Exhibit 2.1
STOCK PURCHASE AGREEMENT
dated as of
May 19, 2005
by and among
CHESTNUT ACQUISITION SUB, INC.,
CHARMING SHOPPES, INC.,
CROSSTOWN TRADERS, INC.,
THE SECURITYHOLDERS OF
CROSSTOWN TRADERS, INC.
WHOSE NAMES ARE SET FORTH ON
THE SIGNATURE PAGES HERETO
and
▇.▇. ▇▇▇▇▇▇ PARTNERS (BHCA),L.P., as
THE SELLERS' REPRESENTATIVE
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of May 19, 2005 (this "Agreement"),
by and among Crosstown Traders, Inc., a Delaware corporation (the "Company"),
each of the entities and individuals set forth in Section 2.1 of the Disclosure
Schedule (each, a "Seller," and collectively, the "Sellers"), Chestnut
Acquisition Sub, Inc., a Delaware corporation (the "Buyer"), Charming Shoppes,
Inc., a Pennsylvania corporation ("Guarantor"), and ▇.▇. ▇▇▇▇▇▇ Partners (BHCA),
L.P. (the "Sellers' Representative"), in its capacity as the Sellers'
Representative appointed pursuant to Section 15. Certain terms used herein are
defined in Section 1.1 hereof.
BACKGROUND
Collectively, Sellers are the record and beneficial owners of all of the
outstanding shares of capital stock and stock options of the Company.
The parties hereto desire to provide for the acquisition by Buyer of the
Company through the sale by Sellers to Buyer of all the outstanding shares of
capital stock and stock options of the Company, and for certain other matters,
all on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements herein contained and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
SECTION 1. DEFINITIONS
1.1 Definitions. (a) The following terms, as used herein, have the
following meanings:
"Accrued Dividend Amount" means the aggregate amount of accrued and unpaid
dividends with respect to the Class A Shares to be paid to the Sellers set forth
on Section 1.1(c) of the Disclosure Schedule. Each such Seller's portion of the
Accrued Dividend Amount is set forth across from the name of such Seller in
Section 1.1(c) of the Disclosure Schedule.
"Affiliate" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by, or under common control with such other
Person. For purposes of this definition, "control," when used with respect to
any Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have correlative meanings. Notwithstanding the foregoing, for
purposes of this Agreement, neither the Company nor any Subsidiary shall be
considered an Affiliate of any Seller, the Company or any other Subsidiary.
"Bank of America" means Bank of America, N.A.
"Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banks in New York, New York are authorized or required by Law
to close.
"CapitalSource" means CapitalSource Finance LLC.
"Consent" means any approval, consent, license, permit, franchise, grant,
waiver, or other authorization (including any Governmental Authorization).
"Consulting Agreement" means the consulting agreement dated as of October
31, 2003 between the Company and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, as amended by the Extension
of Consulting Agreement dated as of January 21, 2005 between the Company and
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, and as the same may have been further amended.
"Encumbrance" means any mortgage, deed of trust, pledge, lien, security
interest, charge, encumbrance, community property interest or restriction on
use, voting, transfer or receipt of income.
"Environmental Laws" means all Laws concerning or relating to the
protection of the environment and human health as it relates to the environment.
"FD&C Act" means the Federal Food, Drug & Cosmetic Act, as amended.
"GAAP" means United States generally accepted accounting principles applied
consistently with those used to prepare the Audited Financial Statements.
"Governmental Body" means any foreign or United States federal, state,
local, municipal, or other government, agency, instrumentality or authority.
"Governmental Authorization" means any Consent issued, granted, given, or
otherwise made available by or under the authority of any Governmental Body or
pursuant to any Laws.
"Hazardous Substance" means any substance governed or regulated under any
Environmental Laws, including any substance which is: (i) petroleum, asbestos or
asbestos-containing material, or polychlorinated biphenyls; (ii) defined,
designated or listed as a "Hazardous Substance" pursuant to Sections 307 or 311
of the Clean Water Act, 33 U.S.C. ▇▇.▇▇. 1317, 1321, Section 101(14) of CERCLA,
42 U.S.C. ss. 9601; (iii) listed in the United States Department of
Transportation Hazardous Material Tables, 49 C.F.R. ss. 172.101; or (iv)
defined, designated or listed as a "Hazardous Waste" under Section 1004(5) of
the Resource and Conservation and Recovery Act, 42 U.S.C. 6903(5).
"Intellectual Property" means all Marks, Patents, Copyrights, Software,
Domain Registrations, and Trade Secrets of the Company and its Subsidiaries.
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"▇.▇. ▇▇▇▇▇▇ Notes" means (i) the amended and restated subordinated
promissory note dated October 30, 2002 between the Company and ▇.▇. ▇▇▇▇▇▇
Partners (SBIC), LLC in the original principal amount of $402,436.82 and (ii)
the amended and restated subordinated promissory note dated October 30, 2002
between the Company and ▇.▇. ▇▇▇▇▇▇ Partners (23A SBIC), L.P. in the original
principal amount of $402,436.82.
"JPM General Partners" means JPMP Master Fund Manager, L.P., JPMP Global
Investors, L.P., and JPMP Capital Corp.
"Knowledge" means the actual knowledge of (i) with respect to the Company,
any one or more of (a) ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, in each case assuming that such Persons have made a reasonable
inquiry with respect to the relevant matters, provided that for purposes solely
of Section 4.22, no inquiry or investigation is assumed or required, and (b)
▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, and ▇▇▇ ▇▇▇▇▇▇▇▇▇ (without assuming or requiring any
investigation or inquiry), and (ii) with respect to Buyer and Guarantor, any one
or more of ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, and ▇▇▇▇▇ ▇▇▇▇▇, in each case assuming
that such Persons have made a reasonable inquiry with respect to the relevant
matters.
"Laws" means any law (including principles of common law), constitution,
statute, regulation, ordinance, certificate, judgment, order, award or other
decision or requirement of any Governmental Body.
"Management Agreement" means the management agreement dated as of October
30, 2002 between the Company and ▇.▇. ▇▇▇▇▇▇ Partners, LLC, as amended.
"Material Adverse Effect" means any change, effect, event or condition that
has had or would be reasonably likely to have a material adverse effect on (i)
the business, operations, results of operations, assets, or financial condition
of the Company and its Subsidiaries, taken as a whole or (ii) the ability of the
Company or any Seller to consummate the transactions contemplated by this
Agreement or any other Transaction Document; provided, however, that any such
effect to the extent primarily attributable to any change, effect, event or
condition (a) generally applicable to the industries and markets in which the
Company and its Subsidiaries operate, (b) generally applicable to financial,
banking or securities markets, (c) relating to any change in Law, in GAAP or in
any interpretation thereof occurring after the date hereof, (d) expressly
contemplated by the terms of this Agreement or any other Transaction Document or
approved by Buyer in writing, (e) resulting from the engagement by the United
States in hostilities, whether or not pursuant to the declaration of a national
emergency or war, or resulting from the occurrence of any military or terrorist
attack upon the United States or (f) resulting from the execution of this
Agreement or any other Transaction Document or the public announcement of the
transactions contemplated hereby or thereby, in any such case, shall not
constitute a "Material Adverse Effect." Notwithstanding the foregoing, the
Company or Sellers may include in the Disclosure Schedule or elsewhere
disclosure with respect to items that would not have a Material Adverse Effect
within the meaning of the previous sentence, and this inclusion shall not be
deemed to be an acknowledgement by the Company or Sellers that these items, or
any of them, would have a
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Material Adverse Effect or further change, amend or define the meaning of the
term Material Adverse Effect for purposes of this Agreement.
"Ownership Percentage" means, with respect to any Seller, the fraction,
expressed as a percentage, the numerator of which is an amount equal to (i) the
gross proceeds received by such Seller in connection with the sale of the Shares
and Options held by such Seller plus (ii) the portion of the Specified Employees
Bonus Amount received by such Seller plus (iii) the portion of the Accrued
Dividend Amount received by such Seller, and the denominator of which is an
amount equal to (x) the Purchase Price plus (y) the Specified Employees Bonus
Amount collectively received by all Sellers that are Specified Employees plus
(z) the Accrued Dividend Amount. Each Seller's Ownership Percentage is set forth
across from each Seller's name on Section 2.1 of the Disclosure Schedule.
"Payoff Amount" means the aggregate amount of all indebtedness and other
amounts (including all related Termination Fees) to be repaid by the Company or
any Subsidiary at the Closing to the parties specified in the Payoff Letters.
"Payoff Letters" means the payoff letters required to be provided pursuant
to Section 6.10 from (i) Bank of America, indicating the amount required to
discharge in full all amounts and other obligations due to Bank of America as of
the Closing Date under the Senior Credit Agreement, (ii) CapitalSource,
indicating the amount required to discharge in full all amounts and other
obligations due to CapitalSource as of the Closing Date under the Subordinated
Credit Facility and (iii) ▇.▇. ▇▇▇▇▇▇ Partners (SBIC), LLC and ▇.▇. ▇▇▇▇▇▇
Partners (23A SBIC), L.P., indicating the amount required to discharge in full
all amounts and other obligations due as of the Closing Date under the ▇.▇.
▇▇▇▇▇▇ Notes, in each case in form and substance reasonably satisfactory to
Buyer.
"Permitted Encumbrances" means (i) Encumbrances for Taxes and other
governmental charges and assessments that are not yet due and payable, and
Encumbrances for current Taxes and other charges and assessments of any
Governmental Body that may thereafter be paid without penalty or that are being
contested in good faith by appropriate proceedings and for which adequate
reserves have been established on the Company's consolidated books and records,
(ii) Encumbrances of landlords and Encumbrances of carriers, warehousemen,
mechanics and materialmen and other like Encumbrances arising in the ordinary
course of business, (iii) other Encumbrances or imperfections of title to or on
property that are not material in amount and do not materially detract from the
value of or impair in any material respect the existing use of the property
affected by such Encumbrance or imperfection, (iv) all Encumbrances of record or
identified in any title reports obtained by Buyer or delivered to Buyer by the
Sellers, (v) all local and other building and zoning Laws now or hereafter in
effect relating to or affecting any real property, (vi) all leases, subleases,
licenses and occupancy and/or use agreements affecting any real property (or any
portion thereof) which are identified on the Disclosure Schedule, (vii) all
service contracts and agreements affecting any real property which are
identified on the Disclosure Schedule, (viii) Encumbrances reflected in the
contracts identified in Section 4.14 of the Disclosure Schedule or which are
disclosed in the notes accompanying the Audited Financial Statements
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and (ix) Encumbrances securing any of the indebtedness or other obligations to
be repaid pursuant to Section 6.10.
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"Per Option Purchase Price" means, with respect to each Option, the Per
Share Purchase Price minus $43.49.
"Per Share Purchase Price" means, with respect to each Share, the quotient
obtained by dividing: (i) the sum of (A) the Purchase Price and (B) the product
of (x) the number of Options outstanding as of the Closing and (y) $43.49 by
(ii) the aggregate number of Shares and Options outstanding immediately prior to
the Closing (treating each Option as the full number of Shares for which such
Option is exercisable as of the Closing without giving effect to any cashless or
net exercise payment feature in any Option).
"Personally Identifiable Data" means the names, addresses, email addresses,
telephone numbers, and fax numbers of any individuals, or any other data likely
to substantially identify any individual, together with any other information
about an individual which is combined with or linked to any of the foregoing
information, including but not limited to, customer lists, mailing lists,
telemarketing lists, email lists, customer or prospective customer databases,
credit reports, data regarding purchases of identified customers, and databases
or records of website usage by users who are identified by any of the foregoing
information.
"Principal Stockholders" means ▇.▇. ▇▇▇▇▇▇ Partners (BHCA), L.P., ▇.▇.
▇▇▇▇▇▇ Partners Global Investors (Selldown), L.P., ▇.▇. ▇▇▇▇▇▇ Partners Global
Investors, L.P., ▇.▇. ▇▇▇▇▇▇ Partners Global Investors (Cayman), L.P., ▇.▇.
▇▇▇▇▇▇ Partners Global Investors A, L.P., ▇.▇. ▇▇▇▇▇▇ Partners Global Investors
(Cayman) II, L.P., ▇.▇. ▇▇▇▇▇▇ Partners (23A SBIC), L.P. and ▇.▇. ▇▇▇▇▇▇
Partners (SBIC), LLC.
"Purchase Price" means (i) $220,200,000, minus (ii) the amount by which the
Termination Fees exceed $416,666.67, minus (iii) the Transaction Expenses, minus
(iv) $1,900,000, which represents the Sellers' portion of the severance costs
described on Section 1.1(b) of the Disclosure Schedule, minus (v) the Specified
Employees Bonus Amount, minus (vi) the Accrued Dividend Amount.
"Registration Rights Agreement" means the registration rights agreement
dated as of October 30, 2002 by and among the Company and the Sellers party
thereto.
"Related Controlling Party" means (i) any Principal Stockholder, (ii) any
Affiliate of a Principal Stockholder (excluding any Affiliate of a Principal
Stockholder that is not a Controlled Portfolio Company or a JPM General
Partner), and (iii) any director, managing member or officer of a Principal
Stockholder or JPM General Partner.
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"Related Party" means (i) any Seller, (ii) any director, officer, general
partner or managing member of a Selling Entity, or of the Company, any
Subsidiary or any of their respective Affiliates and (iii) any member of the
immediate family of a Person included in (i) and (ii); provided however, that
the definition of Related Party shall not include any Related Controlling Party,
the Company or any Subsidiary. For purposes of this definition, the "immediate
family" of an individual includes only the individual's spouse, parents,
children and siblings.
"Representative" means with respect to a particular Person, any director,
member, partner, general partner, limited partner, officer, employee, agent,
consultant, advisor, or other representative of such Person, including legal
counsel, accountants, and financial advisors.
"Reserve Amount" means $7,500,000.
"Response," "Removal" and "Remedial Action" shall have the meanings
ascribed to them in Sections 101(23)-101(25) of the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), as amended by the Superfund
Amendments and Reauthorization Act ("▇▇▇▇"), 42 U.S.C. ▇▇.▇▇. 9601(23)-9601(25).
"Selling Entities" means all Sellers other than Sellers that are natural
persons.
"Senior Credit Facility" means the credit agreement dated as of October 30,
2002 by and among Arizona Mail Order Company, Inc., PC Flowers & ▇▇▇▇▇.▇▇▇ LLC,
Figi's, Inc., LM&B Catalog, Inc., Figi's Business Services, Inc., Figi's Mail
Order Gifts, Inc., Figi's Gifts, Inc., Monterey Bay Clothing Company, Inc. and
Bedford Fair Apparel, Inc., as borrowers, Bank of America, as agent, and the
other lenders from time to time party thereto, as amended.
"Software" means all computer programs (whether in source code or object
code form), databases, compilations and data, and all documentation related to
any of the foregoing that is owned, leased, used or held by, granted to or
licensed by the Company or any Subsidiary.
"Specified Employees" means the employees of the Company or any of its
Subsidiaries set forth on Section 1.1(a) of the Disclosure Schedule.
"Specified Employees Bonus Amount" means the aggregate bonus payments to be
paid to the Specified Employees. Each Specified Employee's portion of the
Specified Employees Bonus Amount is set forth across from the name of each
Specified Employee in Section 1.1(a) of the Disclosure Schedule.
"Stockholders' Agreement" means the stockholders agreement dated October
30, 2002 among the Company and the stockholders of the Company party thereto, as
amended.
"Subordinated Credit Facility" means the note purchase agreement dated as
of October 30, 2002 by and among Arizona Mail Order Company, Inc., PC Flowers &
▇▇▇▇▇.▇▇▇ LLC, Figi's, Inc., LM&B Catalog, Inc., Figi's Business Services, Inc.,
Figi's Mail Order Gifts, Inc., Monterey Bay Clothing Company, Inc., and Bedford
Fair Apparel, Inc. as
6
borrowers, the Company, as guarantor, CapitalSource, as agent, and the other
lenders from time to time party thereto, as amended.
"Subsidiary" means any corporation, partnership, joint venture, business
trust or other entity of which the Company directly or indirectly owns or
controls more than 50% of the voting stock or equivalent ownership interest or
the assets and liabilities of which are consolidated in the Company's
consolidated financial statements.
"Tax" means all federal, state, local or foreign income, gross receipts,
windfall profits, severance, property, production, sales, use, ad valorem,
transfer, franchise, capital, paid-up capital, license, greenmail, excise,
franchise, stamp, occupation, premium, escheat, environmental, employment,
withholding, custom duty or similar taxes, governmental fees or other like
assessments together with any interest, additions or penalties with respect
thereto.
"Tax Returns" means all reports, returns, statements, and forms with
respect to Taxes.
"Termination Fees" means all termination, breakage and other fees and
charges, expenses and other amounts in respect of indebtedness (other than
principal amount and accrued interest) required to be paid by the Company or any
of its Subsidiaries in order to discharge fully at Closing all obligations,
liabilities, costs and expenses to the parties identified in the Payoff Letters.
"Trade Secrets" means (i) all customer and supplier lists, pricing and cost
information, business and marketing plans and proposals and Personally
Identifiable Data, and (ii) all material proprietary formulas, know-how, trade
secrets, business methods, technical data, and inventions, in each case owned,
leased, used or held by, granted to or licensed by the Company or any
Subsidiary.
"Transaction Documents" means this Agreement, the General Escrow Agreement,
the Tax Escrow Agreement, the Temple Inland Escrow Agreement and any and all
other agreements required to be delivered by any party hereto pursuant to the
terms of this Agreement.
"Transaction Expenses" means (i) the third party fees and expenses incurred
by the Company or any Subsidiary in connection with the drafting, negotiation,
execution, and delivery of this Agreement and the other Transaction Documents
and the consummation of the transactions contemplated herein or therein,
including the fees and expenses of the Company's investment bankers,
accountants, lawyers, and other advisors and (ii) any fees and expenses required
to be paid by the Sellers as specified in Section 16.2 that are paid by the
Company on behalf of the Sellers.
"Warn Act" means the Worker Adjustment and Retraining Act of 1988, as
amended.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
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Term Section
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Aggregate Cash Proceeds 2.1(b)
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Agreement Preamble
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Audited Financial Statements 4.7(a)
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Balance Sheet 4.7(a)
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Buyer Preamble
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Buyer Indemnified Party 14.1
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Buyer Material Adverse Effect 5.3(c)
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Buyer Transaction Documents 5.2
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Buyer's Representatives 6.3
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Class A Shares 2.1(a)
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Class B Shares 2.1(a)
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Closing 2.2
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Closing Date 2.2
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Code 4.19(a)
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Company Preamble
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Company Account 4.13(b)
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Company Transaction Documents 4.2
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Controlled Portfolio Company 7.2(a)
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Copyrights 4.16(a)
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D&T 6.12
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Damages 14.1
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Defined Benefit Plan 4.19(e)
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DOJ 9.4
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DOL 4.19(a)
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Domain Registrations 4.16(a)
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Employee Benefit Plans 4.19(a)
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Employee Pension Benefit Plan 4.19(d)
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ERISA 4.19(a)
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ERISA Affiliate 4.19(a)
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Escrow Agent 2.2(c)
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FTC 9.4
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General Escrow Account 2.2(c)
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General Escrow Agreement 2.2(c)
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General Escrow Amount 2.2(c)
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GHR Investment Stock 7.4
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GHR Systems Stock 7.4
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Guarantor Preamble
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HSR Act 3.3(b)
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Indemnified Party 14.4
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Indemnifying Party 14.4
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Individual Threshold 14.6(a)
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Interim Balance Sheet 4.7(a)
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IRS 10.1(c)
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Marks 4.16(a)
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Multiemployer Plan 4.19(e)
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Nasdaq 6.8
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Net Tax Benefit 14.7(d)
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Obligations 16.13
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Options 2.1(a)
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OSHA 4.6(c)
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Patents 4.16(a)
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PCB's 4.22(a)
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Records 7.1
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Reimbursement Expenses 7.3
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Released Claim 9.5
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Released Parties 9.5
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Reserve Account 15.1(c)
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Securities 2.1(a)
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Seller Indemnified Party 14.3
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Seller Transaction Documents 3.2
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Seller, Sellers Preamble
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Sellers' Representative Preamble
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Shares 2.1(a)
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T-I Escrow Account 2.2(c)
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T-I Escrow Amount 2.2(c)
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T-I Release 7.4
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Tax Contest 14.5(d)
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Tax Escrow Account 2.2(c)
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Tax Escrow Agreement 2.2(c)
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Tax Escrow Amount 2.2(c)
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Temple Inland 7.4
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Temple Inland Agreement 7.4
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Temple Inland Escrow Agreement 2.2(c)
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Temple Inland Matter 14.5(e)
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Terminating Buyer Breach 13.1(d)
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Terminating Seller Breach 13.1(c)
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Third Party Claim 14.5(a)
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Unaudited Financial Statements 4.7(a)
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(c) Except as otherwise provided or unless the context otherwise requires,
whenever used in this Agreement, (i) any noun or pronoun shall be deemed to
include the plural and the singular, (ii) the use of masculine pronouns shall
include the feminine and neuter, (iii) the terms "include" and "including" shall
be deemed to be followed by the phrase "without limitation," (iv) the word "or"
shall be inclusive and not exclusive, (v) all references
9
to Sections refer to the Sections of this Agreement, all references to the
Disclosure Schedule refer to the Disclosure Schedule attached hereto or
delivered with this Agreement, as appropriate, and all references to Exhibits
refer to the Exhibits attached to this Agreement, each of which is made a part
of this Agreement for all purposes, (vi) each reference to "herein" means a
reference to "in this Agreement," and (vii) accounting terms which are not
otherwise defined in this Agreement shall have the meanings given to them under
GAAP; provided, however, that to the extent that a definition of a term in this
Agreement is inconsistent with the meaning of such term under GAAP, the
definition set forth in this Agreement will control.
(d) Any matter set forth in any Section of the Disclosure Schedule shall be
deemed set forth in all other Sections to the Disclosure Schedule to the extent
the applicability of such matter to such other Sections is reasonably apparent.
The inclusion of any information (including dollar amounts) in any Section of
the Disclosure Schedule shall not be deemed to be an admission or acknowledgment
by the Company or the Sellers that such information is material to or outside
the ordinary course of the business of the Company or any of its Subsidiaries,
except where such representation is qualified by materiality and except where
such representation refers to events or occurrences outside the ordinary course
of business. Matters reflected in the Disclosure Schedule are not necessarily
limited to matters required by this Agreement to be reflected in the Disclosure
Schedule. The information contained in this Agreement, the Exhibits hereto and
the Disclosure Schedule is disclosed solely for purposes of this Agreement, and
no information contained herein or therein shall be deemed to be an admission by
any party hereto to any third party of any matter whatsoever (including, without
limitation, any violation of Law or breach of contract).
(e) The provisions of this Agreement shall be construed according to their
fair meaning and neither for nor against any party hereto irrespective of which
party caused such provisions to be drafted. Each of the parties hereto
acknowledges that it has been represented by an attorney in connection with the
preparation and execution of this Agreement and the other Transaction Documents.
(f) Unless expressly provided otherwise, the measure of a period of one
month or one year for purposes of this Agreement shall be that date of the
following month or year corresponding to the starting date, provided that if no
corresponding date exists, the measure shall be that date of the following month
or year corresponding to the next day following the starting date. For example,
one month following February 18th is March 18th, and one month following March
31 is May 1.
SECTION 2. PURCHASE AND SALE OF SECURITIES
2.1 Purchase and Sale of Securities. (a) Upon the terms and subject to the
conditions of this Agreement, at the Closing, each Seller shall sell, transfer
and deliver to Buyer, and Buyer shall purchase from each Seller, (i) all shares
of Class A Common Stock, par value $0.001 per share, of the Company (the "Class
A Shares") owned by such Seller, (ii) all shares of Class B Common Stock, par
value $0.001 per share, of the Company (the "Class B Shares" and, together with
the Class A Shares, the "Shares") owned by such Seller
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and (iii) all options to purchase Class A Shares (the "Options" and, together
with the Shares, the "Securities") owned by such Seller. The Securities owned by
each Seller are set forth opposite such Seller's name in Section 2.1 of the
Disclosure Schedule. Each Seller's obligation to perform his, her or its
respective obligations under this Agreement shall be several and not joint.
(b) Upon the terms and subject to the conditions of this Agreement, at the
Closing, in consideration for each Seller's delivery of his, her, or its
Securities, Buyer shall pay to the Sellers' Representative (on behalf of such
Seller), from the Purchase Price, in cash (i) for each Share purchased from such
Seller, an amount equal to the Per Share Purchase Price, and (ii) for each
Option purchased from such Seller, an amount equal to the Per Option Purchase
Price. The aggregate amount of cash payable to the Sellers pursuant to this
Section 2.1(b) shall be referred to herein as the "Aggregate Cash Proceeds," and
the portion of the Aggregate Cash Proceeds payable to each Seller shall be
calculated by the Sellers' Representative as provided in Section 2.1 of the
Disclosure Schedule.
(c) The Sellers' Representative and each Seller hereby irrevocably direct
Buyer and the Company to deliver (i) to the Escrow Agent, from the Aggregate
Cash Proceeds, the Specified Employees Bonus Amount and the Accrued Dividend
Amount, an amount of cash equal to the aggregate amount of the General Escrow
Amount, the Tax Escrow Amount and the T-I Escrow Amount, and (ii) to the Reserve
Account from the Aggregate Cash Proceeds, the Specified Employee Bonus Amount
and the Accrued Dividend Amount, an amount of cash equal to the Reserve Amount.
Each Seller shall be deemed to have delivered and paid (i) to the Escrow Agent
with respect to each of the General Escrow Amount, the Tax Escrow Amount and the
T-I Escrow Amount, and (ii) to the Reserve Account with respect to the Reserve
Amount, an amount equal to such Seller's pro rata portion (based on such
Seller's Ownership Percentage) thereof. The parties hereto agree that the
amounts contributed to the Reserve Account, the General Escrow Account, the Tax
Escrow Account and the T-I Escrow Account shall be contributed first, by the
Company from the Specified Employees Bonus Amount payable to such Seller, if
any, second, by the Company from the Accrued Dividend Amount payable to such
Seller, if any, and third, by Buyer from the Aggregate Cash Proceeds payable to
such Seller.
