Execution Copy
EXHIBIT 2.8
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
BY AND AMONG
RENT-A-CENTER, INC.,
RAC RR, INC.
AND
RENT RITE, INC.
d/b/a RENT RITE RENTAL PURCHASE
DATED AS OF APRIL 27, 2004
Table of Contents
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ARTICLE I DESCRIPTION OF TRANSACTION......................................................................1
Section 1.1 Merger of the Company into Merger Sub...........................................................1
Section 1.2 Effect of the Merger............................................................................1
Section 1.3 Closing; Effective Time.........................................................................1
Section 1.4 Certificate of Incorporation and Bylaws; Directors and Officers.................................2
Section 1.5 Noncompetition and Nonsolicitation Agreements...................................................2
Section 1.6 Voting Agreement................................................................................2
Section 1.7 Tax Consequences................................................................................2
Section 1.8 Further Action..................................................................................2
ARTICLE II CANCELLATION AND CONVERSION OF SHARES; MERGER CONSIDERATION.....................................2
Section 2.1 Cancellation and Conversion of Shares; Merger Consideration.....................................2
Section 2.2 No Fractional Shares............................................................................3
Section 2.3 Company Stock Options...........................................................................3
Section 2.4 Reduction in Merger Consideration...............................................................4
Section 2.5 Holdback........................................................................................5
Section 2.6 Exchange of Certificates........................................................................5
ARTICLE III POST CLOSING AUDIT AND ADJUSTMENT...............................................................7
Section 3.1 Adjustment Amount Calculation...................................................................7
Section 3.2 Adjustment Amount Payment.......................................................................8
Section 3.3 Shareholders' Representative....................................................................8
Section 3.4 Transitional Personnel..........................................................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................................................9
Section 4.1 Organization and Good Standing..................................................................9
Section 4.2 Authority; No Conflict..........................................................................9
Section 4.3 Capitalization.................................................................................10
Section 4.4 No Subscription Receivables....................................................................11
Section 4.5 Financial Statements...........................................................................11
Section 4.6 No Undisclosed Liabilities.....................................................................12
Section 4.7 Property; Sufficiency of Assets................................................................12
Section 4.8 Intellectual Property..........................................................................13
Section 4.9 Rental Merchandise.............................................................................13
Section 4.10 Motor Vehicles and Equipment...................................................................13
Section 4.11 Product Warranties.............................................................................13
Section 4.12 Material Contracts; No Defaults; Rental Purchase Agreements....................................13
Section 4.13 Major Suppliers................................................................................14
Section 4.14 Insurance......................................................................................14
Section 4.15 Taxes..........................................................................................15
Section 4.16 Employee Benefits..............................................................................17
Section 4.17 Labor Matters..................................................................................20
Section 4.18 Compliance With Applicable Legal Requirements; Litigation......................................20
Section 4.19 Inappropriate Payments.........................................................................21
Section 4.20 Environmental Matters..........................................................................21
Section 4.21 Absence of Certain Changes and Events..........................................................21
Section 4.22 Average Monthly Recurring Revenue-Three Months.................................................23
Section 4.23 Monthly Revenue-One Month......................................................................23
Section 4.24 Net Book Value of Inventory....................................................................23
Section 4.25 No Franchises..................................................................................23
Section 4.26 Interests of Officers, Directors and Affiliates................................................23
Section 4.27 Brokers........................................................................................23
Section 4.28 Amended and Restated Stock Option Plan.........................................................23
Section 4.29 Liens..........................................................................................23
Section 4.30 Full Disclosure................................................................................23
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ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB........................................24
Section 5.1 Organization and Good Standing.................................................................24
Section 5.2 Authority; No Conflict.........................................................................24
Section 5.3 Brokers........................................................................................25
Section 5.4 Financial Capability...........................................................................25
Section 5.5 Financial Statements and Reports...............................................................25
Section 5.6 SEC Reports....................................................................................25
ARTICLE VI CERTAIN PRE-CLOSING COVENANTS..................................................................26
Section 6.1 Access and Investigation; Confidentiality......................................................26
Section 6.2 Operation of the Company's Business............................................................26
Section 6.3 No Solicitation................................................................................30
Section 6.4 Company Shareholders' Meeting..................................................................31
Section 6.5 Regulatory Approvals...........................................................................32
Section 6.6 Public Announcements...........................................................................32
Section 6.7 Resignation of Officers and Directors..........................................................32
Section 6.8 Investor and Option Questionnaires and Consents................................................32
Section 6.9 Outstanding Options and Rights.................................................................33
Section 6.10 No Buy-Back Obligations........................................................................33
Section 6.11 Release of Liens...............................................................................33
Section 6.12 Adoption of Stay Bonus Plan....................................................................33
Section 6.13 Termination of Shareholders Agreement..........................................................33
Section 6.14 Good Standing..................................................................................33
ARTICLE VII ADDITIONAL COVENANTS...........................................................................33
Section 7.1 Repayment of Liabilities.......................................................................33
Section 7.2 Employee Benefits..............................................................................33
Section 7.3 Indemnification of Officers and Directors......................................................33
ARTICLE VIII CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH PARTY..............................................34
Section 8.1 Shareholder Approval...........................................................................34
Section 8.2 No Injunctions or Restraints...................................................................34
ARTICLE IX CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB...................................35
Section 9.1 Accuracy of Representations and Warranties.....................................................35
Section 9.2 Performance of Covenants.......................................................................35
Section 9.3 Consents.......................................................................................35
Section 9.4 Closing Three Month Recurring Revenue Target...................................................35
Section 9.5 Closing Month Revenue Target...................................................................35
Section 9.6 Closing Inventory..............................................................................35
Section 9.7 No Material Adverse Change.....................................................................35
Section 9.8 Agreements and Documents.......................................................................35
Section 9.9 Outstanding Options and Rights.................................................................36
Section 9.10 Employees......................................................................................36
Section 9.11 No Dissenting Shares...........................................................................36
Section 9.12 Voting Agreement...............................................................................36
ARTICLE X CONDITIONS PRECEDENT TO OBLIGATION OF THE COMPANY..............................................36
Section 10.1 Accuracy of Representations....................................................................36
Section 10.2 Performance of Covenants.......................................................................36
Section 10.3 No Material Adverse Change.....................................................................36
Section 10.4 Documents......................................................................................36
ARTICLE XI POST-CLOSING MATTERS...........................................................................37
Section 11.1 Survival of Representations and Warranties.....................................................37
Section 11.2 Indemnification................................................................................37
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Section 11.3 Holdback Amount; Set-Off.......................................................................39
Section 11.4 Severance Payments.............................................................................40
Section 11.5 Registration Statement.........................................................................40
Section 11.6 Tax Returns....................................................................................41
Section 11.7 Assistance and Cooperation.....................................................................41
Section 11.8 Payment of Account Receivables and Other Items.................................................41
ARTICLE XII TERMINATION....................................................................................42
Section 12.1 Termination....................................................................................42
Section 12.2 Effect of Termination..........................................................................43
Section 12.3 Termination Fees; Expenses.....................................................................43
ARTICLE XIII MISCELLANEOUS PROVISIONS.......................................................................44
Section 13.1 Amendment......................................................................................44
Section 13.2 Assignments and Successors.....................................................................44
Section 13.3 No Third Party Rights..........................................................................44
Section 13.4 Notices........................................................................................44
Section 13.5 Headings.......................................................................................45
Section 13.6 Severability...................................................................................45
Section 13.7 Entire Agreement...............................................................................45
Section 13.8 Governing Law..................................................................................45
Section 13.9 No Consequential Damages.......................................................................45
Section 13.10 Counterparts...................................................................................46
Section 13.11 Cooperation....................................................................................46
Section 13.12 Construction; Usage............................................................................46
Section 13.13 Disclosure Schedules...........................................................................47
Section 13.14 Failure or Indulgence Not Waiver...............................................................47
Section 13.15 Enforcement of Agreement.......................................................................47
Section 13.16 Time of Essence................................................................................47
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APPENDIX A - Certain Definitions
EXHIBIT A - Form of Voting Agreement
EXHIBIT B - Form of Stay Bonus Plan
EXHIBIT C - Form of Investor Questionnaire and Consent
EXHIBIT D - Form of Option Questionnaire and Consent
EXHIBIT E - Form of Legal Opinion - Counsel to Company
EXHIBIT F - Form of Legal Opinion - Counsel to Parent and Merger Sub
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this "AGREEMENT")
is made and entered into as of April 27, 2004, by and among Rent-A-Center, Inc.,
a Delaware corporation ("PARENT"), RAC RR, Inc., a Delaware corporation and an
indirect wholly owned subsidiary of Parent ("MERGER SUB"), and Rent Rite, Inc.
d/b/a Rent Rite Rental Purchase, a Tennessee corporation (the "COMPANY").
RECITALS
A. Parent, Merger Sub and the Company intend to effect a merger of the
Company with and into Merger Sub in accordance with Title 48 of the Tennessee
Code (the "TENNESSEE CORPORATE STATUTES"), the Delaware General Corporation Law
(the "DGCL") and this Agreement (the "MERGER"). Upon consummation of the Merger,
the separate existence of the Company shall cease.
B. It is intended that the Merger qualify as a federal income Tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "CODE").
C. The respective boards of directors of Parent, Merger Sub and the
Company have approved this Agreement and approved the Merger.
D. Unless the context clearly indicates otherwise, capitalized terms
used in this Agreement are defined in Appendix A to this Agreement, which is
incorporated herein by reference.
AGREEMENT
In consideration of the foregoing, the representations, warranties and
covenants contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties to this
Agreement, intending to be legally bound, agree as follows:
ARTICLE I
DESCRIPTION OF TRANSACTION
Section 1.1 Merger of the Company into Merger Sub. Upon the terms and
subject to the conditions set forth in this Agreement, at the Effective Time,
the Company shall be merged with and into Merger Sub, and the separate existence
of the Company shall cease. Following the Effective Time, Merger Sub shall
continue as the surviving corporation (the "SURVIVING CORPORATION").
Section 1.2 Effect of the Merger. The Merger shall have the effects set
forth in this Agreement and in the applicable provisions of the Tennessee
Corporate Statutes and the DGCL.
Section 1.3 Closing; Effective Time. The consummation of the
transactions contemplated by this Agreement (the "CLOSING") shall take place at
the offices of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ P.C., 5400 Renaissance Tower, ▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, at 10:00 a.m., local time, on a date to be mutually
agreed to by the parties (the "CLOSING DATE"), which shall be no later than the
fifth Business Day after the satisfaction or waiver of the last to be satisfied
or waived of the conditions set forth in ARTICLE VIII, ARTICLE IX, and ARTICLE X
(other than those conditions that by their nature are to be satisfied at the
Closing, but subject to the satisfaction or waiver of such conditions). Subject
to the provisions of this Agreement, (i) a certificate of merger (the
"CERTIFICATE OF MERGER") satisfying the applicable requirements of the DGCL; and
(ii) articles of merger ( the "ARTICLES OF MERGER") satisfying the applicable
requirements of the Tennessee Corporate Statutes shall be duly executed by
Merger Sub and/or the Company and, simultaneously with or as soon as practicable
following the Closing, filed with the Secretary of State of Delaware and the
Secretary of State of Tennessee, respectively. The Merger shall become effective
on such date and at such time as specified in each of the Certificate of Merger
and the Articles of Merger, as agreed by the parties hereto (the "EFFECTIVE
TIME").
Section 1.4 Certificate of Incorporation and Bylaws; Directors and
Officers. At the Effective Time:
(a) the Certificate of Incorporation of Merger Sub immediately
prior to the Effective Time will be the Certificate of Incorporation of
the Surviving Corporation;
(b) the Bylaws of Merger Sub immediately prior to the
Effective Time will be the Bylaws of the Surviving Corporation; and
(c) the directors and officers of Merger Sub immediately prior
to the Effective Time shall be the directors and officers of the
Surviving Corporation immediately after the Effective Time.
Section 1.5 Noncompetition and Nonsolicitation Agreements. Concurrently
with the execution and delivery of this Agreement, Parent, Merger Sub, and the
persons identified in Section 1.5 of the Company Disclosure Schedules shall
execute and deliver Noncompetition and Nonsolicitation Agreements, dated as of
the date hereof and effective as of the Effective Time, in a form reasonably
acceptable to Parent (the "NONCOMPETITION AGREEMENTS"), pursuant to which the
persons listed in Section 1.5 of the Company Disclosure Schedules agree to
refrain from competing or interfering with the business of the Company as
continued by Parent and Merger Sub for the time period specified therein.
Section 1.6 Voting Agreement. Concurrently with the execution and
delivery of this Agreement, Parent, all of the officers and directors of the
Company, and the persons listed on Section 1.6 of the Company Disclosure
Schedules shall execute and deliver a Voting Agreement, dated as of the date
hereof, in the form attached hereto as Exhibit A (the "VOTING AGREEMENT"),
pursuant to which all of the officers and directors of the Company and the
persons listed in Section 1.6 of the Company Disclosure Schedules agree to vote
the Company Common Stock held by each such Person in favor of the Merger, this
Agreement and the Contemplated Transactions.
Section 1.7 Tax Consequences. For federal income Tax purposes, the
Merger is intended to constitute a reorganization within the meaning of Section
368 of the Code. The parties to this Agreement hereby adopt this Agreement as a
"plan of reorganization" within the meaning of Sections 1.368-2(g) and
1.368-3(a) of the United States Treasury Regulations.
Section 1.8 Further Action. If, at any time after the Effective Time,
any further action is determined by Parent to be necessary or desirable to carry
out the purposes of this Agreement or to vest the Surviving Corporation with
full right, title and possession of and to all rights and property of Merger Sub
and the Company, the officers and directors of the Surviving Corporation and
Parent shall be fully authorized (in the name of Merger Sub, the Company and
otherwise) to take such action.
ARTICLE II
CANCELLATION AND CONVERSION OF SHARES; MERGER CONSIDERATION
Section 2.1 Cancellation and Conversion of Shares; Merger
Consideration. At the Effective Time, by virtue of the Merger and without any
further action on the part of Parent, Merger Sub, the Company or any shareholder
of the Company (each a "SHAREHOLDER" and collectively, the "SHAREHOLDERS"):
(a) Cancellation of Company Stock Held by the Company or its
Subsidiaries. Any shares of Company Common Stock then held by the
Company or any wholly owned Subsidiary of the Company shall be canceled
and retired and shall cease to exist, and no consideration shall be
delivered in exchange therefor.
(b) Cancellation of Parent Owned Stock. Any shares of Company
Common Stock then held by Parent, Merger Sub or any other direct or
indirect Subsidiary of Parent shall be canceled and retired and shall
cease to exist, and no consideration shall be delivered in exchange
therefor.
(c) Conversion of Company Common Stock. Except as provided in
Section 2.1(a) and Section 2.1(b) above and subject to Section 2.2,
Section 2.4, Section 2.5, and Section 2.6(i), each issued and
outstanding share of Company Common Stock shall be converted into the
right to receive a pro rata portion of the Merger Consideration as
adjusted pursuant to Section 2.3(e).
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(d) Cancellation and Retirement of Company Common Stock. As of
the Effective Time, all shares of Company Common Stock (other than
shares to be canceled in accordance with Section 2.1(a) and Section
2.1(b) above) shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a
certificate representing any such shares of Company Common Stock (other
than Dissenting Shares) shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration, as
adjusted pursuant to Section 2.4 and Section 2.5, without interest,
upon surrender of such certificate in accordance with Section 2.6.
(e) Merger Consideration.
(i) Subject to Section 2.4, Section 2.5, and Section
2.6(i), the aggregate consideration paid to the Shareholders
of the Company in exchange for such Shareholders' Company
Common Stock shall be an amount equal to the Enterprise Value,
minus the Merger Consideration Reductions (the "MERGER
CONSIDERATION"). Subject to Section 2.5, the Merger
Consideration shall be paid first in Parent Common Stock (the
"STOCK CONSIDERATION") up to an amount ( the "STOCK
CONSIDERATION AMOUNT") equal to 50% of the Enterprise Value
(not to exceed the Merger Consideration), and the remaining
portion of the Merger Consideration, if any, shall be paid in
cash (the "CASH CONSIDERATION"). The number of shares of
Parent Common Stock included in the Stock Consideration (the
"TOTAL PARENT SHARES") shall be the Stock Consideration Amount
divided by the average of the last reported sale prices per
share of the Parent Common Stock on the Nasdaq National Market
for each of the 15 consecutive trading days preceding the date
of this Agreement (the "AVERAGE PER SHARE VALUE"); provided,
however, that the Total Parent Shares shall not exceed the
Stock Consideration Amount divided by $31.00 (the "STOCK
CONSIDERATION CAP") and to the extent the Average Per Share
Value is less than $31.00 per share of Parent Common Stock,
the difference between the Stock Consideration Amount and the
product of the Stock Consideration Cap and the Average Per
Share Value shall be added to the Cash Consideration. For
purposes of this Agreement, "ENTERPRISE VALUE" means 12.75
multiplied by the Company's average Monthly Recurring Revenue,
calculated for the three full calendar months of January,
February and March 2004, so long as the Closing occurs on or
before May 7, 2004; provided, however, that if the Closing
occurs after May 7, 2004, "ENTERPRISE VALUE" means 12.75
multiplied by the Closing Three Month Recurring Revenue.
(ii) Notwithstanding Section 2.1(e)(i), for each
Shareholder of the Company for which Parent does not receive
at least one Business Day prior to the Closing Date an
Investor Questionnaire and Consent completed by such
Shareholder, and for each Shareholder of the Company for
which, upon Parent's review of such Shareholder's completed
and executed Investor Questionnaire and Consent, Parent is
unable to form a reasonable belief that such Shareholder
constitutes an Accredited Investor, Parent shall pay such
Shareholder's pro rata portion of the Merger Consideration in
cash only and no Stock Consideration shall be issued to such
Shareholder.
Section 2.2 No Fractional Shares. In calculating the Stock
Consideration to which each Shareholder of the Company is entitled to receive
pursuant to Section 2.1(e) above, the shares of Parent Common Stock issuable to
such Shareholder shall be rounded to the next lowest whole number. No fractional
shares of Parent Common Stock shall be issued in connection with the Merger, and
no certificates or scrip for any such fractional shares shall be issued.
