or proceeding based upon or arising out of this Agreement or any of the
transactions contemplated hereby, and each of the parties agrees that
it will not seek to consolidate by counterclaim or otherwise any action
in which a jury trial has been waived with any other action in which a
jury trial cannot be or has not been waived. The provisions of this
Section shall not be deemed to have been modified in any respect or
relinquished by any party except by a written instrument executed by
all of the parties to this Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
AGREEMENT AND PLAN OF MERGER PAGE 51 INDS01 RKIXMILLER 644669v6
IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of
each of the parties as of the day first above written.
HWC MERGER SUB, INC.
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
------------------------------------
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
President and Chief Executive Officer
NEWCO
GENESCO INC.
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
------------------------------------
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
President and Chief Executive Officer
PARENT
HAT WORLD CORPORATION
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chairman and Chief Executive Officer
THE COMPANY
AGREEMENT AND PLAN OF MERGER PAGE 52 INDS01 RKIXMILLER 644669v6
LIST OF SCHEDULES AND EXHIBITS
Schedule 1 Definitions
Schedule 2.2 Governmental Contracts
Schedule 2.3 Noncontravention Exceptions
Schedule 2.5 Holders of Company Securities
Schedule 2.6 Financial Statements
Schedule 2.7 Litigation
Schedule 2.8 Violations of Law
Schedule 2.9 Encumbrances
Schedule 2.10 Intellectual Property
Schedule 2.11 Employee Benefit Plans
Schedule 2.13 Environmental Matters
Schedule 2.14 Recent Changes
Schedule 2.15 Taxes
Schedule 2.16 Insurance
Schedule 2.17 Contracts
Schedule 2.18 Affiliate Transactions
Schedule 2.19 Indebtedness
Schedule 2.20 Real Property
Schedule 2.21 Inventory Obligations
Schedule 4.1 Permitted Actions
Schedule 4.1(c) Compensation and Benefit Increases
Schedule 4.10 D&O Coverage Amounts
Exhibit A Working Capital Escrow Agreement
Exhibit B Indemnification Escrow Agreement
Exhibit C Authority of Stockholder Committee
Exhibit D Letter of Transmittal
Exhibit E Request for Payment
Exhibit F Opinion of Company Counsel
Exhibit G Closing Working Capital Accounts
Exhibit H Store EBITDA List
Exhibit I Required Consent Leases
AGREEMENT AND PLAN OF MERGER PAGE 53 INDS01 RKIXMILLER 644669v6
SCHEDULE 1
DEFINITIONS
"ACTION" means any suit, action, claim, proceeding, or investigation.
"AFFILIATE" (and, with a correlative meaning, "AFFILIATED") means, with
respect to any Person, any other Person that directly, or through one or more
intermediaries, controls or is controlled by or is under common control with
such first Person. As used in this definition, "control"" (including, with
correlative meanings, "controlled by"" and "under common control with"") shall
mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
"ASSOCIATE" of a specified Person means (a) a corporation or other
organization of which such Person is a director, officer or partner or is,
directly or indirectly, the beneficial owner of 5% or more of any class of
equity securities, (b) any trust or other estate in which such Person has such a
substantial beneficial interest or as to which such Person serves as trustee or
in a similar capacity and (c) any Relative of such Person who has the same home
as such Person.
"BUSINESS DAY" means a day other than Saturday, Sunday or any other day
on which commercial banks in Indianapolis, Indiana are authorized or required by
law to close.
"CLOSING CASH" means the total of the cash and cash equivalents (plus
an amount equal to the aggregate exercise price of all options to buy Common
Stock outstanding as of the date of this Agreement to the extent that such
exercise price has not been paid to the Company (and therefore already reflected
in the calculation of Closing Cash) prior to the Closing, regardless of whether
such options are actually exercised or are otherwise cashed out in connection
with the Merger) of the Company and its Subsidiaries on a consolidated basis as
of the opening of business on the Closing Date.
"CLOSING DEBT" means the total indebtedness (principal and accrued
interest) for borrowed money of the Company and its Subsidiaries on a
consolidated basis (including capitalized lease obligations) as of the opening
of business on the Closing Date as determined in accordance with GAAP.
"CLOSING WORKING CAPITAL" means, as of the opening of business on the
Closing Date, the resulting amount calculated by subtracting (a) the Company's
total current liabilities less its Closing Debt from (b) the Company's total
current assets (including any amount to be added pursuant to Section 1.13) less
its Closing Cash, all as determined for the Company and its Subsidiaries on a
consolidated basis as of the opening of business on the Closing Date and in
accordance with GAAP consistently applied with the Company's audited financial
statements for its year ended January 31, 2004 except as otherwise provided in
(and such amount shall be calculated after giving effect to the provisions of)
Section 1.8(f) of the Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended, and any
successor thereto.