2.2 Closing. The Closing of the purchase and sale of the Securities (the
"Closing") pursuant to this Agreement shall take place at the offices of Drinker
▇▇▇▇▇▇ & ▇▇▇▇▇ LLP, One ▇▇▇▇▇ Square, 18th and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇, on June 2, 2005 or, if the conditions to the Closing set forth in Section
12 shall not have been satisfied on such date, as soon as possible thereafter,
but in no event later than three Business Days after satisfaction or waiver of
the conditions set forth in Section 12, commencing at 10:00 A.M., Eastern time,
or at such other date, time or place as may be agreed to by Buyer and the
Sellers' Representative (the "Closing Date"). At the Closing, in addition to the
other actions contemplated elsewhere herein:
(a) Each Seller shall deliver to Buyer:
11
(i) certificates representing all of the Shares owned by such Seller,
duly endorsed for transfer or with stock powers affixed thereto executed in
blank in proper form for transfer;
(ii) an instrument of transfer with respect to all of the Options
owned by such Seller (which may be a single instrument for all Options
owned by all Sellers), duly executed by such Seller (or by the Sellers'
Representative on behalf of such Seller), which instrument of transfer
shall be in form and substance reasonably satisfactory to Buyer and the
Sellers' Representative;
(iii) for each Selling Entity, copies of resolutions of the board of
directors or corresponding governing body of such entity, or its general
partner or managing member, as applicable, authorizing the execution,
delivery and performance of this Agreement and the other Seller Transaction
Documents, certified as of the Closing Date by an authorized person (in
their capacities as such) of such Selling Entity;
(iv) for each Seller, a certificate, dated the Closing Date and signed
by such Seller (or by the Sellers' Representative on behalf of such
Seller), certifying as to Sections 12.1(b) and (c) (as to such Seller); and
(v) the other documents and agreements required to be delivered
pursuant to Section 12.1.
(b) The Company shall:
(i) deliver to Buyer a certificate, dated the Closing Date and signed
by the Chief Executive Officer of the Company (in his capacity as such),
certifying as to Sections 12.1(b) and (c) (as to the Company);
(ii) (A) pay to each Specified Employee the portion of such Seller's
Specified Employees Bonus Amount by Company check (less any required
federal, state and local withholding Taxes and less the portion of the
Specified Employees Bonus Amount of such Specified Employee paid to the
Escrow Agent and the Reserve Account pursuant to Section 2.2(c)), and (B)
pay to each Seller so specified in Section 1.1(c) of the Disclosure
Schedule the portion of such Seller's Accrued Dividend Amount by Company
check (less any required federal, state and local withholding Taxes and
less the portion of such Accrued Dividend Amount paid to the Escrow Agent
and the Reserve Account, in each case, pursuant to Section 2.2(c));
(iii) (A) pay to each holder of indebtedness specified in the Payoff
Letters the portion of the Payoff Amount payable to such holder as
specified in the Payoff Letter delivered by such holder, and (B) pay to the
Principal Stockholders the Reimbursement Expenses specified in the final
invoice delivered pursuant to Section 6.10 (such amount not to exceed
$20,000) by wire transfer of immediately available funds to such account or
accounts as shall, at least two
12
Business Days before Closing, be designated by the Sellers' Representative
in writing to Buyer;
(iv) deliver to Buyer accurate and complete copies of the Company's
and each Subsidiary's certificate or articles of incorporation and bylaws
(or corresponding organizational documents), and all amendments thereof to
date, certified as of a recent date by the Secretary of State or
corresponding certifying authority of each such entity's respective
jurisdiction of organization and by the Secretary or an Assistant Secretary
of each such entity (in his or her capacity as such);
(v) deliver to Buyer certificates of good standing of a recent date
for the Company and each Subsidiary, certified as of a recent date by the
Secretary of State or corresponding certifying authority of each such
entity's respective jurisdiction of organization and of each state in which
such entities are qualified to do business as set forth in Section 4.1 of
the Disclosure Schedule;
(vi) deliver to Buyer copies of the resolutions of the board of
directors of the Company authorizing the execution, delivery and
performance of this Agreement and the other Company Transaction Documents,
certified as of the Closing Date by the Secretary or an Assistant Secretary
of the Company (in his or her capacity as such);
(vii) deliver to Buyer the original corporate seals, minute books and
stock transfer and record books of the Company and each Subsidiary as they
exist on the Closing Date; and
(viii) deliver to Buyer the other documents and agreements required to
be delivered pursuant to Section 12.1.
(c) Buyer shall deliver from the Purchase Price, and the Company shall
deliver from the Specified Employees Bonus Amount and the Accrued Dividend
Amount, in each case, as contemplated by Section 2.1(c), (i) by wire transfer to
SunTrust Bank, N.A. or another escrow agent mutually acceptable to Buyer and the
Sellers' Representative (the "Escrow Agent") to be held in a separate escrow
account (the "General Escrow Account") pursuant to the escrow agreement (the
"General Escrow Agreement") substantially in the form attached hereto as Exhibit
I, $8,000,000 for the purpose of satisfying any rights to indemnification by the
Buyer Indemnified Parties pursuant to Sections 14.1 and 14.2(a), (b), (e), (f)
and (g) (the "General Escrow Amount"), (ii) by wire transfer to the Escrow Agent
to be held in a separate escrow account (the "Tax Escrow Account") pursuant to
the escrow agreement (the "Tax Escrow Agreement") substantially in the form
attached hereto as Exhibit II, $8,800,000 for the purpose of satisfying any
rights to indemnification by the Buyer Indemnified Parties pursuant to Section
14.2(d) (the "Tax Escrow Amount"), (iii) by wire transfer to the Escrow Agent to
be held in a separate escrow account (the "T-I Escrow Account") pursuant to the
escrow agreement (the "Temple Inland Escrow Agreement") substantially in the
form attached hereto as Exhibit III, $2,000,000 for the purpose of
13
satisfying any rights to indemnification by the Buyer Indemnified Parties
pursuant to Section 14.2(c) (the "T-I Escrow Amount") and (iv) by wire transfer
to the Reserve Account (which account shall be specified by the Sellers'
Representative at least two Business Days prior to Closing), an amount equal to
the Reserve Amount.
(d) Buyer and Guarantor shall deliver to the Sellers' Representative:
(i) an amount equal to the Purchase Price, minus the amount paid by
Buyer from the Purchase Price to the General Escrow Account, the Tax Escrow
Account, the T-I Escrow Account, and the Reserve Account, in each case,
pursuant to Section 2.2(c) by wire transfer of immediately available funds
to such account or accounts as shall, at least two Business Days before
Closing, be designated by the Sellers' Representative in writing to Buyer;
(ii) certificates, dated the Closing Date and signed by the President
or any Vice President of Buyer and Guarantor (in their capacities as such),
certifying as to Sections 12.2(b) and (c);
(iii) copies of the resolutions of the boards of directors of Buyer
and Guarantor, authorizing the execution, delivery and performance by Buyer
and Guarantor of this Agreement and the other Buyer Transaction Documents,
certified as of the Closing by the Secretary or an Assistant Secretary of
Buyer and Guarantor (in their capacities as such); and
(iv) the other documents and agreements required to be delivered
pursuant to Section 12.2.
(e) Buyer shall pay or shall cause the Company to pay the Transaction
Expenses specified in the final invoices delivered pursuant to Section 6.10 in
the amounts and pursuant to the wiring instructions set forth in such final
invoices. Upon payment by Buyer or the Company of the Transaction Expenses
pursuant to this Section 2.2(e), Buyer, the Company and each Subsidiary of the
Company shall be deemed to have satisfied in full their respective obligations
with respect to all Transaction Expenses. Any additional unpaid Transaction
Expenses, however arising, shall be paid by the Sellers' Representative on
behalf of the Sellers, without contribution from the Company, its Subsidiaries,
Buyer or Guarantor.
2.3 Allocation of Purchase Price and Other Amounts. The Sellers'
Representative and each Seller hereby acknowledge and direct that (i) all
amounts payable to the Sellers on or prior to Closing shall be paid by Buyer and
the Company to the Sellers' Representative or the Escrow Agent, as applicable,
on behalf of all Sellers in accordance with the terms of this Section 2 and (ii)
any amounts payable to the Sellers after Closing shall be paid to the Sellers'
Representative in accordance with the terms of this Agreement and the other
Transaction Documents.
SECTION 3. REPRESENTATIONS AND WARRANTIES REGARDING SELLERS
14
Each Seller hereby represents and warrants to Buyer, on behalf of himself,
herself or itself and not any other Seller, as of the date of this Agreement and
as of the Closing Date that, except as set forth on the Disclosure Schedule
attached hereto:
3.1 Organization and Good Standing. Such Seller (if a Selling Entity) is
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, formation or organization, as applicable, and has
(as applicable) all necessary corporate, partnership or limited liability
company power and authority, as the case may be, to perform all of its
obligations under each Seller Transaction Document to which such Seller is a
party.
3.2 Power and Authorization. Such Seller has all legal right, power,
authority and legal capacity to execute and deliver this Agreement and the other
Transaction Documents to which such Seller is a party (collectively, the "Seller
Transaction Documents"), to perform his, her or its obligations under this
Agreement and the other Seller Transaction Documents, and to carry out the
transactions contemplated hereby and thereby. All necessary corporate,
partnership or limited liability company action (as applicable), and all
necessary stockholder, partner, member, and other legal action, as the case may
be, has been taken by such Seller (if a Selling Entity) to authorize the
execution, delivery and performance of this Agreement and the other Seller
Transaction Documents, and the consummation of the transactions contemplated
hereby and thereby. This Agreement has been duly executed and delivered by such
Seller and is, and each of the other Seller Transaction Documents, when duly
executed and delivered at Closing by such Seller, will be, the legal, valid and
binding obligation of such Seller, enforceable against such Seller in accordance
with their respective terms, except as enforceability of such obligations may be
limited by bankruptcy, insolvency, reorganization, moratorium and other similar
laws now or hereafter in effect relating to or limiting creditors' rights
generally and general principles of equity relating to the availability of
specific performance and injunctive and other forms of equitable relief.
3.3 No Conflicts.
(a) Except as described in Section 3.3(a) of the Disclosure Schedule, the
execution, delivery and performance by such Seller of this Agreement and the
other Seller Transaction Documents do not and will not (with or without the
passage of time or the giving of notice, or both):
(i) contravene, conflict with, or result in a violation of (A) the
certificate or articles of incorporation or bylaws (or other organizational
documents) of such Seller (if a Selling Entity), (B) any resolution adopted
by the board of directors, the board of managers (or similar governing
body), or equityholders of such Seller (if a Selling Entity) or (C) any
material Laws or material Governmental Authorizations, in each case, in any
material respect, binding upon or applicable to such Seller; or
(ii) contravene, conflict with, result in a violation or breach of, or
constitute a default or otherwise cause any loss of benefit under, in each
case in
15
any material respect, any material agreement or other material obligation
to which such Seller is a party or by which he, she or it or any of such
Seller's material assets are bound, or give to others any material rights
(including rights of termination, foreclosure, cancellation, modification
or acceleration) in or with respect to such Seller or any rights of any
nature in or with respect to any of the Securities.
(b) Prior to the Closing, the Principal Stockholders shall have complied
with the requirements of the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of
1976, as amended (the "HSR Act") with respect to the transactions hereunder, and
the documents to be filed by such Principal Stockholders pursuant to the HSR Act
will respond to its requirements. Section 3.3(b) of the Disclosure Schedule
contains a complete and accurate list of each other material Consent of, or
material registration, material notification, material filing or material
declaration with, any Governmental Body, creditor, lessor or other Person, in
each case required to be given or made by such Seller in connection with the
execution, delivery and performance of this Agreement and the other Seller
Transaction Documents. Except as described in Section 3.3(b) of the Disclosure
Schedule, all such Consents, registrations, material notifications, material
filings and material declarations have been obtained or made or will be obtained
or made before the Closing without payment of material premium or material
penalty by, or loss of material benefit to, the Company or any Subsidiary.
(c) There are no judicial, administrative or other governmental actions,
proceedings or investigations pending or, to the Knowledge of such Seller,
threatened, that question any of the transactions contemplated by, or the
validity of, this Agreement or any of the other Seller Transaction Documents or
which, if adversely determined, would have or would reasonably be expected to
have a material adverse effect upon the ability of such Seller to enter into or
perform such Seller's obligations under this Agreement or any of the other
Seller Transaction Documents.
3.4 Ownership of the Securities. Such Seller owns the Securities ascribed
to him, her or it, in Section 2.1 of the Disclosure Schedule beneficially and of
record, free and clear of any Encumbrance and such Seller does not own any other
equity securities of the Company or rights to acquire any other equity
securities of the Company, except as set forth in the Registration Rights
Agreement and the Stockholders' Agreement. Except as described in Section 3.4 of
the Disclosure Schedule, there are no options, warrants, purchase rights, or
other contracts, commitments or agreements to which such Seller is a party that
could require such Seller to sell, transfer or otherwise dispose of any of the
Securities or that could affect the right of such Seller to convey the
Securities owned by such Seller to Buyer at Closing, and such Seller has the
absolute right, authority, power and capacity to sell, assign and transfer the
Securities owned by him, her or it to Buyer free and clear of any Encumbrance
(except for restrictions imposed generally by applicable securities Laws, and
except as provided in the Registration Rights Agreement and the Stockholders'
Agreement). Except as described in Section 3.4 of the Disclosure Schedule, such
Seller is not a party to any voting trust, proxy or other agreement or
understanding with respect to the voting of any of the Securities. Upon delivery
at the Closing by such Seller to Buyer of the certificates for the Shares and
instruments of transfer with respect to the Options, Buyer will acquire good,
valid and
16
marketable title to such Securities, free and clear of any Encumbrance (except
for applicable securities Laws restrictions).
3.5 Brokers. Other than ▇▇▇▇▇▇▇, Sachs & Co. and GLC Securities Corp.,
whose fees shall be, if not a Transaction Expense identified pursuant to Section
6.10, paid from the Reserve Account and otherwise by the Sellers' Representative
on behalf of the Sellers, there is no investment banker, broker, finder or other
intermediary (other than the Escrow Agent) which has been retained by or is
authorized to act on behalf of such Seller or any of its Affiliates that might
be entitled to any fee or commission in connection with the transactions
contemplated by this Agreement or any other Seller Transaction Document.
SECTION 4. REPRESENTATIONS AND WARRANTIES REGARDING THE
COMPANY AND ITS SUBSIDIARIES
The Company hereby represents and warrants to Buyer as of the date of this
Agreement and as of the Closing Date that, except as set forth on the Disclosure
Schedule attached hereto:
4.1 Organization and Good Standing. The Company and each Subsidiary is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, formation or organization, as applicable, and has
all necessary corporate or limited liability company, as the case may be, power
and authority to carry on its business as presently conducted, to own and lease
the assets which it owns and leases, and to perform all of its obligations under
each agreement to which it is a party or by which it or its assets are bound.
The Company and each Subsidiary is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction identified in Section
4.1 of the Disclosure Schedule, which includes each jurisdiction in which its
ownership or leasing of assets or properties or the nature of its activities
requires such qualification, except where the failure to be so qualified would
not reasonably be expected to have a Material Adverse Effect.
4.2 Power and Authorization. The Company has all requisite right, power,
and authority to execute and deliver this Agreement and the other Transaction
Documents to which it is a party (collectively, the "Company Transaction
Documents"), to perform its obligations hereunder and thereunder, and to carry
out the transactions contemplated hereby and thereby. All necessary corporate,
stockholder, limited liability company, member, and other legal action, as the
case may be, has been taken by the Company to authorize the execution, delivery
and performance by the Company of this Agreement and all other Company
Transaction Documents. This Agreement is, and each other Company Transaction
Document, when duly executed and delivered at Closing by the Company, will be,
the legal, valid and binding obligation of the Company, enforceable against it
in accordance with their respective terms, except as enforceability of such
obligations may be limited by bankruptcy, insolvency, reorganization, moratorium
and other similar laws now or hereafter in effect relating to or limiting
creditors' rights generally and general principles of equity relating to the
availability of specific performance and injunctive and other forms of equitable
relief.
4.3 No Conflicts.
17
(a) Except as described in Section 4.3(a) of the Disclosure Schedule, the
execution, delivery and performance of this Agreement and the Company
Transaction Documents do not and will not (with or without the passage of time
or the giving of notice, or both):
(i) contravene, conflict with, or result in a violation of (A) the
certificate or articles of incorporation or bylaws (or other organizational
documents) of the Company or any Subsidiary, (B) any resolution adopted by
the board of directors, the board of managers (or similar governing body),
or equityholders of the Company or any Subsidiary or (C), in each case in
any material respect, any material Laws or material Governmental
Authorizations binding upon or applicable to the Company or any Subsidiary;
(ii) contravene, conflict with, result in a violation or breach of, or
constitute a default or otherwise cause any loss of benefit under, in each
case, in any material respect, any material agreement or other material
obligation to which the Company or any Subsidiary is a party or by which
they or any of their material assets are bound, or give to others any
material rights (including rights of termination, foreclosure,
cancellation, modification or acceleration), in or with respect to the
Company or any Subsidiary or any of their respective assets; or
(iii) result in, require or permit the creation or imposition of any
Encumbrance upon or with respect to the Securities or any material
Encumbrance upon or with respect to any assets owned or leased by the
Company or any Subsidiary.
(b) Section 4.3(b) of the Disclosure Schedule contains a complete and
accurate list of each material Consent of, or registration, notification, filing
or declaration with, any Governmental Body, creditor, lessor or other Person
required to be given or made by the Company or any Subsidiary in connection with
the execution, delivery and performance of this Agreement and the other Company
Transaction Documents. Except as described in Section 4.3(b) of the Disclosure
Schedule, all such Consents, registrations, notifications, filings and
declarations have been obtained or made or will be obtained or made before
Closing without payment of any material premium or material penalty by,
imposition of any material restriction upon, or material loss of benefit to, the
Company or any Subsidiary. Neither the Company nor any Subsidiary has received
any request from any Governmental Body for information with respect to the
transactions contemplated hereby.
4.4 Capitalization.
(a) The Company's authorized, issued and outstanding capital stock and its
other equity securities are fully and accurately described in Section 4.4(a) of
the Disclosure Schedule. Except as described in Section 4.4(a) of the Disclosure
Schedule, the Company has not granted to any Person any preemptive or other
similar rights with respect to any of such equity interests or other equity
securities and there are no offers, options, warrants, rights, agreements or
commitments of any kind (contingent or otherwise) entered
18
into or granted by the Company relating to the issuance, conversion, exchange,
registration, voting, sale or transfer of, any equity interests or other equity
securities of the Company (including the Securities) or obligating the Company
or any other Person to purchase or redeem any of such equity interests or other
equity securities. The Shares (i) constitute all of the issued and outstanding
shares of capital stock of the Company and other equity securities, (ii) have
been duly authorized, (iii) are validly issued and outstanding, fully paid and
nonassessable, and (iv) have been issued in compliance in all material respects
with all applicable securities Laws and other Laws. No Option was issued by the
Company with an exercise price other than $43.49 per Class A Share.
(b) The authorized, issued and outstanding capital stock and other equity
securities of each Subsidiary are fully and accurately described in Section
4.4(b) of the Disclosure Schedule. All the outstanding capital stock and other
equity securities of each Subsidiary are owned of record and beneficially by the
Company or another Subsidiary. Except as described in Section 4.4(b) of the
Disclosure Schedule, no Person has any preemptive or other similar rights with
respect to any such equity interests or other equity securities and there are no
offers, options, warrants, rights, agreements or commitments of any kind
(contingent or otherwise) relating to the issuance, voting, conversion, exchange
registration, sale or transfer of any equity interests or other securities of
any Subsidiary, or obligating the Company, any Subsidiary, or any other Person
to purchase or redeem any such equity interests or other equity securities or to
make capital contributions, advances or loans to or on behalf of any Subsidiary.
All of the issued and outstanding shares of capital stock (or equivalent equity
interests) of each Subsidiary have been duly authorized and are validly issued
and outstanding, fully paid and non-assessable and have been issued in
compliance in all material respects with applicable securities Laws and other
Laws. Except as disclosed in Section 4.4(b) of the Disclosure Schedule, since
October 30, 2002, the Company has not disposed of its interest in any entity
(whether by sale of stock, all or substantially all assets, merger or similar
transaction) of which the Company immediately prior to such disposition directly
or indirectly had owned more than 50% of the voting stock or equivalent equity
ownership interest or the assets and liabilities of which were consolidated in
the Company's consolidated financial statements.
4.5 Compliance with Laws.
(a) Except as described in Section 4.5(a) of the Disclosure Schedule, the
Company and each Subsidiary is, and all times since October 30, 2002 has been,
in compliance in all material respects with all applicable Laws and Governmental
Authorizations, including the FD&C Act. Except as set forth in Section 4.5(a) of
the Disclosure Schedule, neither the Company nor any of its Subsidiaries have,
since October 30, 2002, received any written notice, order or other
communication from any Governmental Body of any alleged, actual, or potential
violation of, or failure to comply with, any Laws or Governmental Authorizations
in any material respect.
(b) Section 4.5(b) of the Disclosure Schedule contains a complete and
accurate list of all material Governmental Authorizations required for the
operation of the business of the Company and each Subsidiary as currently
conducted. Except as otherwise
19
described in Section 4.5(b) of the Disclosure Schedule, each Governmental
Authorization listed or required to be listed in Section 4.5(b) of the
Disclosure Schedule is in full force and effect without any default or violation
thereunder in any material respect by the Company, any Subsidiary or, to the
Knowledge of the Company, by any other party thereto. Except as described in
Section 4.5(b) of the Disclosure Schedule, no proceeding is pending or, to the
Knowledge of the Company, threatened by any Person to revoke or deny the renewal
of any material Governmental Authorization of the Company or any Subsidiary, and
neither the Company nor any of its Subsidiaries have been notified in writing
that any such material Governmental Authorization may not in the ordinary course
be renewed upon its expiration or that by virtue of the transactions
contemplated by this Agreement or any other Transaction Document, any such
Governmental Authorization may not be granted or renewed.
4.6 Litigation.
(a) Except as described in Section 4.6(a) of the Disclosure Schedule, since
May 9, 2004, there have not been, nor are there currently pending, any claims,
actions, suits or proceedings (arbitration or otherwise): (i) that question any
of the transactions contemplated by, or the validity of, this Agreement or any
of the other Company Transaction Documents or which, if adversely determined,
would reasonably be expected to have an adverse effect upon the ability of the
Company to enter into or perform its obligations under this Agreement or any of
the other Company Transaction Documents; or (ii) otherwise involving or
affecting the Company or any Subsidiary, their businesses or assets, or, to the
Knowledge of the Company, their respective directors, officers or equityholders
in their capacities as such, before or by any Governmental Body, or before an
arbitrator of any kind, which resulted in, or, if pending, seek damages in
excess of $300,000 or any injunctive or equitable relief whether or not covered
by insurance and, to the Knowledge of the Company, there are no pending
investigations of such matters. Except as described in Section 4.6(a) of the
Disclosure Schedule, no such claim, action, suit, proceeding or investigation is
presently threatened or, to the Knowledge of the Company, is presently
contemplated. There are no unsatisfied material judgments, penalties or awards
against or affecting the Company or any Subsidiary or any of their businesses,
properties or assets.
(b) Except as set forth in Section 4.6(b) of the Disclosure Schedule, to
the Knowledge of the Company, no Intellectual Property owned by or exclusively
licensed to the Company or any of its Subsidiaries is the subject of any
outstanding judgment, injunction, order or decree restricting the use thereof by
the Company or any Subsidiary or restricting the licensing thereof by the
Company or any Subsidiary to any Person. To the Knowledge of the Company, no
▇▇▇▇, Domain Registration, Copyright, Patent, or Software owned by or
exclusively licensed to the Company or any Subsidiary has been infringed or
challenged or threatened in any material respect. To the Knowledge of the
Company, no ▇▇▇▇ or Patent owned by or exclusively licensed to the Company or
any Subsidiary is currently involved in any material interference, reissue,
re-examination, opposition, invalidation or cancellation proceeding and, to the
Knowledge of the Company, no such proceeding is threatened.
20
(c) Except as described in Section 4.6(c) of the Disclosure Schedule,
neither the Company nor any Subsidiary has, since October 30, 2002, been cited
for material violations of the Occupational Safety and Health Act of 1970, 29
U.S.C. sec. 651 et seq. ("OSHA"), any regulation promulgated pursuant to OSHA,
or any other statute, ordinance, rule, or regulation establishing standards of
workplace safety, or paid any material fines or penalties with respect to any
such citation. Except as described in Section 4.6(c) of the Disclosure Schedule:
(i) since October 30, 2002, there have not been any inspections of any of the
facilities of the Company or any Subsidiary by representatives of the
Occupational Safety and Health Administration or any other Governmental Body
vested with authority to enforce any Law establishing standards of workplace
safety; (ii) since October 30, 2002, neither the Company nor any Subsidiary has
been notified in writing of any complaint or charge filed by any employee or
employee representative with any such Governmental Body which alleges that the
Company or any Subsidiary has violated in any material respect OSHA or any other
Law establishing standards of workplace safety; and (iii) neither the Company
nor any Subsidiary maintains any condition, process, practice or procedure at
any of their respective facilities that in any material respect violates OSHA or
any other Law establishing standards of workplace safety.
(d) There are not currently, and since October 30, 2002 there have not
been, any proceedings, claims or suits pending or, to the Knowledge of the
Company, threatened by any Governmental Body or by any participant or
beneficiary against any of the Employee Benefit Plans (other than routine
benefit claims), the assets of any of the trusts under such Plans or against the
sponsor or the administrator or any fiduciary of any of such Employee Benefit
Plans with respect to the design or operation of the Employee Benefit Plans.
4.7 Financial Statements.
(a) Section 4.7(a) of the Disclosure Schedule includes: (i) the
consolidated balance sheets of the Company and its Subsidiaries as at January
29, 2005 (including the notes thereto, the "Balance Sheet"), January 31, 2004
and February 1, 2003 and the related consolidated statements of income, changes
in stockholders' equity and cash flow for each of the fiscal years then ended,
together with the report thereon of Deloitte and Touche LLP, independent
accountants (the "Audited Financial Statements"); and (ii) the consolidated
unaudited balance sheet of the Company and its Subsidiaries as at April 2, 2005
(the "Interim Balance Sheet") and the related consolidated unaudited statements
of income, changes in stockholders' equity and cash flow for the two fiscal
months then ended (the "Unaudited Financial Statements"). The Audited Financial
Statements fairly present in all material respects the consolidated financial
condition, cash flow and results of operations of the Company as at the
respective dates thereof and for the periods therein referred to, all in
accordance with GAAP. The Unaudited Financial Statements were prepared from the
books and records of the Company in a manner consistent with the Company's 2004
interim financial statements.
(b) Neither the Company nor any of its Subsidiaries has any material
liabilities or obligations of any nature, other than (i) as set forth on Section
4.7(b) of
21
the Disclosure Schedule, (ii) as disclosed, reflected or reserved against on the
Balance Sheet or the notes thereto, (iii) current liabilities incurred by the
Company and its Subsidiaries since the date of the Balance Sheet in the ordinary
course of business consistent with past practice, (iv) liabilities and
obligations that are not required under GAAP to be disclosed, reflected or
reserved against on the Balance Sheet or the notes thereto, and (v) arising
under the Transaction Documents.