Section 2.3 Company Stock Options. At the Effective Time, each of the
Company Stock Options listed in Section 4.3 of the Company Disclosure Schedules
held by a Person who Parent reasonably believes to be an Accredited Investor and
for which Parent received a completed and executed Option Questionnaire and
Consent shall be assumed by Parent on the terms set forth herein and converted
automatically into an option to purchase shares of Parent Common Stock (each, a
"CONVERTED OPTION") in an amount and at an exercise price determined as provided
below:
(a) The number of shares of Parent Common Stock to which a
Converted Option shall be entitled to purchase shall be equal to the
number of shares of Company Common Stock to which such Converted Option
would be entitled to purchase as of the date of this Agreement under
the original Company Stock Option, as set forth in Section 4.3 of the
Company Disclosure Schedules; and
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(b) The exercise price per share of Parent Common Stock under
a Converted Option shall be equal to the (i) Average Per Share Value,
less (ii) the quotient of the Merger Consideration (assuming, for this
Section 2.3(b), the General Holdback was paid in full to the
Shareholders and the Adjustment Holdback was paid in full to Parent)
divided by the number of shares of Company Common Stock outstanding on
the Closing Date, plus (iii) the exercise price per share of Company
Common Stock under the original Company Stock Option immediately prior
to the Effective Time; provided, however, that such exercise price
shall be rounded up to the nearest cent.
(c) At the Effective Time, Parent shall assume the Stock
Option Plan in order to effect the provisions of this Section 2.2 and
shall keep the Stock Option Plan in effect until December 31, 2009 or
such earlier time as all of the Converted Options are no longer
exercisable.
(d) After the Effective Time, each Converted Option shall be
exercisable and vested as provided in the original Company Stock Option
agreement, as amended in accordance with this Agreement. Within 45 days
after the Closing Date, Parent shall use its commercially reasonable
efforts to file with the SEC a registration statement to register the
issuance of the shares of Parent Common Stock issuable upon exercise of
the Converted Options, and use all reasonable efforts to have such
registration statement (or a successor or replacement registration
statement) become effective with respect thereto as promptly as
practicable thereafter and to remain in effect while any of the
Converted Options remain exercisable. At or prior to the Effective
Time, Parent shall take all corporate action necessary to reserve for
issuance in connection with the exercise of the Converted Options such
number of shares of Parent Common Stock as shall be required to be
issued upon exercise.
(e) The Option Administration Fee (as defined below) shall be
borne only by the Shareholders of the Company who also receive
Converted Options ("CONVERTED OPTION SHAREHOLDERS"). The number of
shares of Parent Common Stock receivable by a Shareholder of the
Company pursuant to Section 2.1 shall be adjusted as follows:
(i) the number of shares of Parent Common Stock
receivable by a Converted Option Shareholder shall be reduced
by a number of shares equal to (A) the percentage of the total
number of Converted Options which such Converted Option
Shareholder shall receive, multiplied by (B) the Option
Administration Fee divided by the Average Per Share Value (the
"REALLOCATED PARENT SHARES"); and
(ii) the number of shares of Parent Common Stock
receivable by each Shareholder of the Company (including the
Converted Option Shareholders) shall then be increased by
their pro rata portion of the Reallocated Parent Shares.
Section 2.4 Reduction in Merger Consideration. After deducting the
Holdback Amount pursuant to Section 2.5, in calculating the Merger
Consideration, the following shall be subtracted from the Enterprise Value
(each, a "MERGER CONSIDERATION REDUCTION" and together, the "MERGER
CONSIDERATION REDUCTIONS"):
(a) with respect to the Company Stock Options, (i) $200,000 to
cover all reasonable fees, costs and expenses incurred by or on behalf
of Parent in connection with converting and exchanging the Company
Stock Options into the Converted Options pursuant to Section 2.3 and
fulfilling its obligations thereunder (the "OPTION ADMINISTRATION
FEE"); and (ii) the aggregate in-the-money value for all Converted
Options;
(b) the Severance Payments payable pursuant to Section 11.4;
(c) the Existing Liabilities, less cash and specified accounts
receivable reflected on the Closing Balance Sheet, calculated as set
forth in Section 2.4(c) of the Parent Disclosure Schedules (the
"ADJUSTMENT AMOUNT").
(d) $100,000 to cover Registration Expenses incurred in
connection with Parent's obligations under Section 11.5;
(e) the insurance premiums paid pursuant to Section 7.3; and
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(f) with respect to the failure to satisfy the condition set
forth in Section 9.6, the amount equal to $19,500,000 less the Closing
Inventory; provided, however, that in the event that the Closing
Inventory shall be equal to or less than $19,000,000 (the "CLOSING
INVENTORY MINIMUM"), then, at the option of Parent, Parent may
terminate this Agreement pursuant to Section 12.1(i).
Section 2.5 Holdback.
(a) General Holdback. At the Effective Time, Parent shall
withhold from the Merger Consideration for payment of claims that may
be brought pursuant to Section 11.2(b) and Section 11.3, for payment of
the Company's share of the compensation of certain transitional
employees of the Company pursuant to Section 3.4, for payment of any
excess amounts payable by the Surviving Corporation as a result of the
payments due for Dissenting Shares pursuant to Section 2.6(i), and for
payment of liabilities, if any, related to the contingent liabilities
set forth in Section 4.6, Section 4.11, Section 4.12(b), Section 4.17,
Section 4.18(b), Section 4.18(c), and Section 4.18(d) of the Company
Disclosure Schedules (the "DISCLOSED CONTINGENT LIABILITIES") for a
period of 12 months (subject to adjustment with respect to pending
Claims at the end of such 12-month period as provided in Section 11.2)
following the Effective Time (the "GENERAL HOLDBACK PERIOD") an amount
equal to $7,750,000 (the "GENERAL HOLDBACK AMOUNT"), $5,250,000 of
which will be cash (the "CASH PORTION OF GENERAL HOLDBACK") and
$2,500,000 of which will be Parent Common Stock (the "STOCK PORTION OF
GENERAL HOLDBACK"). The number of shares of Parent Common Stock
included in the Stock Portion of General Holdback shall equal
$2,500,000 divided by the Average Per Share Value.
(b) Adjustment Holdback. At the Effective Time, Parent shall
withhold from the Merger Consideration for payment of the Adjustment
Amount, calculated in accordance with Section 2.4(c) of the Parent
Disclosure Schedules, for a period ending on the second Business Day
following the final determination of the Adjustment Amount pursuant to
Section 3.1 (the "ADJUSTMENT HOLDBACK PERIOD") an amount equal to
$22,000,000, which is an estimated amount necessary to cover any
Adjustment Amount (the "ADJUSTMENT HOLDBACK AMOUNT," together with the
General Holdback Amount, the "HOLDBACK AMOUNT").
(c) Payment of the Holdback Amount. The Holdback Amount shall
be paid, distributed or set-off as provided in Section 3.2 and Section
11.3 of this Agreement.
Section 2.6 Exchange of Certificates.
(a) Exchange Agent. On or prior to the Closing Date, Parent
shall select a nationally recognized commercial bank to act as exchange
agent in the Merger (the "EXCHANGE AGENT"). Prior to the Effective
Time, Parent shall deposit, or cause to be deposited, with the Exchange
Agent (i) certificates representing the shares of Parent Common Stock
equal to the Stock Consideration; and (ii) cash equal to the Cash
Consideration, minus the estimated Merger Consideration Reductions. The
Merger Consideration deposited with the Exchange Agent is referred to
as the "EXCHANGE FUND."
(b) Exchange Procedures. As soon as reasonably practicable
after the Effective Time, Parent shall direct the Exchange Agent to
mail or deliver to record holders of Company Stock Certificates (i) a
letter of transmittal in customary form and containing such provisions
as Parent may reasonably specify; and (ii) instructions for use in
effecting the surrender of the Company Stock Certificates in exchange
for the Merger Consideration. Upon surrender of a Company Stock
Certificate to the Exchange Agent for exchange, together with a duly
executed letter of transmittal and such other documents as may
reasonably be required by Parent, the Surviving Corporation or the
Exchange Agent, the holder of such Company Stock Certificate shall be
entitled to receive in exchange therefor (A) a check or wire transfer
of immediately available funds representing the amount of Cash
Consideration that such holder has the right to receive pursuant to the
provisions of this ARTICLE II; and (B) a certificate representing the
number of whole shares of Parent Common Stock that such holder has the
right to receive pursuant to the provisions of this ARTICLE II, and the
Company Stock Certificate so surrendered shall be canceled. Until
surrendered as contemplated by this Section 2.6(b), each Company Stock
Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender a pro rata
portion of the Merger Consideration that the holder thereof has the
right to receive in respect of such Company Stock
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Certificate pursuant to the provisions of this ARTICLE II. No interest
shall be paid or will accrue on any cash payable to holders of Company
Stock Certificates pursuant to the provisions of this ARTICLE II.
(c) No Further Ownership Rights in Company Common Stock. The
Merger Consideration shall be deemed to have been paid in full
satisfaction of all rights pertaining to the shares of Company Common
Stock, theretofore represented by valid certificates representing such
shares (each, a "COMPANY STOCK CERTIFICATE"), subject, however, to
Parent's obligation to pay the Merger Consideration and there shall be
no further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of Company Common Stock which were
outstanding immediately prior to the Effective Time. If, after the
Effective Time, Company Stock Certificates are presented to Parent or
the Surviving Corporation or the Exchange Agent for any reason, they
shall be canceled and exchanged as provided in this ARTICLE II, except
as otherwise provided by Law.
(d) Unregistered Transfers; Lost Certificates. In the event of
a transfer of ownership of Company Common Stock which is not registered
in the transfer records of the Company, the proper portion of the
Merger Consideration may be paid in cash to a Person other than the
Person in whose name the Company Stock Certificate so surrendered is
registered if such Company Stock Certificate is properly endorsed or
otherwise in proper form for transfer and the Person requesting such
issuance pays any transfer or other Taxes required by reason of the
payment of the Merger Consideration to a Person other than the
registered holder of such Company Stock Certificate or establishes to
the satisfaction of Parent that such Tax has been paid or is not
applicable. If any Company Stock Certificate shall have been lost,
stolen or destroyed, upon (i) the making of an affidavit of that fact
by the Person claiming such Company Stock Certificate to be lost,
stolen or destroyed; (ii) evidence that such Person is the beneficial
owner of the Company Stock Certificate claimed by such Person to be
lost, stolen or destroyed; and (iii) if required by the Surviving
Corporation, the posting by such Person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any
claim that may be made against it with respect to such Company Stock
Certificate, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed Company Stock Certificate a pro rata portion of the
Merger Consideration.
(e) Investment of Exchange Fund. The Exchange Agent shall
invest the Exchange Fund, as directed by the Surviving Corporation, and
any net earnings with respect thereto shall be paid to the Surviving
Corporation as and when requested by the Surviving Corporation;
provided, however, that any such investment or any such payment of
earnings shall not delay the receipt by holders of Company Stock
Certificates of the Merger Consideration or otherwise impair such
holders' respective rights hereunder.
(f) Termination of Exchange Fund. Any portion of the Exchange
Fund which remains undistributed (including interest thereon) to the
holders of Company Stock Certificates as of the one year anniversary of
the Closing Date shall, to the extent permitted by Law, become the
property of the Surviving Corporation. Immediately upon the one year
anniversary of the Closing Date, the Exchange Agent shall deliver any
remaining portion of the Exchange Fund to the Surviving Corporation as
designated by the Surviving Corporation. Any holders of Company Common
Stock who have not theretofore surrendered their Company Stock
Certificates and otherwise complied with this ARTICLE II shall
thereafter look only to the Surviving Corporation, and only as a
general creditor, for payment of their claim for the Merger
Consideration and any dividends or distributions with respect to Parent
Common Stock, without interest. If any Company Common Stock shall not
have been surrendered prior to five years after the Effective Time (or
immediately prior to such earlier date on which any payment in respect
thereof would otherwise escheat to or become the property of any
Governmental Body), the payment in respect of such Company Stock
Certificates shall, to the extent permitted by applicable Law, become
the property of the Surviving Corporation, free and clear of all claims
or interest of any Person previously entitled thereto.
(g) Withholding Rights. Each of the Exchange Agent, Parent and
the Surviving Corporation shall be entitled to deduct and withhold from
the Merger Consideration payable or otherwise deliverable pursuant to
this Agreement to any holder or former holder of Company Stock
Certificates such amounts as may be required to be deducted or withheld
therefrom under the Code or any provision of state, local or foreign
Tax Law or under any other applicable Legal Requirement. Any amount
deducted and withheld shall be paid to the applicable Governmental
Body. To the extent such amounts are so deducted or withheld, such
amounts shall be treated for all purposes under this Agreement as
having been paid to the Person to whom such amounts would otherwise
have been paid.
6
(h) Certain Adjustments. If after the date hereof and on or
prior to the Effective Time, the outstanding shares of Company Common
Stock or Parent Common Stock shall be changed into a different number
of shares by reason of any reclassification, recapitalization,
split-up, combination or exchange of shares, or any dividend payable in
stock or other securities shall be declared thereon with a record date
within such period, or any similar event shall occur, the Merger
Consideration shall be adjusted accordingly to provide to the holders
of Company Common Stock the same economic effect as contemplated by
this Agreement prior to such reclassification, recapitalization,
split-up, combination, exchange or dividend or similar event.
(i) Dissenters' Rights.
(i) Notwithstanding any provision of this Agreement
to the contrary, any shares of Company Common Stock
outstanding immediately prior to the Effective Time and held
by Persons who shall have properly demanded payment of the
fair cash value of such shares of Company Common Stock in
accordance with Chapter 23 of the Tennessee Corporate Statutes
(collectively, the "DISSENTING SHARES") shall not be converted
into or represent the right to receive the Merger
Consideration as provided in Section 2.1(c). Such Persons
shall be entitled only to such rights as are granted under
Chapter 23 of the Tennessee Corporate Statutes, except that
all Dissenting Shares held by Persons who fail to perfect or
who effectively withdraw or lose their rights as Dissenting
Shareholders in respect of such shares under Chapter 23 of the
Tennessee Corporate Statutes shall thereupon be deemed to have
been converted into, as of the Effective Time, the right to
receive the applicable portion of the Merger Consideration,
without interest thereon, upon surrender of the Company Stock
Certificate therefor in the manner provided in Section 2.6.
(ii) The Company or the Surviving Corporation, as the
case may be, shall give Parent (A) prompt written notice of
any demands by the holders of Dissenting Shares (the
"DISSENTING SHAREHOLDERS") received by the Company or the
Surviving Corporation, withdrawals of such demands, any other
instruments served on the Company or the Surviving Corporation
and any material correspondence received by the Company or the
Surviving Corporation in connection with such demands; and (B)
the right to direct all negotiations and proceedings with
respect to such demands. Neither the Company nor the Surviving
Corporation shall, except with the prior written Consent of
Parent, make any payment with respect to any demands for
appraisal or offer to settle or settle any such demands. Any
funds paid to Dissenting Shareholders shall be paid out of the
Exchange Fund to the extent such payment is equal to or less
than the pro rata portion of the Merger Consideration to which
such Person would otherwise be entitled, and, if greater, the
excess shall be paid out of the assets of the Surviving
Corporation.
(j) Dividends and Distributions. No dividends or other
distributions declared or made with respect to Parent Common Stock with
a record date after the Effective Time shall be paid to the holder of
any unsurrendered Common Stock Certificate with respect to the shares
of Parent Common Stock that such holder has the right to receive in the
Merger until such holder surrenders such Common Stock Certificate in
accordance with this Section 2.6 (at which time such holder shall be
entitled, subject to the effect of applicable escheat or similar Laws,
to receive all such dividends and distributions, without interest).
(k) No Liability. Neither Parent nor the Surviving Corporation
shall be liable to any holder or former holder of Company Common Stock
or to any other Person with respect to any shares of Parent Common
Stock (or dividends or distributions with respect thereto), or for any
cash amounts, properly delivered to any public official pursuant to any
applicable abandoned property Law, escheat Law or similar Legal
Requirement.
ARTICLE III
POST CLOSING AUDIT AND ADJUSTMENT
Section 3.1 Adjustment Amount Calculation. Following the Closing Date,
the Shareholders' Representative and the Surviving Corporation will cause the
Person serving as the Company's Chief Financial Officer immediately prior to the
Closing Date, or a certified public accountant reasonably acceptable to Parent,
to
7
prepare a balance sheet of the Company as of the Closing Date (the "CLOSING
BALANCE SHEET"), and to prepare a computation of the Adjustment Amount as of the
Closing Date. The Shareholders' Representative will deliver the Closing Balance
Sheet to Parent within 45 days after the Closing Date. The Closing Balance Sheet
will be prepared in accordance with GAAP and the Adjustment Amount shall be
calculated in accordance with Section 2.4(c) of the Parent Disclosure Schedules.
If within 15 days following delivery of the Closing Balance Sheet and
calculation of the Adjustment Amount, Parent has not given the Shareholders'
Representative notice of objection to the Closing Balance Sheet and the
Adjustment Amount, then such Adjustment Amount shall be paid as provided in
Section 3.2. If Parent gives such notice of objection, then the parties shall
attempt to resolve the issues raised in the notice among themselves. If they are
unable to reach a resolution within 10 Business Days of such notice, the issues
in dispute will be submitted to KPMG LLP, certified public accountants (the
"ACCOUNTANTS"), for resolution. If issues in dispute are submitted to the
Accountants for resolution, (i) each party will furnish to the Accountants such
workpapers and other documents and information relating to the disputed issues
as the Accountants may request and are available to that party (or its
independent public accountants) and will be afforded the opportunity to present
to the Accountants any material relating to the determination and to discuss the
determination with the Accountants; (ii) the determination by the Accountants,
as set forth in a notice delivered to Parent and the Shareholders'
Representative by the Accountants, will be binding and conclusive on the
parties; and (iii) one-half of the fees of the Accountants for such
determination shall reduce the amount of the Adjustment Amount to be paid to the
Shareholders of the Company, and one-half of the fees shall be paid by Parent.
Section 3.2 Adjustment Amount Payment. On or before the second Business
Day following the final determination of the Adjustment Amount, if the
Adjustment Amount is less than the amount of the Adjustment Amount Holdback, (i)
Parent will deliver the difference between the Adjustment Amount and the
Adjustment Amount Holdback, as adjusted pursuant to Section 3.1 above, by wire
transfer of immediately available funds to the Designated Account; (ii) Parent
shall be entitled to keep an amount equal to the Adjustment Amount; and (iii)
the Adjustment Holdback Amount will be reduced to zero. On or before the second
Business Day following the final determination of the Adjustment Amount, if the
Adjustment Amount is equal to or greater than the Adjustment Amount Holdback,
(i) the Shareholders shall not be entitled to any portion of the Adjustment
Amount Holdback; (ii) Parent shall be entitled to keep an amount equal to the
Adjustment Amount; and (iii) the Adjustment Amount Holdback shall be reduced to
zero and the General Holdback Amount will be reduced by the amount the
Adjustment Amount exceeds the Adjustment Amount Holdback.