"COMMON STOCK" means the Company's common stock, par value $.0001 per
share.
AGREEMENT AND PLAN OF MERGER PAGE 54 INDS01 RKIXMILLER 644669v6
"COMPANY STOCK" means, collectively, the Common Stock, Series A
Preferred Stock and Series B Preferred Stock.
"COMPETING TRANSACTION" means any of the following involving the
Company or any of its Subsidiaries: (i) any merger, consolidation, share
exchange, business combination or other similar transaction except for such of
the foregoing as to which the only parties are the Company or one or more
Subsidiaries of the Company or (ii) any sale, transfer or other disposition of
the assets of the Company or any of its Subsidiaries constituting 50% or more of
the consolidated assets of the Company or accounting for 50% or more of the
consolidated revenues of the Company in a single transaction or series of
related transactions involving any Person other than the Company or one or more
Subsidiaries of the Company.
"CONTRACT" means any written or oral agreement, contract or
understanding to which the Company or any of its Subsidiaries is a party.
"DISSENTING SHARES" means shares of Company Stock held by a stockholder
of the Company who has properly demanded his, her or its appraisal rights under,
and otherwise complied with the provisions of, Section 262 of the Delaware
General Corporation Law with respect to the Merger (see Section 1.6(b) for
additional relevant terms).
"EMPLOYEES" means all current employees, directors and consultants,
former employees, directors and consultants and retired employees, directors and
consultants of the Company and its Subsidiaries.
"ENCUMBRANCES" means mortgages, liens, security interests and other
encumbrances.
"ENVIRONMENTAL LAWS" means all U.S., state and local statutes, codes,
regulations, rules, ordinances, policies, decrees, guidelines, guidances,
policies, orders or decisions, including the common law, relating to (a)
emissions, discharges, releases or threatened releases of any Hazardous Material
into the environment (including ambient air, surface water, ground water, land
surface or subsurface strata) or (b) the manufacture, processing, distribution,
use, generation, treatment, storage, disposal, transport or handling of any
Hazardous Material.
"EBITDA" means for a relevant period the Company's consolidated
earnings before interest, taxes, depreciation and amortization, excluding any
non-recurring items, board monitoring fees, store closure expenses, expenses or
accruals not exceeding $600,000 for sales or use taxes, and expenses in
connection with the Merger, as determined in accordance with GAAP consistently
applied.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor thereto.
"EXCESS EBITDA" means the amount (if any) by which the Company's EBITDA
for the fiscal year ended January 31, 2004, exceeds Twenty-Three Million Six
Hundred Thousand Six Hundred Twenty-Six Dollars ($23,600,626):
"EXCESS EBITDA AMOUNT" means the Excess EBITDA multiplied by seven (7).
AGREEMENT AND PLAN OF MERGER PAGE 55 INDS01 RKIXMILLER 644669v6
"EXCLUDED LEASES" means Leases as to which the Company and Parent have
agreed in writing (which agreement may be evidenced by emails and need not
necessarily be signed) that it shall not be necessary to request or obtain a
Lease Consent.
"GAAP" means generally accepted accounting principles in the United
States as in effect from time to time.
"GOVERNMENT AUTHORITY" means any foreign or United States federal or
state (or any subdivision thereof), agency, authority, bureau, commission,
department or similar body or instrumentality thereof, or any governmental court
or tribunal.
"▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ ACt" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act of 1976, as amended.
"HAZARDOUS MATERIALS" means all pollutants, contaminants, chemicals,
wastes, and any other carcinogenic, ignitable, corrosive, reactive, flammable,
explosive, toxic, radioactive or otherwise hazardous substances or materials
(whether solids, liquids or gases).
"INDEMNIFICATION ESCROW AGENT" means Chicago Title Insurance Company.
"INDEMNIFICATION ESCROW AGREEMENT" means the Escrow Agreement to be
made as of or prior to the Closing among the Stockholder Committee, Parent and
the Indemnification Escrow Agent substantially in the form of Exhibit B hereto.
"IRS" means the Internal Revenue Service.
"KNOWLEDGE", when used with respect to the Company or any Subsidiary,
means the actual knowledge of or knowledge a reasonable person would have
following inquiry of ▇▇▇▇▇▇ ▇▇▇▇▇▇, Chief Executive Officer of the Company,
▇▇▇▇▇ ▇▇▇▇▇▇, President and Chief Operating Officer of the Company, ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, Chief Financial Officer of the Company., ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Executive
Vice President - Real Estate of the Company and J. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Executive
Vice President/General Merchandise Manager of the Company.
"LAW" or "LAWS" means all statutes, codes, ordinances, decrees, rules,
and regulations binding on or affecting the Person referred to in the context in
which such word is used.