(c) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions engaged in by
the Company or any of its Subsidiaries are executed in material compliance with
the general policies of the Company and its Subsidiaries and/or the general or
specific authorizations of management of the Company and its Subsidiaries, (ii)
access to assets of the Company and its Subsidiaries is permitted only in
accordance with the general policies of the Company and its Subsidiaries and/or
the general or specific authorizations of management of the Company and its
Subsidiaries, and (iii) all intercompany transactions, charges and expenses
among or between the Company, any of its Subsidiaries, any Seller and/or their
respective Affiliates (excluding any Affiliate of a Principal Stockholder that
is not a Controlled Portfolio Company or a JPM General Partner) are accurately
reflected at fair arms' length value on the books and records of the Company and
its Subsidiaries.
4.8 Accounts Receivable. All accounts receivable of the Company and each
Subsidiary represent valid obligations from sales made or services rendered in
the ordinary course of business consistent with past practice.
4.9 Inventory. The values at which inventories are reflected on the Balance
Sheet have been determined in accordance with the customary valuation policy of
the Company (which is the lower of cost or fair market value thereof).
4.10 Absence of Certain Changes and Events. Except as described in Section
4.10 of the Disclosure Schedule, since the date of the Balance Sheet, the
Company and its Subsidiaries have in all material respects conducted their
businesses only in the usual and ordinary course consistent with past practice
and, except as expressly contemplated by this Agreement or any other Transaction
Document, there has not been any:
(i) event, condition, occurrence, contingency or development that has
had or would reasonably be expected to have a Material Adverse Effect;
(ii) declaration, setting aside or payment of any dividends or other
distributions or payments in respect of any shares of capital stock of the
Company or any Subsidiary, or any repurchase, redemption or other
acquisition by the Company or any Subsidiary of any of such shares of
capital stock or other securities of the Company or any Subsidiary, other
than the declaration by the Company of the Accrued Dividend Amount, which
shall be paid at Closing;
(iii) amendment of any term of any outstanding security of the Company
or any Subsidiary;
22
(iv) incurrence, assumption or guarantee by the Company or any
Subsidiary of any indebtedness for borrowed money, other than in the
ordinary course of business consistent with past practice;
(v) making of any loan, advance or capital contribution to or
investment in any Person by the Company or any Subsidiary, other than
loans, advances or capital contributions to a Subsidiary, travel and
similar advances to employees, and advances and extended payment terms to
suppliers, in each case in the ordinary course of business consistent with
past practice;
(vi) change in the independent accountants of the Company or its
Subsidiaries or in the accounting methods, principles or practices followed
by the Company or any Subsidiary (except for any such change required by
reason of a change in GAAP);
(vii) (A) adoption, amendment or modification of an Employee Benefit
Plan with any director, officer, consultant or employee of the Company or
any Subsidiary (or any amendment to any such existing agreement), (B) grant
of severance or termination pay to any director, officer, employee, or
consultant of the Company or any Subsidiary, (C) increase in the
compensation of, or payment of any bonus to, any director, officer,
employee, or consultant of the Company or any Subsidiary, or (D) change
with respect to the compensation or other benefits payable to any director,
officer, employee or consultant of the Company or any Subsidiary except, in
the case of clauses (C) and (D), in the ordinary course of business
consistent with past practice with respect to any employee (excluding any
officers) of the Company or any Subsidiary, and except, in the case of
clause (C), for the determination of the board of directors and
stockholders of the Company to grant the Specified Employees Bonus Payments
in the amounts set forth in Section 1.1(a) of the Disclosure Schedule;
(viii) material damage, destruction or loss to any material asset or
property of the Company or any Subsidiary, other than damage that has been
repaired, damaged assets that have been replaced or damage for the repair
of which insurance proceeds have been received;
(ix) sale (other than sales of inventory and customer list rentals and
exchanges in the ordinary course of business consistent with past
practice), assignment, transfer, hypothecation, conveyance, lease, or other
disposition of any material asset or property of the Company or any
Subsidiary or mortgage, pledge, or imposition of any Encumbrance on any
material asset or property of the Company or any Subsidiary (except for
Permitted Encumbrances);
(x) incurrence or repayment of any liability or obligation (whether
absolute, accrued, contingent or otherwise) to any Related Controlling
Party or any Related Party or, other than in respect of current liabilities
incurred in the ordinary course of business, any incurrence or repayment of
any material liability or
23
material obligation to any other Person or any discharge or satisfaction of
any material Encumbrance other than in the ordinary course of business
consistent with past practice;
(xi) failure to pay when due any material liabilities, except with
respect to any such liabilities being contested in good faith by the
Company or any Subsidiary and which are identified in Section 4.10 of the
Disclosure Schedule;
(xii) cancellation, discharge or satisfaction of any material debts or
material claims to the Company or any Subsidiary or any amendment,
termination, or waiver of any material rights of value to the Company or
any Subsidiary;
(xiii) write down or write off of the value of any material asset of
the Company or any Subsidiary, except for write downs and write offs of
accounts receivable and inventory in the ordinary course of business
consistent with past practice;
(xiv) failure to pay accounts payable or collect accounts receivable
other than in the ordinary course consistent with past practice;
(xv) entry into, amendment, termination or receipt of notice of
termination of any agreement or other document that is required to be
disclosed in Sections 4.12 or 4.14 of the Disclosure Schedule;
(xvi) material change in the business or operations of the Company or
any Subsidiary or in the manner of conducting the same or entry by the
Company or any Subsidiary into any material transaction (other than the
transactions contemplated hereby), other than in the ordinary course of
business consistent with past practice; or
(xvii) agreement, whether or not in writing, to do any of the
foregoing by the Company or any Subsidiary.
4.11 Product Design; Warranties. Except as described in Section 4.11 of the
Disclosure Schedule: (i) neither the Company nor any Subsidiary has, other than
in the ordinary course of business consistent with past practice, since October
30, 2002, agreed in writing to become responsible for consequential damages or
made in writing any express warranties to third parties with respect to any
products created, manufactured, sold, distributed or licensed, or any services
rendered, by the Company or any Subsidiary; and (ii) to the Knowledge of the
Company, there are no material design, manufacturing or other defects, latent or
otherwise, with respect to any of such products and neither the Company nor any
Subsidiary has, since October 30, 2002, received notice in writing of any such
alleged defect. Except as set forth in Section 4.11 of the Disclosure Schedule,
since October 30, 2002, there has not been, nor is there currently under
consideration by the Company or any Subsidiary, any recall or withdrawal by or
on behalf of the Company or any Subsidiary of any products manufactured,
produced, distributed or sold by or, to the Knowledge of the Company, on behalf
of the Company or any Subsidiary or, to the Knowledge of the Company, any recall
by
24
or on behalf of an entity as a result of any alleged defect in any product
supplied by the Company or any Subsidiary.
4.12 Real Property. Section 4.12 of the Disclosure Schedule describes each
interest in real property owned or leased by the Company or any Subsidiary,
including the location thereof and the lessor of any such leased property.
Except as described in Section 4.12 of the Disclosure Schedule, the Company and
each Subsidiary has good and marketable title in fee simple to all of the real
property reflected on the Balance Sheet as owned by it and owns all right, title
and interest in all leasehold estates granted by the leases and other agreements
required to be listed in Section 4.12 of the Disclosure Schedule, in each case
free and clear of all Encumbrances except for Permitted Encumbrances. Except as
described in Section 4.12 of the Disclosure Schedule, to the Knowledge of the
Company, all of the buildings and structures to the extent of the premises owned
or leased by the Company or any Subsidiary are structurally sound with no
material defects, are in good operating condition and repair, and each has
adequate rights of ingress and egress for the operation in the ordinary course
of business consistent with past practice. No such building or structure, or any
appurtenance thereto or equipment therein or the operation or maintenance
thereof, violates in any material respect any restrictive covenant. With respect
to any real property leased by the Company or any Subsidiary, except as
described in Section 4.12 of the Disclosure Schedule, no event or condition
exists that, with or without the passage of time or the giving of notice, or
both, would constitute a material default or breach by the Company or any
Subsidiary pursuant to any lease agreement governing such property. To the
Knowledge of the Company, each landlord under each such lease agreement has
complied with its material obligations thereunder. No condemnation proceeding is
pending or, to the Knowledge of the Company, threatened with respect to any real
property identified in Section 4.12 of the Disclosure Schedule.
4.13 Personal Property; Bank Accounts.
(a) Except as described in Section 4.13 of the Disclosure Schedule: (i) the
Company and each Subsidiary have good and valid title to all of their material
properties and assets used in the conduct of their respective businesses free
and clear of all Encumbrances (other than Permitted Encumbrances); and (ii) all
material properties and assets owned or leased by the Company or any Subsidiary
are in the possession or under the control of the Company or such Subsidiary and
are in good condition and repair, ordinary wear and tear excepted.
(b) Section 4.13 of the Disclosure Schedule contains a complete and
accurate list of each bank, checking, money market, investment or similar
account (each, a "Company Account") owned by or used for the business and
operations of the Company and its Subsidiaries and each individual authorized to
have access to and make transactions under each Company Account.
(c) Notwithstanding the foregoing, this Section 4.13 does not address any
real estate matters, which are addressed in Section 4.12, or any intellectual
property matters, which are addressed in Section 4.16.
25
4.14 Material Contracts.
(a) Except as expressly provided by this Agreement or the Transaction
Documents or as described in Section 4.14 of the Disclosure Schedule, neither
the Company nor any Subsidiary is a party to or is bound by any:
(i) agreement, indenture or other instrument relating to indebtedness
for money borrowed or capital leases (excluding capital leases providing
for annual payments of less than $100,000) or any guarantee or similar
undertaking in respect of any indebtedness or obligations of any Person
(other than in connection with relocation of employees or the endorsement
of negotiable instruments for collection in the ordinary course of business
consistent with past practice);
(ii) Encumbrance of any nature (other than Permitted Encumbrances)
relating to or affecting any of the assets or properties of the Company or
any Subsidiary;
(iii) agreement, contract or commitment relating to a single capital
expenditure of greater than $100,000 or any number of such agreements,
contracts or commitments relating to capital expenditures of greater than
$250,000 in the aggregate;
(iv) loan or advance to, or investment in, any Person (other than a
Subsidiary) in any case in an amount in excess of $25,000, or $100,000 in
the aggregate for all such loans, advances and investments or any
agreement, contract or commitment relating to the making of any such loan,
advance or investment, other than travel and similar advances to employees
in the ordinary course of business consistent with past practice;
(v) management service, sales agency, sales representative,
distributorship or any other similar contract, in each case under which the
amount of payments required to be made thereunder in any fiscal year is
greater than $100,000 (other than contracts disclosed pursuant to Section
4.21);
(vi) contract, agreement or commitment limiting the freedom of the
Company or any Subsidiary to engage in any line of business or to compete
with any Person;
(vii) contract, agreement, purchase order or other commitment
involving the performance of services or delivery of goods or materials,
other than inventory purchased or sold in the ordinary course of business,
by or to the Company or any Subsidiary (A) outside the continental United
States or (B) of an aggregate amount in excess of $100,000 and which is not
terminable by the Company or such Subsidiary without payment of penalty or
premium on not more than sixty days notice;
26
(viii) contract, agreement or commitment providing for payments to or
by any Person in excess of $100,000 in any fiscal year based on sales,
purchases or profits, other than direct payments for goods; or
(ix) any other contract, agreement or commitment which is material to
the business, operations, results of operations, assets, or financial
condition of the Company and its Subsidiaries, taken as a whole.
(b) Except as set forth in Section 4.14(b) of the Disclosure Schedule, the
Company and each Subsidiary have furnished or made available to Buyer true and
complete copies of each agreement, plan and other document required to be
disclosed in Section 4.14 of the Disclosure Schedule.
(c) Except as set forth in Section 4.14(c) of the Disclosure Schedule, each
material contract, agreement or commitment disclosed or required to be disclosed
in Section 4.12 or Section 4.14 of the Disclosure Schedule is in full force and
effect and is valid, binding and enforceable against the Company or the
Subsidiary party thereto in accordance with its terms, except in each case as
enforceability of such agreements may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws now or hereafter in effect
relating to or limiting creditors' rights generally and general principles of
equity relating to the availability of specific performance and injunctive and
other forms of equitable relief. Neither the Company nor any Subsidiary is in
violation in any material respect of any of the terms or conditions of any such
contract, agreement or commitment, which violation would give the other party
thereto the right to terminate, or charge any material penalty or demand or
require any material increase in payment under, such contract, agreement or
commitment, and, to the Knowledge of the Company, all of the material covenants
to be performed by each other party thereto have been performed in all material
respects.
4.15 Insurance. Section 4.15 of the Disclosure Schedule contains a true and
complete list of each policy and binder of insurance (including property,
casualty, liability, life, health, accident, workers' compensation and
disability insurance and bonding arrangements) owned by, or maintained for the
benefit of, or respecting which, any premiums are paid directly or indirectly by
the Company or any Subsidiary, in each case identifying: (i) the respective
issuers and expiration dates thereof; (ii) all deductible amounts and amounts of
coverage available and outstanding thereunder; (iii) whether such policies and
binders are "claims made" or "occurrences" policies; (iv) all self-insurance
programs or arrangements; and (v) any retrospective premium adjustments of which
the Company has Knowledge. Neither the Company nor any of its Subsidiaries is in
material default under any such insurance policy. All premiums due have been
paid on such insurance policies. Except as described in Section 4.15 of the
Disclosure Schedule, neither the Company nor any Subsidiary has received (i) any
written notice of cancellation of any policy or binder of insurance required to
be identified in Section 4.15 of the Disclosure Schedule or any written notice
with respect to any refusal of coverage thereunder; or (ii) any written notice
that any issuer of such policy or binder has filed for protection under
applicable bankruptcy or insolvency laws or is otherwise in the process of
liquidating or has been liquidated in any material respect.
27
4.16 Intellectual Property.
(a) Section 4.16(a) of the Disclosure Schedule contains a true and complete
list of each (i) fictitious business name, trade name, registered and
unregistered trademark, service ▇▇▇▇ and related application ("Marks"), (ii)
material patent and patent application (collectively, "Patents"), (iii) issued
and pending copyright registration in published and material unpublished works
of authorship including Software works ("Copyrights"), (iv) Internet domain name
registration and related application (collectively "Domain Registrations"), in
each case, owned by or exclusively licensed to the Company or any Subsidiary.
Except as otherwise described in Section 4.16(a) of the Disclosure Schedule, (A)
the Company and its Subsidiaries are the sole owners of, or have the exclusive
perpetual right to use without consideration, all Intellectual Property owned by
the Company or any Subsidiary, free and clear of all Encumbrances (other than
Permitted Encumbrances); (B) neither the Company nor any Subsidiary has granted
or licensed to any Person any rights with respect to any Intellectual Property,
which rights would have a Material Adverse Effect; (C) no other Person has any
rights in or to any of the Intellectual Property owned by the Company or any
Subsidiary, which rights would have a Material Adverse Effect; (D) the rights of
the Company and its Subsidiaries in and to any of such Intellectual Property
owned by and licensed to the Company and its Subsidiaries will not be limited or
otherwise affected in any material respect by reason of any of the transactions
contemplated hereby; and (E) the Intellectual Property is sufficient for the
conduct of the respective businesses of the Company and its Subsidiaries after
the Closing in the same manner as such businesses were conducted before the
Closing in all material respects.
(b) All persons that are not employees of the Company or any Subsidiary who
are involved with the creation, design, or development of any Copyright of the
Company or any Subsidiary have (a) entered into written agreements assigning to
the Company or a Subsidiary all rights to original works of authorship contained
therein or, alternatively, designating such as "work made for hire" and/or (b)
granted a perpetual, royalty-free license to Company and/or any of its
Subsidiaries permitting the Company and/or any of its Subsidiaries to use any
works created, designed, or developed by such persons for Company and/or any of
its Subsidiaries.
(c) The list of Marks set forth in Section 4.16(a) of the Disclosure
Schedule sets forth: (i) the name of the owner of such ▇▇▇▇; (ii) the
jurisdictions by or in which such ▇▇▇▇ has been issued or registered or in which
an application for such issuance or registration has been filed, and (iii) the
registration and application numbers of such ▇▇▇▇. The list of Copyrights set
forth in Section 4.16(a) of the Disclosure Schedule sets forth: (i) the name of
the author and copyright claimant of such Copyright; and (ii) the registration
numbers of such Copyright. The list of Patents set forth in Section 4.16(a) of
the Disclosure Schedule sets forth the name of each jurisdiction in which such
Patents have been granted and applied for and all application numbers. The
Company and each Subsidiary have taken all reasonable precautions to preserve
and protect the secrecy, confidentiality and value of their Trade Secrets. The
Personally Identifiable Data contains, in all material respects, a true, correct
and complete list of all the customers who have actually purchased merchandise
from the Company or any of its Subsidiaries since October 30, 2002.
28
(d) To the Knowledge of the Company, the operations of the Company and each
Subsidiary as currently conducted, including the sale by the Company or any
Subsidiary of products manufactured by Persons other than the Company or its
Subsidiaries, do not infringe in any material respect any trademark, copyright,
patent or other proprietary right of any Person.
(e) The representations and warranties set forth in this Section 4.16,
along with the applicable representations in Section 4.5, Section 4.6(a)-(b),
and Section 4.14 constitute the Company's sole and exclusive representations and
warranties related to intellectual property matters.
4.17 Suppliers. Section 4.17 of the Disclosure Schedule provides a complete
and accurate list of the names of the 20 suppliers and vendors from whom the
Company and its Subsidiaries made the most purchases (in terms of dollar
amounts) during 2004 and a good faith approximation of the aggregate
expenditures attributable to each in such year. Except as disclosed in Section
4.17 of the Disclosure Schedule, no vendor or supplier that accounted for more
than of 5% of the consolidated purchases of the Company and its Subsidiaries
during 2004 has terminated or materially reduced, or has given written notice to
the Company or any Subsidiary that it intends to terminate or materially reduce,
the amount of business done with the Company or any Subsidiary. The Company does
not currently have any Knowledge of any such intention on the part of any such
supplier or vendor, whether or not in connection with or as a result of, the
transactions contemplated by this Agreement or any other Transaction Document.
4.18 Labor Matters.
(a) Except as described in Section 4.18(a) of the Disclosure Schedule: (i)
no application or petition for certification of a collective bargaining agent is
currently pending, and no union or bargaining representative is currently
certified as a representative of the employees of the Company or any Subsidiary;
(ii) since October 30, 2002, neither the Company nor any Subsidiary has been the
subject of a representation campaign to organize any group of the Company's or
such Subsidiary's employees; and (iii) since October 30, 2002, there has not
been and there is not currently pending any material labor arbitration or
proceeding relating to the grievance of any employee of the Company or its
Subsidiaries, any application, charge or complaint filed by any such employee or
union with the National Labor Relations Board or any comparable state or local
agency, any strike, slowdown, picketing or work stoppage by any employees at any
facility of the Company or any Subsidiary, any lockout of any such employees, or
any other labor related controversy materially affecting the operations, assets,
results of operations, financial condition or business of the Company or any
Subsidiary. Except as described in Section 4.18(a) of the Disclosure Schedule
and except for the terms of the real property leases to which the Company or any
of its Subsidiaries is currently a party, no agreement to which the Company or
any of its Subsidiaries is a party restricts in any material respect the Company
or any Subsidiary from relocating, closing or terminating any of their
operations or facilities or any portion thereof.
29
(b) Contained in Section 4.18(b) of the Disclosure Schedule are true and
correct copies of each OSHA Form No. 300 and each OSHA Form No. 300A completed
and maintained by the Company or any Subsidiary at each of its work
establishments since October 30, 2002.
(c) During the last 90 days prior to the date hereof, neither the Company
nor any Subsidiary has (i) effectuated a "plant closing" (as defined in the WARN
Act) affecting any site of employment or one or more facilities or operating
units within any site of employment or facility of the Company or any
Subsidiary; or (ii) effectuated a "mass layoff" (as defined in the WARN Act)
affecting any site of employment or facility of the Company or any Subsidiary,
or (iii) terminated or announced the termination of the employment of more than
a total of 20 employees (other than "seasonal workers," as defined by the WARN
Act, terminated in the ordinary course of business).
(d) The representations and warranties set forth in this Section 4.18,
along with the applicable representations in Section 4.5 and Section 4.6(a) and
(c), constitute the Company's sole and exclusive representations and warranties
related to labor matters.
4.19 Employee Benefits.
(a) Section 4.19(a) of the Disclosure Schedule contains a complete and
correct list of all benefit plans and arrangements (whether or not employee
benefit plans as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), including sick leave, vacation pay,
severance pay, salary continuation for disability, consulting or other
compensation arrangements, retirement, deferred compensation, bonus, incentive
compensation, stock purchase, stock option, health including hospitalization,
medical and dental, life insurance and scholarship programs maintained for the
benefit of any present or former employees or directors of the Company or any
ERISA Affiliate (as defined below) or to which the Company or any ERISA
Affiliate has contributed or is or was since October 30, 2002 obligated to make
payments (collectively, the "Employee Benefit Plans"). Except as described in
Section 4.19(a) of the Disclosure Schedule, the Company has delivered or made
available to Buyer, with respect to all such Employee Benefit Plans, true,
complete and correct copies of the following: all plan documents and handbooks;
the most recent summary plan descriptions and any subsequent summaries of
material modifications; Forms series 5500 as filed with the United States
Department of Labor ("DOL") since October 30, 2002; all trust agreements with
respect to Employee Benefit Plans; plan contracts with service providers or with
insurers providing benefits for participants or liability insurance for
fiduciaries and other parties in interest or bonding; the most recent annual
audit and accounting of plan assets for all funded plans; and the most recent
IRS determination letter for all plans qualified under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code"). As used herein, "ERISA
Affiliate" shall refer to any trade or business, whether or not incorporated,
under common control with the Company within the meaning of Section 414(b), (c),
(m) or (o) of the Code.
(b) Except as described in Section 4.19(b) of the Disclosure Schedule, each
Employee Benefit Plan has been administered in compliance with its terms
30
and is in compliance in all material respects with the applicable provisions of
ERISA, the Code and all other applicable Laws.
(c) The Company has made, or will make within the prescribed time periods
under the applicable Employee Benefit Plan, full payment of all amounts it is
required under the terms of each Employee Benefit Plan, to have contributed
thereto before the Closing Date for all periods through the Closing Date, and,
with respect to payments not yet due, proper accruals for such contributions
have been made and are reflected on its balance sheet and books and records.
(d) Each Employee Benefit Plan which is an "Employee Pension Benefit Plan"
(as defined in Section 3(2) of ERISA) and which is intended to be "qualified"
within the meaning of Section 401(a) of the Code has been issued a favorable
determination letter from the IRS, and to the Knowledge of the Company, since
October 30, 2002 there has been no act or condition that would reasonably be
expected to result in the loss of tax-qualified status of such Employee Benefit
Plan or the loss of exemption from federal income tax under Section 501(a) of
the Code of any trust created pursuant to any such Employee Pension Benefit
Plan.
(e) Neither the Company nor any ERISA Affiliate maintains or since October
30, 2002 has maintained or been obligated to contribute to a "Multiemployer
Plan" (as such term is defined by Section 3(37) of ERISA) or to a "Defined
Benefit Plan" (as such term is defined by Section 3(35) of ERISA). Neither the
Company nor any ERISA Affiliate has any material liability with respect to a
Multiemployer Plan or a Defined Benefit Plan.
(f) Except as described in Section 4.19(f) of the Disclosure Schedule, with
respect to each Employee Benefit Plan, no material unsatisfied liabilities to
participants, the IRS, the DOL, the Pension Benefit Guaranty Corporation or to
any other Person have been incurred as a result of the cessation of
contributions under, the transfer of sponsorship of, or the termination of any
Employee Benefit Plan.
(g) Except as described in Section 4.19(g) of the Disclosure Schedule,
neither the Company nor any ERISA Affiliate maintains any retiree life and/or
retiree health insurance plans which provide for continuing benefits or coverage
for any employee or any beneficiary of an employee after such employee's
termination of employment, other than benefits that are required to be provided
pursuant to Title X of the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended, or state continuation coverage rights.
(h) Section 4.19(h) of the Disclosure Schedule lists each employment,
retention, severance, change of control, consulting, commission, agency and
representative agreement or arrangement to which the Company or any Subsidiary
is a party or is otherwise bound, including all agreements and commitments
relating to wages, hours or other terms or conditions of employment (other than
unwritten employment arrangements terminable at will).
31
(i) Except as set forth in Section 4.19(i) of the Disclosure Schedule or as
expressly contemplated by this Agreement and subject to the terms of Section
10.1(g), the consummation of the transactions contemplated by this Agreement and
the other Transaction Documents will not, alone or together with any other
event: (i) entitle any person to severance pay, unemployment compensation or
termination benefits or any other payment; (ii) accelerate the time of payment
or vesting of, or materially increase the amount of compensation due to any
person; or (iii) obligate the Company or any Subsidiary to pay or otherwise be
liable for any compensation or other benefits to any person for any periods
before the Closing Date.
(j) The representations and warranties set forth in this Section 4.19 along
with the applicable representations and warranties set forth in Sections 4.5,
4.6(a) and (d), and 4.20, constitute the Company's sole and exclusive
representations and warranties related to employee benefits matters.
4.20 Directors, Officers and Employees.
(a) Section 4.20(a) of the Disclosure Schedule sets forth the following
information for each director, officer and employee of the Company and each
Subsidiary and for each consultant, agent and independent contractor regularly
retained, whose aggregate compensation for the last fiscal year ended exceeded
$100,000 or whose current aggregate annual rate of compensation exceeds such
amount (including each such person on leave or layoff status): (i) employer and
location of employment; (ii) name and job title; (iii) current annual rate of
compensation (identifying bonuses separately) and any change in compensation
since the date of the Balance Sheet; (iv) vacation accrued; and (v) service
credited for purposes of vesting and eligibility to participate in applicable
Employee Benefit Plans.
(b) Except as described in the Section 4.20(b) of the Disclosure Schedule
and except for customary confidentiality agreements with former employers, none
of the Company's or any Subsidiary's management employees, directors or officers
is a party to, or is otherwise bound by, any agreement or arrangement (including
any confidentiality, non-competition or proprietary rights agreement), with any
Person other than the Company or any Subsidiary that in any way materially
affects or will materially affect (i) the performance of his or her duties, (ii)
the ability of the Company and its Subsidiaries to conduct their respective
businesses, or (iii) his or her freedom to engage in any of the businesses
conducted by the Company or any Subsidiary.