Section 3.3 Shareholders' Representative. The Shareholders'
Representative shall have the full power and authority to (i) receive any
notices to the Shareholders with respect to any matter arising under this
Agreement; (ii) provide any notice which may be required or allowed on the part
of the Shareholders or the Shareholders' Representative with respect to any
matter arising under this Agreement; (iii) resolve, settle, compromise, or
otherwise deal in any respect with any Claim asserted by or against the
Shareholders, the Company or the Surviving Corporation arising under this
Agreement including, without limitation, any Claim or dispute arising under or
in connection with Section 11.2 and Section 11.3; and (iv) sign any other
agreement, document, closing certificate, or other paper or take any other
action on behalf of the Company or the Shareholders in connection with this
Agreement and the transactions contemplated hereby. Parent, Merger Sub and the
Surviving Corporation shall be entitled to rely upon any action taken or notice
given or received by the Shareholders' Representative in accordance with this
Section 3.3.
Section 3.4 Transitional Personnel. Upon Closing, the Surviving
Corporation will offer employment to the persons listed in Section 3.4 of the
Company Disclosure Schedules for a period of three weeks following the Closing
Date to assist the Surviving Corporation with various transitional accounting
matters, and to assist the Shareholders' Representative with the preparation of
the Company's closing tax returns and the preparation of the Closing Balance
Sheet. The Surviving Corporation shall pay such employees compensation
commensurate with the compensation such employees received from the Company
immediately prior to the Closing, one-half of which shall reduce the amount of
the General Holdback Amount to be paid to the Shareholders of the Company, and
one-half of which shall be paid by Parent. Upon expiration of the aforementioned
three-week period, such employees shall continue to make themselves available to
the Shareholders' Representative and the Surviving Corporation for a reasonable
period of time and (i) to the extent both the Shareholders' Representative and
the Surviving Corporation continue to require the services of such employees,
one-half of such employees' compensation shall reduce the amount of the General
Holdback Amount to be paid to the Shareholders of the Company, and one-half
shall be paid by Parent; (ii) to the extent the Shareholders' Representative
continues to require the services of such employees but the Surviving
Corporation does not, 100% of the compensation due to such employees shall
reduce the amount of the General Holdback Amount; and (iii) to the extent the
Surviving Corporation continues to require the services of
8
such employees but the Shareholders' Representative does not, 100% of the
compensation due to such employees shall be paid by Parent.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub as
follows, subject to such exceptions as are specifically contemplated by this
Agreement or as are specifically set forth in the Company Disclosure Schedules:
Section 4.1 Organization and Good Standing.
(a) The Acquired Corporations are corporations duly organized,
validly existing, and in good standing under the Laws of their
respective jurisdictions of incorporation, with full corporate power
and authority to conduct their respective businesses as now being
conducted, to own or use the respective properties and assets that they
purport to own or use, and to perform all their respective obligations
under Acquired Corporation Contracts. Except as set forth in Section
4.1(b) of the Company Disclosure Schedules, each of the Acquired
Corporations is duly qualified to do business as a foreign corporation
and is in good standing under the Laws of each state or other
jurisdiction in which either the ownership or use of the properties
owned or used by it, or the nature of the activities conducted by it,
requires such qualification, except where the failure to be so
qualified would not reasonably be expected to, individually or in the
aggregate, result in a Material Adverse Effect on the Acquired
Corporations.
(b) Section 4.1(b) of the Company Disclosure Schedules lists
all Acquired Corporations and indicates as to each its jurisdiction of
organization, each jurisdiction in which it is qualified to do
business, its shareholders, and the number of shares of each class or
series of capital stock owned by such shareholder. The Company has
delivered to Parent copies of the charter, certificate or articles of
incorporation, bylaws and other similar organizational documents
(collectively, "ORGANIZATIONAL DOCUMENTS") of each of the Acquired
Corporations, as currently in effect. Neither the Company nor any
Acquired Corporation is in default under or in violation of any
provision of their respective Organizational Documents.
Section 4.2 Authority; No Conflict.
(a) The Company has all necessary power and authority to
execute and deliver this Agreement and the other agreements referred to
herein to perform its obligations hereunder and thereunder and to
consummate the Merger and the other transactions contemplated hereby
and thereby (collectively, the "CONTEMPLATED TRANSACTIONS"). The
execution and delivery of this Agreement by the Company and the
consummation by the Company of the Contemplated Transactions have been
duly and validly authorized by all necessary corporate action and no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the Contemplated Transactions
(other than, with respect to the Merger, the approval of the Merger,
this Agreement and the Contemplated Transactions by the holders of a
majority of the then outstanding shares of Company Common Stock (the
"REQUIRED COMPANY SHAREHOLDER VOTE") and the filing of appropriate
merger documents as required by the Tennessee Corporate Statutes. The
board of directors of the Company has unanimously approved the Merger
and adopted this Agreement and the Contemplated Transactions and
resolved to recommend to the Shareholders of the Company that they vote
in favor of the approval of this Agreement and the consummation of the
Contemplated Transactions in accordance with the Tennessee Corporate
Statutes. This Agreement has been duly and validly executed and
delivered by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in
accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar Laws of
general applicability relating to or affecting the rights of creditors
and to general principles of equity.
(b) Except as set forth in Section 4.2(b) of the Company
Disclosure Schedules, neither the execution and delivery of this
Agreement nor the consummation of any of the Contemplated Transactions
do or will, directly or indirectly (with or without notice or lapse of
time or both), (i) contravene, conflict
9
with, or result in a violation of (A) any provision of the
Organizational Documents of any of the Acquired Corporations; or (B)
any resolution adopted by the board of directors or the shareholders of
any of the Acquired Corporations; (ii) contravene, conflict with, or
result in a violation of any Legal Requirement or any order to which
any of the Acquired Corporations, or any of the assets owned or used by
any of the Acquired Corporations, is subject; (iii) contravene,
conflict with, or result in a violation of any of the terms or
requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate, or modify, any Governmental
Authorization that is held by any of the Acquired Corporations; (iv)
cause any of the Acquired Corporations to become subject to, or to
become liable for the payment of, any Tax; (v) to the Knowledge of the
Company, cause any of the assets owned by any of the Acquired
Corporations to be reassessed or revalued by any taxing authority or
other Governmental Body; (vi) contravene, conflict with, or result in a
violation or breach of any provision of, or give any Person the right
to declare a default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate, or modify, any
Acquired Corporation Contract; or (vii) result in the imposition or
creation of any Encumbrance upon or with respect to any of the assets
owned or used by any of the Acquired Corporations, except, in the case
of clauses (ii), (iii), (v), (vi) and (vii), for any such conflicts,
violations, breaches, defaults or other occurrences that would not
prevent or delay consummation of the Merger in any material respect, or
otherwise prevent the Company from performing its obligations under
this Agreement in any material respect, or could not reasonably be
expected to, individually or in the aggregate, result in a Material
Adverse Effect on the Acquired Corporations taken as a whole.
(c) The execution and delivery of this Agreement by the
Company do not, and the performance of this Agreement and the
consummation of the Contemplated Transactions by the Company will not,
require any Consent of, or filing with or notification to, any Person,
except (i) for (A) applicable requirements, if any, of the Securities
Act and state securities or "blue sky" Laws ("BLUE SKY LAWS"); (B)
filing of appropriate merger documents as required by the Tennessee
Corporate Statutes; (C) the Required Company Shareholder Vote; (ii) as
set forth in Section 4.2(c) of the Company Disclosure Schedules; and
(iii) where failure to obtain such Consents, or to make such filings or
notifications, would not prevent or delay consummation of the Merger in
any material respect, or otherwise prevent the Company from performing
its obligations under this Agreement in any material respect, or could
not reasonably be expected to, individually or in the aggregate, result
in a Material Adverse Effect on the Acquired Corporations, taken as a
whole.
Section 4.3 Capitalization. The authorized capital stock of the Company
consists of 10,000,000 shares of Company Common Stock and 1,000,000 shares of
Company Preferred Stock. As of the date hereof, (a) 2,236,650 shares of Company
Common Stock are issued and outstanding, all of which are duly authorized,
validly issued, fully paid and nonassessable and held by residents of the United
States; (b) 554,101 shares of Company Common Stock are reserved for issuance
upon the exercise of outstanding stock options pursuant to the Company's stock
incentive plans (the "COMPANY STOCK OPTIONS"); and (c) 114,815 shares of Company
Common Stock are reserved for issuance pursuant to the Company Stock Options not
yet granted. No shares of Company Preferred Stock have been issued, and no
shares of the Company Preferred Stock are outstanding. There are not any bonds,
debentures, notes or other indebtedness or securities of the Company having the
right to vote (or convertible into, or exchangeable for, securities having the
right to vote) on any matters on which Shareholders of the Company may vote.
Except as set forth above, as of the date hereof, no shares of capital stock or
other voting securities of the Company are issued, reserved for issuance or
outstanding and no shares of capital stock or other voting securities of the
Company will be issued or become outstanding after the date hereof other than
upon exercise of the Company Stock Options outstanding as of the date hereof.
Except as set forth in Section 4.3 of the Company Disclosure Schedules, there
are no options, stock appreciation rights, warrants or other rights, contracts,
arrangements or commitments (each, a "RIGHT") to which the Company is a party,
or, to the Company's Knowledge, any of its Shareholders are a party, relating to
the issued or unissued capital stock of any of the Acquired Corporations, or
obligating any of the Acquired Corporations to issue, grant or sell any shares
of capital stock of, or other equity interests in, or securities convertible
into equity interests in, any Acquired Corporation. Section 4.3 of the Company
Disclosure Schedules sets forth the name of each holder of any such Right along
with the name of the Right, the exercise price, the number of shares of Company
Common Stock into which it is convertible or exercisable, the date of grant, its
expiration date, and the name of the Person originally granted such Right, as
applicable. True, correct and complete copies of each agreement evidencing the
Rights listed in Section 4.3 of the Company Disclosure Schedules have been
delivered to Parent or its counsel. Since December 31, 2003, the Company has not
issued or reserved for issuance any shares of its capital stock, except upon the
exercise of the Company Stock Options. All shares of Company Common Stock
subject to issuance as described above will, prior to the Effective Date and
upon
10
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, be duly authorized, validly issued, fully paid and
nonassessable. As of the Effective Date, the holders of Company Stock Options
will only have the rights as provided in Section 2.3 hereof and will not be
entitled to receive any other securities of the Company or Parent or anything
further in connection with any Company Stock Option. Except as set forth in
Section 4.3 of the Company Disclosure Schedules, none of the Acquired
Corporations has any contract or other obligation to repurchase, redeem or
otherwise acquire any shares of Company Common Stock or any capital stock of any
of the Acquired Corporations, or make any investment (in the form of a loan,
capital contribution or otherwise) in any of the Acquired Corporations or any
other Person. Except as set forth in Section 4.3 of the Company Disclosure
Schedules, each outstanding share of capital stock of each of the Acquired
Corporations is duly authorized, validly issued, fully paid and nonassessable
and each such share owned by any of the Acquired Corporations is free and clear
of all Encumbrances. None of the outstanding equity securities or other
securities of any of the Acquired Corporations was issued in violation of the
Securities Act or any other Legal Requirement. None of the Acquired Corporations
owns, or has any contract or other obligation to acquire, any equity securities
or other securities of any Person (other than Subsidiaries of the Company) or
any direct or indirect equity or ownership interest in any other business. None
of the Acquired Corporations is or has ever been a general partner of any
general or limited partnership.
Section 4.4 No Subscription Receivables. As of the Closing Date, all
subscription receivables for Company Common Stock shall have been paid in full.
Section 4.5 Financial Statements.
(a) Section 4.5 of the Company Disclosure Schedules sets forth
true and complete copies of the consolidated audited balance sheet
(including detailed schedules of all accounts thereon), statements of
income, changes in shareholders' equity and cash flows for the fiscal
years ended December 31, 2001, December 31, 2002 and December 31, 2003,
and the unaudited consolidated balance sheet (including detailed
schedules of all accounts thereon) and statements of income for the
three-month period ended March 31, 2004 (collectively, the "COMPANY
FINANCIAL STATEMENTS"). The Company Financial Statements comply, as of
their respective dates, in all material respects with applicable
accounting requirements, have been prepared in accordance with GAAP
(except, in the case of unaudited statements which are subject to
normal year end adjustments that are not material and do not contain
notes required under GAAP) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and
fairly present in all material respects the financial position of the
Acquired Corporations as of the dates thereof and the consolidated
statement of income, cash flows and shareholders' equity for the
periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). The Company has no Off-Balance
Sheet Arrangements.
(b) The Company has delivered to Parent profit and loss
statements for each of the Acquired Corporations' stores reflecting the
operations of each store for each month from January 31, 2004 through
March 31, 2004 (each, a "PROFIT AND LOSS STATEMENT" and together, the
"PROFIT AND LOSS STATEMENTS"). Such Profit and Loss Statements are
complete and correct in all material respects, represent actual, bona
fide transactions, have been prepared from and are in accordance with
the accounting records of each of the Acquired Corporations' stores,
and present in all material respects the transactions and the
operations of such stores for the periods referred to in such Profit
and Loss Statements. The revenues set forth in the Profit and Loss
Statements represent actual payments received from customers of the
Acquired Corporations' stores and deposited into bank accounts of such
stores, are included as so set forth in the consolidated financial
statements of the Company for the corresponding periods and have been
reported in a manner consistent with the Company's financial reporting
accounting principles. The expenses reflected on the Profit and Loss
Statements are included in the consolidated financial statements of the
Company for the corresponding periods and are consistent with the
Company's financial reporting accounting principles, subject to such
changes due to reclassifications that occur in the Ordinary Course of
Business and are not material with respect to the operation of the
Acquired Corporations' stores.
(c) There are no significant deficiencies or material
weaknesses in the Company's internal controls. The Company maintains
accurate books and records reflecting its consolidated assets and
liabilities and maintains proper and adequate internal accounting
controls which provide assurance that (i) transactions are executed
with management's authorization; (ii) transactions are recorded as
necessary to permit preparation of the Company Financial Statements and
to maintain accountability for the Company's
11
consolidated assets; (iii) access to the Company's consolidated assets
is permitted only in accordance with management's authorization; (iv)
the reporting of the Company's consolidated assets is compared with
existing assets at regular intervals; and (v) accounts and inventory
are recorded accurately, and proper and adequate procedures are
implemented to effect the collection thereof on a current and timely
basis. All financial and operational information submitted by the
Company to Parent accurately and fairly represent in all material
respects the financial and operation information they purport to
represent on and as of the dates for the periods thereof.
Section 4.6 No Undisclosed Liabilities. Except as set forth in of the
Company Disclosure Schedules, the Acquired Corporations have no liabilities or
obligations of any nature (whether absolute, accrued, contingent, ▇▇▇▇▇▇ or
inchoate or otherwise), except for liabilities or obligations reflected or
reserved against in the Company's balance sheet at March 31, 2004 (the "COMPANY
BALANCE SHEET"), and current liabilities incurred in the Ordinary Course of
Business and not in violation of this Agreement since the date thereof (assuming
for this purpose that this Agreement had been in effect since the date of the
Company Balance Sheet). As of the date of the Company Balance Sheet, the
Company's liabilities or obligations reflected or reserved against in the
Company Balance Sheet totaled $22,314,838. As of the date hereof, the aggregate
outstanding balance on all of the Company's outstanding notes, each of which is
listed in Section 4.6 of the Company Disclosure Schedules, is $18,586,673.
Section 4.7 Property; Sufficiency of Assets.
(a) None of the Acquired Corporations own any real property or
any interest in real property. Section 4.7(a) of the Company Disclosure
Schedules contains an accurate and complete list of all the Acquired
Corporations' real property leases. A true and complete copy of all
real property leases of the Acquired Corporations have been delivered
to Parent. With respect to each real property lease of the Acquired
Corporations, including each store and/or service center lease (each, a
"LEASE"), (i) each Lease has been validly executed and delivered by the
appropriate Acquired Corporation and by the other party or parties
thereto and is a binding agreement; (ii) the Acquired Corporations are
not, and, to the Company's Knowledge, no other party to the Lease is,
in material breach or material default, and, no event has occurred on
the part of the Acquired Corporations or, to the Company's Knowledge,
on the part of any other party which, with notice or lapse of time,
would constitute such a breach or default or permit termination,
modification or acceleration under any Lease; (iii) except as set forth
on Section 4.7(a) of the Company Disclosure Schedules, each Lease will
continue to be binding in accordance with its terms following the
Closing Date; (iv) the Acquired Corporations have not repudiated and,
to the Company's Knowledge, no other party to any Lease has repudiated
any provision thereof; (v) there are no material disputes, oral
agreements or delayed payment programs in effect as to any Lease; and
(vi) all facilities leased under each Lease are fit for the operation
of the store and have been reasonably maintained. All heating, cooling,
lighting, plumbing and electrical systems under each Lease are in
reasonably good repair and working order.
(b) The Acquired Corporations (i) have good and valid title to
all property used in and material to the business of the Acquired
Corporations, free and clear of all Encumbrances except (A)
Encumbrances listed in Section 4.7(b)(i) of the Company Disclosure
Schedules; (B) statutory Encumbrances securing payments not yet due;
and (C) such imperfections or irregularities of title or Encumbrances
as do not affect the use of the properties or assets subject thereto or
affected thereby or otherwise materially impair business operations at
such properties, in either case in such a manner as to have a Material
Adverse Effect on the Acquired Corporations; and (ii) are collectively
the lessee of all personal property used in and material to the
business of the Acquired Corporations and are in possession of the
properties purported to be leased thereunder, and each such lease is
valid and in full force and effect without default thereunder by the
Acquired Corporation or, to the Company's Knowledge, the other party
thereto, other than defaults with respect to leases that are not
material to the Acquired Corporations or that would not have a Material
Adverse Effect on the Acquired Corporations.
(c) All material items of equipment and other tangible assets
owned by or leased to the Acquired Corporations are adequate for the
uses to which they are being put, are in good and safe condition and
repair (ordinary wear and tear excepted) and are adequate for the
conduct of the business of the Acquired Corporations in the manner in
which such business is currently being conducted.
12
Section 4.8 Intellectual Property. All trademark registrations,
trademark applications, and rights to register domain names of any Acquired
Corporation are set forth in Section 4.8 of the Company Disclosure Schedules.
Except in each case where the failure would not, individually or in the
aggregate, have a Material Adverse Effect on the Acquired Corporations or except
as disclosed in Section 4.8 of the Company Disclosure Schedules, (a) the
Acquired Corporations own all right, title and interest in or have valid and
enforceable rights to use, by license or other agreements, all of the
Intellectual Property that is currently used in the conduct of the business of
the Acquired Corporations, free of all Liens, pledges, charges, options, rights
of first refusal, security interests or other Encumbrances of any kind; (b) no
action, claim, arbitration, proceeding, audit, hearing, investigation,
litigation or suit (whether civil, criminal, administrative, investigative or
informal) has commenced, been brought or heard by or before any Governmental
Body or arbitrator or is pending or is threatened in a writing obtained by or
delivered to the Company by any third Person with respect to any Intellectual
Property owned by the Acquired Corporations in connection with the business of
the Acquired Corporations as currently conducted, including any claim or suit
that alleges that any such Intellectual Property infringes, impairs, dilutes or
otherwise violates the rights of others, and the Acquired Corporations are not
subject to any outstanding injunction, judgment, order, decree, ruling, charge,
settlement, or other dispute involving any third party's Intellectual Property;
(c) none of the Acquired Corporations has threatened or initiated any claim or
action against any third party with respect to any Intellectual Property; and
(d) the Acquired Corporations have no Knowledge of any conflict with or
infringements of any Intellectual Property of any third party.