"LEASE CONSENT" means, as applicable with respect to a particular
Lease, a written consent of the landlord thereunder to the consummation of the
Merger (and to the effect thereof on the voting control of the Company and Hat
World, Inc.) or a written waiver by such landlord of any right to terminate the
Lease or of any default arising or occurring (or that would arise or occur) as a
result of the consummation of the Merger (and any resultant change of voting
control with respect to the Company or Hat World, Inc.).
"LEGAL EXPENSES" means the fees, costs and expenses of any kind
incurred by any Person indemnified herein or of the "prevailing party" as such
term is used in Section 7.3, and its counsel in investigating, preparing for,
defending against or providing evidence, producing documents or taking other
action with respect to any threatened or asserted claim or any action or
proceeding.
AGREEMENT AND PLAN OF MERGER PAGE 56 INDS01 RKIXMILLER 644669v6
"LEGAL REQUIREMENT" means any applicable Law, judgment, decree, writ,
ruling, arbitration award, injunction, order or other requirement of any
Government Authority.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the (i)
business, results of operation or, financial condition or prospects of the
Company and its Subsidiaries taken as a whole, or (ii) ability of the Company to
perform its obligations under this Agreement, except that any adverse effect on
the business of the Company and its Subsidiaries that (a) arises from general
business or economic conditions, or (b) is cured by the Company or its
Subsidiaries before the earlier of (A) the Closing Date, and (B) the date on
which this Agreement is terminated pursuant to Section 7.1 hereof, shall not
constitute a Material Adverse Effect.
"MATERIAL CONTRACTS" means:
(i) any partnership, joint venture or other similar
agreement or arrangement;
(ii) any agreement relating to an obligation to repay
borrowed money or any agreement, indenture or other instrument which
contains restrictions with respect to payment of dividends or any other
distribution in respect of capital stock of the Company or any of its
Subsidiaries;
(iii) any agreement that limits the freedom of the Company
or any of its Subsidiaries to compete in any line of business,
geographic area or with any Person;
(iv) excluding the Company's 401(k) Plan and the benefit
plans disclosed on Schedule 2.11, any management, employment,
consulting, deferred compensation, severance, bonus, retirement or
other similar agreement or plan and entered into or adopted by the
Company or any Subsidiary of the Company, on the one hand, and any
director or officer of the Company or any other employee of or
consultant to the Company or any Subsidiary of the Company, on the
other hand, providing for annual compensation of $75,000 or more;
(v) any agreement or contract contemplating remaining
payments by or to the Company or any Subsidiary of the Company of more
than $75,000 in any consecutive 12-month period or more than $200,000
over the remaining term of the agreement or contract;
(vi) the Leases;
(vii) any agreement or contract that was not entered into
in the ordinary course of business; and
(viii) any license agreement to which the Company is a
party, either as licensor or licensee.
"PERSON" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization, limited liability company, other form of
business or legal entity or Government Authority.
AGREEMENT AND PLAN OF MERGER PAGE 57 INDS01 RKIXMILLER 644669v6
"PREFERRED CONSENT LEASES" means all Leases other than Excluded Leases
and Required Consent Leases.
"RELATIVE" of a Person means such Person's spouse, such Person's
parents, sisters, brothers, children and the spouses of the foregoing and any
member of the immediate household of such Person.
"REQUIRED CONSENT LEASES" means those Leases identified on Exhibit I
hereto.
"RETURNS" means all tax returns, declarations, statements, forms or
other documents required to be filed with or supplied to any Taxing Authority.
"SECURITIES EXCHANGE ACT OF 1934" means the United States Securities
Exchange Act of 1934, as amended, or any successor Law, and regulations and
rules issued by the United States Securities and Exchange Commission pursuant to
that act or any successor Law.
"SERIES A PREFERRED STOCK" means the Company's Series A Preferred
Stock, par value $.01 per share.
"SERIES B PREFERRED STOCK" means the Company's Series B-1 Preferred
Stock and the Company's Series B-2 Preferred Stock, par value $.0001 per share.
"SUBSIDIARY", as it relates to any Person, means any Person of which
such Person (a) directly or indirectly through one or more Subsidiaries,
beneficially owns capital stock or other equity interests having in the
aggregate 50% or more of the total combined voting power, without giving effect
to any contingent voting rights, in the election of directors (or Persons
fulfilling similar functions or duties) of such owned Person or (b) is a general
partner.
"TARGET CLOSING WORKING CAPITAL" means the amount determined in
accordance with the following:
(a) If the Closing occurs on or before February 29, 2004,
the Target Closing Working Capital shall be $8,809,698.
(b) If the Closing occurs after February 29, 2004 but
before March 31, 2004, the Target Closing Working Capital shall be decreased
from $8,809,698 by $64,835 each day after February 29, 2004 until the Closing
Date.