4.21 Affiliate Agreements.
(a) Except as described in Section 4.21(a) of the Disclosure Schedule,
since October 30, 2002, there have not been and there are not currently in
effect any agreements or arrangements by and between the Company or any
Subsidiary, on the one hand, and any Related Controlling Party on the other
hand. Except as described in Section 4.21(a) of the Disclosure Schedule, no
Related Controlling Party has (i) any ownership or leasehold interest in any
property (whether real, personal, or mixed and whether tangible or intangible)
32
used in or pertaining to the business of the Company or any Subsidiary or (ii)
any claim for any amounts against the Company or any Subsidiary, other than (A)
rights arising under the Transaction Agreements, (B) rights to be reimbursed for
the Reimbursement Expenses (as provided herein), (C) rights which are being
waived pursuant to the terms of this Agreement, (D) the ownership interests of
the Sellers in the Securities and (E) claims of any Controlled Portfolio Company
against the Company or any Subsidiary.
(b) Except as described in Section 4.21(b) of the Disclosure Schedule,
since May 9, 2004, except as set forth in Section 4.19 of the Disclosure
Schedule, there have not been and there are not currently in effect any written
agreements or arrangements by and between the Company and any Subsidiary on the
one hand and any Related Party on the other hand. Except as described in Section
4.21(b) of the Disclosure Schedule, no Related Party has (i) any ownership or
leasehold interest in any property (whether real, personal, or mixed and whether
tangible or intangible) used in or pertaining to the business of the Company or
any Subsidiary, other than the ownership interest of the Sellers in the
Securities or (ii) any claim against the Company or any Subsidiary (other than
claims arising out of or related to the employment by the Company or any
Subsidiary of such Related Party).
(c) No amount of indebtedness is owed to the Company or any Subsidiary from
any Related Controlling Party or any Related Party. Except for those Sellers and
such rights as are set forth in Section 6.9 of the Disclosure Schedule, no
Seller has any right to receive any dividends or distributions with respect to
any capital stock or debt of the Company or any Subsidiary, whether as a result
of the transactions contemplated hereby or otherwise, other than (i) each
Seller's respective right to receive such Seller's portion of the Aggregate Cash
Proceeds, the Specified Employees Bonus Amount and the Accrued Dividend Amount,
(ii) the "Preference Amount" pursuant to Section 4(c) of the Company's Restated
Certificate of Incorporation, which the Principal Stockholders have agreed to
waive pursuant to Section 6.9 and (iii) interest on ▇.▇. ▇▇▇▇▇▇ Notes, which,
together with all other amounts thereunder, will be paid in full by the Company
at Closing.
4.22 Environmental Matters.
(a) Except as described in Section 4.22(a) of the Disclosure Schedule:
(i) Since October 30, 2002, and to the Knowledge of the Company, prior
to October 30, 2002, the Company, each Subsidiary and their respective
predecessors, including all of their businesses and operations, have been
operated in compliance with all Environmental Laws in all material
respects;
(ii) (A) Neither the Company nor any Subsidiary has, since October 30,
2002, caused, (B) to the knowledge of the Company, none of the Company, any
Subsidiary or any predecessor entity thereof did, prior to October 30,
2002, cause, and (C) to the Knowledge of the Company, none of the Company,
any Subsidiary or any predecessor entity thereof has permitted any other
Person to cause,
33
any conditions on, about, beneath or arising from any real property, which
is currently, or since October 30, 2002, was owned, leased or operated, or
to the Knowledge of the Company, was at any time prior to October 30, 2002,
owned, leased or operated, by the Company, any Subsidiary or their
respective predecessors, which (A) give rise to material liability or the
imposition of a material statutory lien under any Environmental Law, or (B)
require any material Response, Removal or Remedial Action or other material
action under any Environmental Law;
(iii) Neither the Company nor any Subsidiary has received since
October 30, 2002, or to the Knowledge of the Company, prior to October 30,
2002, any written or oral notification of a release or threat of a release
of a Hazardous Substance with respect to any real property that is
currently, or was at any time since October 30, 2002, owned, leased or
operated, or to the Knowledge of the Company, was at any time prior to
October 30, 2002, owned, leased or operated, by the Company or any
Subsidiary or their respective predecessors;
(iv) No Hazardous Substances have been used, handled, generated,
processed, treated, stored, transported to or from, released, discharged or
disposed of by the Company or any Subsidiary or, to the Knowledge of the
Company, any third party on, about or beneath any property that is
currently, or that has at any time since October 30, 2002 been, owned,
leased or operated, or to the Knowledge of the Company, that was at any
time prior to October 30, 2002, owned, leased or operated, by the Company
or any Subsidiary or their respective predecessors in violation in any
material respect of any Environmental Laws;
(v) There are not currently, and since October 30, 2002 there have not
been any above ground or, to the Knowledge of the Company, underground
storage tanks, asbestos containing materials, or transformers containing
or, to the Knowledge of the Company, contaminated with polychlorinated
biphenyls ("PCB's") on, about or beneath any real property that is
currently, or since October 30, 2002 has been, owned, leased or operated,
or to the Knowledge of the Company, that was at any time prior to October
30, 2002, owned, leased or operated, by the Company or any Subsidiary or
their respective predecessors in violation in any material respect of any
Environmental Laws;
(vi) Neither the Company nor any Subsidiary has Knowledge of or, since
October 30, 2002, has received written notice of:
(A) any material claim, demand, investigation, enforcement
action, Response, Removal, Remedial Action, statutory lien or
governmental or regulatory action instituted or threatened against the
Company or any Subsidiary or any real property formerly or currently
owned, leased or operated by the Company or any Subsidiary pursuant to
any of the Environmental Laws; or
34
(B) any material claim, demand notice, suit or action, made or
threatened by any Person against the Company, any Subsidiary, or any
real property formerly or currently owned, leased or operated by the
Company or any Subsidiary relating to (1) any material damage, loss or
injury resulting from, or claimed to result from, any Hazardous
Substance on, about, beneath or arising from any real property
formerly or currently owned, leased or operated by the Company or any
Subsidiary or any other real property or (2) any alleged material
violation of Environmental Laws by the Company or any Subsidiary;
(vii) Neither the Company nor any Subsidiary has Knowledge of any
communication (other than as described in Section 4.22(a)(vi) to or from
any Governmental Body or any other Person arising out of or in connection
with Hazardous Substances on, about, beneath, arising from or generated at
any real property formerly or currently owned, leased or operated by the
Company or any Subsidiary or any other real property; and
(viii) No wastes generated by the Company or any Subsidiary, have
since October 30, 2002, or to the Knowledge of the Company, prior to
October 30, 2002, been sent, transferred, transported to, treated, stored,
or disposed of at any site requiring investigation or clean-up, including
any site listed, or to the Knowledge of the Company, formerly proposed for
listing, on the National Priority List promulgated pursuant to CERCLA or to
any site listed on any state list of sites requiring or recommended for
investigation or clean-up. To the Knowledge of the Company, none of the
real property that is currently, or since October 30, 2002 has been, owned,
leased or operated, or to the Knowledge of the Company, prior to October
30, 2002, has been owned, leased or operated, by the Company or any
Subsidiary or their respective predecessors, is listed on the National
Priorities List or any state list of sites requiring or recommended for
investigation or clean up.
(b) There has been no written or formally scheduled environmental audit,
investigation, inspection, report, sampling report, remediation report or other
related report conducted by or on behalf of the Company, any Subsidiary or, to
the Knowledge of the Company, any Governmental Body or other third party, of or
related to the environmental condition of any property that is currently or
since October 30, 2002 has been, owned, leased or operated, or to the Knowledge
of the Company, prior to October 30, 2002, has been, owned, leased or operated,
by the Company or any Subsidiary, which has not been made available to Buyer
prior to the date hereof.
(c) Notwithstanding anything in this Agreement to the contrary, Buyer
acknowledges and agrees that this Section 4.22 contains the sole and exclusive
representations and warranties in this Agreement relating to environmental
matters.
4.23 Books and Records. True, complete and correct copies of the
certificates or articles of incorporation and bylaws of the Company and each
Subsidiary (or other comparable organizational documents) have been, or prior to
the Closing will be,
35
delivered to Buyer, and such documents, in the form delivered to Buyer, are in
full force and effect. The stock records of the Company and each Subsidiary
fairly and accurately reflect the record ownership of all of their outstanding
shares of capital stock and other equity securities of the Company and its
Subsidiaries. The minute books of the Company and each Subsidiary contain
complete and accurate records in all material respects of all meetings held of,
and corporate action taken by, the stockholders, the boards of directors (or
other comparable governing body) and each committee of the boards of directors
of the Company and the Subsidiaries. Copies of such minute books and stock
records have been, or prior to the Closing will be, made available to Buyer, and
such records are complete and accurate in all material respects.
4.24 Brokers. Other than ▇▇▇▇▇▇▇, Sachs & Co. and GLC Securities Corp.,
whose fees shall be, if not a Transaction Expense, paid by Sellers'
Representative, there is no investment banker, broker, finder or other
intermediary (other than Escrow Agent) which has been retained by or is
authorized to act on behalf of the Company or any Subsidiary that might be
entitled to any fee or commission in connection with the transactions
contemplated by this Agreement or any other Transaction Document.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER AND GUARANTOR
Each of Buyer and Guarantor hereby jointly and severally represents and
warrants to each Seller as of the date of this Agreement and as of the Closing
Date that, except as set forth on the Disclosure Schedule attached hereto:
5.1 Organization and Good Standing. Each of Buyer and Guarantor is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has all necessary corporate power and
authority to perform all of its obligations under each Transaction Document to
which it is a party. Each of Buyer and Guarantor has delivered to the Sellers'
Representative true, correct and complete copies of its articles or certificate
of incorporation, as appropriate, and its bylaws.
5.2 Power and Authorization. Each of Buyer and Guarantor has all requisite
power and authority to execute and deliver this Agreement and the other
Transaction Documents to which it is a party (collectively, the "Buyer
Transaction Documents"), to perform its obligations hereunder and thereunder and
to carry out the transactions contemplated hereby and thereby. All necessary
corporate, shareholder and other legal action has been taken by each of Buyer
and Guarantor to authorize the execution, delivery and performance by it of this
Agreement and each other Buyer Transaction Document to which it is, or is
specified to be, a party. Each of Buyer and Guarantor has duly executed and
delivered this Agreement and, at or prior to the Closing, will have duly
executed and delivered each other Buyer Transaction Document. This Agreement is,
and each other Buyer Transaction Document, when duly executed and delivered at
or prior to the Closing by Buyer and/or Guarantor, as the case may be, will be,
the legal, valid and binding obligation of Buyer and/or Guarantor, as the case
may be, enforceable against it in accordance with its respective terms, except
as enforceability of such objections may be limited by bankruptcy, insolvency,
36
reorganization, moratorium and other similar laws now or hereafter in effect
relating to or limiting creditors' rights generally and general principles of
equity relating to the availability of specific performance and injunctive and
other forms of equitable relief.
5.3 No Conflicts.
(a) Except as disclosed in Section 5.3(a) of the Disclosure Schedule, the
execution and delivery by each of Buyer and Guarantor of this Agreement does
not, the execution and delivery by each of Buyer and Guarantor of each Buyer
Transaction Document to which it is, or is specified to be, a party will not,
and the consummation of the transactions contemplated hereby and thereby and
compliance by each of Buyer and Guarantor with the terms hereof and thereof will
not conflict with, or result in any violation or breach of or constitute a
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
a loss of a material benefit under, or result in the creation of any Encumbrance
(other than a Permitted Encumbrance) upon any of the material properties or
assets of either of, Buyer or Guarantor under, any provision of (i) the
certificate of incorporation, by-laws or other similar organizational documents
of Buyer or Guarantor, (ii) any material agreement or other material obligation
to which Buyer or Guarantor is a party or by which any of their respective
properties or assets is bound or (iii) any material Laws or Governmental
Authorizations binding upon or applicable to Buyer or Guarantor.
(b) Prior to Closing, Buyer or one or more of its Affiliates shall have
complied with the requirements of the HSR Act, and the documents to be filed by
Buyer and its Affiliates pursuant to the HSR Act respond to its requirements.
Except as disclosed in Section 5.3(b) of the Disclosure Schedule, no other
material Consents or registrations, notifications, filings or declarations with,
any Governmental Body, creditor, lessor or other Person are required to be given
or made by Buyer or Guarantor in connection with the execution, delivery and
performance of this Agreement or any other Buyer Transaction Document.
(c) There are no judicial, administrative or other governmental actions,
proceedings or investigations pending or, to the Knowledge of Buyer, threatened,
which individually or in the aggregate, have had or would reasonably be expected
to have a material adverse effect on the ability of either Buyer or Guarantor to
perform its respective obligations under this Agreement or any other Buyer
Transaction Document or on the ability of Buyer or Guarantor to consummate the
transactions contemplated hereby or thereby (a "Buyer Material Adverse Effect").
5.4 No Reliance. Buyer is purchasing the Securities for investment for its
own account and not with a view to, or for sale in connection with, any
distribution thereof. Buyer (either alone or together with its advisors) has
sufficient knowledge and experience in financial and business matters so as to
be capable of evaluating the merits and risks of its investment in the
Securities and is capable of bearing the economic risks of such investment. Each
of Buyer and Guarantor hereby acknowledge that neither the Sellers nor the
Company are acting as fiduciaries or financial or investment advisers to Buyer
or Guarantor.
37
5.5 Brokers. Other than Banc of America Securities, LLC, there is no
investment banker, broker, finder or other financial intermediary (other than
the Escrow Agent) that has been retained by or is authorized to act on behalf of
Buyer, Guarantor or any of its respective Affiliates that might be entitled to
any fee or commission in connection with the transactions contemplated by this
Agreement or any other Transaction Document.
5.6 Financing. Buyer and Guarantor currently have, and as of the Closing
Date will have, such funds available that will be sufficient to pay the Purchase
Price and satisfy all other obligations of Buyer and Guarantor on and after the
Closing Date under this Agreement and each other Buyer Transaction Document.
Buyer and Guarantor acknowledge that their respective obligations under the
Transaction Documents are not subject to their obtaining financing in order to
pay the Purchase Price or to satisfy any of their other respective obligations
under the Buyer Transaction Documents.
5.7 Disclaimer Regarding Projections. In connection with Buyer's and
Guarantor's investigation of the Company and its Subsidiaries, Buyer and
Guarantor have received from the Sellers and/or the Company certain projections,
estimates and other forecasts and business plan information. Each of Buyer and
Guarantor acknowledges that there are uncertainties inherent in attempting to
make such projections, estimates and other forecasts and plans and that it is
taking full responsibility for making its own evaluation of the adequacy and
accuracy of all projections, estimates and other forecasts and plans so
furnished to it. Accordingly, each of Buyer and Guarantor acknowledges, agrees
and confirms that Sellers, the Company and each of their respective Affiliates,
officers, directors, employees, agents and representatives, do not make, have
not made nor shall be deemed to have made any representation or warranty to
Buyer or Guarantor, express or implied, at law or in equity, with respect to any
such projections, estimates, forecasts or plans.
5.8 No Additional Representations. Buyer acknowledges that none of Sellers,
the Company, its Subsidiaries or any other Person has made any representation or
warranty, expressed or implied, as to the accuracy or completeness of any
written or oral information regarding the Company and its Subsidiaries furnished
or made available to Buyer and its Representatives or otherwise with respect to
the Company, its Subsidiaries or their operations, business, financial
condition, assets, liabilities or prospects, except as set forth in Sections 3,
4 and 10. Buyer shall acquire the Company and its Subsidiaries without any
representation or warranty as to merchantability or fitness for any particular
purpose, in an "as is" condition and on a "where as" basis, except as otherwise
represented or warranted in Sections 3, 4 and 10.
SECTION 6. COVENANTS OF THE COMPANY AND SELLERS
6.1 Conduct of Business Pending Closing. From the date hereof until the
Closing, except as expressly contemplated by any of the Transaction Documents or
as set forth in Section 6.1 of the Disclosure Schedule, the Company shall, and
shall cause each of its Subsidiaries to, and with respect to Sections
6.1(e)-(f), each Seller (solely as to such Seller) also shall:
38
(a) maintain their corporate (or other organizational) existence, pay and
discharge all of their respective material debts, liabilities and obligations as
they become due, and operate their respective businesses in all material
respects in the ordinary course in a manner consistent with past practice, and
in compliance with all applicable Laws and the provisions of this Agreement;
(b) maintain their facilities and assets in all material respects in the
same state of repair, order and condition as they were in on the date hereof,
reasonable wear and tear excepted;
(c) maintain their books and records in accordance with past practice in
all material respects, and use reasonable commercial efforts to maintain in full
force and effect all material Consents, material Governmental Authorizations and
all material insurance policies and binders in an amount and scope consistent
with any such insurance policies in effect as of the date hereof;
(d) use their commercially reasonable efforts to preserve intact their
present business organization and maintain their relations and goodwill with
their suppliers, vendors, customers, employees and others having a business
relationship with any of them;
(e) promptly advise Buyer upon obtaining Knowledge of any threat or
commencement of any material dispute, claim, action, suit, proceeding,
arbitration or investigation by, against or affecting any Seller, the Company,
any Subsidiary or any of their operations, properties, assets or prospects, or
which would be reasonably likely to have a material adverse effect on the
Company's or any Seller's ability to consummate the transactions contemplated by
this Agreement and the other Transaction Documents;
(f) promptly advise Buyer upon (i) obtaining Knowledge of (A) the existence
of any fact or condition that would constitute a breach of any of Sellers' or
the Company's representations and warranties contained in this Agreement, (B)
the occurrence of any breach of any covenant of the Company or Sellers in this
Agreement, or (C) the occurrence of any event that would be reasonably likely to
make the satisfaction of the conditions in Section 12.1 impossible or unlikely
and (ii) the Company or any Subsidiary taking any actions in response to the
matter specified in Section 14.2(f); and
(g) otherwise report periodically to Buyer concerning the status of the
business, operations and finances of the Company and each Subsidiary.
6.2 Negative Covenants Pending Closing. From the date hereof until the
Closing, except as expressly contemplated by this Agreement or any other
Transaction Document and except as set forth in Section 6.2 of the Disclosure
Schedule, without the prior written consent of Buyer, the Company shall not, and
the Company shall cause its Subsidiaries not to:
(a) except for the granting of the Specified Employees Bonus Amount to each
Specified Employee in an amount not to exceed the portion of the Specified
Employee Bonus Amount payable to such Specified Employee as set forth in Section
1.1(a) of
39
the Disclosure Schedule and other than the payment of the Accrued Dividend
Amount to the Sellers specified in Section 1.1(c) of the Disclosure Schedule,
(i) make any change in the Company's or any Subsidiary's authorized or issued
capital stock or other securities; (ii) grant any stock option or other right to
purchase shares of the Company's or any Subsidiary's capital stock or other
securities; (iii) issue or make any commitment to issue any equity security by
the Company or any Subsidiary, including any security convertible into the
Company's or any Subsidiary's capital stock (except for issuances of Shares
pursuant to stock Options outstanding as of the date of this Agreement and which
are described in Section 4.4 of the Disclosure Schedule); (iv) declare, set
aside or issue or pay any dividends; (v) grant any registration rights with
respect to the Company's or any Subsidiary's capital stock or other securities;
or (vi) purchase, redeem, retire or make any other acquisition of any shares of
the Company's or any Subsidiary's capital stock or other securities;
(b) adopt or propose any change in the certificate or articles of
incorporation or bylaws (or equivalent governing documents) of the Company or
any Subsidiary;
(c) merge or consolidate with any other Person or acquire assets from any
other Person, other than (i) asset acquisitions pursuant to existing contracts,
agreements or commitments, (ii) the acquisition of inventory, (iii) capital
expenditures of not more than $100,000 per individual expenditure or $600,000 in
the aggregate and (iv) intercompany transactions on an arm's length basis, in
each case in the ordinary course of business consistent with past practice;
(d) sell, lease, license or otherwise dispose of any material assets or
property of the Company or any Subsidiary except (i) pursuant to existing
contracts or commitments that are disclosed in the Disclosure Schedule, (ii)
intercompany transactions and (iii) the sale of inventory and customer list
rentals and exchanges, in each case in the ordinary course of business
consistent with past practice;
(e) make any material change in the Company's or any Subsidiary's inventory
policies or procedures, operating policies or procedures, or advertising and
promotional policies or procedures;
(f) enter into or materially modify or amend any financing arrangements,
including any financings with respect to the receivables of the Company and its
Subsidiaries;
(g) enter into or materially modify or amend any lease or sublease of real
property or terminate or materially amend or cause or permit the extension of
the term of any lease;
(h) enter into or, other than immaterial modifications and amendments that,
in each case, are not adverse to the Company or any Subsidiary, modify or amend
any contract with any Related Controlling Party or Related Party;
40
(i) make any loan, advance or capital contribution to or investment in any
Person, other than (i) loans, advances or capital contributions to a Subsidiary,
(ii) travel and similar advances to employees, and (iii) advances and extended
payment terms to suppliers, in each case in the ordinary course of business
consistent with past practice;
(j) change the independent accountants of the Company or its Subsidiaries
or the accounting methods, principles or practices followed by the Company or
any Subsidiary (except for any such change required by reason of a change in
GAAP or Law);
(k) (i) adopt, amend or modify an Employee Benefit Plan with any director,
officer, consultant or employee of the Company or any Subsidiary, (ii) ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ or termination pay to any director, officer, employee, or consultant
of the Company or any Subsidiary, (iii) increase the compensation of, or pay any
bonus to, any director, officer, employee, or consultant of the Company or any
Subsidiary, or (iv) change the compensation or other benefits payable to any
director, officer, employee, or consultant of the Company or any Subsidiary
except, in the case of clauses (iii) and (iv), in the ordinary course of
business consistent with past practice with respect to any employee (excluding
any officers) of the Company or any Subsidiary, and except, in the case of
clause (iii), for the determination of the board of directors and stockholders
of the Company to grant the Specified Employees Bonus Amount to each Specified
Employee in an amount not to exceed the portion of the Specified Employees Bonus
Amount payable to such Specified Employee as set forth in Section 1.1(a) of the
Disclosure Schedule;
(l) (i) incur or repay any liability or obligation (whether absolute,
accrued, contingent or otherwise) to any Related Controlling Party (other than a
Controlled Portfolio Company) or Related Party, other than (A) in respect of
current liabilities incurred in the ordinary course of business consistent with
past practice and (B) liabilities and obligations to Sellers who are employees
of the Company or a Subsidiary incurred in the ordinary course of business
consistent with past practice, or (ii) incur or repay any material liability or
material obligation to any other Person or discharge or satisfy any material
Encumbrance, other than (A) in the ordinary course of business consistent with
past practice, and (B) pursuant to the terms of agreements to which the Company
or a Subsidiary is a party on the date hereof or are entered into on terms
permitted hereunder after the date hereof;
(m) cancel, discharge or satisfy any material debts or other material
amounts owed to the Company or any Subsidiary or amend, terminate, or waive any
other material rights of value to the Company or any Subsidiary;
(n) write down or write off the value of any material asset of the Company
or any Subsidiary, except for write downs and write offs of accounts receivable
and inventory in the ordinary course of business consistent with past practice;
or
(o) make any commitment to do any of the foregoing.
6.3 Access to Information. From the date hereof to the Closing, the Company
shall, and the Company shall cause its Subsidiaries to, (i) give Buyer and its
41
Representatives and Buyer's sources of funding for the transaction contemplated
hereby and their respective Representatives (collectively, "Buyer's
Representatives") reasonable access to all of the personnel, books, records,
plants, offices and other facilities and properties of the Company and its
Subsidiaries, and, to the extent related primarily to the Company and its
Subsidiaries, to the books and records of the Sellers, during normal business
hours and upon reasonable prior notice, (ii) permit Buyer and Buyer's
Representatives to make such inspections thereof as such Persons may reasonably
request, (iii) furnish to Buyer and Buyer's Representatives such financial,
operating data and other information regarding the respective businesses,
agreements, commitments, liabilities, personnel and properties of the Company
and its Subsidiaries as such Person may reasonably request, and (iv) instruct
the Representatives of the Sellers, the Company and each Subsidiary to
reasonably cooperate with Buyer and Buyer's Representatives in their
investigation of the Company and its Subsidiaries. Buyer and Guarantor shall
request that their Affiliates Representatives agree to comply with Buyer's and
Guarantor's undertakings in Section 8.1 with respect to any confidential
information of or relating to the Company and its Subsidiaries obtained pursuant
to this Section 6.3; provided that Buyer and Guarantor shall be responsible for
any breach of this Section 6.3 by its Affiliates and Representatives.
6.4 Governmental Authorizations. As promptly as practicable after the date
of this Agreement, the Company shall, and the Company shall cause each
Subsidiary to, use its commercially reasonable efforts to (i) obtain (and
cooperate with the other parties hereto in obtaining) all Governmental
Authorizations necessary for the consummation of the transactions contemplated
by the Transaction Documents and (ii) make (and cooperate with the other parties
hereto in making) all filings required to be made by the Company and the
Subsidiaries pursuant to applicable Laws in order to consummate the transactions
contemplated by the Transaction Documents. For purposes of this Section 6.4, the
term "commercially reasonable efforts" shall not include any obligation of the
Company or any Subsidiary to expend money (other than filing fees and nominal
amounts), commence or participate in any material claim, action, proceeding or
litigation, grant any material accommodation (financial or otherwise) to any
Person, or sell, transfer or otherwise dispose of any of its assets or
properties. This Section 6.4 shall not apply to filings and Governmental
Authorizations to be made under the HSR Act, which are addressed solely in
Section 9.4, or Consents that are not Governmental Authorizations, which are
addressed solely in Section 9.2.
6.5 Financial Information. From the date hereof until the Closing, the
Company shall provide Buyer, within 15 days after the beginning of each month,
with an unaudited consolidated balance sheet and related consolidated statements
of income, changes in stockholder's equity and cash flow of the Company as of
and for the month then ended, prepared on the same basis as the Unaudited
Financial Statements referred to in Section 4.7(a) and certified as such by the
Chief Financial Officer of the Company (in his capacity as such).
6.6 Intentionally Omitted.
6.7 No Shop. Until such time, if any, as this Agreement is terminated
pursuant to Section 13, the Company, each Subsidiary, and each Seller shall not,
directly or indirectly, solicit, initiate or encourage any inquiries or
proposals from, discuss or negotiate
42
with, provide any non-public information to, or formally consider the merits of
any unsolicited inquiries or proposals from, any Person (other than Buyer and
Guarantor) relating to any transaction involving the sale of the business or
assets of the Company or any of its Subsidiaries (other than sales of assets and
other transactions expressly permitted pursuant to the terms of this Agreement),
or any of the capital stock of the Company or any Subsidiary, or any merger,
consolidation, business combination or similar transaction involving the Company
or any Subsidiary. To the extent applicable, the Company, each Subsidiary, and
each Seller shall immediately cease any such discussions or negotiations
currently in progress and shall cease providing any information regarding any
such transaction.