Section 4.9 Rental Merchandise. All rental merchandise of the Acquired
Corporations was purchased, acquired or ordered in the Ordinary Course of
Business or pursuant to acquisitions and consistent with the regular rental
merchandise practices of the Acquired Corporations. All such rental merchandise,
including, to the Knowledge of the Company, all such rental merchandise
currently out on rent, is of a quality usable and merchantable in the operation
of the business and is in good repair and condition, ordinary wear and tear
excepted, except for obsolete items which have been written off in the Company
Financial Statements or on the accounting records of the Company as of the
Closing Date, as the case may be.
Section 4.10 Motor Vehicles and Equipment. Except as set forth in
Section 4.10 of the Company Disclosure Schedules, all vehicles and items of
equipment utilized by the Acquired Corporations are (a) mechanically sound and
in a condition to perform in the manner currently conducted by the Acquired
Corporations, ordinary wear and tear excepted; and (b) in material compliance
with all applicable statutes, ordinances and regulations, including without
limitation, those related to safety. Section 4.10 of the Company Disclosure
Schedules lists each motor vehicle lease to which any Acquired Corporation is a
party.
Section 4.11 Product Warranties. Except as set forth in Section 4.11 of
the Company Disclosure Schedules, none of the Acquired Corporations has given or
made any express warranties to third parties, including without limitation
customers, with respect to any products rented or sold by them, except for the
warranties imposed by the provisions of applicable Law. Except as set forth in
Section 4.11 of the Company Disclosure Schedules, neither the Company nor any
Acquired Corporation has any Knowledge of any fact or event forming the basis of
an actual or threatened claim against the Company or any Acquired Corporation
for product liability on account of any express or implied warranty.
Section 4.12 Material Contracts; No Defaults; Rental Purchase
Agreements.
(a) Section 4.12(a) of the Company Disclosure Schedules lists
each Material Contract. The Company has delivered to Parent true and
correct copies of each Material Contract and any other contracts or
agreements set forth in any section of the Company Disclosure
Schedules.
(b) Except as set forth in Section 4.12(b) of the Company
Disclosure Schedules: (i) none of the Acquired Corporations has
violated or breached, or committed any default under, any Acquired
Corporation Contract, except for violations, breaches and defaults that
have not had and would not have, individually or in the aggregate, a
Material Adverse Effect on the Acquired Corporations; and, to the
Knowledge of the Company, no other Person has violated or breached, or
committed any default under, any Acquired Corporation Contract, except
for violations, breaches and defaults that have not had and would not
have, individually or in the aggregate, a Material Adverse Effect on
the Acquired Corporations; (ii) to the Knowledge of the Company, no
event has occurred, and no circumstance or condition exists, that (with
or without notice or lapse of time) will (A) result in a violation or
breach of any of the provisions of any Acquired Corporation Contract;
(B) give any Person the right to declare a default or exercise any
remedy
13
under any Acquired Corporation Contract; (C) give any Person the right
to receive or require a rebate, chargeback, penalty or change in
delivery schedule under any Acquired Corporation Contract; (D) give any
Person the right to accelerate the maturity or performance of any
Acquired Corporation Contract, or (E) give any Person the right to
cancel, terminate or modify any Acquired Corporation Contract, except
in each such case for violations, breaches, defaults, acceleration
rights, termination rights and other rights that have not had and would
not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Acquired Corporations; and (iii) none of
the Acquired Corporations has received any written or, to the Company's
Knowledge, unwritten notice or other written or, to the Company's
Knowledge, unwritten communication regarding any actual or possible
violation or breach of, or default under, any Acquired Corporation
Contract, except in each such case for defaults, acceleration rights,
termination rights and other rights that have not had and would not
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Acquired Corporations.
(c) The Company has delivered to Parent true and correct
copies of all forms of rental purchase agreements utilized by the
Acquired Corporations or any of their respective predecessors during
the previous five years (the "RENTAL PURCHASE AGREEMENTS"). The form of
each Rental Purchase Agreement utilized by the Acquired Corporations or
any of their respective predecessors currently and during the previous
five years is and was, as the case may be, in compliance in all
material respects with all federal and state Laws. The Rental Purchase
Agreements were entered into in the Ordinary Course of Business of the
Acquired Corporations. Except for those matters below which would not,
individually or in the aggregate, have a Material Adverse Effect on the
Acquired Corporations, with respect to the Rental Purchase Agreements
currently utilized by the Acquired Corporations:
(i) each Rental Purchase Agreement is in full force
and effect and constitutes a valid, legal and binding
obligation of the contracting parties, enforceable against the
Acquired Corporation and to the Company's Knowledge, the other
party thereto, in accordance with its terms;
(ii) each of the Acquired Corporations has complied
in all material respects with the terms of each Rental
Purchase Agreement to which it is a party;
(iii) none of the Acquired Corporations is in breach,
violation or default under any Rental Purchase Agreement;
(iv) no event has occurred which constitutes, or with
the lapse of time or the giving of notice, or both would
constitute a breach, violation or default under any Rental
Purchase Agreement;
(v) the enforceability of each Rental Purchase
Agreement and the enjoyment of the rights and benefits
thereunder will not be affected in any respect by the
execution and delivery of this Agreement, the performance by
the parties of their obligations hereunder or the consummation
of the Contemplated Transactions.
Section 4.13 Major Suppliers. Section 4.13 of the Company Disclosure
Schedules lists each of the Acquired Corporations' vendors or suppliers, the
dollar value of purchases from each of which constituted greater than 10% of the
Company's revenue for the year ended December 31, 2003 (each, a "MAJOR
SUPPLIER"), and the dollar amount of business done with each Major Supplier in
such period. The Company has furnished Parent with complete and accurate copies
of all current written or summaries of unwritten agreements with such Major
Suppliers. Except as set forth in Section 4.13 of the Company Disclosure
Schedules, (i) no Acquired Corporation has engaged in a material dispute with
any Major Supplier; (ii) there has been no Material Adverse Effect with respect
to the business relationship of any Acquired Corporation and any Major Supplier
since December 31, 2003; and (iii) no Major Supplier has indicated in writing
any material modification or adverse change in the business relationship with
any Acquired Corporation, including but not limited to, a material reduction in
the volume of business transacted by such Major Supplier, as the case may be,
below historical levels.
Section 4.14 Insurance. The Acquired Corporations are covered by valid
and currently effective insurance policies with reputable insurance carriers
issued in favor of the Company that are customary for companies of similar size
and financial condition including, without limitation, fire and casualty,
general liability,
14
workers compensation and automobile policies. The Company has delivered to
Parent true, correct and complete copies of all such policies and all such
policies are in full force and effect, all premiums due thereon have been paid
and the Acquired Corporations have complied with the provisions of such
policies. The Acquired Corporations have not been advised of any defense to
coverage in connection with any claim to coverage asserted or noticed by the
Acquired Corporations under or in connection with any of their existing
insurance policies. The Acquired Corporations have not received any written
notice from or on behalf of any insurance carrier issuing policies or binders
relating to or covering any of the Acquired Corporations that there will be a
cancellation or non-renewal of existing policies or binders, or that alteration
of any equipment or any improvements to real estate occupied by or leased to or
by the Acquired Corporations, purchase of additional equipment, or material
modification of any of the methods of doing business, will be required.
Section 4.15 Taxes.
(a) Timely Filing of Tax Returns. The Acquired Corporations
have filed or caused to be filed on a timely basis all material Tax
Returns that are or were required to be filed by or with respect to any
of them, either separately or as a member of a group of corporations,
pursuant to applicable Legal Requirements; provided, however, that any
and all non-material Tax Returns have been filed on a timely basis
pursuant to applicable Legal Requirements when the failure to file such
Tax Returns would have caused a Material Adverse Effect on the Acquired
Corporations, taken as a whole. All Tax Returns filed by (or that
include on a consolidated basis) any of the Acquired Corporations were
(and, as to Tax Returns not filed as of the date hereof, will be) in
all material respects true, complete and correct and filed on a timely
basis.
(b) Payment of Taxes. The Acquired Corporations have, within
the time and in the manner prescribed by Law, paid (and until Closing
will pay within the time and in the manner prescribed by Law) all Taxes
that are due and payable, unless such Taxes are being disputed in good
faith as set forth in Section 4.15(b) of the Company Disclosure
Schedules.
(c) Withholding Taxes. Each of the Acquired Corporations has
complied (and until the Closing will comply) with all applicable Laws,
rules and regulations relating to the payment and withholding of Taxes
(including, but not limited to, withholding and reporting requirements
under the Code or Code Sections 1441 through 1464, 3401 through 3406,
6041 and 6049 and similar provisions under any other Laws) and have,
within the times and in the manner prescribed by Law, withheld from
employee wages and paid over to proper governmental authorities all
amounts required.
(d) Audits. Except as set forth in Section 4.15(d) of the
Company Disclosure Schedules, no Tax Return of any of the Acquired
Corporations is under audit or examination by any taxing authority, and
no written or unwritten notice of such an audit or examination has been
received by any of the Acquired Corporations and, the Acquired
Corporations have no Knowledge of any threatened audits, investigations
or claims for or relating to Taxes, and there are no matters under
discussion with any taxing authority with respect to Taxes. Except as
set forth in Section 4.15(d) of the Company Disclosure Schedules, no
issues relating to Taxes were raised in writing by the relevant taxing
authority during any presently pending audit or examination, and no
issues relating to Taxes were raised in writing by the relevant taxing
authority in any completed audit or examination that can reasonably be
expected to recur in a later taxable period. Section 4.15(d) of the
Company Disclosure Schedules lists, and the Company has delivered to
Parent copies of, all examiner's or auditor's reports, notices of
proposed adjustments or similar commissions received by any of the
Acquired Corporations from any taxing authority. Except as set forth
Section 4.15(d) of the Company Disclosure Schedules, no federal or
state Tax Returns of the Acquired Corporations have been examined by
and settled with the Internal Revenue Service or relevant state taxing
authorities for any year, that is otherwise open under the applicable
statute of limitations.
(e) Tax Reserves. The charges, accruals, and reserves with
respect to Taxes on the respective books of each of the Acquired
Corporations are adequate (and until Closing will continue to be
adequate) to pay all Taxes not yet due and payable and have been
determined in accordance with GAAP. No differences exist between the
amounts of the book basis and the Tax basis of assets (net of
liabilities) that are not accounted for on any accrual on the books of
the Acquired Corporations for federal income Tax purposes. There exists
no proposed assessment of Taxes against any of the Acquired
Corporations except as disclosed in Section 4.15(e) of the Company
Disclosure Schedules.
15
(f) Tax Liens. No Encumbrances for Taxes exist with respect to
any assets or properties of any of the Acquired Corporations, nor will
any such Encumbrances exist at Closing except for statutory Liens for
Taxes not yet due.
(g) Tax Sharing Agreements. Section 4.15(g) of the Company
Disclosure Schedules lists, and the Company has delivered to Parent
copies of, any Tax sharing agreement, Tax allocation agreement, Tax
indemnity obligation or similar written or unwritten agreement,
arrangement, understanding or practice with respect to Taxes (including
any advance pricing agreement, closing agreement or other agreement
relating to Taxes with any taxing authority) to which any of the
Acquired Corporations is a party or by which any of the Acquired
Corporations is bound. No such agreements shall be modified or
terminated prior to Closing without the Consent of Parent.
(h) Extensions of Time for Filing Tax Returns. Except as set
forth on Section 4.15(h) of the Company Disclosure Schedules, none of
the Acquired Corporations has requested any extension of time within
which to file any Tax Return, which Tax Return has not since been
filed.
(i) Waiver of Statutes of Limitations. None of the Acquired
Corporations has executed any outstanding waivers or comparable
Consents regarding the application of the statute of limitations with
respect to any Taxes or Tax Returns.
(j) Powers of Attorney. No power of attorney currently in
force has been granted by any of the Acquired Corporations concerning
any Taxes or Tax Return.
(k) Tax Rulings. None of the Acquired Corporations has
received or been the subject of a Tax Ruling or a request for Tax
Ruling. None of the Acquired Corporations has entered into a Closing
Agreement with any Governmental Body that would have a continuing
effect after the Closing Date. "Tax Ruling" shall mean a written ruling
of a Governmental Body relating to Taxes. "Closing Agreement" shall
mean a written and legally binding agreement with a Governmental Body
relating to Taxes.
(l) Availability of Tax Returns. Section 4.15(l) of the
Company Disclosure Schedules lists, and the Company has made available
to Parent complete and accurate copies of, all Tax Returns, and any
amendments thereto, filed by or on behalf of, or which include, any of
the Acquired Corporations, for taxable periods within the past five
years ending on or prior to the Closing Date.
(m) Opinions of Counsel. Section 4.15(m) of the Company
Disclosure Schedules lists, and Company has provided to Parent true and
complete copies of, all memoranda and opinions of counsel, whether
inside or outside counsel, and all memoranda and opinions of
accountants or other Tax advisors, which have been received by any of
the Acquired Corporations with respect to Taxes.
(n) Section 481 Adjustments. None of the Acquired Corporations
is required to include in income any adjustment pursuant to Section 481
of the Code by reason of a voluntary change in accounting method
initiated by any of the Acquired Corporations, and the Internal Revenue
Service has not proposed any such change in accounting method.
(o) S Corporation. The Company is an S corporation as defined
in Section 1361 of the Code, and the Company is not subject to the Tax
on passive income under Section 1375 of the Code nor the Tax on
built-in gains under Section 1374 of the Code. All of the Subsidiaries
of the Company are qualified Subchapter S subsidiaries as defined in
Section 1361(b)(3) of the Code. Section 4.15(o) of the Company
Disclosure Schedules lists all of the states and localities with
respect to which the Acquired Corporations are required to file any
corporate, income or franchise Tax Return and indicates whether the
Acquired Corporations are treated as the equivalent of an S corporation
or a qualified Subchapter S subsidiary, as applicable, by or with
respect to any such state or locality.
(p) Real Property Transfer Tax. Except as set forth in Section
4.15(p) of the Company Disclosure Schedules, none of the Acquired
Corporations owns any direct or indirect interest in real estate which
as a result of the Merger or any Contemplated Transaction would be
subject to any realty transfer Tax or similar Tax.
16
(q) Transfer Taxes. The Company shall pay all transfer Taxes
and other similar Taxes imposed due to the Merger or any Contemplated
Transaction.
(r) Section 6662 Understatement. The Company has disclosed on
its federal income Tax Returns all positions taken therein that could
give rise to a substantial understatement of federal income Tax within
the meaning of Section 6662 of the Code.
(s) Affiliated Group. Except as set forth in Section 4.15(s)
of the Company Disclosure Schedules, none of the Acquired Corporations
(a) has been a member of an affiliated group within the meaning of
Section 1504(a) of the Code (or any similar group defined under a
similar provision of state, local or foreign Law); or (b) has liability
for Taxes of any other Person under Treasury Regulation Section
1.1502-6 (or any similar provision of state, local or foreign Law) as a
transferee or successor by contract or otherwise.
(t) Partnerships. Except as set forth in Section 4.15(t) of
the Company Disclosure Schedules, none of the Acquired Corporations is
a partner or member of any entity treated as a partnership for federal
income Tax purposes.
(u) Qualification as a Reorganization. None of the Acquired
Corporations has taken any action, nor is there any fact or
circumstance applicable to the Acquired Corporations, that could
reasonably be expected to prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
Section 4.16 Employee Benefits.
(a) Except as set forth in Section 4.16(a) of the Company
Disclosure Schedules or as required under this Agreement, since
December 31, 2003, there has not been (i) any adoption or material
amendment by any of the Acquired Corporations of any collective
bargaining agreement or any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase,
stock option, phantom stock, stock appreciation right, retirement,
vacation, severance, disability, death benefit, hospitalization,
medical, worker's compensation, supplementary unemployment benefits, or
other plan, arrangement or understanding (whether or not legally
binding) or any employment agreement providing compensation or benefits
to any current or former employee, officer, director or independent
contractor of the Company or any of its Subsidiaries or any beneficiary
thereof or entered into, maintained or contributed to, as the case may
be, by any of the Acquired Corporations (collectively, "BENEFIT
PLANS"), or (ii) any adoption of, or amendment to, or change in
employee participation or coverage under, any Benefit Plans which would
increase materially the expense of maintaining such Benefit Plans above
the level of the expense incurred in respect thereof for the fiscal
year ended December 31, 2003. Except as expressly contemplated hereby
or as provided in Section 4.16(a) of the Company Disclosure Schedules,
neither the execution and delivery of this Agreement nor the
consummation of the Contemplated Transactions will (either alone or in
conjunction with any other event) result in, cause the accelerated
vesting or delivery of, or increase the amount or value of, any payment
or benefit to any employee of the Acquired Corporations and all Benefit
Plans permit assumption by Parent upon consummation of the Contemplated
Transactions without the Consent of any participant. Except as provided
in Section 4.16(a) of the Company Disclosure Schedule and payable
pursuant to Section 11.4, the Acquired Corporations have no severance
arrangements with any officer, director or employee of the Company or
any other Acquired Corporation.
(b) For purposes of this Agreement, the following definitions
apply: "CONTROLLED GROUP LIABILITY" means any and all liabilities under
(i) Title IV of ERISA; (ii) Section 302 of ERISA; (iii) Sections 412
and 4971 of the Code; (iv) the continuation coverage requirements of
Section 601 et seq. of ERISA and Section 4980B of the Code; and (v)
corresponding or similar provisions of foreign Laws, other than such
liabilities that arise solely out of, or relate solely to, the Plans;
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations thereunder; "ERISA AFFILIATE" means, with
respect to any Entity, trade or business, any other Entity, trade or
business that is a member of a group described in Section 414(b), (c),
(m) or (o) of the Code or Section 4001(b)(1) of ERISA that includes the
first Entity, trade or business, or that is a member of the same
"controlled group" as the first Entity, trade or business pursuant to
Section 4001(a)(14) of ERISA.