(c) If the Closing occurs on March 31, 2004, the Target
Closing Working Capital shall be $6,799,815.
(d) If the Closing occurs after March 31, 2004 but before
April 30, 2004, the Target Closing Working Capital shall be increased from
$6,799,815 by $1,941 each day after March 31, 2004 until the Closing Date.
(e) If the Closing occurs on April 30, 2004, the Target
Closing Working Capital shall be $6,858,058.
AGREEMENT AND PLAN OF MERGER PAGE 58 INDS01 RKIXMILLER 644669v6
"TAX" or "TAXES" means (a) all taxes (whether federal, state, county or
local), fees, levies, customs duties, assessments or charges of any kind
whatsoever, including gross income, net income, gross receipts, profits,
windfall profits, sales, use, occupation, value-added, ad valorem, transfer,
license, franchise, withholding, payroll, employment, excise, estimated, stamp,
premium, capital stock, production, net worth, alternative or add-on minimum,
environmental, business and occupation, disability, severance, or real or
personal property taxes imposed by any Taxing Authority together with any
interest, penalties, or additions to tax imposed with respect thereto and (b)
any obligations under any tax sharing, tax allocation, or tax indemnity
agreements or arrangements with respect to any Taxes described in clause (a)
above.
"TAXING AUTHORITY" means any Government Authority having jurisdiction
over the assessment, determination, collection, or other imposition of any Tax.
"WORKING CAPITAL ESCROW AGENT" means Chicago Title Insurance Company.
"WORKING CAPITAL ESCROW AGREEMENT" means the Escrow Agreement to be
made as of or prior to the Closing among the Stockholder Committee, Parent and
the Working Capital Escrow Agent substantially in the form of Exhibit A hereto.
AGREEMENT AND PLAN OF MERGER PAGE 59 INDS01 RKIXMILLER 644669v6
References to Terms Defined Elsewhere in Agreement:
Term Section
2004 Financial Statements 5.1(l)
Aggregate Pre-Closing Consent Costs 1.14(b)
Agreement Preamble
Audited Financial Statements 2.6 (a)
Base Closing Cash 1.8(a)
Benefit Plans 2.11(b)
Certificates 1.10(b)
Claim Notice 6.4(a) and (b)
Closing 1.2
Closing Date 1.2
Closing Merger Consideration 1.8(a)
Committee's Report 1.8(c)
Company Preamble
Company Securities 2.5
Confidentiality Agreement 4.5
Controlling Stockholders Recitals
Deductible 6.2(b)
DGCL 1.2
EEOC 2.11(a)
Effective Time 1.2
Election Period 6.4(b)
ERISA Affiliate 2.11(k)
Estimated Closing Working Capital 1.8(b)
Estimated Working Capital Deficiency 1.8(b)
Estimated Working Capital Excess 1.8(b)
Final Closing Working Capital 1.8(d)
Final Working Capital Deficiency 1.8(e)
Final Working Capital Excess 1.8(e)
Financial Statements 2.6(a)
Franchising 2.4
▇▇.▇▇▇ 2.4
HWI 2.4
Indemnified Person 6.3(a)
Indemnifying Party 6.4(a)
Insiders 2.18
Intellectual Property 2.10
Lease(s) 2.20(b)
Lease Consent Cost 1.13(a)
Licensed Intellectual Property 2.10
Losses 6.2(a)
Lost Lease Cost 1.13(a)
Merger Recitals
AGREEMENT AND PLAN OF MERGER PAGE 60 INDS01 RKIXMILLER 644669v6
Merger Consideration 1.8(a)
Merger Consideration Payment Allocation 1.9(a)
Newco Preamble
NLRB 2.11(a)
Other Lease Increase Cost 1.13(a)
Parent Preamble
Parent Indemnified Person(s) 6.2(a)
Option Holder 1.6(a)
Option Plan 1.6(a)
party (parties) Preamble
Paying Agent 1.10(a)
Permitted Encumbrances 2.9
Post-Closing EBITDA Losses 1.13(c)
Pre-Closing EBITDA Losses 1.13(b)
Proprietary Intellectual Property 2.10
Proxies Recitals
Request for Payment 1.10(a)
Special Meeting 4.8
Stock Option Benefits 1.8(f)
Stock Option Withholding 1.8(g)
Stockholders 2.5
Stockholder Committee 1.12
Stockholder Indemnified Person(s) 6.3(a)
Substituted Option Shares 1.6(a)
Substituted Options 1.6(a)
Surviving Corporation 1.1
Third Party Claim 6.4(b)
Working Capital Dispute Notice 1.8(c)
AGREEMENT AND PLAN OF MERGER PAGE 61 INDS01 RKIXMILLER 644669v6