6.8 Confidential Information. Until the 18 month anniversary of the
Closing, each Seller acknowledges and agrees that neither it nor any of its
Affiliates (excluding, with respect to any Principal Stockholder, any Affiliate
of such Principal Stockholder other than the Controlled Portfolio Companies and
the JPM General Partners) shall use for any purpose or shall disclose, any
confidential or proprietary information of or relating to Buyer, Guarantor, the
Company or any Subsidiary to any Person (other than his, her or its
Representatives, the Sellers' Representative or another Seller) without the
prior written consent of Buyer; provided, however, that the foregoing
restriction shall not apply to (i) any information which is or becomes publicly
known through no fault of any Seller or which is lawfully obtained from a third
party that is not bound by a contractual, legal or other confidentiality
obligation to the Company, any Subsidiary, Buyer, or Guarantor, (ii) any
information which such Seller is duly authorized to disclose in connection with
such Seller's employment with the Company post-Closing, (iii) any disclosure
required by applicable Law, any final order or judgment of a Governmental Body,
any rule or regulation of the Nasdaq Stock Market ("Nasdaq") or another
securities exchange applicable to such Seller or in connection with the
enforcement of such Seller's rights under any Seller Transaction Document or
Company Transaction Document, (iv) any disclosures required or requested by the
FTC or DOJ in connection with its review of the transactions contemplated hereby
under the HSR Act or (v) any disclosures by a Principal Stockholder to its
Representatives or other equityholders; provided that, in any such event, a
Principal Stockholder shall be responsible for any breach of the terms hereof by
any of its Representatives or other equityholder to whom or to which such
confidential or proprietary information was disclosed by such Principal
Stockholder; and provided further that, disclosure by any Principal Stockholder
to any of its Representatives or other equityholders of the general monetary and
structural terms of the transactions contemplated hereby or the disclosure
generally that the transactions contemplated hereby have been consummated shall
not constitute a breach of this Section 6.8.
6.9 Waivers. The Sellers identified in Section 6.9 of the Disclosure
Schedule hereby irrevocably waive, effective as of the Closing, the rights set
forth in Section 6.9 to the Disclosure Schedule.
6.10 Pre-Closing Deliverables. At least three Business Days before the
Closing Date, the Company shall cause to be prepared and delivered to Buyer (a)
the Payoff Letters, (b) a final invoice and wire transfer instructions from each
payee of any portion of the Transaction Expenses, and (c) a final invoice of all
expenses constituting Reimbursement Expenses. Each of the Payoff Letters
provided pursuant to this Section 6.10 shall separately
43
specify all amounts attributable to principal, accrued interest and Termination
Fees, if any, and shall include an undertaking by such party (which shall,
subject to receipt of the amounts set forth in such letter, be unconditional) to
discharge on the Closing Date any liens, security interests, mortgages,
restrictions and encumbrances securing such indebtedness. Each of the Payoff
Letters shall also include an undertaking to return marked "Cancelled" any notes
or other instruments evidencing such indebtedness (or, in the alternative, to
provide affidavits of loss reasonably satisfactory to Buyer).
6.11 Supplement to Disclosure Schedule. If pursuant to Section 6.1(f) the
Company or the Sellers' Representative advise Buyer at any time after the date
hereof and prior to the date that is five days prior to the Closing Date, that
by reason of a condition or event that arises after the date hereof, any
representation or warranty in this Agreement has been rendered untrue or
inaccurate, or would be rendered inaccurate as of the Closing, the Company or
the Sellers' Representative, as applicable, shall supplement the affected
Section of the Disclosure Schedule to reflect such condition or event. If the
delivery of such supplemented or amended Section of the Disclosure Schedule
pursuant to this Section 6.11 is acknowledged by the Company or the Sellers'
Representative, as applicable, to constitute a failure to satisfy the condition
to Buyer's obligations to consummate the Closing set forth in Section 12.1(b),
unless such failure is reasonably curable by the Company or the Sellers and
prior to Closing is actually cured, and if Buyer determines to waive the
condition set forth in Section 12.1(b) hereof after the delivery of such
supplement or amended Section of the Disclosure Schedule, then the Company's or
the Sellers', as applicable, representations or warranties, shall be deemed
modified, amended and supplemented by such amended or supplemented Schedule, and
following such waiver shall not, with respect to such matters, be the basis of
any liability or indemnification claim against the Company, the Sellers or any
of their respective Affiliates, as applicable, and shall not be the basis for a
termination of this Agreement by Buyer under Section 12.1 or Section 13 hereof.
6.12 Preparation of Financial Statements. Between the date hereof and the
Closing Date, the Company and the Sellers shall cooperate, and the Company shall
use its commercially reasonable efforts to cause its Representatives, including
Deloitte & Touche LLP and its subsidiaries (collectively, "D&T"), to cooperate,
with Buyer and Guarantor in connection with the preparation of certain financial
statements of the Company and its Subsidiaries as requested by Buyer. All
out-of-pocket fees and expenses reasonably incurred by the Company, the Sellers
and the Company's Representatives pursuant to this Section 6.12 shall be paid or
promptly reimbursed by Buyer to the Sellers prior to or at the Closing. Neither
any Seller nor the Company shall be obligated pursuant to this Section 6.12 to
disrupt in any significant manner its operations or conduct of business in
providing such cooperation, and any such cooperation shall be provided during
customary business hours and upon reasonable notice. None of any Seller, the
Company or any of their respective Representatives shall be obligated to assist
Buyer or Guarantor pursuant to this Section 6.12 to the extent such assistance
would interfere in the Sellers' and the Company's ability to satisfy their
respective obligations to use commercially reasonable efforts to consummate the
transactions contemplated hereby, as required pursuant to Section 9.1, or could
otherwise be reasonably expected to result in the Sellers or the Company not
being able to satisfy a condition to the Closing set forth in Section 12.1.
44
SECTION 7. ADDITIONAL COVENANTS OF THE PRINCIPAL STOCKHOLDERS
7.1 Records. On the Closing Date, Sellers shall deliver or cause to be
delivered to Buyer all material agreements, documents, books, records and files
relating to the business and operations of the Company and its Subsidiaries
(collectively, "Records"), if any, in the possession of Sellers to the extent
not then in the possession of the Company and its Subsidiaries, subject to the
following exceptions:
(a) Buyer recognizes that certain Records may contain incidental
information relating to the Company and its Subsidiaries or may relate primarily
to a Seller or an Affiliate of such Seller (other than the Company and the
Subsidiaries) and that Sellers may retain such Records and shall provide copies
of the relevant portions thereof to Buyer; and
(b) Sellers may retain (i) all Records prepared by Sellers or their
Representatives in connection with the transactions contemplated by this
Agreement, including analyses relating to the Company and its Subsidiaries and
(ii) copies of all materials received by any Related Controlling Party that is a
director of the Company as of the date hereof in connection with such Person's
acting in such capacity.
7.2 Non-Solicitation.
(a) From and after the date hereof and until the 12 month anniversary of
the Closing, neither (i) any JPM General Partner nor (ii) any Principal
Stockholder or (iii) any Affiliate of any JPM General Partner or Principal
Stockholder in which any JPM General Partner or one or more Principal
Stockholders, individually or together with any other JPM General Partner,
Principal Stockholder or any of their Affiliates, own equity interests
(including securities convertible into or exchangeable for such equity
interests) in an amount sufficient to permit such Persons collectively to elect
a majority of the board of directors (or comparable governing body) of such
Affiliate (a "Controlled Portfolio Company") shall, without the prior written
approval of Buyer, directly or indirectly (including through their
Representatives), solicit for employment or shall hire (as an employee,
consultant or otherwise) (i) any individual listed in Section 8.4 of the
Disclosure Schedule or (ii) any group of employees of the Company or any
Subsidiary that would constitute a significant portion of the workforce of such
entity; provided, however, that the foregoing restriction on solicitation shall
not prohibit a general solicitation (such as an advertisement) not specifically
directed to employees of the Company or its Subsidiaries.
(b) Each Principal Stockholder and Buyer agree that, in the event of a
breach of the non-solicitation covenant contained in this Agreement, the damage
or imminent damage to the value and the goodwill of the Company and its
Subsidiaries shall be inestimable and that therefore any remedy at Law or in
damages would be inadequate. Accordingly, the parties agree that following prior
written notice to the Principal Stockholders, Buyer shall (without the necessity
of posting any bond or other security), in addition to Damages incurred by
reason of any such breach, be entitled to injunctive relief, including specific
performance, with respect to any such breach in any court of competent
jurisdiction against such Principal Stockholders. Each Principal Stockholder
shall be liable
45
for any breach of this Section 7.2 by any Controlled Portfolio Company. The
duration of the restrictions set forth in this Section 7.2 shall be extended by
a period of time equal to the number of days, if any, during which a Principal
Stockholder or Controlled Portfolio Company is in violation of this covenant.
7.3 Waivers. Each Principal Stockholder hereby irrevocably waives all
rights that it may have under the agreements set forth in Section 7.3 of the
Disclosure Schedule; provided, however, that the Principal Stockholders do not
waive, and this provision shall not be construed as the Principal Stockholders
waiving, any rights that any such Principal Stockholder may have under the
Management Agreement to be reimbursed for any expenses actually incurred by them
(such amount not to exceed $20,000) (the "Reimbursement Expenses") to the extent
identified to Buyer and paid at Closing pursuant to Section 2.2(b)(iii)(B).
7.4 Release. Following the Closing, Sellers' Representative shall use its
commercially reasonable efforts, at its expense (except as provided herein), to
obtain prior to the 15 month anniversary of the Closing, a full and complete
release, in form and substance reasonably satisfactory to Buyer (the "T-I
Release"), of all liabilities and obligations of the Company, of any nature
whatsoever, pursuant to that certain Stock Purchase Agreement dated as of May
31, 1997 between Temple-Inland Mortgage Corporation (together with its
Affiliates, "Temple Inland"), KMC Management Company, Marathon Fund Limited
Partnership II, Chase Manhattan Capital, L.P. and Chase Venture Capital
Associates, L.P. (the "Temple Inland Agreement"). Buyer and the Company shall
cooperate, as reasonably requested by the Sellers' Representative, in obtaining
the T-I Release, including in the manner contemplated by Section 14.5(e). Buyer
and the Company hereby grant the Sellers' Representative with full power of
attorney to act on behalf of the Company in connection with obtaining the T-I
Release. Upon delivery to Buyer of the T-I Release, Buyer shall (i) pay to the
Sellers' Representative $600,000 by wire transfer in immediately available funds
to an account specified by the Sellers' Representative in writing and (ii)
deliver to the Sellers' Representative or its nominee all of the shares of GHR
Investment Corp. currently owned by it (the "GHR Investment Stock"), together
with appropriate stock powers or other instruments of transfer (without any
representations or warranties, other than that following the Closing the Company
has not assigned or transferred any right therein). During the period from
Closing until the date on which the GHR Investment Stock has been duly
transferred to the Sellers' Representative in accordance with this Section 7.4,
(a) none of the Company, Buyer or Guarantor shall, without the prior written
consent of the Sellers' Representative, (i) sell, transfer, assign or otherwise
dispose of or alienate any of the GHR Investment Stock or, to the extent the
Company or Guarantor has the power to control the actions of GHR Investment
Corp. by virtue of its ownership of the GHR Investment Stock, permit GHR
Investment Corp. to sell, transfer, assign or otherwise dispose of or alienate
any of the shares of stock of GHR Systems, Inc. held by GHR Investment Corp.
(the "GHR Systems Stock"), (ii) create any Encumbrance on any of the GHR
Investment Stock or GHR Systems Stock (except for any Encumbrance that exists as
of the date of this Agreement), (b) Buyer shall promptly provide to the Sellers'
Representative written notice of any matter in which the Company may be entitled
to vote the GHR Investment Stock or direct the vote of the GHR Systems Stock and
shall direct the Company to vote the GHR Investment Stock or direct the vote of
the GHR
46
Systems Stock with respect to such matter as directed by the Sellers'
Representative to Buyer in writing, and (c) Buyer and the Company shall set
aside (i) any dividends or other distributions (whether cash or otherwise)
derived from the Company's ownership of the GHR Investment Stock, including any
dividends or other distributions (whether cash or otherwise) on the GHR Systems
Stock to which the Company may be entitled by virtue of its ownership of the GHR
Investment Stock, (ii) any amounts received by the Company upon the sale,
disposition, conversion or exchange of the GHR Investment Stock or GHR Systems
Stock, which amounts shall be delivered to the Sellers' Representative upon
transfer of the GHR Investment Stock in accordance with this Section 7.4, in
each case, net of any taxes payable by the Company or Buyer in connection with
such transactions.
SECTION 8. COVENANTS OF BUYER AND GUARANTOR
8.1 Confidential Information.
(a) Each of Guarantor and Buyer acknowledges and agrees that from the date
hereof until Closing, neither it nor any of its Affiliates shall use for any
purpose, other than in connection with the transactions contemplated hereby, or
shall disclose, any confidential or proprietary information of the Company or
any Subsidiary to any Person (other than its Representatives) without the prior
written consent of the Sellers' Representative; provided, however, that the
foregoing restriction shall not apply to (i) any information which is or becomes
publicly known through no fault of Buyer or Guarantor or which is lawfully
obtained from a third party that is not bound by a contractual, legal or other
confidentiality obligation to the Company, (ii) any disclosure required by
applicable Law, any final order or judgment of a Governmental Body, any rule or
regulation of Nasdaq or another securities exchange or in connection with the
enforcement of Buyer's or Guarantor's rights under any Buyer Transaction
Document, or (iii) any disclosures required or requested by the FTC or DOJ in
connection with its review of the transactions contemplated hereby under the HSR
Act. Buyer and Guarantor shall use reasonable commercial methods to ensure their
Representatives comply with the undertakings in this Section 8.1; provided that,
in any event, Buyer and Guarantor shall be responsible for any breach of the
terms hereof by any of their Representatives.
(b) Each of Buyer and Guarantor acknowledges and agrees that on and after
the date hereof, until the 18 month anniversary of the Closing, neither it nor
any of its Affiliates shall, other than in connection with the transactions
contemplated hereby, use for any purpose or disclose to any Person (other than
its Representatives) any confidential information of or relating to any Seller
without the prior written consent of such Seller; provided, however, that the
foregoing restriction shall not apply (i) to any information which is or becomes
publicly known through no fault of Buyer or Guarantor or which is lawfully
obtained from a third party that is not bound by a contractual, legal or
confidentiality obligation to such Seller, (ii) to any disclosure required by
Law, any final order or judgment of a Governmental Body, any rule or regulation
of Nasdaq or another securities exchange or in connection with the enforcement
of Buyer's or Guarantor's rights under any Transaction Document, (iii) to any
disclosures required or requested by the FTC or DOJ in connection with its
review of the transactions contemplated hereby under the HSR Act or (iv) to any
47
information that is required to be disclosed by Buyer, Guarantor, the Company or
any of its Subsidiaries in connection with the employment of such Seller after
Closing, with respect to confidential information of any Seller that remains an
employee of the Company or any of its Subsidiaries after the Closing, for so
long as such Seller remains an employee.
8.2 Governmental Authorizations. As promptly as practicable after the date
of this Agreement, each of Buyer and Guarantor shall use its best efforts to (i)
obtain (and cooperate with the other parties hereto in obtaining) all
Governmental Authorizations necessary for the consummation of the transactions
contemplated by the Transaction Documents and (ii) make (and cooperate with the
other parties hereto in making) all filings required to be made by Buyer
pursuant to applicable Laws in order to consummate the transactions contemplated
by the Transaction Documents. This Section 8.2 shall not apply to filings and
Governmental Authorizations to be made under the HSR Act, which are addressed
solely in Section 9.4, or Consents that are not Governmental Authorizations,
which are addressed solely in Section 9.2.
8.3 Notice of Breach; Failure to Satisfy Closing Condition. From the date
hereof until the Closing, Buyer and Guarantor shall promptly advise the Sellers'
Representative and the Company upon obtaining Knowledge of (a) any threat or
commencement of any dispute, claim, action, suit, proceeding, arbitration or
investigation by, against or affecting Buyer, Guarantor or any of their
respective Affiliates or any of their properties, operations, assets or
prospects, which would have a Buyer Material Adverse Effect (b) the existence of
any fact or condition that would constitute a breach of any of Buyer's or
Guarantor's representations or warranties contained herein, (c) the occurrence
of any breach of any covenant of Buyer or Guarantor in this Agreement or (d) the
occurrence of any event that would make the satisfaction of the conditions in
Section 12.2 impossible or unlikely.
8.4 Non-Solicitation.
(a) Prior to Closing, none of Buyer, Guarantor or any of their respective
Affiliates shall, without the prior written approval of the Sellers'
Representative, directly or indirectly (including through their
Representatives), hire (as an employee, consultant or otherwise) (i) any
individual set forth on Section 8.4 of the Disclosure Schedule or (ii) any group
of employees of the Company or any Subsidiary that would constitute a
significant portion of the workforce of such entity.
(b) If this Agreement is terminated pursuant to Section 13, each of Buyer
and Guarantor agree that, prior to the 12 month anniversary of the date of such
termination, neither Buyer nor Guarantor nor any of their respective Affiliates,
without the prior written approval of the Sellers' Representative, directly or
indirectly (including through their Representatives), shall solicit for
employment or shall hire (as an employee, consultant or otherwise) (i) any
individual set forth on Section 8.4 of the Disclosure Schedule or (ii) any group
of employees of the Company or any Subsidiary that would constitute a
significant portion of the workforce of such entity; provided, however, that the
foregoing restriction on solicitation shall not prohibit a general solicitation
(such as an advertisement) not specifically directed to employees of the Company
or its Subsidiaries.
48
(c) Each of Buyer and Guarantor agree that in the event of a breach of
Sections 8.4(a) or (b), the damage or imminent damage to the value and the
goodwill of the Company and its Subsidiaries shall be inestimable and that
therefore any remedy at Law or in damages would be inadequate. Accordingly, the
parties agree that following prior written notice to Buyer, the Sellers shall
(without the necessity of posting any bond or other security), in addition to
Damages incurred by reason of any such breach, be entitled to injunctive relief,
including specific performance, with respect to any such breach in any court of
competent jurisdiction against Buyer, Guarantor or any of their respective
Affiliates. Each of Buyer and Guarantor shall be liable for any breach of this
Section 8.4 by its respective Affiliates. The duration of the restrictions set
forth in this Section 8.4 shall be extended by a period of time equal to the
number of days, if any, during which either Buyer or Guarantor is in violation
of this covenant.
8.5 Directors' and Officers' Indemnification.
(a) For a period of five years commencing on the Closing Date, the Company
and its Subsidiaries shall maintain officers' and directors' liability insurance
covering the Persons who, immediately prior to the Closing Date, were covered by
the Company's and its Subsidiaries' officers' and directors' liability insurance
policies with respect to actions and omissions occurring prior to and on the
Closing Date, on terms which in the aggregate are no less favorable to such
Persons than the terms of such current insurance in effect for the Company and
its Subsidiaries as of the date hereof.
(b) For a period of five years after the Closing, Buyer and Guarantor shall
cause the Company to indemnify, defend, and hold harmless each of the current
officers of the Company and any Subsidiary and each of the current directors of
the Company and any Subsidiary that are not Affiliates of any Principal
Stockholder against all liabilities, expenses (including reasonable attorneys'
fees), and amounts paid or to be paid in settlement in connection with any
threatened, pending or contemplated action or proceeding to which any such
officer or director was or is a party or witness, or is threatened to be made a
party or a witness, by reason of the fact that, prior to the Closing Date, such
person was a director or officer of the Company or a Subsidiary. Notwithstanding
any other provision of this Agreement, no person shall be entitled to
indemnification under this Section 8.5(b): (i) if the claim, obligation, or
liability with respect to which indemnity is sought shall have been determined
by a court of competent jurisdiction to have arisen out of or been based upon
conduct by such person that is fraudulent, dishonest, or constitutes gross
negligence or breach of such person's fiduciary obligations to the Company; (ii)
in respect of any action or proceeding brought or commenced by such person,
other than mandatory counterclaims and affirmative defenses; (iii) in respect of
any action brought to enforce rights or obligations under this Agreement or any
Transaction Document; or (iv) if a court of competent jurisdiction shall
determine, by a final judgment or decree, that such indemnity is prohibited
under applicable Law.
SECTION 9. ADDITIONAL COVENANTS OF BUYER, THE COMPANY AND SELLERS
49
9.1 Further Assurances. Subject to the terms and conditions of this
Agreement and the other Transaction Documents, Buyer and Guarantor shall each
use its best efforts, and each other party hereto shall use its commercially
reasonable efforts, to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary or desirable under applicable Laws to
consummate the transactions contemplated by the Transaction Documents (including
Buyer and Guarantor using their respective best efforts and each other party
hereto using his, her or its commercially reasonable efforts) to cause the
Closing to occur on or prior to June 15, 2005) and shall, from time to time and
without further consideration, either before or after the Closing, execute such
further instruments and take such other actions as any other party hereto shall
reasonably request in order to fulfill its obligations under any of the
Transaction Documents, to effectuate the purposes of the Transaction Documents
and to provide for the orderly and efficient transition of the ownership of the
Company to Buyer. For purposes of this Section 9.1, the term "commercially
reasonable efforts" shall not include any obligation of any party to expend
money (other than filing fees, amounts contemplated by the Transaction Documents
and other nominal amounts), commence or participate in any material claim,
action, proceeding or litigation or grant any material accommodation (financial
or otherwise) to any Person.
9.2 Certain Filings and Consents. Each party to this Agreement shall
cooperate with one another (i) in determining whether any action by or in
respect of, or filing with, any Governmental Body is required, or whether any
Consents are required to be obtained from parties to any material contracts, in
connection with the consummation of the transactions contemplated by the
Transaction Documents, and (ii) subject to the terms and conditions of this
Agreement and the other Transaction Documents, in taking such actions or making
any such filings, furnishing information required in connection therewith and
seeking timely to obtain any such Consents. Until the Closing, the Sellers and
the Company shall, and the Company shall cause its Subsidiaries to, use their
commercially reasonable efforts to obtain, upon the request of Buyer, any such
Consents; provided, however, that such cooperation shall not include any
requirement of the Company, any Subsidiary or any Seller at any time to expend
money (other than filing fees and other nominal amounts), commence or
participate in any material claim, action, proceeding or litigation or offer or
grant any material accommodation (financial or otherwise) to any third Person.
Notwithstanding the foregoing, however, Buyer acknowledges that certain Consents
with respect to the transactions contemplated by this Agreement and the other
Transaction Documents may be required from parties to certain agreements or
Governmental Authorizations identified on the Disclosure Schedule hereto and
that such Consents have not been and/or will not be obtained prior to the
Closing. Buyer agrees that no Seller or the Company shall have any liability
whatsoever to Buyer or Guarantor arising out of or relating to the failure of
the Company to obtain any such Consents that may be required in connection with
the transactions contemplated by the Transaction Documents or because of the
termination of any agreement or Governmental Authorizations as a result of the
failure to obtain a Consent thereunder. Buyer and Guarantor further agree that
no representation, warranty or covenant of Sellers or the Company contained
herein shall be breached or deemed breached, and no condition shall be deemed
not satisfied, as a result of (i) the failure to obtain any Consent or
Government Authorization, (ii) any such termination or (iii) any claim, action
or proceeding commenced or threatened by or on behalf of any Person arising out
of or relating to the failure to obtain any such Consent or
50
any such termination. Notwithstanding the foregoing, the parties hereto agree
that this Section 9.2 shall not relate to filings to be made and Consents to be
received under the HSR Act, which are addressed solely in Section 9.4.
9.3 Public Announcements. Each party hereto agrees that no public release
or announcement concerning the transactions contemplated by this Agreement and
the other Transaction Documents shall be issued by any such party without the
prior consent of the other parties hereto (which consent shall not be
unreasonably withheld or delayed), except (a) press releases by Guarantor, the
Principal Stockholders and the Company regarding the execution of this
Agreement, (b) an announcement to employees of the Company and the Subsidiaries
regarding the execution of this Agreement, (c) a public release by Guarantor,
the Principal Stockholders or the Company regarding the Closing and (d) any
other release that may be required by applicable Laws or the rules or
regulations of Nasdaq (including on Form 8-K of the Securities and Exchange
Commission), provided however, in the case of each of (a)-(d) above, the party
required to make the release or announcement shall, to the extent practicable,
allow the other parties reasonable time to comment on such release or
announcement in advance of such issuance. Any communication by the Principal
Stockholders solely to their respective partners shall not be considered a
"public release or announcement" for purposes of this Section 9.3.
Notwithstanding the foregoing, no provision of this Agreement shall relieve
Buyer or any of its Representatives or Affiliates from any of their obligations
under Section 8.1 or any Seller or any of his, her or its Representatives or
Affiliates (limited in the case of the Principal Stockholders to the Controlled
Portfolio Companies and JPM General Partners) from any of their obligations
under Section 6.8.
9.4 HSR Filings. The Principal Stockholders and Buyer shall promptly
provide any supplemental information required or requested by the United States
Federal Trade Commission (the "FTC") and the United States Department of Justice
(the "DOJ") in connection with the notification and report form filed with the
FTC and the DOJ by Buyer and the Principal Stockholders on May 12, 2005 pursuant
to the HSR Act. Each of Buyer and the Sellers shall furnish to the other party
such necessary information and reasonable assistance as the other party may
request in connection with its preparation of any supplemental information which
is necessary or desirable under the HSR Act. The Sellers' Representative and
Buyer shall keep each other apprised of the status of any communications with,
and any inquiries or requests for additional information from, the FTC and the
DOJ and shall comply promptly with any such inquiry or request. Each of the
Principal Stockholders and Buyer shall request early termination under the HSR
Act within two Business Days after the public announcement of the execution and
delivery of this Agreement. Buyer shall use its best efforts, and each of the
Principal Stockholders shall use their commercially reasonable efforts, to
obtain expiration or termination of the applicable waiting period under the HSR
Act with respect to the transactions contemplated hereby. Subject to the terms
and conditions of this Agreement, Buyer will use its best efforts, and the
Principal Stockholders will use their commercially reasonable efforts, to take,
or cause to be taken, all other actions and to do, or cause to be done, all
other things which are, in each case, necessary or desirable under all
applicable Laws to consummate the transactions contemplated hereby. For purposes
of this Section 9.4, the term "commercially reasonable efforts" shall not
include any obligation of the Company or any Subsidiary prior to the Closing, or
any Seller at any time, to expend money
51
(other than nominal amounts and filing fees), sell, dispose or otherwise
transfer any assets, commence or participate in any claim, action, proceeding or
litigation, or grant any material accommodation (financial or otherwise) to any
Person.