17
(c) Section 4.16(c) of the Company Disclosure Schedules
includes a complete list of all employee benefit plans, programs,
policies, practices, and other arrangements providing benefits to any
current or former employee, officer or director of any of the Acquired
Corporations or beneficiary or dependent thereof, whether or not
written, and whether covering one Person or more than one Person,
sponsored or maintained by any Acquired Corporation or to which any
Acquired Corporation contributes or is obligated to contribute
("PLANS"). Without limiting the generality of the foregoing, the term
"Plans" includes all employee welfare benefit plans within the meaning
of Section 3(1) of ERISA, all employee pension benefit plans within the
meaning of Section 3(2) of ERISA, and all other employee benefit,
bonus, incentive, deferred compensation, stock purchase, stock option,
severance, change of control and fringe benefit plans, programs or
agreements.
(d) With respect to each Plan, the Company has delivered to
Parent a true, correct and complete copy of: (i) each writing
constituting a part of such Plan, including without limitation all plan
documents, benefit schedules, trust agreements, and insurance contracts
and other funding vehicles; (ii) the most recent Annual Report (Form
5500 Series) and accompanying schedules, if any; (iii) the current
summary plan description and any material modifications thereto, if
any; (iv) the most recent annual financial report, if any; (v) the most
recent actuarial report, if any; and (vi) the most recent determination
letter from the IRS, if any. Except as specifically provided in the
foregoing documents delivered to Parent, there are no amendments to any
Plan or any new Plan that have been adopted or approved nor has the
Company undertaken to make any such amendments or adopt or approve any
new Plan.
(e) Section 4.16(e) of the Company Disclosure Schedules
identifies each Plan that is intended to be a "qualified plan" within
the meaning of Section 401(a) of the Code ("QUALIFIED PLANS"). The
Internal Revenue Service has issued a favorable determination letter
with respect to each Qualified Plan that has not been revoked, and, to
the Knowledge of the Company, there are no existing circumstances nor
any events that have occurred that could adversely affect the qualified
status of any Qualified Plan or the related trust.
(f) No Plan is intended to meet the requirements of Section
501(c)(9) of the Code as a "Voluntary Employee Benefits Association."
No Plan is a "Multiple Employer Welfare Arrangement" as defined in
Section 3(40) of ERISA.
(g) All contributions required to be made to any Plan by
applicable Law or regulation or by any plan document or other
contractual undertaking, and all premiums due or payable with respect
to insurance policies funding any Plan, for any period through the date
hereof have been timely made or paid in full or, to the extent not
required to be made or paid on or before the date hereof, have been
fully reflected on the Company Financial Statements.
(h) The Company has complied, and is now in compliance, in all
material respects with all provisions of ERISA, the Code and all Laws
and regulations applicable to the Plans (including, without limitation
(i) with respect to each Plan that is a "group health plan," as defined
in Section 607(1) of ERISA or Section 5000(b)(1) of the Code (A) the
provisions of Part 6 and 7 of Title I, Subtitle B of ERISA, Sections
1171 through 1179 of the Social Security Act (relating generally to
security and electronic transfer of health information) and Sections
4980B, 9801 and 9833 of the Code; and (B) the privacy requirements
described in the regulations issued under sections 262 and 264 of the
Health Insurance Portability and Accountability Act of 1996; and (ii)
with respect to each Plan that is a Qualified Plan, the requirements of
Sections 401(a) and 501(a) of the Code applicable to any such Plan
maintained by the Company ). There is not now, nor do any circumstances
exist that could give rise to, any requirement for the posting of
security with respect to a Plan or the imposition of any Encumbrance on
the assets of the Company under ERISA or the Code. There is no
liability with respect to any transaction that relates to a Plan that
violates Sections 404 or 406 of ERISA or which constitutes a prohibited
transaction as defined in Section 4975(c)(i) of the Code and for which
no exemption exists under Section 408 of ERISA or Section 4975(c)(2) of
the Code.
(i) With respect to each Plan that is subject to Title IV or
Section 302 of ERISA or Section 412 or 4971 of the Code: (i) there does
not exist any accumulated funding deficiency within the meaning of
Section 412 of the Code or Section 302 of ERISA, whether or not waived;
(ii) all "required installments" within the meaning of Section 412(m)
of the Code or Section 302(e) of ERISA have been paid when due; (iii)
the fair market value of the assets of such Plan equals or exceeds the
actuarial present value of all
18
accrued benefits under such Plan (whether or not vested), on a
termination basis using the interest rate set forth in the Plan or
otherwise required by ERISA or the Code; (iv) no reportable event
within the meaning of Section 4043(c) of ERISA has occurred, and the
consummation of the Contemplated Transactions will not result in the
occurrence of any such reportable event; (v) no lien under Section
412(n) of the Code or Sections 302(f) or 4068 of ERISA has been
imposed; (vi) there is no requirement that security be provided under
Section 401(a)(29) of the Code; and (vii) all premiums to the Pension
Benefit Guaranty Corporation have been timely paid in full. All
liabilities in connection with the termination of any employee pension
benefit plan that was sponsored, maintained or contributed to by any
Acquired Corporation at any time within the past three years have been
fully satisfied.
(j) Except as set forth on Section 4.16(j) of the Company
Disclosure Schedules, no Plan is a "multiemployer plan" within the
meaning of Section 4001(a)(3) of ERISA (a "MULTIEMPLOYER PLAN") or a
plan that has two or more contributing sponsors at least two of whom
are not under common control, within the meaning of Section 4063 of
ERISA (a "MULTIPLE EMPLOYER PLAN").
(k) There does not now exist, nor do any circumstances exist
that could result in, any Controlled Group Liability that would be a
liability of any Acquired Corporation following the Closing. Without
limiting the generality of the foregoing, neither any Acquired
Corporation nor any ERISA Affiliate of any Acquired Corporation has
engaged in any transaction described in Section 4069 or Section 4204 of
ERISA.
(l) No Acquired Corporation has any liability for life,
health, medical or other welfare benefits to former employees, retirees
or beneficiaries or dependents thereof, except for health continuation
coverage as required by Section 4980B of the Code or Part 6 of Title I
of ERISA.
(m) All Plans covering foreign employees of the Acquired
Corporations comply with applicable local Law and are fully funded
and/or book reserved to the extent applicable.
(n) No labor organization or group of employees of the
Acquired Corporations has made a pending demand for recognition or
certification, and there are no representation or certification
proceedings or petitions seeking a representation proceeding presently
pending or, to the Knowledge of the Company, threatened to be brought
or filed, with the National Labor Relations Board or any other labor
relations tribunal or authority. Each of the Acquired Corporations has
complied with the Worker Adjustment and Retraining Notification Act.
(o) There are no pending or, to the Knowledge of the Company,
threatened claims (other than claims for benefits in the ordinary
course), lawsuits or arbitrations which have been asserted or
instituted against the Plans, any fiduciaries thereof with respect to
their duties to the Plans or the assets of any of the trusts under any
of the Plans which could reasonably be expected to result in any
material liability of any Acquired Corporation to the Pension Benefit
Guaranty Corporation, the Department of Treasury, the Department of
Labor or any Multiemployer Plan.
(p) Section 4.16(p) of the Company Disclosure Schedules
contains an accurate and complete list as of the date of this Agreement
of all loans and advances made by any of the Acquired Corporations to
any employee, officer, director, consultant or independent contractor,
other than routine travel and expense advances made to employees in the
Ordinary Course of Business.
(q) Except as provided in Section 4.16(q) of the Company
Disclosure Schedules or Section 11.4, the Contemplated Transactions
will not result in any payment (whether of separation pay or otherwise)
becoming due from any Acquired Corporation to any current or former
employee, director or consultant, or result in the vesting,
acceleration of payment or increase in the amount of any benefit
payable to or in respect of any such current or former employee,
director or consultant of any Acquired Corporation. There is no
contract, agreement, plan or arrangement covering any current or former
employee, director, or consultant of any Acquired Corporation that,
individually or collectively, could give rise to the payment of any
amount that would not be deductible pursuant to the terms of Sections
162(a)(1) and/or 280G of the Code or would require the payment of an
excise Tax imposed by Section 4999 of the Code or of any gross up of
any such excise Tax.
19
Section 4.17 Labor Matters. None of the Acquired Corporations has been,
and is not now, a party to any collective bargaining agreement or other labor
contract and there has not been, there is not presently pending (including
matters which are on appeal or have not been fully funded, and administrative
matters that may be closed but with respect to which the applicable statute of
limitations has not run) or existing, and, to the Company's Knowledge, there is
not threatened, any strike, slowdown, picketing, work stoppage or employee
grievance process involving an Acquired Corporation. To the Company's Knowledge,
no event has occurred or circumstance exists that could provide the basis for
any work stoppage or other labor dispute and there is not pending or threatened
against or affecting an Acquired Corporation any proceeding relating to the
alleged violation of any Legal Requirement pertaining to labor relations or
employment matters, including any charge or complaint filed with the National
Labor Relations Board or any comparable Governmental Body, and there is no
organizational activity or other labor dispute against or affecting an Acquired
Corporation. No application or petition for an election of or for certification
of a collective bargaining agent is pending and no grievance or arbitration
proceeding exists that might have an adverse effect upon an Acquired
Corporation. There is no lockout of any employees by an Acquired Corporation,
and no such action is contemplated by any Acquired Corporation. Except as set
forth in Section 4.17 of the Company Disclosure Schedules, there has been no
charge of discrimination filed or, to the Company's Knowledge, threatened
against any Acquired Corporation with the Equal Employment Opportunity
Commission or similar Governmental Body. The Company has provided Parent or its
counsel true, correct and complete copies of all employee hand books currently
in use by any Acquired Corporation and which have been used in the last five
years by any Acquired Corporation. Except as set forth in Section 4.17 of the
Company Disclosure Schedules, to the Company's Knowledge, the Acquired
Corporations have complied in all material respects with the policies and
procedures set forth in such employee hand books. The Acquired Corporations are
in material compliance with all federal and state Laws respecting employment,
including but not limited to, gender, race, disability, national origin or age
discrimination, the Occupational Safety and Health Act of 1970, as amended, the
Family and Medical Leave Act of 1993, as amended, the terms and conditions of
employment of their respective employees and the federal and state Legal
Requirements regarding wages and hours.
Section 4.18 Compliance With Applicable Legal Requirements; Litigation.
(a) The Acquired Corporations hold all permits, licenses,
variances, exemptions, orders, registrations and approvals of all
Governmental Entities which are required for the operation of the
respective businesses of the Acquired Corporations as presently
conducted (collectively, the "COMPANY PERMITS"), except where the
failure to have any such Company Permits individually or in the
aggregate would not have a Material Adverse Effect on the Acquired
Corporations. Notwithstanding the foregoing, the Acquired Corporations
are in compliance with the terms of the Company Permits and all
applicable Legal Requirements, except where the failure so to comply
individually or in the aggregate would not have a Material Adverse
Effect on the Acquired Corporations. All of the Company Permits are in
full force and effect and no suspension or cancellation of any Company
Permit is threatened.
(b) The Company has furnished Parent copies of (i) all
attorney responses to the request of the independent auditors for the
Company with respect to loss contingencies as of December 31, 2003,
2002 and 2001 in connection with the Company's financial statements for
the years then ended; and (ii) a written list of legal and regulatory
proceedings filed against the Acquired Corporations which are pending
(including matters which are on appeal or have not been fully funded,
and administrative matters that may be closed but with respect to which
the applicable statute of limitations has not run) as of the date of
this Agreement. There are no actions, suits, investigations, complaints
or proceedings (including any proceedings in arbitration) pending
(including matters which are on appeal or have not been fully funded,
and administrative matters that may be closed but with respect to which
the applicable statute of limitations has not run) or, to the Knowledge
of the Company, threatened against the Acquired Corporations or any of
their respective officers, directors, employees, agents, at Law or in
equity, in any court or before any Governmental Body, except actions,
suits, investigations, complaints or proceedings that are set forth in
Section 4.18(b) of the Company Disclosure Schedules.
(c) Except as set forth in Section 4.18(c) of the Company
Disclosure Schedules, there are no Legal Proceedings pending or, to the
Company's Knowledge, threatened against the Acquired Corporations or
any of their respective officers, directors, employees, agents, at Law
or in equity, in any court or before any Governmental Body, by Persons
alleging violations of the provisions of the Rental Purchase
Agreements, rent-to-own statutes or any other consumer protection Law
or by Persons alleging violations of federal or state Laws respecting
employment, including but not limited to, gender, race, disability,
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national origin or age discrimination, violations of the Occupational
Safety and Health Act of 1970, as amended, the Family and Medical Leave
Act of 1993, as amended, terms and conditions of employment or the
federal or state Legal Requirements regarding wages and hours.
(d) Except as set forth in Section 4.18(d) of the Company
Disclosure Schedules, there is no pending Legal Proceeding (i) that has
been commenced by or against any of the Acquired Corporations or that
otherwise relates to or may affect the business of, or any of the
assets owned or used by, any of the Acquired Corporations; (ii) that
challenges, or that may have the effect of preventing, delaying, making
illegal, or otherwise interfering with, any of the Contemplated
Transactions; or (iii) against any director or officer of any of the
Acquired Companies pursuant to Section 8A or 20(b) of the Securities
Act. The Company and each of Acquired Corporations has conducted their
respective operations in compliance in all material respects with all
applicable Laws, including rules, regulations, codes, plans,
agreements, contracts, injunctions, orders, rulings and charges
thereunder, and are not in material default with respect to any
agreement, directive, memorandum of understanding or order applicable
to the Company or any of the Acquired Corporations.
(e) To the Knowledge of the Company, no event has occurred or
circumstance exists that may give rise to or serve as a basis for the
commencement of any Legal Proceeding, which, if threatened, would be
required to be disclosed under Section 4.18(c) or Section 4.18(d).
(f) The Acquired Corporations' stores and the operation and
maintenance thereof, as now operated or maintained, do not contravene
any zoning ordinance or other administrative Law (whether or not
permitted because of prior nonconforming use) or violate any existing
restrictive covenant or any provision of existing and applicable Law,
the effect of which in any respect would interfere with or prevent the
continued use of the properties for the purposes for which they are now
being used or would reduce the value thereof.
Section 4.19 Inappropriate Payments. Neither the Company, the Acquired
Corporations, nor any Representative of any Acquired Corporation acting on
behalf of an Acquired Corporation, has, directly or indirectly, made any bribes,
kickbacks, illegal payments or illegal political contributions using Company or
any Acquired Corporation funds or made any illegal payments from the Company's
or the Acquired Corporations' funds to obtain or retain business.
Section 4.20 Environmental Matters. Each of the Acquired Corporations
is, and at all times has been, in material compliance with, and has not been and
is not in material violation of or subject to any liability under, any
Environmental Law. None of the Acquired Corporations has any basis to expect,
nor has any of them or any other Person for whose conduct they are or may be
held to be responsible received, any actual or threatened order, notice, or
other communication from (i) any Governmental Body or private citizen acting in
the public interest; or (ii) the current or prior owner or operator of any
Facilities, of any actual or potential violation of or failure to comply with
any Environmental Law, or of any actual or threatened material obligation to
undertake or bear the cost of any Environmental, Health, and Safety Liabilities.
No Acquired Corporation has any Environmental, Health, and Safety Liabilities
with respect to any Facilities or any other properties or assets (whether real,
personal, or mixed) in which any of the Acquired Corporations has or has had an
interest, or with respect to any property or Facility at or to which Hazardous
Materials were generated, manufactured, refined, transferred, imported, used, or
processed by any of the Acquired Corporations or any other Person for whose
conduct they are or may be held responsible, or from which Hazardous Materials
have been transported, treated, stored, handled, transferred, disposed,
recycled, or received.
Section 4.21 Absence of Certain Changes and Events. Except as set forth
in Section 4.21 of the Company Disclosure Schedules or as specifically
contemplated by this Agreement, since the date of the Company Balance Sheet, the
Acquired Corporations have conducted their businesses only in the Ordinary
Course of Business and there has not been, individually or in the aggregate, any
Material Adverse Effect on the Acquired Corporations, and no event has occurred
or circumstance exists that may result in:
(a) individually or in the aggregate, a Material Adverse
Effect on the Acquired Corporations;
(b) any action or event of the type described in Section 6.3;
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(c) any material loss, damage or destruction to, or any
material interruption in the use of, any of the assets of any of the
Acquired Corporations (whether or not covered by insurance) that has
had or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Acquired Corporations;
(d) (i) any declaration, accrual, set aside or payment of any
dividend or any other distribution in respect of any shares of capital
stock of any Acquired Corporation; or (ii) any repurchase, redemption
or other acquisition by any Acquired Corporation of any shares of
capital stock or other securities;
(e) any sale, issuance or grant, or authorization of the
issuance of, (i) any capital stock or other security of any Acquired
Corporation (except for Company Common Stock issued upon the valid
exercise of outstanding Company Stock Options), (ii) any option,
warrant or right to acquire any capital stock or any other security of
any Acquired Corporation (except for Company Stock Options described in
Section 4.3), or (iii) any instrument convertible into or exchangeable
for any capital stock or other security of any Acquired Corporation;
(f) any amendment or waiver of any of the rights of any
Acquired Corporation under, or acceleration of vesting under, (i) any
provision of any of the Company's stock incentive plans; (ii) any
provision of any contract evidencing any outstanding Company Stock
Option; or (iii) any restricted stock purchase agreement;
(g) any amendment to any Organizational Document of any of the
Acquired Corporations, or any merger, consolidation, share exchange,
business combination, recapitalization, reclassification of shares,
stock split, reverse stock split or similar transaction involving any
Acquired Corporation;
(h) any creation of any Subsidiary of an Acquired Corporation
or acquisition by any Acquired Corporation of any equity interest or
other interest in any other Person;
(i) any capital expenditure by any Acquired Corporation which,
when added to all other capital expenditures made on behalf of the
Acquired Corporations since the date of the Company Balance Sheet,
exceeds $25,000 in the aggregate;
(j) except in the Ordinary Course of Business, any action by
the Acquired Corporations to (i) enter into or suffer any of the assets
owned or used by it to become bound by any Material Contract; or (ii)
amend or terminate, or waive any material right or remedy under, any
Material Contract;
(k) except for rights or other assets acquired, leased,
licensed or disposed of in the Ordinary Course of Business, any (i)
acquisition, lease or license by any Acquired Corporation of any right
or other asset from any other Person; (ii) sale or other disposal or
lease or license by any Acquired Corporation of any right or other
asset to any other Person; or (iii) waiver or relinquishment by any
Acquired Corporation of any right;
(l) any pledge of any assets of or sufferance of any of the
assets of an Acquired Corporation to become subject to any Encumbrance,
except for statutory pledges of immaterial assets made in the Ordinary
Course of Business;
(m) any revaluation by an Acquired Corporation of any asset
(including, without limitation, any writing down of the value of rental
merchandise), other than in the Ordinary Course of Business;
(n) any cancellation or compromise by an Acquired Corporation
of any material debt or claim;
(o) any transaction that if taken after the date hereof would
constitute a violation of Section 6.2 hereof;
(p) any (i) loan by an Acquired Corporation to any Person; or
(ii) incurrence or guarantee by an Acquired Corporation of any
indebtedness for borrowed money;
22
(q) any (i) adoption, establishment, entry into or amendment
by an Acquired Corporation of any Plan or (ii) payment of any bonus or
any profit sharing or similar payment to, or material increase in the
amount of the wages, salary, commissions, fringe benefits or other
compensation or remuneration payable to, any of the directors, officers
or employees of any Acquired Corporation;
(r) any change of the methods of accounting or accounting
practices of any Acquired Corporation in any material respect;
(s) any material Tax election by any Acquired Corporation;
(t) any commencement or settlement of any Legal Proceeding by
any Acquired Corporation; or
(u) any action or failure to take any action that would result
in the occurrence of any of the foregoing.
Section 4.22 Average Monthly Recurring Revenue-Three Months. The
Company's average Monthly Recurring Revenue, calculated for the months of
January 2004, February 2004 and March 2004 in a manner consistent with the
accounting principles utilized in the Company Financial Statements (as adjusted
in the definition of Monthly Recurring Revenue), is no less than $4,579,795 per
month.
Section 4.23 Monthly Revenue-One Month. The Company's Monthly Recurring
Revenue calculated for the month of March 2004 in a manner consistent with the
accounting principles utilized in the Company Financial Statements (as adjusted
in the definition of Monthly Recurring Revenue), is no less than $4,498,892.
Section 4.24 Net Book Value of Inventory. The net book value of the
Company's inventory, as of the date hereof, is no less than $19,500,000.
Section 4.25 No Franchises. None of the Acquired Corporations is a
party to any franchise agreement, nor has any Acquired Corporation offered to
any Person or Entity any franchise for the operation of any business.
Section 4.26 Interests of Officers, Directors and Affiliates. Except as
set forth in Section 4.26 of the Company Disclosure Schedules, none of the
officers or directors of any of the Acquired Corporations or any of their
respective affiliates (other than the Acquired Corporations) has any interest in
(i) any property, real or personal, tangible or intangible, used in or
pertaining to the business of the Acquired Corporations; or (ii) any continuing
liabilities and obligations (absolute, contingent or otherwise) of an Acquired
Corporation; (iii) any supplier, distributor or customer of the Acquired
Corporations, or any other relationship, contract, agreement, arrangement or
understanding with the Acquired Corporations. Each officer, director and
Shareholder beneficially owning 5% or more of the Company Common Stock is set
forth in Section 4.26 of the Company Disclosure Schedules.
Section 4.27 Brokers. No broker, finder, investment banker or other
Person is entitled to any brokerage, finder's or other fee or commission in
connection with the Merger and the Contemplated Transactions based upon
arrangements made by or on behalf of any Acquired Corporation.
Section 4.28 Amended and Restated Stock Option Plan. Section 4.28 of
the Company Disclosure Schedules provides a true, correct and complete copy of
the Stock Option Plan.
Section 4.29 Liens. The security interests, liens and encumbrances
listed in Section 4.29 of the Company Disclosure Schedules do not impose or
create any Encumbrance upon or with respect to any of the assets owned or used
by any of the Acquired Corporations.
Section 4.30 Full Disclosure. This Agreement (including the Company
Disclosure Schedules) does not (a) contain any representation, warranty or
information that is false or misleading with respect to any material fact; or
(b) omit to state any material fact necessary in order to make the
representations, warranties and information contained and to be contained herein
and therein (in light of the circumstances under which such representations,
warranties and information were or will be made or provided) not false or
misleading.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub, jointly and severally, represent and warrant to
the Company as follows:
Section 5.1 Organization and Good Standing. Parent and Merger Sub are
corporations duly organized, validly existing, and in good standing under the
Laws of the State of Delaware, with full corporate power and authority to
conduct their respective businesses as now being conducted, to own or use the
respective properties and assets that they purport to own or use, and to perform
all their respective obligations under contracts to which Parent or Merger Sub
is party or by which Parent or Merger Sub or any of their respective assets are
bound. Parent and Merger Sub are duly qualified to do business as foreign
corporations and are in good standing under the Laws of each state or other
jurisdiction in which either the ownership or use of the properties owned or
used by them, or the nature of the activities conducted by them, requires such
qualification, except where the failure to be so qualified could not reasonably
be expected to, individually or in the aggregate, result in a Material Adverse
Effect on Parent and Merger Sub, taken as a whole.
Section 5.2 Authority; No Conflict.
(a) Parent has all necessary power and authority to execute
and deliver this Agreement and the other agreements referred to herein,
to perform its obligations hereunder and thereunder and to consummate
the Merger and the Contemplated Transactions. The execution and
delivery of this Agreement by Parent and the consummation by Parent of
the Contemplated Transactions have been duly and validly authorized by
all necessary corporate action and no other corporate proceedings on
the part of Parent are necessary to authorize this Agreement or to
consummate the Contemplated Transactions. The board of directors of
Parent has unanimously approved this Agreement and declared it to be
advisable. This Agreement has been duly and validly executed and
delivered by Parent and constitutes the legal, valid and binding
obligation of Parent, enforceable against Parent in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar Laws of general applicability
relating to or affecting the rights of creditors and to general
principles of equity.
(b) Merger Sub has all necessary power and authority to
execute and deliver this Agreement and the other agreements referred to
herein, to perform its obligations hereunder and thereunder and to
consummate the Merger and the Contemplated Transactions. The execution
and delivery of this Agreement by Merger Sub and the consummation by
Merger Sub of the Contemplated Transactions have been duly and validly
authorized by all necessary corporate action and no other corporate
proceedings on the part of Merger Sub are necessary to authorize this
Agreement or to consummate the Contemplated Transactions (other than,
with respect to the Merger, the filing of appropriate merger documents
as required by the DGCL). The board of directors of Merger Sub has
unanimously approved this Agreement, declared it to be advisable and
resolved to recommend to Parent that it vote in favor of the adoption
of this Agreement in accordance with the DGCL. This Agreement has been
duly and validly executed and delivered by Merger Sub and constitutes
the legal, valid and binding obligations of Merger Sub, enforceable
against Merger Sub in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
Laws of general applicability relating to or affecting the rights of
creditors and to general principles of equity.
(c) Except as set forth in Section 5.2(c) of the Parent
Disclosure Schedules, neither the execution and delivery of this
Agreement nor the consummation of any of the Contemplated Transactions
will, directly or indirectly (with or without notice or lapse of time
or both) (i) contravene, conflict with, or result in a violation of (A)
any provision of the Organizational Documents of Parent or Merger Sub;
or (B) any resolution adopted by the board of directors or the
stockholders of Parent or Merger Sub; (ii) contravene, conflict with,
or result in a violation of any Legal Requirement or any Order to which
Parent or Merger Sub, or any of the assets owned or used by Parent or
Merger Sub, may be subject; (iii) contravene, conflict with, or result
in a violation of any of the terms or requirements of, or give any
Governmental Body the right to revoke, withdraw, suspend, cancel,
terminate, or modify, any Governmental Authorization that is held by
Parent or Merger Sub, or that otherwise relates to the business of, or
any of the assets owned or used by, Parent or Merger Sub; or (iv)
contravene, conflict with, or result in a violation or breach of any
provision of, or give any Person the right to declare a default or
exercise any
24
remedy under, or to accelerate the maturity or performance of, or to
cancel, terminate, or modify, any contract to which Parent or Merger
Sub is party or by which Parent or Merger Sub or any of their
respective assets are bound, except, in the case of clauses (ii),
(iii), and (iv), for any such conflicts, violations, breaches, defaults
or other occurrences that would not prevent or delay consummation of
the Merger in any material respect, or otherwise prevent Parent or
Merger Sub from performing its obligations under this Agreement in any
material respect, and could not reasonably be expected to, individually
or in the aggregate, adversely affect Parent and Merger Sub, taken as a
whole, in any material respect.
(d) The execution and delivery of this Agreement by Parent and
Merger Sub do not, and the performance of this Agreement and the
consummation of the Contemplated Transactions by Parent will not,
require any Consent of, or filing with or notification to, any Person
which has not already been received, filed or given, except (i) for (A)
applicable requirements, if any, of the Exchange Act, the Securities
Act, the Nasdaq Stock Market and Blue Sky Laws; and (B) filing of
appropriate merger documents as required by the DGCL; (ii) as set forth
in Section 5.2(c) of the Parent Disclosure Schedules; and (iii) where
failure to obtain such Consents, or to make such filings or
notifications, would not prevent or delay consummation of the Merger in
any material respect, or otherwise prevent Parent or Merger Sub from
performing its obligations under this Agreement in any material
respect, and could not reasonably be expected to, individually or in
the aggregate, result in a Material Adverse Effect on Parent and Merger
Sub, taken as a whole.
Section 5.3 Brokers. No broker, finder, investment banker or other
Person is entitled to any brokerage, finder's or other fee or commission in
connection with the Merger and the Contemplated Transactions based upon
arrangements made by or on behalf of Parent or Merger Sub.
Section 5.4 Financial Capability. Based on existing cash reserves or
availability under existing credit facilities, Parent has the funds necessary to
finance the Cash Consideration contemplated hereby and provide for the ongoing
working capital needs of the Surviving Corporation. Parent has sufficient
authorized shares of Parent Common Stock which are not issued, subscribed for or
otherwise reserved for issuance to issue the Stock Consideration.
Section 5.5 Financial Statements and Reports. The financial statements
of Parent and its Subsidiaries included in Parent's filings with the SEC for the
last three fiscal years (including the related notes) complied as to form, as of
their respective dates of filing with the SEC in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto (including, without limitation, Regulation S-X),
have been prepared in accordance with GAAP (except, in the case of unaudited
statements, as permitted by Quarterly Report Form 10-Q of the SEC) applied on a
consistent basis during the periods and at the dates involved (except as may be
indicated in the notes thereto) and fairly present the consolidated financial
condition of Parent and its Subsidiaries at the dates thereof and the
consolidated results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to notes and normal year-end
audit adjustments that were not material in amount or effect).
Section 5.6 SEC Reports. To Parent's Knowledge, Parent has on a timely
basis filed all forms, reports and documents required to be filed by it with the
SEC since January 1, 2002. Except to the extent available in full without
redaction on the SEC's web site through the Electronic Data Gathering, Analysis
and Retrieval System ("▇▇▇▇▇") at least two days prior to the date of this
Agreement, Parent has provided to counsel to the Company copies in the form
filed with the SEC of (i) Parent's Annual Reports on Form 10-K for each fiscal
year of Parent beginning since January 1, 2002; (ii) its Quarterly Reports on
Form 10-Q for each of the first three fiscal quarters in each of the fiscal
years of Parent referred to in clause (i) above; (iii) all proxy statements
relating to Parent's meetings of stockholders (whether annual or special) held,
and all information statements relating to stockholder consents since the
beginning of the first fiscal year referred to in clause (i) above; (iv) all
certifications required by (x) Rule 13a-14 or 15d-14 under the Exchange Act, or
(y) 18 U.S.C. Section 1350 (Section 906 of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002) with
respect to any applicable report referred to in clauses (i) or (ii) above; and
(v) all other forms, reports, registration statements and other schedules (other
than preliminary materials if the corresponding definitive materials have been
provided to counsel to the Company pursuant to this Section 5.6, correspondence
with the SEC, or Form 11-Ks) filed by Parent with the SEC since the beginning of
the first fiscal year referred to in clause (i) above (the forms, reports,
registration statements and other schedules referred to in clauses (i), (ii),
(iii), (iv) and (v) above are, collectively, the "PARENT SEC REPORTS"). To
Parent's Knowledge, the Parent SEC Reports (x) complied as to form in all
material respects with the requirements of the Securities Act and
25
the Exchange Act, as the case may be, and the rules and regulations thereunder
and (y) did not at the time they were filed with the SEC contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. Parent
maintains the disclosure controls and procedures required by Rule 13a-15 or
15d-15 under the Exchange Act, except where the failure to maintain such
disclosure controls and procedures would not have a Material Adverse Effect on
Parent and its Subsidiaries taken as a whole.
ARTICLE VI
CERTAIN PRE-CLOSING COVENANTS
Section 6.1 Access and Investigation; Confidentiality.
(a) During the period from the date of this Agreement through
the Effective Time (the "PRE-CLOSING PERIOD"), subject to (i)
applicable Antitrust Laws relating to the exchange of information; (ii)
applicable Laws protecting the privacy of employees and personnel
files; and (iii) the confidentiality of documents or other information
subject to attorney-client privilege, the Company shall, and shall
cause the respective Representatives of the Acquired Corporations, to
provide Parent and Parent's Representatives with access to the Acquired
Corporations' officers, directors, employees, agents, personnel and
assets and to all books, records, Tax Returns, work papers and other
documents, and with such additional financial, operating and other data
and information regarding the Acquired Corporations as Parent may
reasonably request. Without limiting the generality of the foregoing,
during the Pre-Closing Period, the Company shall promptly provide
Parent with copies of (i) all operating and financial reports prepared
by the Company and any other Acquired Corporation for the Company's
senior management, including copies of the unaudited monthly
consolidated financial statements; (ii) any written materials or
communications sent by or on behalf of the Company to its Shareholders;
(iii) any notice, report or other document filed with or sent to any
Governmental Body in connection with the Merger or any of the
Contemplated Transactions; and (iv) any material notice of alleged
violations or legal non-compliance received by any of the Acquired
Corporations from any Governmental Body.
(b) The parties hereto acknowledge that Parent and the Company
have entered into that certain Confidentiality Agreement dated
September 30, 2003 between Parent and the Company (the "CONFIDENTIALITY
AGREEMENT"), which terminates upon execution of this Agreement.
(c) Each of the Company, the Acquired Corporations, Parent and
its Subsidiaries will, and will cause their respective Representatives
to (i) hold in confidence, unless, and only to the extent, compelled to
disclose by judicial or administrative process or by other requirements
of Law, all nonpublic information concerning the other party furnished
in connection with the transactions contemplated by this Agreement
until such time as such information becomes publicly available
(otherwise than through the wrongful act of such Person); and (ii) not
release or disclose such information to any other Person, except in
connection with this Agreement to its auditors, attorneys, financial
advisors or other consultants and advisors who shall be informed of the
requirement to keep such information confidential. In the event of
termination of this Agreement for any reason, the parties hereto will
promptly return or destroy all documents containing nonpublic
information so obtained from any other party hereto and any copies made
of such documents and any summaries, analyses or compilations made
therefrom and will certify that such destruction or return has
occurred.
Section 6.2 Operation of the Company's Business.
(a) During the Pre-Closing Period (except with the prior
written Consent of Parent) the Company shall:
(i) ensure that each of the Acquired Corporations
conducts its business and operations (A) in the Ordinary
Course of Business; and (B) in compliance with all applicable
Legal Requirements and all Material Contracts (which for the
purpose of this Section 6.2 shall include any contract that
would be a Material Contract if existing on the date of this
Agreement);
26
(ii) use its reasonable best efforts to ensure that
each of the Acquired Corporations preserves intact its current
business organization, maintains its books and records in
substantially the same manner as heretofore maintained, keeps
available the services of its current officers and employees
and maintains its relations and goodwill with all suppliers,
customers, landlords, creditors, licensors, licensees,
employees and other Persons having business relationships with
the respective Acquired Corporations whose loss would have a
Material Adverse Effect on the Acquired Corporations, taken as
a whole;
(iii) keep in full force all insurance policies
referred to in Section 4.14;
(iv) to the extent reasonably requested by Parent,
cause its officers to confer regularly with Parent concerning
the status of the Company's business;
(v) maintain and keep all of its properties and
equipment in good repair, working order and condition,
ordinary wear and tear excepted, and perform all of its duties
and obligations under all contracts, agreements,
understandings and commitments applicable thereto, except in
each case where the failure to maintain, comply or perform,
individually or in the aggregate, would not have or be
reasonably likely to have a Material Adverse Effect on the
Acquired Corporations;
(vi) (A) cause each of the Acquired Corporations to
timely file all Federal, state and local, domestic and
foreign, income and franchise Tax Returns and reports and all
other material Tax Returns and reports ("POST-SIGNING
RETURNS") required to be filed by each such Acquired
Corporation (after taking into account any extensions), which
it is not contesting in good faith as set forth in Section
4.15(b) of the Company Disclosure Schedules, which shall be
complete and correct, except for failures to file or be true
and correct that individually or in the aggregate are not
reasonably likely to result in a material liability for the
Company; (B) cause each of the Acquired Corporations to timely
pay all Taxes due and payable in respect of such Post-Signing
Returns that are so filed; (C) accrue a reserve in its books
and records and financial statements in accordance with past
practice for Taxes payable by the Acquired Corporations for
which no Post-Signing Return is due prior to the Effective
Time; and (D) notify Parent of any Legal Proceeding pending
against or with respect to the Acquired Corporations in
respect of any material Tax.