9.5 Release. (a) Except as provided herein, from and after the Closing, (i)
the Company irrevocably releases, and the Company will cause each Subsidiary to
release, the Sellers' Representative and each Principal Stockholder, (ii) each
Principal Stockholder irrevocably releases the Company and each Subsidiary and
(iii) each Seller irrevocably releases each other Seller (other than with
respect to such rights and obligations as are set forth in the Contribution
Agreement signed on the date hereof by each of the Sellers, the General Escrow
Agreement, the Tax Escrow Agreement and the Temple Inland Escrow Agreement),
including, in each case, their respective officers, directors, equityholders,
partners, Affiliates, and Representatives (collectively, the "Released Parties")
from any and all actions, causes of action, suits, debts, dues, sums of money,
accounts, reckoning, bonds, bills, liabilities, specialties, covenants,
contracts, controversies, agreements, promises, variances, trespasses, damages,
judgments, extents, executions, claims and demands (each, a "Released Claim"),
and agree not to bring or threaten to bring or otherwise join in any Released
Claim against a Released Party, relating to, arising out of or in connection
with any facts or circumstances relating to (x) the Sellers in relation to their
investment in the Company, or (y) the Company or any of its Subsidiaries which
existed on or prior to the Closing Date. From and after the Closing, Sellers
shall have no rights, hereunder or otherwise, to indemnification or contribution
from the Company or any Subsidiary with respect to any matters occurring prior
to Closing, including any inaccuracy in or breach of any representation or
warranty of the Company made in or pursuant to this Agreement or any Transaction
Document, or any breach or nonfulfillment of any pre-Closing covenant or
pre-Closing obligation of the Company contained in this Agreement or any
Transaction Document, and Sellers hereby irrevocably release the Company and
each Subsidiary from any liability for any such claim. Notwithstanding the
foregoing, the terms of this Section 9.5 shall in no way alter, affect or amend
(i) the rights or claims of any Seller against any Person under this Agreement
or any other Transaction Document (including rights to indemnification pursuant
to Section 14), (ii) the rights of the Principal Stockholders to be reimbursed
for the Reimbursement Expenses (to the extent provided herein), the obligations
of the parties hereto to comply with their respective agreements, covenants and
other obligations under this Agreement and the other Transaction Documents or
the obligation of the Company to repay the ▇.▇. ▇▇▇▇▇▇ Notes in full at Closing,
(iii) the rights of any Seller under any contract or other agreement entered
into after the date hereof in accordance with the terms hereof or pursuant to
any employee arrangement to which such Seller is subject or a party or in
relation to any Seller's status as an employee of the Company or a Subsidiary,
(iv) the rights of any Controlled Portfolio Company under any agreement,
contract or understanding, whether entered into prior to the date hereof, on or
after the date hereof and prior to Closing in accordance with the terms hereof
or after the Closing.
(b) Each Seller hereby waives all rights to receive any notice required to
be delivered pursuant to the Stockholders' Agreement, the Crosstown Traders,
Inc. 2002 Stock Option Plan or any other agreement to which such Seller is a
party in connection with the
52
execution and delivery of any Transaction Document and the transactions
contemplated by any Transaction Document.
(c) Each Seller hereby acknowledges and agrees that, effective upon the
Closing, the Registration Rights Agreement, the Stockholders' Agreement, the
Consulting Agreement, the Management Agreement and each other agreement set
forth in Section 9.5(c) to the Disclosure Schedule to which such Seller is a
party shall be terminated and be of no further force and effect, and each such
Seller further acknowledges and agrees that such Seller is not entitled to any
payment from the Company or any other Person in connection with such
termination. Notwithstanding the foregoing, the terms of this Section 9.5(c)
shall not affect any other rights of the Sellers to receive their respective
portions of the Aggregate Cash Proceeds, the Specified Employees Bonus Amount or
the Accrued Dividend Amount at Closing or any other rights of the Sellers
pursuant to the terms of the Transaction Documents.
(d) Each Seller that is selling Options to Buyer pursuant to the terms of
this Agreement hereby acknowledges and agrees that the payment received by such
Seller hereunder shall be deemed to be full payment for the cancellation of any
vested and unvested options awarded to such Seller under the Crosstown Traders,
Inc. 2002 Stock Option Plan, and each such Seller hereby acknowledges and agrees
that such Seller is not, and shall not be, entitled to any further payment or
consideration with respect to any vested and unvested options granted to such
Seller pursuant to the Crosstown Traders, Inc. 2002 Stock Option Plan except as
expressly set forth in this Agreement.
SECTION 10. TAX MATTERS
10.1 Tax Representations of the Company. The Company hereby represents and
warrants to Buyer as of the date of this Agreement and as of the Closing Date
that, except as set forth in Section 10.1 of the Disclosure Schedule attached
hereto:
(a) All Tax Returns, or extensions relating thereto, required to be filed
by or with respect to the Company and the Subsidiaries have been timely and
properly filed, and all such Tax Returns are correct and complete.
(b) All liabilities for Taxes of the Company and the Subsidiaries
(including any Tax liabilities relating to other consolidated group members
under Treasury Regulation Section 1.1502-6) with respect to taxable periods
ending on or before, and the portion of any interim period up to, the Closing
Date have been fully and timely paid (to the extent due and payable) or, in the
case of Taxes not yet due, fully provided for on the Balance Sheet or the
Interim Balance Sheet or, in the case of Taxes accruing after the date of the
Unaudited Financial Statements, on the books and records of the Company in
accordance with past practice. There are no Encumbrances relating to Taxes,
other than Permitted Encumbrances of the type set forth in clause (i) of the
definition thereof, existing or, to the Knowledge of the Company, threatened or
pending with respect to any asset of the Company or any Subsidiary.
53
(c) Except as described in Section 10.1(c) of the Disclosure Schedule, no
issues have been raised in writing with the Company or any Subsidiary (or are
currently pending) by the Internal Revenue Service ("IRS") or any other taxing
authority in connection with any of the Tax Returns referred to in Section
10.1(a) (including any assertion by a taxing authority that a required Tax
Return was not filed), and no waivers of statutes of limitations have been given
with respect to any such Tax Returns or with respect to any Taxes.
(d) Section 10.1(d) of the Disclosure Schedule identifies all Tax Returns
of or with respect to the Company and the Subsidiaries that are currently under
examination by the IRS or by other taxing authorities. There are no unpaid
deficiencies asserted or assessments made by any taxing authority against the
Company or any Subsidiary.
(e) Section 10.1(e) of the Disclosure Schedule lists all elections made by
the Company or by the Subsidiaries for federal or state income or franchise Tax
purposes that are currently applicable. Neither the Company nor any Subsidiary
(i) has agreed to or is currently required to make any adjustment under Section
481(a) of the Code by reason of a change in accounting method, (ii) has made any
transfer of any intangible property with respect to which Code Section 367(d) or
482 will require the recognition of additional income after the Closing Date or
(iii) owns stock in a "passive foreign investment company" within the meaning of
Code Section 1296(a). The books and records of the Company and the Subsidiaries
are sufficient to prove the correctness of all Tax Returns for open Tax years
and to determine and to prove the adjusted Tax basis for federal income Tax
purposes of each asset of the Company and the Subsidiaries.
(f) Except as set forth in Section 10.1(f) of the Disclosure Schedule,
neither the Company nor any Subsidiary (i) is a party to any agreement, with any
Person other than the Company and the Subsidiaries, providing for the allocation
or sharing of Taxes, or (ii) has been included in any "consolidated," "unitary"
or "combined" Tax Return with any such Person since October 30, 2002.
(g) The representations made by the Company in this Section 10.1 are the
only representations and warranties made in this Agreement with respect to Taxes
and Tax matters and are made only with respect to Tax periods that end on or
prior to the Closing Date and the pre-Closing Date portion of any Tax period
that includes the Closing Date and ends after such date. The Sellers and the
Company make no representations or warranties regarding (i) any Tax positions
taken on or after the Closing Date and (ii) other than with respect to Section
10.1(h), whether the Company or any of its Subsidiaries has incurred any
liability to make or possibly make any payments, either alone or in conjunction
with other payments that are non-deductible under, or would otherwise constitute
a "parachute payment" within the meaning of Section 280G of the Code (or any
corresponding state, local or foreign income Tax law) or the availability,
validity or value of any deductions taken on or after the Closing Date, and
shall not be responsible under this Agreement or otherwise for any such matters,
any payments made in connection therewith or the consequences thereof.
54
(h) No Principal Stockholder has agreed or entered into an understanding
with, or otherwise promised (in writing or otherwise), any employee of the
Company or its Subsidiaries that such Principal Stockholder will vote to approve
(as described in Treas. Reg. Section 1.280G-1, Q/A-7) any amount payable to such
employee that would otherwise constitute an "excess parachute payment" (as
defined in Section 280G of the Code).
10.2 Tax Covenants of Sellers and the Company.
(a) The Sellers shall not be required to indemnify for breach of a
representation set forth in Section 10.1 or Taxes referred to in Section 14.2(d)
or (e) until the relevant amount becomes due and payable to the relevant taxing
authority or the relevant Tax claim by a taxing authority is otherwise resolved.
Notwithstanding the foregoing, Sellers may agree to pay any Tax asserted to be
owed as a consequence of a breach of such a representation in advance of such
date.
(b) Neither Buyer, the Company nor any Subsidiary shall amend any Tax
Return filed on or before the Closing Date, or take a position on a Tax Return
after the Closing Date, that is incompatible, in either case, with a position on
a Tax Return filed on or before the Closing Date in the sense that the position
taken on such later filing would require an amendment to, or otherwise imply the
incorrectness of, such earlier filing. Neither Buyer, the Company nor any
Subsidiary shall amend any Tax Return filed on or before the Closing Date
without the written consent of the Sellers' Representative, except for the
purpose of claiming a refund resulting from a carryback from a period ending
after the Closing Date.
(c) Refunds of Taxes of the Company and the Subsidiaries with respect to
taxable years ended on or before the Closing Date, including as a refund of an
amount paid under the last sentence of Section 10.2(a), aside from any refunds
resulting from carrybacks from periods ending after the Closing Date, shall be
for Sellers' account and, if received by Buyer, the Company or the Subsidiaries,
shall be paid over to the Sellers' Representative within 10 Business Days of
receipt thereof.
(d) The Sellers shall provide to Buyer at Closing (i) a certification of
non-foreign status, in accordance with Treas. Reg. Section 1.1445-2(b)(2), with
respect to each Seller that is not a foreign person for United States federal
income tax purposes and (ii) a certification issued by the Company in accordance
with Treas. Reg. Section 1.1445-2(c), that stock in the Company is not a United
States real property interest.
SECTION 11. EMPLOYEE BENEFITS
11.1 Comparability of Benefits. For the period commencing on the Closing
Date and ending on December 31, 2005, Buyer shall, or shall cause its Affiliates
(including the Company or its Subsidiaries), to provide employee benefits to
each employee of the Company and its Subsidiaries as of the Closing Date that
are no less favorable in the aggregate than the employee benefits such employees
were receiving from the Company and/or its Subsidiaries as of the Closing Date.
55
11.2 Welfare Plans. To the extent that Buyer causes any of the medical,
dental or health plans sponsored or maintained by the Company or its
Subsidiaries to be replaced before December 31, 2005, Buyer shall, or shall
cause its Affiliates, (i) to waive all pre-existing conditions, exclusions and
waiting periods with respect to participation and coverage requirements
applicable to those employees of the Company and its Subsidiaries as of the
Closing Date and their eligible dependents, other than conditions, exclusions or
waiting periods that are already in effect with respect to such employees and
their eligible dependents under any group health plan maintained for such
employees and their eligible dependents and that have not been satisfied as of
the date such plan is replaced, and (ii) if coverage under the Company or
Subsidiary welfare plan is ended on a date other than the last day of the plan
year, provide each such employee and his or her eligible dependents with credit
for any deductibles and co-payments applied or made with respect to each such
employee or his or her eligible dependents under an Employee Benefit Plan (to
the same extent that such credit was given under such Employee Benefit Plan
prior to the date such plan was replaced) in satisfying any applicable
deductible or out-of-pocket requirements under any such plans in which such
individuals may be eligible to participate after the Closing Date; provided,
however, that the foregoing shall not apply to the extent it would result in
duplication of benefits.
11.3 Severance. Until December 31, 2005, Buyer shall, or shall cause its
Affiliates (including the Company and its Subsidiaries) to maintain a severance
pay plan, practice, program or arrangement for the benefit of those employees of
the Company and its Subsidiaries as of the Closing Date that is no less
favorable than the program identified in Section 11.3 of the Disclosure
Schedule.
11.4 Service Credit. Buyer shall give those employees of the Company and
its Subsidiaries as of the Closing Date full credit for purposes of eligibility
and vesting under the Employee Benefit Plans maintained or sponsored by Buyer or
any of its Affiliates (including the Company and its Subsidiaries) in which such
employees participate after the Closing for services rendered by such employees
to the Company or its Subsidiaries prior to the Closing, except to the extent
such credit would result in an unintended duplication of benefits.
SECTION 12. CLOSING CONDITIONS
12.1 Conditions to Obligation of Buyer. The obligation of Buyer to purchase
the Securities and to take the other actions required to be taken by Buyer at
Closing is subject to the satisfaction or waiver by Buyer at the Closing of each
of the following conditions:
(a) Performance. Each Seller (individually or through the Sellers'
Representative) shall have (i) executed and delivered to Buyer this Agreement
and the other Seller Transaction Documents, (ii) delivered to Buyer certificates
representing all of the Shares owned by such Seller, duly endorsed for transfer
or with stock powers affixed thereto executed in blank in proper form for
transfer, and (iii) delivered to Buyer each other document and agreement and
taken such other actions as are required pursuant to Section 2.2.
56
(b) Representations and Warranties. The representations and warranties of
Sellers and the Company contained in this Agreement and the other Seller
Transaction Documents shall have been true and correct in all material respects
as of the date hereof (except to the extent such representations and warranties
expressly relate to an earlier date, in which case they shall have been true and
correct in all material respects as of such earlier date), and, except for such
breaches of representations and warranties which, individually or in the
aggregate, would not have and, would not reasonably be expected to have, a
Material Adverse Effect, shall be true and correct as of the Closing Date, as if
made at and as of such time (except to the extent such representations and
warranties expressly relate to an earlier date, in which case they shall have
been true and correct in all material respects as of such earlier date);
provided, however, the representations and warranties of the Sellers in Section
3.2 and Section 3.4, and the representations and warranties of the Company in
Section 4.2 and Section 4.4, shall each be true and correct in all respects as
of the date of this Agreement and as of the Closing Date.
(c) Performance of Covenants. The Company, each Principal Stockholder and
all other Sellers shall have performed or complied in all material respects with
all of the agreements and covenants required by this Agreement to be performed
or complied with by them before or at the Closing.
(d) Approvals. The waiting period under the HSR Act shall have expired or
been terminated. All other Governmental Authorizations necessary for the
consummation of the transactions contemplated hereby or under any other
Transaction Document shall have been obtained or received and all other filings
with any Governmental Body necessary for the consummation of the transactions
contemplated hereby or under any other Transaction Document shall have been
made.
(e) Legal Matters. No temporary, preliminary, permanent or final order,
injunction or judgment of a court of competent jurisdiction or other
Governmental Body shall have been issued or rendered that would prevent or
render unlawful the consummation of the transactions contemplated by this
Agreement or any other Transaction Document. There shall be no pending suit,
action, proceeding (including arbitration) or investigation brought or
threatened by any Person (other than Buyer or an Affiliate of Buyer), wherein an
unfavorable judgment in connection therewith would prevent or render unlawful
the consummation of the transactions contemplated by this Agreement or any other
Transaction Document.
(f) Payoff Letters. All amounts outstanding under the Senior Credit
Facility, the Subordinated Credit Facility and the ▇.▇. ▇▇▇▇▇▇ Notes shall have
been repaid in full by the Company, and Buyer shall have received an executed
copy of each Payoff Letter. Buyer shall have received a release of liens, in
form and substance reasonably satisfactory to Buyer, from each holder of
indebtedness specified in the Payoff Letters, evidencing receipt by such holder
of indebtedness of payment from the Company pursuant to Section 2.2(b)(iii).
57
(g) Resignation of Directors. Buyer shall have received resignations from
all of the directors of the Company and each Subsidiary.
(h) Intentionally Omitted.
(i) Opinion of Counsel. Buyer shall have received the opinions of O'Melveny
& ▇▇▇▇▇ LLP, counsel for the Principal Stockholders organized in Delaware, in
substantially the form attached hereto as Exhibit IV, ▇▇▇▇ ▇▇▇▇▇▇, General
Counsel to the Company, in substantially the form attached hereto as Exhibit V
and Walkers, counsel for the Principal Stockholders organized in the Cayman
Islands, in substantially the forms attached hereto as Exhibit VI and Exhibit
VII, in each case, dated as of the Closing.
(j) Tax Certifications. Buyer shall have received each certification
described in Section 10.2(d).
12.2 Conditions to Obligation of Sellers. The obligation of each Seller to
sell the Securities and to take the other actions required to be taken by such
Seller (or by the Sellers' Representative on behalf of the Sellers) at Closing
is subject to the satisfaction or waiver by the Sellers' Representative at the
Closing of each of the following conditions:
(a) Performance. Each of Buyer and Guarantor shall have (i) executed and
delivered to the Sellers' Representative this Agreement and the other Buyer
Transaction Documents, (ii) made the payments required to have been made by
Buyer pursuant to Section 2.2 and (iii) delivered to the Sellers' Representative
the other documents and agreements and taken such other actions as are required
in Section 2.2.
(b) Representations and Warranties. The representations and warranties of
Buyer and Guarantor contained in this Agreement and in the other Buyer
Transaction Documents shall have been true and correct in all material respects
as of the date hereof (except to the extent such representations and warranties
expressly relate to an earlier date, in which case they shall have been true and
correct in all material respects as of such earlier date) and, except for such
breaches of representations and warranties which, individually or in the
aggregate, would not have and, would not reasonably be expected to have, a Buyer
Material Adverse Effect, shall be true and correct as of the Closing Date
(except to the extent such representations and warranties expressly relate to an
earlier date, in which case they shall have been true and correct in all
material respects as of such earlier date); provided, however, the
representations and warranties of Buyer and Guarantor in Section 5.2, shall be
true and correct in all respects as of the date of this Agreement and as of the
Closing Date.
(c) Performance of Covenants. Buyer and Guarantor shall have performed or
complied in all material respects with all of the agreements and covenants
required by this Agreement and each other Buyer Transaction Document to be
performed or complied with by them before or at the Closing.
(d) Approvals. The waiting period under the HSR Act shall have expired or
been terminated. All other Governmental Authorizations necessary for the
58
consummation of the transactions contemplated hereby or under any other
Transaction Document shall have been obtained or received and all other filings
with any Governmental Body necessary for the consummation of the transactions
contemplated hereby or under any other Transaction Document shall have been
made.
(e) Legal Matters. No temporary, preliminary, permanent or final order,
injunction or judgment of a court of competent jurisdiction or other
Governmental Body shall have been issued or rendered that would prevent or
render unlawful the consummation of the transactions contemplated by this
Agreement or any other Transaction Document. There shall be no pending suit,
action, proceeding (including arbitration) or investigation brought or
threatened by any Person (other than by the Company, any Seller or any Related
Controlling Party or Related Party), wherein an unfavorable judgment in
connection therewith would prevent or render unlawful the consummation of the
transactions contemplated by this Agreement or any other Transaction Document.
(f) Opinion of Counsel. Sellers shall have received an opinion of Drinker
▇▇▇▇▇▇ & ▇▇▇▇▇ LLP, counsel for Buyer and Guarantor, dated as of the Closing, in
substantially the form attached as Exhibit VIII hereto, dated as of the closing.
12.3 Frustration of Closing Conditions. None of the parties hereto may rely
on the failure of any condition set forth in this Section 12 to be satisfied if
such failure was caused by Buyer or Guarantor's failure to act in good faith or
to use its best efforts to cause the Closing to occur or the Company or any
Seller's failure to act in good faith or to use its commercially reasonable
efforts to cause the Closing to occur, in each case as required hereunder.
SECTION 13. TERMINATION AND ABANDONMENT
13.1 Termination. This Agreement may be terminated and the transactions
contemplated herein may be abandoned at any time before the Closing:
(a) by Buyer or the Sellers' Representative, if the Closing has not
occurred by June 30, 2005; provided, however, that (i) in the event the
Disclosure Schedule is updated pursuant to Section 6.11 at any time on or after
June 16, 2005 and prior to June 30, 2005, such date shall automatically be
extended to the date that is 15 days following the date on which such update was
delivered to Buyer and (ii) neither Buyer nor Sellers' Representative may
terminate this Agreement pursuant to this clause if the Closing shall not have
been consummated by June 30, 2005 (or such later date as may be established
pursuant to clause (i)) by reason of the failure of such party (including for
purposes of this Section 13.1(a), in the case of Buyer, Guarantor, and in the
case of Sellers' Representative, the Company and each Seller) to perform in all
material respects any of its or their respective covenants or agreements
contained in this Agreement;
(b) by the mutual consent of Buyer and the Sellers' Representative;
(c) by Buyer, upon a breach of any pre-Closing covenant or agreement on the
part of the Sellers or the Company set forth in this Agreement, or if any
59
representation or warranty of the Sellers or the Company herein shall be or
become untrue in any case such that the conditions set forth in Section 12.1
would not be satisfied (any such breach or occurrence, a "Terminating Seller
Breach"); provided, however, that, if such Terminating Seller Breach is curable
by the Sellers or the Company through the exercise of their commercially
reasonable efforts, and the Sellers or the Company, as applicable, continue to
exercise such commercially reasonable efforts, Buyer shall not be permitted to
terminate this Agreement under this Section 13.1(c);
(d) by Sellers' Representative, upon a breach of any covenant or agreement
on the part of Buyer or Guarantor set forth in this Agreement, or if any
representation or warranty of Buyer or Guarantor herein shall be or become
untrue in any case such that the conditions set forth in Section 12.2 would not
be satisfied (any such breach or occurrence, a "Terminating Buyer Breach");
provided, however, that, if such Terminating Buyer Breach is curable by Buyer or
Guarantor through the exercise of their best efforts, and Buyer or Guarantor, as
applicable, continue to exercise such best efforts, the Sellers' Representative
shall not be permitted to terminate this Agreement under this Section 13.1(d);
or
(e) by either Buyer or Sellers' Representative, if any court of competent
jurisdiction or other Governmental Body shall issue any final non-appealable
judgment, order or decree or take such other action permanently enjoining,
restraining or otherwise prohibiting the consummation of the transactions
contemplated hereby or under any other Transaction Document.
13.2 Procedure for Termination. A party terminating this Agreement pursuant
to Section 13.1 shall give written notice thereof to each other party hereto,
whereupon this Agreement shall terminate and the transactions contemplated
hereby shall be abandoned without further action by any party. If this Agreement
is terminated as permitted by this Section 13, such termination shall be without
liability of any party (or any of its Affiliates, Representatives or
Representatives of its Affiliates) to any other party to this Agreement;
provided, however, that if such termination is by Buyer pursuant to Section
13.1(a) or (c) as a result of a material breach by the Company or any Seller of
any representation, warranty or covenant contained in this Agreement, or if such
termination is by Sellers' Representative pursuant to Section 13.1(a) or (d) as
a result of a material breach by Buyer or Guarantor of any representation,
warranty or covenant contained in this Agreement, nothing herein shall affect
the non-breaching party's right to (i) Damages on account of such other party's
breach or (ii) to compel specific performance of the other parties hereto of
their obligations under this Agreement. Except to the extent appropriate in
connection with enforcing or preserving any rights or obligations it may have
arising out of such termination, in the event that this Agreement and the
transactions contemplated hereby are terminated pursuant to Section 13.1, this
Agreement shall terminate, each party hereto shall return or destroy all
documents and other materials received from the other parties hereto relating to
this Agreement and the other Transaction Documents and the transactions
contemplated hereby and thereby, and all confidential information received by
each party hereto with respect to any other party hereto shall be treated in
accordance with the terms of Section 8.1 (confidentiality); provided, however,
that the provisions set forth in Section 8.1
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(confidentiality), Section 8.4 (Non-Solicitation), Section 9.3 (public
announcements), Section 15 (Sellers' Representative), Section 16 (Miscellaneous)
and this Section 13.2 shall survive any such termination.
SECTION 14. INDEMNIFICATION
14.1 Indemnification with respect to Sellers. Subject to the terms and
conditions of this Section 14, each Seller shall indemnify and hold Buyer and
its Affiliates (including, after the Closing, the Company) and each of their
respective officers, directors and shareholders (other than any shareholders of
Guarantor) (each such Person, a "Buyer Indemnified Party") harmless against and
in respect of any and all losses, costs, expenses, claims, damages, obligations
and liabilities, including reasonable attorneys fees and disbursements
("Damages"), which such Buyer Indemnified Party has suffered, incurred or become
subject to arising out of, based upon or otherwise in respect of (i) any breach
of any representation or warranty of such Seller made in Section 3 and (ii) any
breach of any covenant or obligation of such Seller contained in this Agreement.
14.2 Indemnification with respect to the Company. Subject to the terms and
conditions of this Section 14, each Seller hereby severally (on a pro rata basis
based on such Seller's Ownership Percentage), and not jointly and severally,
shall indemnify and hold each Buyer Indemnified Party harmless against and in
respect of any and all Damages which such Buyer Indemnified Party has suffered,
incurred or become subject to arising out of, based upon or otherwise in respect
of:
(a) any breach of any representation or warranty of the Company made in
Section 4 or Section 10;
(b) any breach of any covenant or obligation of the Company contained in
this Agreement that is to be performed prior to the Closing;
(c) any amounts owed by the Company or any Subsidiary to Temple Inland or
otherwise related to or arising out of the Temple Inland Agreement;
(d) a final determination by the IRS that is upheld by a final,
non-appealable judgment of a court of competent jurisdiction or for which the
time to appeal has expired or a settlement with the IRS in accordance with
Section 10.2(a) of a disallowance by the IRS of all or any part of the
$22,876,964 net operating loss deduction claimed by the Company and the
Subsidiaries on their consolidated federal income tax return (Form 1120) for the
taxable year ended February 1, 2003;
(e) any Taxes payable in respect of a matter listed in Sections 10.1 of the
Disclosure Schedule, other than Taxes for which the Company or any Subsidiary is
entitled to indemnification by Federated Department Stores, Inc. and Taxes to
the extent specific reserves therefor have been established on the Balance Sheet
by the Company;
(f) the release of ammonia at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇
that occurred on or about March 21, 2005; and
61
(g) any fees of any broker or finder employed by the Company, the Sellers,
or any of their respective Affiliates in connection with the transactions
contemplated hereby.
Notwithstanding anything to the contrary in this Section 14.2, the Sellers shall
not be required to indemnify with respect to Tax liabilities for which Federated
Department Stores, Inc. is fully responsible.
14.3 Indemnification by Buyer. Except as otherwise set forth in this
Agreement, Buyer shall, and after the Closing, the Company shall, indemnify and
hold Sellers, their Affiliates, and their respective officers, directors,
members, partners and equityholders (each such Person, a "Seller Indemnified
Party") harmless against and in respect of any and all Damages which such Seller
Indemnified Party has suffered, incurred or become subject to arising out of,
based upon or otherwise in respect of:
(a) any breach of any representation or warranty of Buyer or Guarantor made
in Section 5;
(b) any breach of any covenant or obligation of Buyer or Guarantor
contained in this Agreement;
(c) any breach of any covenant or obligation of the Company contained in
this Agreement that is to be performed after the Closing;
(d) from and after the Closing, the operations of the business of the
Company and its Subsidiaries, except to the extent the foregoing gives rise to
an indemnifiable claim pursuant to Section 14.1 or Section 14.2;
(e) any fees of any broker or finder employed by Buyer, Guarantor or any of
their respective Affiliates in connection with the transactions contemplated
hereby; and
(f) any liabilities incurred in respect of the WARN Act or similar statutes
as a consequence of the transactions contemplated hereby; provided, however,
Buyer shall have no obligation to indemnify any Seller Indemnified Party
pursuant to this Section 14.3(f) if the Company's representations in Section
4.18(c)(ii) or (iii) are untrue at Closing.
14.4 Inter-Party Claims. In order for a Buyer Indemnified Party or a Seller
Indemnified Party (each, an "Indemnified Party") to be entitled to any
indemnification pursuant to this Section 14, the Indemnified Party shall, within
20 days after receiving actual notice of the facts or circumstances forming the
basis of such claim, notify the other party or parties from whom such
indemnification is sought (the "Indemnifying Party") in writing specifying in
reasonable detail the basis of such claim; provided, however, that failure to
give such notification shall not affect the indemnification provided hereunder
except to the extent the Indemnifying Party shall have been actually prejudiced
as a result of such failure (except that the Indemnifying Party shall not be
liable for any fees and expenses incurred during the period in which the
Indemnified Party failed to give such notice in accordance with this
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Section 14.4). The Indemnified Party shall thereupon give the Indemnifying Party
reasonable access to the books, records and assets of the Indemnified Party
which evidence or support such claim or the act, omission or occurrence giving
rise to such claim and the right, upon prior notice during normal business
hours, to interview any Representative of the Indemnified Party related thereto.
14.5 Third Party Claims.
(a) In order for an Indemnified Party to be entitled to any indemnification
provided for under this Agreement in respect of, arising out of or involving a
claim made by any Person (other than an Indemnifying Party) against the
Indemnified Party, other than a claim pursuant to Section 14.2(c), (d) or (e) (a
"Third Party Claim"), such Indemnified Party shall, within 20 days after
receiving actual notice of the facts or circumstances forming the basis of such
claim, notify the Indemnifying Party in writing of the Third Party Claim (which
notice shall specify in reasonable detail the events giving rise to such Third
Party Claim); provided, however, that failure to give such notification shall
not affect the indemnification provided hereunder except to the extent the
Indemnifying Party shall have been actually prejudiced as a result of such
failure (except that the Indemnifying Party shall not be liable for any fees and
expenses incurred during the period in which the Indemnified Party failed to
give such notice in accordance with this Section 14.5). Thereafter, the
Indemnified Party shall deliver to the Indemnifying Party, promptly following
the Indemnified Party's receipt thereof, copies of all notices and documents
(including court papers) received by the Indemnified Party relating to the Third
Party Claim.
(b) Except in the case of a Tax Contest (which is covered, instead, by
Section 14.5(d)), or a Temple Inland Matter (which is covered, instead, by
Section 14.5(e)), the Indemnifying Party may assume the defense of any Third
Party Claim with counsel selected by the Indemnifying Party (provided such
counsel is reasonably acceptable to the Indemnified Party and which shall be
deemed acceptable if the Indemnified Party does not otherwise notify the
Indemnifying Party within 20 days after having been notified of the identity
thereof) by providing notice to the Indemnified Party within 20 days after
receiving written notice from the Indemnified Party pursuant to Section 14.5(a).
If the Indemnifying Party elects to assume the defense of a Third Party Claim,
the Indemnified Party shall have the right to participate in the defense thereof
and to employ counsel, at its own expense, separate from the counsel employed by
the Indemnifying Party, it being understood and agreed that the Indemnifying
Party shall control such defense, and the Indemnifying Party shall not be liable
to the Indemnified Party for any legal or other expenses incurred by the
Indemnified Party in connection with the defense thereof. If the Indemnifying
Party fails to assume the defense of a Third Party Claim by providing notice
pursuant to this Section 14.5(b), the Indemnifying Party shall be liable for the
fees and expenses of one outside counsel (and not any fees and expenses
allocated to any internal counsel) employed by the Indemnified Party (which
outside counsel shall be reasonably acceptable to the Indemnifying Party and
shall be deemed acceptable if the Indemnifying Party does not otherwise notify
the Indemnified Party within 20 days after having been notified of the identity
thereof) for any period during which the Indemnifying Party has not assumed the
defense thereof (other than any period in which the Indemnified Party shall have
failed to provide notice of such Third
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Party Claim as required above). If the Indemnifying Party elects to defend or
prosecute a Third Party Claim, all the Indemnified Parties shall cooperate in
the defense or prosecution thereof. Such cooperation shall include the retention
and (upon the Indemnifying Party's request) the provision to the Indemnifying
Party of records and information that are reasonably relevant to such Third
Party Claim, and making employees and Representatives available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. Provided that the Indemnifying Party acknowledges
that it is obligated to indemnify the Indemnifying Party with respect to a Third
Party Claim, the Indemnified Party shall not admit any liability with respect
to, or settle, compromise or discharge, such Third Party Claim without the
Indemnifying Party's prior written consent (which consent shall not be
unreasonably withheld). If the Indemnifying Party assumes the defense of a Third
Party Claim, the Indemnified Party shall agree to any settlement, compromise or
discharge of such Third Party Claim that the Indemnifying Party may recommend
and that by its terms obligates the Indemnifying Party to pay the full amount of
the liability in connection with such Third Party Claim, which shall release the
Indemnified Party and all of its Affiliates completely in connection with such
Third Party Claim and which does not impose any continuing material obligations
or restrictions on any Indemnified Party.
(c) The Sellers' Representative shall act on behalf of the Sellers for the
purposes of this Section 14.5 for any Third Party Claim or other claim which is
the subject of indemnification hereunder.
(d) Notwithstanding the foregoing, in the event Buyer or the Company
receives any written claim or notification which involves the assertion of any
claim, or the commencement of any audit, suit, action or proceeding relating to
a matter that is the subject of the (i) representations or covenants set forth
in Section 10 or (ii) indemnification set forth in Section 14.2(d) or (e) (in
either case, a "Tax Contest"), Buyer shall, within 10 days of receiving notice
of such claim, notify Sellers' Representative in writing of such Tax Contest and
shall give Sellers' Representative such information with respect to the Tax
Contest as Sellers' Representative may reasonably request. Buyer and the
Sellers' Representative agree that (x) the Sellers' Representative shall, at its
own expense, continue to participate in and control the Tax Contest for which
the Sellers are providing indemnification pursuant to Section 14.2(d), and (y)
the Sellers' Representative, at its own expense, may participate in and, upon
notice to Buyer or the Company that Sellers agree to be liable for, without any
contribution from Buyer or the Company, all amounts owed as a result of any
other Tax Contest, assume control over the defense of any matter at issue in
such other Tax Contest. In connection with any Tax Contest with respect to which
the Sellers' Representative currently controls or elects to assume control, the
Sellers' Representative shall, except with respect to items indirectly affecting
Taxes of the Company and the Subsidiaries for which Sellers have not agreed to
be liable and subject to Buyer's right to consent contained in the eighth
sentence of this Section 14.5(d), have the exclusive power to contest, settle,
prosecute, defend and make decisions and elections in respect of such Tax
Contest, and determine the manner in which the prosecution or defense is
conducted, the contest or settlement occurs, or the decisions or elections are
made, in each case without the participation of Buyer or the Company. At no time
shall Buyer or the Company settle or otherwise compromise, prosecute or defend
without the prior written consent of the Sellers' Representative, any Tax
Contest of
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which Sellers' Representative assumes or continues control in accordance with
this Section 14.5(d) and any settlement or compromise made by Buyer or the
Company with respect to such Tax Contest shall not be effective and shall be
null and void with respect to the Sellers. Sellers' Representative may
discharge, at any time, Sellers' indemnity obligations with respect to a Tax
Contest by paying Buyer or the Company the amount of the applicable Damages,
calculated as of the date of such payment. Each of the parties hereto and their
respective Representatives shall cooperate with each other party hereto and
their respective Representatives, as reasonably requested thereby, in the
prosecution, defense, settlement or contest of any Tax Contest. Buyer and the
Company agree to promptly provide the Sellers' Representative with all notices
and other correspondence and information received by Buyer or the Company with
respect to any Tax Contest. Buyer and the Company hereby grant any Tax
practitioner retained by the Sellers' Representative, in connection with any Tax
Contest of which Sellers' Representative assumes or continues control in
accordance with this Section 14.5(d), with power of attorney to act on behalf of
Buyer and the Company in respect of such Tax Contest; provided, however, that
the terms of any settlement or agreement, to the extent such settlement or
agreement provides that Buyer or the Company take or refrain from taking any
actions or make any payments for which Buyer is not fully indemnified pursuant
to Section 14.2, shall be on terms and conditions reasonably acceptable to Buyer
and, if applicable, the Company. Buyer hereby agrees to provide, or cause the
Company to provide, to the Sellers' Representative a separate power of attorney
granting the Sellers' Representative the power to control a particular Tax
Contest in the manner set forth in this Agreement in form and substance
reasonably satisfactory to Buyer and the Sellers' Representative.
(e) In the event Buyer or the Company receives any written claim or
notification which involves the assertion of any claim, or the commencement of
any suit, action or proceeding relating to the matter that is the subject of the
indemnification set forth in Section 14.2(c) (a "Temple Inland Matter"), Buyer
shall, within 10 days of receiving notice of such claim, notify Sellers'
Representative in writing of such Temple Inland Matter and shall provide the
Sellers' Representative with such information with respect to such Temple Inland
Matter as Sellers' Representative may reasonably request. Buyer and the Sellers'
Representative agree that the Sellers' Representative shall, at its own expense,
exclusively control any Temple Inland Matter. Sellers' Representative shall
have, subject to Buyer's right to consent contained in the seventh sentence of
this Section 14.5(e), the exclusive power to contest, settle, prosecute, defend,
and make all decisions and elections in respect of any Temple Inland Matter and
determine the manner in which the prosecution or defense is conducted, the
contest or settlement occurs, or the decisions or election are made, in each
case without the participation of Buyer or the Company. At no time shall Buyer
or the Company settle or otherwise compromise, prosecute or defend, without the
prior written consent of the Sellers' Representative, any Temple Inland Matter,
and any settlement or compromise made by Buyer or the Company with respect to
such Temple Inland Matter shall not be effective and shall be null and void with
respect to the Sellers. Each of the parties hereto and their respective
Representatives shall cooperate with the Sellers' Representative and its
Representatives, as reasonably requested thereby, in the prosecution, defense,
settlement or contest of any Temple Inland Matter. Buyer and the Company agree
to promptly provide the Sellers' Representative with all notices and other
correspondence and information received by
65
Buyer or the Company with respect to any Temple Inland Matter. Buyer and the
Company hereby grant the Sellers' Representative with full power of attorney to
act on behalf of Buyer and the Company in respect of such Temple Inland Matter;
provided, however, that the terms of any such settlement or agreement, to the
extent such settlement or agreement provides that Buyer, the Company or any
Subsidiary take or refrain from taking any actions or make any payments for
which Buyer is not fully indemnified pursuant to Section 14.2 shall be on terms
and conditions reasonably acceptable to Buyer. Buyer hereby agrees to provide,
or cause the Company to provide, to the Sellers' Representative a separate power
of attorney granting the Sellers' Representative the power to control a
particular Temple Inland Matter in the manner set forth in this Agreement in
form and substance reasonably satisfactory to Buyer and the Sellers'
Representative.
14.6 Limitations and Requirements.
From and after the Closing:
(a) Sellers shall have no obligation to indemnify the Buyer Indemnified
Parties against Damages (i) pursuant to Section 14.1(i) or 14.2(a) arising out
of or based upon any breach of any representation or warranty made in or
pursuant to this Agreement (A) unless the Damages related to any such breach
(including multiple conditions or events that arise out of or are based upon
such breach) are greater than $10,000 (the "Individual Threshold") and (B)
unless and until the aggregate of all such Damages (other than Damages that fail
to exceed the Individual Threshold) suffered or incurred by all such Buyer
Indemnified Parties exceeds $1,000,000, in which event, the Buyer Indemnified
Parties shall be entitled to indemnification in the full amount of such excess;
provided, however, that the above limitations shall not be applicable to any
claim for Damages based upon a breach of any representation or warranty made in
Sections 3.2, 3.4, 4.2, 4.4, or 10.1 hereof.
(b) In the absence of fraud, Sellers shall not be obligated to indemnify
the Buyer Indemnified Parties against Damages pursuant to:
(i) Section 14.1(i) or Section 14.2(a), (e) or (f) to the extent that
payments thereof by or on behalf of Sellers to the Buyer Indemnified
Parties pursuant to the terms of this Agreement exceed the General Escrow
Amount; provided, however, that the limitations set forth in this Section
14.6(b)(i) shall not apply to any breach of any representation or warranty
made in Sections 3.2, 3.4, 4.2, or 4.4 hereof, the limitations with respect
to which are set forth in clause (ii) of this Section 14.6(b);
(ii) Section 14.1(i) or 14.2(a) if such claim is based on a breach of
any representation or warranty made in Sections 3.2, 3.4, 4.2, or 4.4, or
pursuant to Section 14.1(ii), or Sections 14.2(b) or (g), in each case to
the extent that payments thereof by or on behalf of Sellers to the Buyer
Indemnified Parties pursuant to the terms of this Agreement exceed the
Purchase Price;
66
(iii) Section 14.2(d), to the extent that payments thereof by or on
behalf of Sellers to the Buyer Indemnified Parties pursuant to the terms of
this Agreement exceed the Tax Escrow Amount; and
(iv) Section 14.2(c), to the extent that payments thereof by or on
behalf of Sellers to the Buyer Indemnified Parties pursuant to the terms of
this Agreement exceed the T-I Escrow Amount;
provided, however, that the aggregate of all amounts paid to the Buyer
Indemnified Parties pursuant to claims made under Section 14.1 and Section
14.2 shall not exceed the Purchase Price.
(c) Except as may otherwise expressly be provided in this Agreement or any
Transaction Document, no claim for indemnification pursuant to this Section 14
may or shall be made unless such claim arises and written notice pursuant to
Section 14.4 or Section 14.5, as applicable, is delivered to the Indemnifying
Party in accordance with Section 14.8.
(d) Notwithstanding anything herein to the contrary, except as set forth in
Section 14.1, no Seller shall in any way be liable for any amount in excess of
such Seller's Ownership Percentage of any Damages and the aggregate liability of
any Seller under this Section 14 for any Damages, as further limited under this
Section 14.6(d), shall in no event exceed the aggregate amount of the portion of
the Aggregate Cash Proceeds, the Specified Employees Bonus Amount and the
Accrued Dividend Amount paid to the Sellers' Representative, the Escrow Agent
and the Reserve Account on behalf of such Seller pursuant to this Agreement.
Notwithstanding anything in this Agreement to the contrary, no Seller shall be
liable or responsible, directly or indirectly, for any Damages for any breach of
any representation, warranty or covenant made by any other Seller.
Notwithstanding anything contained in this Agreement to the contrary, no Buyer
Indemnified Party shall have any right to indemnification under Section 14.2(a)
with respect to any Damages to the extent specifically accrued for in the
Balance Sheet or the Interim Balance Sheet; provided however, that this
limitation shall not apply to any claim for indemnification pursuant to Section
14.2(b)-(g).
(e) The Sellers and Buyer acknowledge, on their behalf and, in the case of
Buyer, on behalf of the other Buyer Indemnified Parties that, after the Closing,
their sole and exclusive remedy with respect to the subject matter of this
Agreement shall be pursuant to the indemnification provisions set forth in this
Section 14 (other than claims and causes of action based on fraud); provided
that this shall not affect the right of any party to seek or obtain specific
performance or other equitable remedies.
(f) Upon payment in full of any Inter-Party Claim pursuant to Section 14.4
or the payment of any judgment or settlement with respect to a Third Party
Claim, the Indemnifying Party shall be subrogated to the extent of such payment
to the rights of the Indemnified Party against any Person (other than the Buyer
Indemnified Parties) with respect to the subject matter of such Indemnification
Claim or Third Party Claim; provided,
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however, that such Person is not then or projected to be a customer or supplier
of the Company or any of its Subsidiaries. The Indemnified Parties shall assign
or otherwise reasonably cooperate with the Indemnifying Parties to pursue any
claims against, or otherwise recover amounts from, any Person liable or
responsible for any Damages for which indemnification has been received pursuant
to this Agreement.
14.7 Calculation and Mitigation of Damages.
(a) The amount of any Damages for which indemnification is provided under
this Section 14 shall be net of any amounts actually recovered by such
Indemnified Party under insurance policies or other collateral sources with
respect to such Damages. In the event any amounts recovered or recoverable under
insurance policies or other collateral sources are not received before any claim
for indemnification is paid pursuant to this Section 14, then the Buyer
Indemnified Parties shall use reasonable commercial efforts to pursue such
insurance policies or collateral sources, and in the event the Buyer Indemnified
Parties receive any recovery, the amount of such recovery shall be applied
first, to reimburse the Buyer Indemnified Parties for their out-of-pocket
expenses (including reasonable attorney's fees and expenses) expended in
pursuing such recovery, second, to refund any payments made by the Sellers which
would not have been so paid had such recovery been obtained prior to such
payment, and third, any excess to the Buyer Indemnified Parties.
(b) Notwithstanding any provision of this Agreement to the contrary,
"Damages" shall not include any consequential, incidental or indirect damages,
special or punitive damages, including loss of revenue, profits or income,
except to the extent paid to a third party. In valuing a "Damage," no adjustment
shall be made as a result of any multiplier of the Company's or any other
Person's earnings before interest, Tax, depreciation or amortization (or any
similar valuation metric), or any other premium over fair market, book or
historical value which may have been paid by Buyer for the securities whether or
not such multiple, increase factor or other premium had been used by Buyer at
the time of, or in connection with, calculating or preparing its bid, its
proposed purchase price or its final purchase price for the Company and its
Subsidiaries. For purposes of clarification, the amount of actual Damages to
which an Indemnified Party may be entitled to recover pursuant to this Section
14 in respect of a breach by an Indemnifying Party, as determined by a court of
competent jurisdiction, of a representation or warranty that is qualified by
materiality, shall not be reduced solely due to the fact that such
representation or warranty was so qualified; provided, however, that neither the
terms of this sentence nor any other provision hereunder shall have the effect
of changing, amending or modifying any representation or warranty contained in
this Agreement (or any other term or provision contained in this Agreement) for
any purpose hereunder, including but not limited to whether any breach of any
such representation or warranty qualified by materiality hereunder is subject to
the limitations or thresholds set forth in this Section 14; and provided
further, however, that the parties hereto acknowledge and agree that any
representation or warranty hereunder that is qualified by materiality shall
remain so qualified by materiality when determining whether any such
representation or warranty was breached.
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(c) Each party shall use reasonable commercial efforts to mitigate its
Damages (including, to the extent consistent with sound business judgment,
incurring costs only to the minimum extent necessary to remedy the breach which
gives rise to the Damages) upon becoming aware of any event which would
reasonably be expected to, or does, give rise thereto.
(d) The amount of Damages with respect to which an Indemnified Party is to
be indemnified pursuant to this Section 14 shall initially be determined without
regard to any income Tax benefit, and the indemnification payment shall be made
on such basis. To the extent, however, that the Indemnified Party recognizes a
net income Tax benefit with respect to any Damages for which payment is made
hereunder, after taking into account the income Tax effect, if any, of such
indemnification payment (such net income Tax benefit is referred to hereafter as
a "Net Tax Benefit"), such Indemnified Party shall pay to the Indemnifying Party
the amount of such Net Tax Benefit (but not, in any event, in an amount in
excess of the indemnification payment actually received from such Indemnifying
Party with respect to such Damages) at such time or times as and to the extent
that such Indemnified Party or any Affiliate of such Indemnified Party actually
realizes such Tax Benefit through a refund or a reduction in income Tax
otherwise payable, calculated by computing the amount of income Taxes before and
after taking into account any Tax items attributable to such Damage and the
indemnification payment with respect to such Damage; provided, however, that the
Indemnified Party may, if it reasonably determines based on an opinion of
counsel (other than internal counsel) that there is a substantial risk of a
disallowance of a Net Tax Benefit claimed, elect, on notice to the Sellers'
Representative or Buyer, as the case may be, to withhold payment to the
Indemnifying Party of such Net Tax Benefit until such time as the relevant
taxable year has been closed or the uncertainty regarding such Net Tax Benefit
otherwise resolved, during which time such Net Tax Benefit shall bear interest
at the rate applicable to federal income tax overpayments, except that no such
deferral of payment shall be made in the event that the Indemnifying Party shall
deliver to the Indemnifying Party a "will" opinion of counsel reasonably
satisfactory to the Indemnified Party to the effect that such Net Tax Benefit
will be sustained.
14.8 Termination of Indemnification.
The obligations of Sellers to indemnify and hold harmless any Buyer
Indemnified Party under this Section 14 shall terminate (i) when the applicable
representation or warranty terminates pursuant to Section 16.1, with respect to
claims made pursuant to Section 14.1(i) and Section 14.2(a), (ii) 15 days after
the date on which the obligations of the Sellers under a particular covenant or
agreement contained in this Agreement are terminated or expire pursuant to the
terms of such covenant or agreement, with respect to claims made under Section
14.1(ii), (iii) 90 days after the Closing Date, with respect to claims made
under Section 14.2(b), (iv) 15 days after the date on which Buyer receives the
fully executed and effective T-I Release (in form and substance reasonably
satisfactory to Buyer), with respect to claims made under Section 14.2(c), (v)
with respect to any claims made pursuant to Section 14.2(d), 15 days after the
earliest to occur of (A) the 15 month anniversary of the date hereof, (B) if any
claim or assessment is made giving rise to a claim for indemnification pursuant
to Section 14.2(d), the date on which any such claim or assessment is paid or
otherwise is
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satisfied in full, (C) the date on which the Company receives a letter from the
IRS National Office (or otherwise from a Washington, D.C. office of the Internal
Revenue Service or the Department of the Treasury or a person who works in any
such office) that states that the tax return for the Company's 2002 fiscal year
is acceptable in the form filed (or words to substantially the same effect) or
otherwise expressly states that there are no issues concerning the matters set
forth in Section 14.2(d), or (D) in the event that the Company receives a letter
from an IRS field supervisor, director of field operations or other person of
similar, or more senior, supervisory title or authority (or a letter that is
signed on behalf of the IRS, which has greater force than a field agent's
letter) or the IRS Service Center or Regional Office located in Ogden, Utah (or
otherwise from a person who works in any such office), in either case that is
authorized by a person more senior in status than the director of field
operations at the Tucson, Arizona office, and that states that such return is
acceptable in the form filed (or words to substantially the same effect) or
otherwise expressly states that there are no issues concerning the matters set
forth in Section 14.2(d), the later of (x) the date of such letter or (y) the
six month anniversary of the date hereof, (vi) 15 days after the earlier of (A)
the 15 month anniversary of the Closing Date and (B) the later of (x) the date
final settlement of the claim is entered into or (y) the date a final,
non-appealable judgment of a court of competent jurisdiction is made, with
respect to claims made pursuant to Section 14.2(e); and (vii) 15 days after the
15 month anniversary of the Closing Date with respect to claims made pursuant to
Section 14.2(f) or 14.2(g); provided, however, in each case, that such
obligations to indemnify and hold harmless shall not terminate with respect to
any item as to which an Indemnified Party shall have, before the expiration of
the applicable period, previously made a claim by delivering a notice of such
claim pursuant to Section 14.4 or Section 14.5 to the Sellers' Representative.
No Buyer Indemnified Party shall have the right to assert any claim against any
Seller with respect to any matter unless the Buyer Indemnified Party determines
that there is a reasonable basis for a bona fide claim for indemnification
hereunder and provides notice thereof pursuant to Section 14.4 or Section 14.5
within the time periods set forth above. Notwithstanding anything to the
contrary contained in this Agreement, the obligations of the Sellers to
indemnify and hold harmless the Buyer Indemnified Parties pursuant to this
Section 14 shall terminate upon the earlier to occur of (i) the consummation of
a sale of (A) greater than fifty-one percent (51%) of the capital stock of (x)
the Company or (y) substantially all of the Company's Subsidiaries (whether by
merger or otherwise) or (B) a sale of all or substantially all of the assets of
the Company and its Subsidiaries in one or more related transactions or (ii) the
initial public offering of the capital stock of the Company.
14.9 Escrow Accounts.
(a) Notwithstanding anything herein to the contrary, from and after the
Closing, any indemnification by any Seller for Damages pursuant to Section
14.1(i), Section 14.2(a), (e) or (f) shall, and any indemnification for Damages
pursuant to Section 14.1(ii) or Section 14.2(b) or (g) may, be paid first, to
the extent applicable, from the General Escrow Amount pursuant to the terms of
the General Escrow Agreement, and, only after all of such funds have been paid
to a Buyer Indemnified Party or released and returned to the Sellers and, if
applicable, second, directly by the Sellers.
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(b) Notwithstanding anything herein to the contrary, from and after the
Closing, no Buyer Indemnified Party shall be entitled to Damages in excess of
the Tax Escrow Amount with respect to any claim for indemnification made
pursuant to Section 14.2(d). Buyer further acknowledges that on or prior to the
date on which the Tax Escrow Agreement is terminated, any Damages to which a
Buyer Indemnified Party is entitled pursuant to a claim made pursuant to Section
14.2(d) shall be satisfied solely from the Tax Escrow Amount pursuant to the
terms of the Tax Escrow Agreement, and during such period, no Buyer Indemnified
Party shall be entitled to, and the Buyer Indemnified Parties hereby waive all
rights to, seek Damages directly from any Seller or the Sellers' Representative
in connection with any claim for indemnification made pursuant to Section
14.2(d). Notwithstanding anything herein to the contrary, upon termination of
the Tax Escrow Agreement, any Damages to which a Buyer Indemnified Party is
entitled pursuant to a claim made pursuant to Section 14.2(d) may be sought
directly from the Sellers until termination of the period during which such
claims may be made pursuant to Section 14.8.