(b) During the Pre-Closing Period (except with the prior
written Consent of Parent), the Company shall not, and shall not permit
any other Acquired Corporation to:
(i) (A) declare, set aside or pay any dividends on,
or make any other distributions (whether in cash, stock or
property) in respect of, any of its capital stock or other
equity or voting interests, except for dividends by a direct
or indirect wholly owned Subsidiary of the Company to its
parent; (B) split, combine or reclassify any of its capital
stock or other equity or voting interests, or issue or
authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock
or other equity or voting interests; or (C) purchase, redeem
or otherwise acquire any shares of capital stock or any other
securities of any Acquired Corporation or any options,
warrants, calls or rights to acquire any such shares or other
securities (including any Company Stock Options or shares of
restricted stock except pursuant to forfeiture conditions of
such restricted stock);
(ii) issue, deliver, sell, pledge or otherwise
encumber any shares of its capital stock, any other equity or
voting interests or any securities convertible into, or
exchangeable for, or any options, warrants, calls or rights to
acquire or receive, any such shares, interests or securities
or any stock appreciation rights, phantom stock awards or
other rights that are linked in any way to the price of the
Company Common Stock or the value of the Company or any part
thereof (other than the issuance of shares of Company Common
Stock upon the exercise of Company Stock Options outstanding
on the date of this Agreement in accordance with their present
terms);
(iii) amend or propose to amend its Organizational
Documents or effect or become a party to any, recapitalization
or similar transaction;
27
(iv) acquire or agree to acquire, or dispose of or
agree to dispose of, any assets other than in the Ordinary
Course of Business, any business or any Person, either by
purchase, merger or consolidation, or by purchasing a portion
of the assets thereof, or by any other manner;
(v) enter into any lease or sublease of real property
(whether as a lessor, sublessor, lessee or sublessee) or
modify, amend, terminate or exercise any right to renew any
lease or sublease of real property;
(vi) sell, lease, license, mortgage or otherwise
encumber or subject to any Lien, abandon or otherwise dispose
of any of its properties or assets other than rental
merchandise in the Ordinary Course of Business;
(vii) permit any purchase of Company Common Stock by
the Company;
(viii) (A) repurchase, prepay or incur any
indebtedness (other than indebtedness with respect to working
capital in amounts consistent with past practice) or guarantee
any indebtedness of another Person (other than immaterial
amounts in the Ordinary Course of Business); (B) materially
modify any indebtedness or other liability; (C) issue or sell
any debt securities or options, warrants, calls or other
rights to acquire any debt securities of any Acquired
Corporation; (D) guarantee any debt securities of another
Person; (E) enter into any "keep well" or other agreement to
maintain any financial statement condition of another Person;
or (F) enter into any arrangement having the economic effect
of any of the foregoing;
(ix) make any loans, advances or capital
contributions to, or investments in, any other Person, other
than the Company or any direct or indirect wholly owned
Subsidiary of the Company, except for customary advances to
employees in accordance with past practice;
(x) (A) pay, discharge, settle or satisfy any
material claims (including claims of Shareholders and any
Shareholder litigation relating to this Agreement, the Merger
or any Contemplated Transaction or otherwise), liabilities
(including any material Tax liability) or obligations (whether
absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction
in the Ordinary Course of Business or as required by their
terms as in effect on the date of this Agreement of claims,
liabilities or obligations reflected or reserved against in
the Company Financial Statements (for amounts not in excess of
such reserves) in each case in complete satisfaction, and with
a complete release, of such matter with respect to all parties
to such matter, of actions, suits, proceedings or claims; (B)
waive the benefits of, or agree to modify in any material
manner, any confidentiality, standstill or similar agreement
to which the Company is a party or otherwise waive, release,
grant or transfer any right of material value other than in
the Ordinary Course of Business; or (C) commence any Legal
Proceeding;
(xi) modify, amend or terminate in any material
respect, any of its Material Contracts or waive, release or
assign any material rights or claims;
(xii) enter into any Material Contract or other
material commitment or transaction, or take any other material
action, outside the Ordinary Course of Business;
(xiii) make any payment in excess of $5,000 in the
aggregate or incur any liability or obligation for the purpose
of obtaining any Consent from any third party to the Merger or
the Contemplated Transactions;
(xiv) except as required by applicable Law, (A) adopt
or enter into any collective bargaining agreement or other
labor union contract applicable to the employees of any
Acquired Corporation; (B) terminate the employment of any
employee of any Acquired Corporation that has an employment,
severance or similar agreement or arrangement with any
Acquired Corporation, except as otherwise contemplated herein;
(C) enter into or modify or amend any employment or severance
agreement with any employee of an Acquired Corporation;
28
(xv) hire any new employee (other than store level
employees with an annual base salary not to exceed the
Company's ordinary pay rate for store level employees),
promote any employee except in order to fill a position
vacated after the date of this Agreement, or engage any
consultant or independent contractor for a period exceeding 10
days;
(xvi) increase in any manner the compensation or
benefits of, or pay or agree to pay any bonus to, any
employee, officer, director or independent contractor of any
Acquired Corporation, except pursuant to the Stay Bonus Plan
in the form attached hereto as Exhibit B (the "STAY BONUS
PLAN"), to be adopted by the Company simultaneously with the
execution of this Agreement, which shall provide for the
payment of certain stay bonuses to certain employees as
provided therein;
(xvii) except as required to comply with applicable
Law or any contract or Benefit Plan in effect on the date of
this Agreement, (A) pay to any employee, officer, director or
independent contractor of any Acquired Corporation any benefit
not provided for under any contract or Benefit Plan in effect
on the date of this Agreement other than the payment of base
compensation in the Ordinary Course of Business; (B) except to
the extent expressly permitted under Section 6.2(b)(ii), grant
any awards under any Benefit Plan (including the grant of
Company Stock Options, stock appreciation rights, stock based
or stock related awards, performance units or restricted stock
or the removal of existing restrictions in any contract or
Benefit Plan or awards made thereunder); (C) take any action
to fund or in any other way secure the payment of compensation
or benefits under any contract or Benefit Plan; (D) take any
action to accelerate the vesting or payment of any
compensation or benefit under any contract or Benefit Plan;
(E) adopt, enter into or amend any Benefit Plan other than
offer letters entered into with new employees in the Ordinary
Course of Business that provide, except as required by
applicable Law, for "at will employment" with no severance
benefits; or (F) make any material determination under any
Benefit Plan that is inconsistent with the Ordinary Course of
Business;
(xviii) except as required by GAAP or applicable Law,
change its fiscal year, revalue any of its material assets or
make any changes in cash management, financial or Tax
accounting methods, principles or practices, including making
or revoking any material Tax election (unless required by
Law);
(xix) introduce any new product lines or engage in
any lines of business other than the rent-to-own business;
(xx) take any action (or omit to take any action) if
such action (or omission) would or is reasonably likely to
result in (A) any representation and warranty of the Company
set forth in this Agreement that is qualified as to
materiality becoming untrue (as so qualified); or (B) any such
representation and warranty that is not so qualified becoming
untrue in any material respect; or
(xxi) authorize any of, announce an intention to do
any of, or commit, resolve or agree to take any of, the
foregoing actions.
(c) During the Pre-Closing Period, the Company shall promptly
notify Parent in writing of:
(i) the discovery by the Company of any event,
condition, fact or circumstance that occurred or existed on or
prior to the date of this Agreement and that caused or
constitutes a material inaccuracy in any representation or
warranty made by the Company in this Agreement;
(ii) any change in the Company's capital structure,
including, without limitation, any change resulting from an
exercise of a Company Stock Option outstanding as of the date
hereof;
(iii) any event, condition, fact or circumstance that
occurs, arises or exists after the date of this Agreement and
that would cause or constitute a material inaccuracy in any
representation or warranty made by the Company in this
Agreement if (A) such representation or warranty had been made
as of the time of the occurrence, existence or discovery of
such event,
29
condition, fact or circumstance; or (B) such event, condition,
fact or circumstance had occurred, arisen or existed on or
prior to the date of this Agreement;
(iv) any material breach of any covenant of the
Company;
(v) any event, condition, fact or circumstance that
would make the timely satisfaction of any of the conditions
set forth in ARTICLE VIII and ARTICLE IX impossible or
unlikely or that has had or could reasonably be expected to
have a Material Adverse Effect on the Acquired Corporations;
and
(vi) (A) any notice or other communication from any
Person alleging that the Consent of such Person is or may be
required in connection with the transactions contemplated by
this Agreement; and (B) any Legal Proceeding or material claim
commenced, or to the Company's Knowledge, threatened or
asserted against or with respect to any of the Acquired
Corporations or the Contemplated Transactions.
Should the occurrence of any of the facts or conditions pursuant to
this Section 6.2(c) require any change to the Company Disclosure Schedules, the
Company shall promptly deliver to Parent a supplement to the Company Disclosure
Schedules specifying such change. Notwithstanding the foregoing, no notification
given to Parent pursuant to this Section 6.2(c) shall limit or otherwise affect
any of the representations, warranties, covenants or obligations of the Company
contained in this Agreement.
Section 6.3 No Solicitation.
(a) The Company shall not directly or indirectly, and shall
not authorize or permit any of the other Acquired Corporations or any
of their respective Representatives directly or indirectly to, (i)
solicit, initiate, encourage, induce or facilitate the making,
submission or announcement of any Acquisition Proposal or take any
action that could reasonably be expected to lead to an Acquisition
Proposal; (ii) furnish any information or assistance regarding any of
the Acquired Corporations to any Person in connection with or in
response to an Acquisition Proposal or an inquiry or indication of
interest that could reasonably be expected to lead to an Acquisition
Proposal; (iii) engage in discussions or negotiations with any Person
with respect to any Acquisition Proposal; (iv) approve, endorse or
recommend any Acquisition Proposal; or (v) enter into any letter of
intent or similar document or any contract contemplating or otherwise
relating to any Acquisition Transaction.
(b) Notwithstanding the foregoing, prior to the Effective
Time, the Company may furnish information concerning the business,
properties or assets of the Acquired Corporations to any Person
pursuant to appropriate confidentiality agreements, and may participate
in negotiations and discussions with any such Person who makes an offer
to enter into a Acquisition Transaction, provided, however, that the
Company shall not agree to any exclusive right to negotiate with such
Person, if (i) such Person, without any of the Acquired Corporations'
respective Representatives or other Persons retained by or affiliated
with an Acquired Corporation engaging in any actions prohibited by
Section 6.3(a) of this Agreement following the date hereof, submits a
bona fide, unsolicited written proposal to the Company with respect to
any such transaction that the Company's board of directors determines,
in good faith, after receiving written advice from a financial advisor
of a nationally recognized reputation is more favorable (both
quantitatively and qualitatively) to the Company and its Shareholders
than the Contemplated Transactions, and for which financing, to the
extent required, is then committed or which, in the good faith judgment
of the Company's board of directors, is reasonably capable of being
obtained by such Person; and (ii) in the reasonable opinion of the
Company's board of directors in good faith, after consultation with
outside legal counsel, the failure to provide such information or
access to engage in such discussions or negotiations would cause the
Company's board of directors to breach its fiduciary duties to the
Company's Shareholders under applicable Legal Requirements (an
Acquisition Proposal which satisfies clauses (i) and (ii) of this
Section 6.3(b) being hereinafter referred to as a ("SUPERIOR
PROPOSAL")). The Company shall, within two Business Days following the
determination that such Acquisition Proposal is a Superior Proposal,
notify Parent in writing of the receipt of the same (a "PROPOSAL
NOTICE"). Such Proposal Notice shall indicate the name of the Person
who made such Superior Proposal, all the terms and conditions of such
proposal, that the Company's board of directors intends to make a
Subsequent Determination, contain a certification signed by the Chief
Executive Officer of the Company to the effect that such proposal is a
30
Superior Proposal in accordance with the terms thereof, and be
accompanied by all nonpublic information provided by the Company to
such Person who made the Superior Proposal of which Parent had not been
previously furnished. If, after consultation with outside legal
counsel, the Company's board of directors determines that its fiduciary
duties to the Company and its Shareholders so require, the Company's
board of directors may (subject to this and the following sentences of
this Section 6.3(b)) inform the Company's Shareholders that it no
longer believes that the transactions contemplated hereby are
advisable, and that it no longer recommends approval of the Merger (a
"SUBSEQUENT DETERMINATION"), but only at a time that is after the fifth
Business Day following Parent's receipt of the relevant Proposal
Notice. Notwithstanding the foregoing, during the aforementioned
five-day period following Parent's receipt of the relevant Proposal
Notice, the Company will keep Parent reasonably informed of the status
and details (including amendments and proposed amendments) of any
Acquisition Proposal and the Company may not make a Subsequent
Determination, nor may it terminate this Agreement, unless it has
provided Parent (i) at least five Business Days' notice of the exact
terms of the Acquisition Proposal, including a copy of the proposed
agreement; and (ii) at least five Business Days' notice of any and each
amendment to such Acquisition Proposal and proposed agreement.
(c) After delivering such Proposal Notice, the exact terms of
the Acquisition Proposal, including a copy of the proposed agreement or
any amendment to such Acquisition Proposal and proposed agreement,
which ever shall occur later, the Company shall provide a reasonable
opportunity to Parent to make such adjustments to the terms and
conditions of this Agreement as would enable the Company's board of
directors to proceed with its recommendation to the Company's
Shareholders without a Subsequent Determination. At any time after the
fifth Business Day following Parent's receipt of the Proposal Notice,
the exact terms of the Acquisition Proposal, including a copy of the
proposed agreement or any amendment to such Acquisition Proposal and
proposed agreement, which ever shall occur later, and if the Company
has otherwise complied with the provisions of this Section 6.3, the
Company's board of directors may terminate this Agreement pursuant to
Section 12.1(f) hereof and enter into an agreement with respect to the
relevant Superior Proposal, provided that the Company shall,
concurrently with terminating this Agreement pursuant to such section,
pay or cause to be paid to Parent the Termination Fee.
(d) Except as provided in Section 6.3(b) hereof, neither the
Company's board of directors nor any committee thereof shall (i)
withdraw or modify, or propose to withdraw or modify, in any manner
adverse to Parent, the approval or recommendation by the Company's
board of directors or any committee thereof of this Agreement and the
transactions contemplated hereby; (ii) approve or recommend, or propose
to approve or recommend, any Acquisition Proposal; or (iii) enter into
any agreement, commitment, understanding or other arrangement with
respect to any Acquisition Transaction.
(e) Nothing contained in this Section 6.3 shall prohibit the
Company from making any disclosure to the Company's Shareholders if, in
the good faith judgment of the board of directors of the Company, after
consultation with outside counsel, failure to so disclose would be
inconsistent with its obligations under applicable Law.
Section 6.4 Company Shareholders' Meeting.
(a) The Company shall take all action necessary under all
applicable Legal Requirements to call, give notice of and hold a
meeting of the holders of Company Common Stock to vote on a proposal to
adopt this Agreement (the "COMPANY SHAREHOLDERS' MEETING"), and shall
submit such proposal to such holders at the Company Shareholders'
Meeting. The Company (in consultation with Parent) shall set a record
date for Persons entitled to notice of, and to vote at, the Company
Shareholders' Meeting. The Company Shareholders' Meeting shall be held
on May 7, 2004 or such other date as the Company and Parent may agree.
The Company shall ensure that all votes and proxies solicited in
connection with the Company Shareholders' Meeting are solicited in
compliance with all applicable Legal Requirements applicable to the
Company and shall take all lawful action necessary to obtain the
Required Company Shareholder Vote.
(b) Subject to Section 6.3(b), (i) the board of directors of
the Company will unanimously recommend that the Company's Shareholders
vote to approve this Agreement and the Contemplated Transactions at the
Company Shareholders' Meeting (the "COMPANY BOARD RECOMMENDATION"); and
(ii) the Company Board Recommendation shall not be withdrawn or
modified in a manner adverse to Parent,
31
and no resolution by the board of directors of the Company or any
committee thereof to withdraw or modify the Company Board
Recommendation in a manner adverse to Parent shall be adopted or
proposed.
(c) Prior to the Company Shareholders' Meeting, the Company
shall furnish each Shareholder of the Company with (i) a detailed
description of the Merger and the Contemplated Transactions, as
approved by Parent; (ii) the Investor Questionnaire and Consent; (iii)
(A) a copy of Parent's Annual Report on Form 10-K/A for the fiscal year
ended December 31, 2003; (B) a copy of Parent's most recent proxy
statement filed with the SEC; and (C) each of the reports and
statements filed by Parent with the SEC since the date such Form 10-K/A
was filed with the SEC but prior to the date hereof (such reports and
statements being referred to collectively as the "SEC FILINGS"); and
(iv) a copy of Chapter 23 of the Tennessee Corporate Statutes.
(d) Notwithstanding Section 6.4(a), if this Agreement and the
transactions contemplated hereby are approved by the Shareholders by a
written consent in compliance with Section ▇▇-▇▇-▇▇▇ of the Tennessee
Corporate Statutes and the Company's Organizational Documents, the
Company shall not be required to hold the Company's Shareholder
Meeting.
Section 6.5 Regulatory Approvals.
(a) Subject to Section 6.5(b), Parent and the Company shall
use all reasonable efforts to take, or cause to be taken, all actions
necessary to expeditiously consummate the Merger and make effective the
Contemplated Transactions. Without limiting the generality of the
foregoing, but subject to Section 6.5(b), Parent and the Company shall
(i) make all filings (if any) and give all notices (if any) required to
be made and given by such party in connection with the Merger and the
Contemplated Transactions, and shall submit promptly any additional
information requested in connection with such filings and notices; (ii)
use all reasonable efforts to obtain each Consent (if any) required to
be obtained as set forth in Section 9.3 of the Company Disclosure
Schedules by such party in connection with the Merger or any of the
other transactions contemplated by this Agreement; and (iii) use all
reasonable efforts to oppose or to lift, as the case may be, any
restraint, injunction or other legal bar to the Merger. Each party
shall promptly deliver to the other party a copy of each such filing
made, each such notice given and each such Consent obtained during the
Pre-Closing Period.
(b) Without limiting the generality of Section 6.5(a), each of
the Company and Parent shall (i) give the other party prompt notice of
the commencement or, to the Knowledge of such party, threat of
commencement of any Legal Proceeding by or before any Governmental Body
with respect to the Merger or any of the Contemplated Transactions;
(ii) keep the other party informed as to the status of any such Legal
Proceeding or threat; and (iii) keep the other party apprised of the
status of any inquiries made by a Governmental Body.
Section 6.6 Public Announcements. Parent, Merger Sub, the Company and
the other Acquired Corporations will consult with each other before issuing, and
provide each other the opportunity to review and comment upon, any press
releases or other public statements with respect to any transactions described
in this Agreement, and shall not issue any such press releases or make any such
public statement prior to such consultation, except as required by Law or the
Nasdaq National Market.
Section 6.7 Resignation of Officers and Directors. The Company shall
use its best efforts to obtain and deliver to Parent not less than one Business
Day prior to the Closing Date (to be effective as of the Effective Time) the
resignation of each officer and director of each of the Acquired Corporations,
as Parent shall specify.
Section 6.8 Investor and Option Questionnaires and Consents. The
Company shall use its reasonable best efforts to ensure that Parent receives at
least one Business Day prior to the Closing Date (i) an investor questionnaire
and consent in the form of Exhibit C hereto (each, an "INVESTOR QUESTIONNAIRE
AND CONSENT") completed and executed by each Shareholder of the Company and such
other documentation regarding the Accredited Investor status of each Shareholder
reasonably requested by Parent; and (ii) an option questionnaire and consent in
the form of Exhibit D hereto (each, an "OPTION QUESTIONNAIRE AND CONSENT")
completed and executed by each holder of a Right of the Company and such other
documentation regarding the Accredited Investor status of each such Right holder
reasonably requested by Parent.
32
Section 6.9 Outstanding Options and Rights. The Company shall
repurchase, cancel or take such other actions as necessary so that at the
Effective time there are no Rights outstanding or held by any Person other than
by a Person that (i) Parent reasonably believes to be an Accredited Investor;
and (ii) who has completed and executed an Option Questionnaire and Consent
which has been delivered to Parent at least one Business Day prior to the
Closing Date.
Section 6.10 No Buy-Back Obligations. The Company shall take such
actions as necessary so that as of the Closing Date, the Company shall have no
obligations to purchase any shares of Company Common Stock or Company Stock
Options owned by any Shareholders or optionholders of the Company, including
upon the death of any Shareholder or optionholder of the Company.
Section 6.11 Release of Liens. Prior to the Closing, the Company shall
cause termination statements and instruments of release, in form and substance
satisfactory to counsel for Parent, to be filed in appropriate jurisdictions
releasing and discharging the security interests, liens and encumbrances set
forth in Section 6.11 of the Parent Disclosure Schedules.