(c) Except as provided herein, from and after the Closing, any Damages to
which a Buyer Indemnified Party is entitled pursuant to a claim made pursuant to
Section 14.2(c) shall be satisfied solely from the T-I Escrow Amount pursuant to
the terms of the Temple Inland Escrow Agreement, and no Buyer Indemnified Party
shall be entitled to Damages in excess of the T-I Escrow Amount with respect to
any Claim for indemnification made pursuant to Section 14.2(c). Buyer further
acknowledges and agrees that no Buyer Indemnified Party shall be entitled to,
and the Buyer Indemnified Parties hereby waive all rights to, seek Damages
directly from any Seller or the Sellers' Representative in connection with any
claim for indemnification made pursuant to Section 14.2(c).
SECTION 15. THE SELLERS' REPRESENTATIVE
15.1 The Sellers' Representative.
(a) Each of the Sellers does hereby irrevocably make, constitute and
appoint the Sellers' Representative as his, her or its agent, to act in his or
her or its name, place and stead, as such Seller's attorney-in-fact, to (i)
execute and deliver all documents necessary or desirable to carry out the intent
of this Agreement and the other Transaction Documents (including in the name of,
or on behalf of, such Seller), (ii) make all elections or decisions entered into
in connection with this Agreement and the other Transaction Documents, (iii)
hold such Seller's Securities and transfer such Seller's Securities to Buyer on
the Closing Date, (iv) act on such Seller's behalf in connection with all
obligations and agreements of the Sellers under the Seller Transaction
Documents, (v) amend, waive or other change the terms or conditions of this
Agreement or any other Transaction Document on behalf of such Seller, (vi)
defend, settle and make payments to the Buyer Indemnified Parties on behalf of
such Seller in connection with any claim for indemnification made by any Buyer
Indemnified Party pursuant to Section 14 and to initiate and prosecute any claim
for indemnification made by or on behalf of such Seller pursuant to Section 14,
(vii) receive any payments of the Purchase Price or other amounts due to such
Seller under the Seller Transaction Documents, direct any portion of such
amounts to any escrow account or the Reserve Account and to retain such amounts
in such accounts for so long as Sellers'
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Representative shall determine, (viii) give and receive on behalf of Sellers any
and all notices from or to any Seller or Sellers under the Transaction
Documents, (ix) incorporate corporations, organize partnerships, organize
limited liability companies on behalf of the Sellers and take all actions in
connection therewith (including, but not limiting to, the transfer of any assets
or liabilities of the Company and its Subsidiaries to which the Sellers are
entitled or responsible for satisfying pursuant to the terms of the Transaction
Documents), and (x) otherwise exercise all rights of such Sellers and otherwise
act on behalf of such Seller under the Transaction Documents and in connection
with any of the transactions contemplated by the Transaction Documents, in each
case as if such Seller had personally done such act, and the Sellers'
Representative hereby accepts such appointment. Any proceeds received by the
Sellers' Representative from Buyer or Guarantor on behalf of the Sellers shall
be distributed to the Sellers as promptly as practicable by the Sellers'
Representative, in accordance with the terms and provisions of this Agreement
and the other Transaction Documents. The death, incapacity, dissolution,
liquidation, insolvency or bankruptcy of any Seller shall not terminate such
appointment or the authority and agency of the Sellers' Representative. The
power-of-attorney granted in this Section 15.1 is coupled with an interest and
is irrevocable.
(b) The Sellers' Representative shall be entitled to rely, and shall be
fully protected in relying, upon any statements furnished to it by any Seller,
Buyer, Guarantor, any third Person or any other evidence deemed by the Sellers'
Representative to be reliable, and the Sellers' Representative shall be entitled
to act on the advice of counsel selected by it. The Sellers' Representative
shall be fully justified in failing or refusing to take any action under this
Agreement or any other Transaction Document unless it shall have received such
advice or concurrence of such Sellers as it deems appropriate or it shall have
been expressly jointly and severally indemnified to its satisfaction by the
Sellers appointing it against any and all Damages and other liabilities and
expenses that the Sellers' Representative may incur by reason of taking or
continuing to take any such action.
(c) The Sellers' Representative shall be entitled to retain counsel
acceptable to it and to incur such expenses as the Sellers' Representative deems
to be necessary or appropriate in connection with its performance of its
obligations under this Agreement and the other Transaction Documents, and all
such fees and expenses (including reasonable attorneys' fees and expenses)
incurred by the Sellers' Representative shall be a Transaction Expense or
otherwise shall be jointly and severally borne by each Seller. The Sellers'
Representative shall have the right to deduct any reimbursement amounts payable
to the Sellers' Representative pursuant to this Section 15.1 from any reserve
account established and maintained by the Sellers' Representative in connection
with the transactions contemplated hereby (the "Reserve Account") without any
prior or further approval from the Sellers.
(d) The Sellers hereby agree to jointly and severally indemnify the
Sellers' Representative (in its capacity as such) against, and to hold the
Sellers' Representative (in its capacity as such) harmless from, any and all
Damages and other liabilities and expenses of whatever kind which may at any
time be imposed upon, incurred by or asserted against the Sellers'
Representative in such capacity in any way relating to or
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arising out of its action or failures to take action pursuant to this Agreement
or any other Transaction Document.
(e) ▇.▇. ▇▇▇▇▇▇ Partners (BHCA), L.P. shall be the initial Sellers'
Representative and shall serve as the Sellers' Representative until its
resignation. Upon the resignation of ▇.▇. ▇▇▇▇▇▇ Partners (BHCA), L.P., the
Sellers representing a majority of the aggregate Ownership Percentages of all
Sellers shall select a new Sellers' Representative. Each time a new Sellers'
Representative is appointed pursuant to this Agreement, such Person, as a
condition precedent to the effectiveness of such appointment, shall accept such
position in writing.
(f) The provisions of this Section 15 shall in no way impose any
obligations on Buyer or Guarantor. In particular, notwithstanding any notice
received by Buyer or Guarantor to the contrary, and absent bad faith or willful
misconduct, Buyer (i) shall be fully protected in relying upon and shall be
entitled to rely upon, and shall have no liability to the Sellers with respect
to, actions, decisions and determinations of the Sellers' Representative and
(ii) shall be entitled to assume that all actions, decisions and determinations
of the Sellers' Representative are fully authorized by all of the Sellers.
15.2 No Reliance. The decision of each Seller to sell Securities pursuant
to this Agreement has been made by such Seller independently of any other Seller
and independently of any information, materials, statements or opinions as to
the terms and conditions of any Transaction Document that may have been made or
given by the Sellers' Representative, any other Seller or by any Representative
of the Sellers' Representative, and neither the Sellers' Representative nor any
Seller or any of their respective Representatives shall have any liability to
any other Seller (or any other Person) relating to or arising from any such
information, materials, statements or opinions, except as expressly provided in
a written agreement, if any, between or among the Sellers.
SECTION 16. MISCELLANEOUS
16.1 Survival of Representations and Warranties. The representations and
warranties made by the parties in this Agreement shall survive the consummation
of the transactions herein contemplated but will terminate at, and will have no
further force and effect after, the close of business on the date that is 15
months following the Closing Date; provided, however, that: (i) the
representations and warranties of the Sellers contained in Section 3.2 and
Section 3.4 will survive the Closing indefinitely; (ii) the representations and
warranties of the Company contained in Section 4.2 and Section 4.4 shall survive
the Closing indefinitely and (iii) the representations and warranties of Buyer
and Guarantor contained in Section 5.2 shall survive the Closing indefinitely.
16.2 Costs and Expenses. Except to the extent otherwise expressly provided
herein, all costs and expenses incurred in connection with the Transaction
Documents shall be paid by the party incurring such cost or expense, except that
(i) all Transaction Expenses shall be paid by the Company at or prior to the
Closing (and to the extent not paid, shall be paid by Sellers), (ii) any other
fees and expenses of the Company incurred with respect to the
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transactions contemplated hereby on or prior to the Closing Date shall be paid
by the Company at or prior to the Closing, (iii) all regulatory filing fees and
expenses incurred in connection with the transactions contemplated hereby,
including filing fees to be paid in connection with the HSR Act, shall be paid
one-half by Buyer and one-half by Sellers, (iv) all fees incurred in connection
with obtaining and maintaining the insurance required to be obtained and
maintained by Buyer or the Company after the Closing pursuant to Section 8.5
shall be paid one-half by Buyer and one-half by Sellers on the Closing Date, (v)
any and all transfer, sales, use, documentary and similar Taxes and recording
and filing fees incurred in connection with the transactions contemplated hereby
shall be paid one-half by Buyer and one-half by Sellers on the Closing Date and
(vi) any and all fees incurred by the Sellers, the Company and D&T pursuant to
Section 6.12 shall be paid by Buyer.
16.3 Notices. All notices or other communications permitted or required
under this Agreement shall be in writing and shall be sufficiently given if and
when hand delivered to the persons set forth below or if sent by documented
overnight delivery service or registered or certified mail, postage prepaid,
return receipt requested, or by telegram, telex or telecopy, receipt
acknowledged, addressed as set forth below or to such other Person or Persons
and/or at such other address or addresses as shall be furnished in writing by
any party hereto to the other parties hereto. Any such notice or communication
shall be deemed to have been given as of the date received, in the case of
personal delivery, or on the date shown on the receipt or confirmation therefor
in all other cases.
To Buyer or Guarantor:
Charming Shoppes, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: General Counsel
Fax: ▇▇▇-▇▇▇-▇▇▇▇
With a copy to (which shall not constitute notice):
Drinker ▇▇▇▇▇▇ & ▇▇▇▇▇ LLP
One ▇▇▇▇▇ Square
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: F. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, III, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
To Sellers or Sellers' Representative:
▇.▇. ▇▇▇▇▇▇ Partners (BHCA), L.P.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: Office Notices Clerk
FBO: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
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With a copy to (which shall not constitute notice):
O'Melveny & ▇▇▇▇▇ LLP
Times Square Tower
▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. Nissan
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
16.4 Assignment.
Neither this Agreement nor any of the rights, interests or obligations
hereunder may be assigned, by operation of Law or otherwise, by any party hereto
to any other Person without the prior written consent of Buyer and the Sellers'
Representative, and any such attempted assignment shall be null and void;
provided, however, that (i) Buyer may assign its rights and obligations under
this Agreement in whole or in part to any Affiliates without the prior written
consent of the Sellers (provided that Buyer and Guarantor shall remain primarily
liable hereunder following any such assignment), (ii) any Principal Stockholder
may assign its rights and obligations under this Agreement to any of its
Affiliates without the prior written consent of Buyer (provided that such
Principal Stockholder shall remain primarily liable hereunder) and (iii) the
Company and Buyer may grant a security interest in its rights under this
Agreement and any other Transaction Document to its lenders. Subject to the
foregoing, this Agreement and the rights and obligations set forth herein shall
inure to the benefit of, and be binding upon, the parties hereto, and each of
their respective successors, heirs, and assigns.
16.5 Amendment, Modification and Waiver. Any provision of this Agreement
may be amended or waived if, but only if, such amendment or waiver is in writing
and is signed by Buyer and the Sellers' Representative. Any such amendment,
modification, extension or waiver shall be in writing. The waiver by a party of
any breach of any provision of this Agreement shall not constitute or operate as
a waiver of any other breach of such provision or of any other provision hereof,
nor shall any failure to enforce any provision hereof operate as a waiver of
such provision or of any other provision hereof. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by Law.
16.6 Governing Law. This Agreement is made pursuant to, and shall be
construed and enforced in accordance with, the laws of State of New York (and
the United States federal law, to the extent applicable), irrespective of the
principal place of business, residence or domicile of the parties hereto, and
without giving effect to otherwise applicable principles of conflicts of Law.
75
16.7 Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT TO ANY PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT ENTERED INTO IN
CONNECTION HEREWITH OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY. EACH
PARTY (A) CERTIFIES THAT NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF ANY
CLAIM, ACTION OR PROCEEDING, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT AND THE OTHER AGREEMENTS CONTEMPLATED HEREBY, AS APPLICABLE,
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION
16.7.
16.8 Consent to Jurisdiction. Each party hereto irrevocably submits to the
exclusive jurisdiction of (a) the Supreme Court of the State of New York, New
York County and (b) the United States District Court for the Southern District
of New York, for purposes of any claim, action or proceeding arising out of this
Agreement or any transaction contemplated hereby. Each party hereto agrees to
commence any such claim, action or proceeding only in the United States District
Court for the Southern District of New York or, if such claim, action or
proceeding cannot be brought in such court for jurisdictional reasons, in the
Supreme Court of the State of New York, New York County. Each of the parties
hereby waives, and agrees not to assert in any such dispute, to the fullest
extent permitted by applicable Law, any claim that (a) such party is not
personally subject to the jurisdiction of such courts, (b) such party and such
party's property is immune from any legal process issued by such courts or (c)
any claim, action or proceeding commenced in such courts is brought in an
inconvenient forum. Each party hereto further agrees that service of any
process, summons, notice or document by United States registered mail to such
party's address set forth in Section 16.3 above shall be effective service of
process for any claim, action or proceeding with respect to any matters to which
it has submitted to jurisdiction in this Section 16.8 or otherwise.
16.9 Section Headings and Defined Terms. The section headings contained
herein are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement. The terms defined herein and in any
other Transaction Document include the plural as well as the singular and the
singular as well as the plural. Except as otherwise indicated, all agreements
defined herein refer to the same as from time to time amended or supplemented or
the terms thereof waived or modified in accordance herewith and therewith. All
references to "$" or "dollars" shall be to United States dollars and all
references to "days" shall be to calendar days unless otherwise specified.
16.10 Severability. If any term or other provision of this Agreement (or
portion thereof) or the application of any such term or other provision (or
portion thereof) to any Person or circumstance is determined by a court of
competent jurisdiction to be invalid, illegal or incapable of being enforced
pursuant to any applicable Law or public policy, all other terms and provisions
of this Agreement (or remaining portion of such term or other
76
provision) will nevertheless remain in full force and effect. Upon such
determination by a court of competent jurisdiction that any term or other
provision (or portion thereof) of this Agreement is invalid, illegal or
incapable of being enforced, the parties hereto will negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that transactions
contemplated hereby are fulfilled to the extent possible.
16.11 Counterparts; Third-Party Beneficiaries. This Agreement may be
executed in two or more counterparts, including by facsimile transmission, each
of which shall be deemed an original; and any Person may become a party hereto
by executing a counterpart hereof, but all of such counterparts together shall
be deemed to be one and the same agreement. This Agreement will be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or will confer upon any other
Person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.
16.12 Entire Agreement. This Agreement, together with the Disclosure
Schedule, the General Escrow Agreement, the Tax Escrow Agreement, the Temple
Inland Escrow Agreement and the agreements, exhibits, schedules and certificates
referred to herein or delivered pursuant hereto, constitute the entire agreement
between the parties hereto with respect to the purchase and sale of the
Securities and supersede all prior and contemporaneous agreements and
understandings, both written and oral, with respect to the subject matter hereof
and thereof, including the letter of intent dated as of February 2005 between
▇.▇. ▇▇▇▇▇▇ Partners, LLC and Guarantor and the Transaction Summary dated as of
May 11, 2005 by and among the Company, Guarantor and ▇.▇. ▇▇▇▇▇▇ Partners, LLC.
16.13 Guaranty. Guarantor hereby absolutely, unconditionally and
irrevocably guarantees, as principal obligor, and not merely as surety, to the
Sellers and their respective successors and permitted assigns, the due and
punctual payment in full of the Purchase Price and all other obligations of
Buyer under this Agreement, the General Escrow Agreement, the Tax Escrow
Agreement, the Temple Inland Escrow Agreement and each other agreement entered
into in connection with the transactions contemplated hereby and thereby,
including, without limitation, Buyer's indemnification obligations under Section
14 (collectively, the "Obligations"). The foregoing obligation of Guarantor
constitutes a continuing guaranty of payment, and not of collection, and is and
shall be absolute and unconditional under any and all circumstances, including
without limitation, circumstances which might otherwise constitute a legal or
equitable discharge of a surety or guarantor. The obligation of Guarantor
hereunder shall not be discharged, impaired or otherwise affected by the failure
of any Seller to assert any claim or demand against Buyer or to enforce any
remedy hereunder. Notwithstanding the foregoing, (i) nothing in this Section
16.13 shall create any liabilities or obligations for Guarantor to the extent
Buyer would not have liability or otherwise be responsible to any Seller
hereunder and (ii) Guarantor shall have the right to assert as a defense
(including rights of set off and counterclaim) to any of its obligations
hereunder any defense that would be available to it had it duly authorized and
entered into the Obligations directly. Guarantor hereby expressly agrees to the
terms of Section 16.7 and Section 16.8 and acknowledges that such Sections
personally bind Guarantor.
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[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement, to be
signed the day and year first above written.
COMPANY:
CROSSTOWN TRADERS, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: CEO
BUYER AND GUARANTOR:
CHESTNUT ACQUISITION SUB, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Executive Vice President
CHARMING SHOPPES, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Executive Vice President
SELLERS' REPRESENTATIVE:
▇.▇. ▇▇▇▇▇▇ PARTNERS (BHCA), L.P.
By: JPMP Master Fund Manager, L.P.,
its General Partner
By: JPMP Capital Corp., its General
Partner
By: /s/ Bryan Marhn
----------------------------------------
Name: Bryan Marhn
Title: Partner
79
SELLERS:
▇.▇. ▇▇▇▇▇▇ PARTNERS (BHCA), L.P.
By: JPMP Master Fund Manager, L.P.,
its General Partner
By: JPMP Capital Corp., its General
Partner
By: /s/ Bryan Marhn
----------------------------------------
Name: Bryan Marhn
Title: Partner
▇.▇. ▇▇▇▇▇▇ GLOBAL INVESTORS
(SELLDOWN), L.P.
By: JPMP Global Investors, L.P.,
its General Partner
By: JPMP Capital Corp., its General
Partner
By: /s/ Bryan Marhn
----------------------------------------
Name: Bryan Marhn
Title: Partner
▇.▇. ▇▇▇▇▇▇ PARTNERS GLOBAL
INVESTORS, L.P.
By: JPMP Global Investors, L.P.,
its General Partner
By: JPMP Capital Corp., its General
Partner
By: /s/ Bryan Marhn
----------------------------------------
Name: Bryan Marhn
Title: Partner
80
▇.▇. ▇▇▇▇▇▇ PARTNERS GLOBAL
INVESTORS (CAYMAN), L.P.
By: JPMP Global Investors, L.P.,
its General Partner
By: JPMP Capital Corp., its General
Partner
By: /s/ Bryan Marhn
----------------------------------------
Name: Bryan Marhn
Title: Partner
▇.▇. ▇▇▇▇▇▇ PARTNERS GLOBAL
INVESTORS A, L.P.
By: JPMP Global Investors, L.P.,
its General Partner
By: JPMP Capital Corp., its General
Partner
By: /s/ Bryan Marhn
----------------------------------------
Name: Bryan Marhn
Title: Partner
▇.▇. ▇▇▇▇▇▇ PARTNERS GLOBAL
INVESTORS (CAYMAN) II, L.P.
By: JPMP Global Investors, L.P.,
its General Partner
By: JPMP Capital Corp., its General
Partner
By: /s/ Bryan Marhn
----------------------------------------
Name: Bryan Marhn
Title: Partner
▇.▇. ▇▇▇▇▇▇ PARTNERS (23A SBIC), L.P.
By: JPMP 23A SBIC Manager, Inc.,
its General Partner
By: /s/ Bryan Marhn
----------------------------------------
Name: Bryan Marhn
Title: Partner
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▇.▇. ▇▇▇▇▇▇ PARTNERS (SBIC), LLC
By: ▇.▇. ▇▇▇▇▇▇ Partners (BHCA), L.P.,
its Sole Manager
By: JPMP Master Fund Manager, L.P.
its General Partner
By: JPMP Capital Corp., its General
Partner
By: /s/ Bryan Marhn
----------------------------------------
Name: Bryan Marhn
Title: Partner
GLC EQUITY INVESTMENTS, LLC
By: /s/ ▇▇ ▇▇▇▇▇▇
----------------------------------------
Name: ▇▇ ▇▇▇▇▇▇
Title: Secretary
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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/s/ ▇▇▇▇▇▇▇ ▇▇▇▇
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TABLE OF CONTENTS
Page
Section 1. DEFINITIONS.................................................1
1.1 Definitions.................................................1
Section 2. PURCHASE AND SALE OF SECURITIES............................10
2.1 Purchase and Sale of Securities............................10
2.2 Closing....................................................11
2.3 Allocation of Purchase Price and Other Amounts.............14
Section 3. REPRESENTATIONS AND WARRANTIES REGARDING SELLERS...........14
3.1 Organization and Good Standing.............................15
3.2 Power and Authorization....................................15
3.3 No Conflicts...............................................15
3.4 Ownership of the Securities................................16
3.5 Brokers....................................................17
Section 4. REPRESENTATIONS AND WARRANTIES REGARDING THE
COMPANY AND ITS SUBSIDIARIES...............................17
4.1 Organization and Good Standing.............................17
4.2 Power and Authorization....................................17
4.3 No Conflicts...............................................17
4.4 Capitalization.............................................18
4.5 Compliance with Laws.......................................19
4.6 Litigation.................................................20
4.7 Financial Statements.......................................21
4.8 Accounts Receivable........................................22
4.9 Inventory..................................................22
4.10 Absence of Certain Changes and Events......................22
4.11 Product Design; Warranties.................................24
4.12 Real Property..............................................25
4.13 Personal Property; Bank Accounts...........................25
4.14 Material Contracts.........................................26
4.15 Insurance..................................................27
4.16 Intellectual Property......................................28
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4.17 Suppliers..................................................29
4.18 Labor Matters..............................................29
4.19 Employee Benefits..........................................30
4.20 Directors, Officers and Employees..........................32
4.21 Affiliate Agreements.......................................32
4.22 Environmental Matters......................................33
4.23 Books and Records..........................................35
4.24 Brokers....................................................36
Section 5. REPRESENTATIONS AND WARRANTIES OF BUYER AND GUARANTOR.....36
5.1 Organization and Good Standing.............................36
5.2 Power and Authorization....................................36
5.3 No Conflicts...............................................37
5.4 No Reliance................................................37
5.5 Brokers....................................................38
5.7 Disclaimer Regarding Projections...........................38
5.8 No Additional Representations..............................38
Section 6. COVENANTS OF THE COMPANY AND SELLERS.......................38
6.1 Conduct of Business Pending Closing........................38
6.2 Negative Covenants Pending Closing.........................39
6.3 Access to Information......................................41
6.4 Governmental Authorizations................................42
6.5 Financial Information......................................42
6.7 No Shop....................................................42
6.8 Confidential Information...................................43
6.9 Waivers....................................................43
6.10 Pre-Closing Deliverables...................................43
6.11 Supplement to Disclosure Schedule..........................44
6.12 Preparation of Financial Statements........................44
Section 7. ADDITIONAL COVENANTS OF THE PRINCIPAL STOCKHOLDERS.........45
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7.1 Records....................................................45
7.2 Non-Solicitation...........................................45
7.3 Waivers....................................................46
7.4 Release....................................................46
Section 8. COVENANTS OF BUYER AND GUARANTOR...........................47
8.1 Confidential Information...................................47
8.2 Governmental Authorizations................................48
8.3 Notice of Breach; Failure to Satisfy Closing Condition....48
8.4 Non-Solicitation...........................................48
8.5 Directors' and Officers' Indemnification...................49
Section 9. ADDITIONAL COVENANTS OF BUYER, THE COMPANY AND SELLERS.....49
9.1 Further Assurances.........................................50
9.2 Certain Filings and Consents...............................50
9.3 Public Announcements.......................................51
9.4 HSR Filings................................................51
9.5 Release....................................................52
Section 10. TAX MATTERS................................................53
10.1 Tax Representations of the Company.........................53
10.2 Tax Covenants of Sellers and the Company...................55
Section 11. EMPLOYEE BENEFITS..........................................55
11.1 Comparability of Benefits..................................55
11.2 Welfare Plans..............................................56
11.3 Severance..................................................56
11.4 Service Credit.............................................56
Section 12. CLOSING CONDITIONS.........................................56
12.1 Conditions to Obligation of Buyer..........................56
12.2 Conditions to Obligation of Sellers........................58
12.3 Frustration of Closing Conditions..........................59
Section 13. TERMINATION AND ABANDONMENT................................59
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13.1 Termination................................................59
13.2 Procedure for Termination..................................60
Section 14. INDEMNIFICATION............................................61
14.1 Indemnification with respect to Sellers....................61
14.2 Indemnification with respect to the Company................61
14.3 Indemnification by Buyer...................................62
14.4 Inter-Party Claims.........................................62
14.5 Third Party Claims.........................................63
14.6 Limitations and Requirements...............................66
14.7 Calculation and Mitigation of Damages......................68
14.8 Termination of Indemnification.............................69
14.9 Escrow Accounts............................................70
Section 15. THE SELLERS' REPRESENTATIVE................................71
15.1 The Sellers' Representative................................71
15.2 No Reliance................................................73
Section 16. MISCELLANEOUS..............................................73
16.1 Survival of Representations and Warranties.................73
16.2 Costs and Expenses.........................................73
16.3 Notices....................................................74
16.4 Assignment.................................................75
16.5 Amendment, Modification and Waiver.........................75
16.6 Governing Law..............................................75
16.7 Waiver of Jury Trial.......................................75
16.9 Section Headings and Defined Terms.........................76
16.10 Severability...............................................76
16.11 Counterparts; Third-Party Beneficiaries....................77
16.12 Entire Agreement...........................................77
16.13 Guaranty...................................................77
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* * * *
Pursuant to Item 601(b)(2) of Regulation S-K, the following is a list of omitted
exhibits and Sections of the Disclosure Schedule to the Stock Purchase
Agreement. Guarantor agrees to furnish supplementally a copy of any omitted
exhibit or Section of the Disclosure Schedule to the Securities and Exchange
Commission upon request.
EXHIBITS
Exhibits I-III Form of Escrow Agreements
Exhibits IV-VIII Form of Legal Opinions
SECTIONS OF DISCLOSURE SCHEDULE
1.1 Specified Employees Bonus Amounts/Severance Costs
2.1 Purchase and Sale of Securities
3.3 No Conflicts - Sellers
3.4 Ownership of Securities
4.1 Organization and Good Standing
4.3 No Conflicts - Company
4.4 Capitalization
4.5 Compliance with Laws
4.6 Litigation
4.7 Financial Statements
4.10 Absence of Certain Changes and Events
4.11 Product Design; Warranties
4.12 Real Property
4.13 Personal Property; Bank Accounts
4.14 Material Contracts
4.15 Insurance
4.16 Intellectual Property
4.17 Suppliers
4.18 Labor Matters
4.19 Employee Benefits
4.20 Directors, Officers and Employees
4.21 Affiliate Agreements
4.22 Environmental Matters
5.3 No Conflicts
6.1 Conduct of Business
6.2 Negative Covenants
6.9 Sellers' Waivers
7.3 Waivers of Principal Stockholders
8.4 Officers and Key Employees
9.5(c) Closing Conditions
10 Tax Matters
11.3 Severance