Section 6.12 Adoption of Stay Bonus Plan. Prior to the Closing Date,
Merger Sub shall take such actions as necessary to adopt the Stay Bonus Plan
effective as of the Effective Time.
Section 6.13 Termination of Shareholders Agreement. Prior to the
Closing, the Company shall take such actions as necessary to cause that certain
Shareholders Agreement, dated as of May 29, 1998, by and among the Company and
the Shareholders of the Company to be terminated.
Section 6.14 Good Standing. Prior to the Closing, the Company shall
take such actions as necessary to cause each of the Acquired Corporations to be
in good standing under the Laws of their respective jurisdictions of
incorporation and under the Laws of each state or other jurisdiction in which
either the ownership or use of the properties owned or used by it, or the nature
of the activities conducted by it, requires such qualification.
ARTICLE VII
ADDITIONAL COVENANTS
Section 7.1 Repayment of Liabilities. Parent shall, or shall cause the
Surviving Corporation to, repay the liabilities listed in Section 7.1 of the
Company Disclosure Schedules at Closing or promptly thereafter.
Section 7.2 Employee Benefits. Except as set forth in Section 7.1 of
the Parent Disclosure Schedules, for purposes of eligibility to participate,
employees of the Acquired Corporations as of the Effective Time that continue
employment with the Surviving Corporation after the Effective Time shall not
receive credit under any Plan, program or arrangement established or maintained
by Parent or the Surviving Corporation and made available to such employees for
service accrued prior to the Effective Time with the Company.
Section 7.3 Indemnification of Officers and Directors.
(a) The Surviving Corporation shall indemnify and hold
harmless, to the extent required in the Organizational Documents of the
applicable Acquired Corporation and Tennessee Law, the individuals who
on or prior to the Effective Time were officers or directors of the
Acquired Corporations (each an "INDEMNITEE" and collectively, the
"INDEMNITEES") with respect to all acts or omissions by them in their
capacities as such or taken at the request of an Acquired Corporation
at any time prior to the Effective Time. With respect to all acts or
omissions by them in their capacities as an officer or director or
taken at the request of an Acquired Corporation at any time prior to
the Effective Time, the Surviving Corporation agrees that all rights of
the Indemnitees to indemnification and exculpation from liabilities for
acts or omissions occurring at or prior to the Effective Time as
provided in the Organizational Documents of the Acquired Corporations
as now in effect shall survive the Merger and shall continue in full
force and effect in accordance with their terms. Such rights shall not
be amended, or otherwise modified in any manner that would adversely
affect the rights of the Indemnitees, unless such modification is
required by Law.
(b) If any claim or claims shall, subsequent to the Effective
Time and within three years thereafter, be made against any present or
former director or officer of an Acquired Corporation based on or
arising out of the services of such Person prior to the Effective Time
in the capacity of such Person as a
33
director or officer of an Acquired Corporation, the provisions of
Section 7.3(a) with respect to the Organizational Documents of the
Acquired Corporations will continue in effect until the final
disposition of all such claims.
(c) Each of Parent, the Surviving Corporation and the
Indemnitee shall cooperate, and cause their respective affiliates to
cooperate, in the defense of any action and shall provide access to
properties and individuals as reasonably requested and furnish or cause
to be furnished records, information and testimony, and attend such
conferences, discovery proceedings, hearings, trials or appeals, as may
be reasonably requested in connection therewith.
(d) For the three-year period commencing immediately after the
Effective Time, the Surviving Corporation shall either (i) maintain in
effect the Company's current directors' and officers' liability
insurance policies providing coverage for acts or omissions occurring
prior to the Effective Time with respect to those Persons who are
currently covered by the Company's directors' and officers' liability
insurance policy on terms and at limits no less favorable to the
Company's directors and officers currently covered by policies in
effect on the date hereof; or (ii) obtain a directors' and officers'
insurance policy for the exclusive benefit of those Persons who are
currently covered by the Company's directors' and officers' liability
insurance policy from a financially sound and nationally reputable
carrier which (A) is at least as favorable to the Persons currently
covered by the Company's directors' and officers' liability insurance
in effect as of the date hereof; and (B) will at a minimum have the
same terms and limits as the Company's directors' and officers'
liability insurance policies in effect as of the date hereof; provided,
however, that, if the Company's current directors' and officers'
liability insurance expires, is terminated or is canceled during such
three-year period, the Surviving Corporation shall obtain directors'
and officers' liability insurance covering such acts or omissions with
respect to each such Person on terms and at limits no less favorable to
the Company's directors and officers currently covered by policies in
effect immediately prior to the date of such expiration, termination or
cancellation. The Company and Parent shall cooperate to make any
arrangements necessary to obtain or continue such directors' and
officers' liability insurance for such three-year period, including the
prepayment of any fees or premiums to the applicable insurance
providers of such amounts as necessary to provide the coverage
contemplated by this Section 7.3; provided, however, that the Surviving
Corporation will not be required to expend in any year an amount in
excess of 125% of the annual aggregate premiums currently paid by the
Company for such insurance; and provided, further, that if the annual
premiums of such insurance coverage exceed such amount, the Surviving
Corporation will be obligated to obtain a policy with the best coverage
available, in the reasonable judgment of its board of directors, for a
cost not exceeding such amount. The estimated amount of such premiums
during such three-year period shall be part of the Merger Consideration
Reductions.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH PARTY
The obligation of each party to effect the Merger and otherwise
consummate the Contemplated Transactions is subject to the satisfaction or
waiver by each party, on or before the Closing, of each of the following
conditions:
Section 8.1 Shareholder Approval. This Agreement, the Merger and the
Contemplated Transactions shall have been duly approved by the Required Company
Shareholder Vote.
Section 8.2 No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order preventing the
consummation of the Merger shall have been issued by any court of competent
jurisdiction or any other Governmental Body and shall remain in effect, and
there shall not be any Legal Requirement enacted, promulgated, adopted or deemed
applicable to the Merger that makes consummation of the Merger illegal or
otherwise prohibits the consummation of the Merger.
34
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB
The obligation of Parent and Merger Sub to effect the Merger and
otherwise consummate the Contemplated Transactions is subject to the
satisfaction or waiver by Parent and Merger Sub, on or before the Closing, of
each of the following conditions:
Section 9.1 Accuracy of Representations and Warranties. The
representations and warranties of the Company set forth in this Agreement shall
have been accurate in all material respects as of the date of this Agreement and
shall be accurate in all material respects as of the Closing Date as if made on
and as of the Closing (it being understood that, for purposes of determining the
accuracy of such representations and warranties, for purposes of this Section
9.1 all "Material Adverse Effect" qualifications and other materiality
qualifications contained in such representations and warranties shall be
disregarded).
Section 9.2 Performance of Covenants. Each of the covenants and
obligations that the Company is required to comply with or perform at or prior
to the Closing Date shall have been complied with or performed in all material
respects.
Section 9.3 Consents. All of the Consents listed in Section 9.3 of the
Company Disclosure Schedules required to be obtained, made or given in
connection with the Merger and the Contemplated Transactions shall have been
obtained, made or given and shall be in full force and effect.
Section 9.4 Closing Three Month Recurring Revenue Target. On the
Closing Date, the Company's average Monthly Recurring Revenue, calculated for
the three full calendar months immediately prior to the Closing Date and
calculated in a manner consistent with past practices (as adjusted in the
definition) (the "CLOSING THREE MONTH RECURRING REVENUE"), shall be no less than
$4,400,000 per month.
Section 9.5 Closing Month Revenue Target. On the Closing Date, the
Company's Monthly Recurring Revenue for the first full month immediately
preceding the Closing Date, calculated in a manner consistent with past
practices (as adjusted in the definition), shall be no less than $4,400,000.
Section 9.6 Closing Inventory. On the Closing Date, the net book value
of the Company's inventory, in a manner consistent with past practices (the
"CLOSING INVENTORY"), shall be no less than $19,500,000; provided, however, that
Parent's sole remedy in the event that such representation is not true as of the
Closing Date will be the Merger Consideration Reduction provided for in Section
2.4(f), except that if the Closing Inventory is equal to or less than the
Closing Inventory Minimum, then Parent may, at its election, terminate this
Agreement pursuant to the terms set forth in Section 12.1(i).
Section 9.7 No Material Adverse Change. Since the date of this
Agreement, there shall not have occurred a Material Adverse Change with respect
to the Acquired Corporations taken as a whole and no event shall have occurred
or circumstance shall exist that, in combination with any other events or
circumstances, could reasonably be expected to have a Material Adverse Change
with respect to the Acquired Corporations taken as a whole.
Section 9.8 Agreements and Documents. The following agreements and
documents shall have been delivered to Parent, and shall be in full force and
effect:
(a) a legal opinion from Bass, ▇▇▇▇▇ & ▇▇▇▇ PLC, counsel to
the Company, dated the Closing Date, addressed to Parent, in the form
of Exhibit E hereto;
(b) the written resignations of all officers and directors of
each of the Acquired Corporations, effective as of the Effective Time;
(c) Investor Questionnaire and Consents in the form of Exhibit
C hereto completed and executed by each Shareholder of the Company;
(d) Option Questionnaire and Consents in the form of Exhibit D
hereto completed and executed by each Right holder of the Company;
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(e) a certificate, executed on behalf of the Company by the
Company's Chief Executive Officer, confirming that the conditions set
forth in Section 9.1, Section 9.2, Section 9.3, Section 9.4, Section
9.5, Section 9.6, Section 9.7, and this Section 9.8 have been duly
satisfied.
Section 9.9 Outstanding Options and Rights. No Rights shall be
outstanding or held by any Person other than by a Person that (i) Parent
reasonably believes to be an Accredited Investor; and (ii) who has completed and
executed an Option Questionnaire and Consent, which shall have been delivered to
Parent at least one Business Day prior to the Closing Date.
Section 9.10 Employees. None of the individuals identified in Section
9.10 of the Parent Disclosure Schedules shall have ceased to be employed by the
Company or, to the Knowledge of the Company, shall have expressed an intention
to terminate his or her employment with the Company or to decline to continue
employment with the Surviving Corporation during the transition period of 90
days following the Effective Time.
Section 9.11 No Dissenting Shares. As of the Effective Time,
Shareholders holding no more than 5% of the Company Common Stock in the
aggregate shall have delivered to the Company written notice of their intent to
demand payment for their shares of Company Common Stock if the Merger is
consummated pursuant to Chapter 23 of the Tennessee Corporate Statutes.
Section 9.12 Voting Agreement. The Voting Agreement shall remain in
full force and effect and the Shareholders party thereto shall have complied in
all respects with the Voting Agreement and shall have performed all of their
respective obligations thereunder.
ARTICLE X
CONDITIONS PRECEDENT TO OBLIGATION OF THE COMPANY
The obligation of the Company to effect the Merger and otherwise
consummate the Contemplated Transactions is subject to the satisfaction, or
waiver by the Company, on or before the Closing, of each of the following
conditions:
Section 10.1 Accuracy of Representations. The representations and
warranties of Parent and Merger Sub set forth in this Agreement shall have been
accurate in all material respects as of the date of this Agreement and shall be
accurate in all material respects as of the Closing Date as if made on and as of
the Closing Date (it being understood that, for purposes of determining the
accuracy of such representations and warranties, for purposes of this Section
10.1 all "Material Adverse Effect" qualifications and other materiality
qualifications contained in such representations and warranties shall be
disregarded).
Section 10.2 Performance of Covenants. Each of the covenants and
obligations that Parent or Merger Sub, as applicable, is required to comply with
or perform at or prior to the Closing Date shall have been complied with or
performed in all material respects.
Section 10.3 No Material Adverse Change. Since the date of this
Agreement, there shall not have occurred a Material Adverse Change with respect
to Parent and its Subsidiaries taken as a whole.
Section 10.4 Documents. The following agreements and documents shall
have been delivered to the Company, and shall be in full force and effect:
(a) A certificate, executed on behalf of each of Parent and
Merger Sub by an executive officer of each of Parent and Merger Sub,
confirming that the conditions set forth in Section 10.1, Section 10.2
and Section 10.3 have been duly satisfied; and
(b) a legal opinion from ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ P.C.,
counsel to Parent and Merger Sub, dated the Closing Date, addressed to
the Company, in the form of Exhibit F hereto.
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ARTICLE XI
POST-CLOSING MATTERS
Section 11.1 Survival of Representations and Warranties. All of the
representations and warranties of the Company contained in ARTICLE IV of this
Agreement, the certificates and any other documents delivered pursuant to this
Agreement shall survive the Closing Date and the consummation of the
Contemplated Transactions for a period of one year following the Closing Date;
provided, however, that any claims relating to any of the representations and
warranties of the Company contained in ARTICLE IV of this Agreement that are
pending as of such date shall survive until such claims shall have been
resolved.
Section 11.2 Indemnification.
(a) Indemnification by Parent. From and after the Effective
Date, Parent shall indemnify and hold the Shareholders of the Company
and its officers, directors, employees, attorneys and agents harmless
from, against and in respect of any and all claims, demands, lawsuits,
proceedings, losses, assessments, Taxes, fines, penalties,
administrative orders, obligations, costs, expenses, liabilities and
damages, including interest, penalties, reasonable attorneys' fees and
costs of investigation (all of the foregoing hereinafter referred to
collectively as "CLAIMS"), which arise or result from and to the extent
they are attributable to any breach of the representations, warranties
or covenants by Parent contained in this Agreement.
(b) Indemnification by the Shareholders. From and after the
Effective Date, the Shareholders shall indemnify and hold Parent, the
Surviving Corporation and their respective officers, directors,
employees, attorneys and agents harmless from, against and in respect
of any and all Claims which arise or result from and to the extent they
are attributable to (i) any breach of the representations, warranties
or covenants by the Company contained in this Agreement; (ii) any Taxes
not accrued on the Closing Balance Sheet; and/or (iii) any fines,
penalties, obligations, costs, expenses, liabilities and damages,
including interest and reasonable attorneys' fees, incurred in
connection with the Disclosed Contingent Liabilities.
(c) Limitations of Liability.
(i) No indemnifying party shall be required to
indemnify an indemnified party under Section 11.2(a) or
Section 11.2(b)(i) hereof until the aggregate amount of Claims
entitled to indemnification exceeds an aggregate of $100,000
and then only for the amount by which such Claims exceed
$100,000.
(ii) Notwithstanding anything in this Agreement to
the contrary, the aggregate liability of any party with
respect to Claims for indemnification hereunder shall not
exceed and shall be payable out of the General Holdback
Amount.
(iii) The amount of any Claims otherwise payable to
any indemnified party pursuant to this Section 11.2 shall be
reduced to the extent that such indemnified party actually
realizes, by reason of such Claims, any insurance proceeds
that are not offset by any directly corresponding increase in
the insurance premiums payable to such indemnified party or
any tax benefits. In the event that any such tax benefit or
insurance proceeds are actually realized by an indemnified
party subsequent to the receipt by such indemnified party of
an indemnification payment hereunder in respect of the Claims
to which such tax benefit or insurance proceeds relate,
appropriate refunds shall be made promptly regarding the
amount of such indemnification payment.
(iv) The amount of any Claims otherwise payable to
any indemnified party pursuant to this Section 11.2 shall be
reduced to the extent that such amount was fully and
accurately taken into consideration in determining the
Adjustment Amount.
(v) Any Claim with respect to a matter subject to
indemnification under Section 11.2(a) and Section 11.2(b)(i)
and (ii) must be made prior to the expiration of 12 months
after the Effective Date.
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(d) Each of the parties hereto agrees that its sole recourse
for any breach or default hereunder raised after the Closing Date, or
for any other matter as to which indemnification is provided to it in
this Section 11.2 shall be limited to (i) the indemnification
provisions set forth herein; and (ii) any equitable relief to which it
is entitled as contemplated by Section 13.15 hereof. Notwithstanding
the foregoing, nothing contained in this Section 11.2 shall limit the
rights of any party under ARTICLE XII hereof.
(e) Method of Asserting Claims. All Claims for indemnification
by any party under this Section 11.2 shall be asserted and resolved as
follows:
(i) in the event that any Claim or demand in respect
of which any party would be entitled to indemnification
hereunder is asserted against such party by a third party (a
"THIRD PARTY CLAIM"), said party shall within 75 days thereof
notify the indemnifying party of such Claim or demand,
specifying the nature of and specific basis for such Claim or
demand and the amount or the estimated amount thereof to the
extent then feasible, which estimate shall not be conclusive
of the final amount of such Claim or demand (the "INDEMNITY
CLAIM NOTICE"); provided, however, that the failure to notify
the indemnifying party of the commencement of such indemnity
Claim within such 75 day period will not relieve the
indemnifying party of any liability that it may have to any
indemnified party, except to the extent that the indemnifying
party is actually materially prejudiced by the indemnifying
party's failure to give such Indemnity Claim Notice. The
indemnifying party shall have 30 days from the personal
delivery or mailing of the Indemnity Claim Notice (the "NOTICE
PERIOD") to notify the indemnified party (A) whether or not it
disputes entitlement of the indemnified party to
indemnification hereunder with respect to such Claim or
demand; and (B) whether or not it desires at no cost or
expense to the indemnified party, to defend the indemnified
party against such Claim or demand; provided, however, that
any indemnified party is hereby authorized prior to and during
the Notice Period to file any motion, answer or other pleading
which it shall deem necessary or appropriate to protect its
interests or those of the indemnifying party and that are not
materially prejudicial to the indemnifying party. In the event
that the indemnifying party notifies the indemnified party
within the Notice Period that it desires to defend the
indemnified party against such Claim or demand and except as
hereinafter provided, the indemnifying party shall have the
right to defend by all appropriate proceedings, which
proceedings shall be promptly settled or prosecuted by it to a
final conclusion. If the indemnified party desires to
participate in, but not control, any such defense or
settlement it may do so at its sole cost and expense. If
requested by the indemnifying party, the indemnified party
agrees to cooperate with the indemnifying party and its
counsel in contesting any Claim or demand which the
indemnifying party elects to contest, or, if appropriate and
related to the Claim in question, in making any counterclaim
against the person asserting the cross complaint against any
person. No Claim may be settled without the consent of the
indemnifying party, which consent shall not be unreasonably
withheld. Notwithstanding the foregoing, in connection with a
Third Party Claim asserted against both such indemnified party
and indemnifying party, if (A) such indemnified party has
available to it defenses which are in addition to those
available to the indemnifying party; (B) such indemnified
party has available to it defenses which are inconsistent with
the defenses available to the indemnifying party; or (C) a
conflict exists or may reasonably be expected to exist in
connection with the representation of both such indemnified
party and indemnifying party by the legal counsel chosen by
the indemnifying party, such indemnified party shall have the
right to select its own legal counsel subject to the approval
of such legal counsel by the indemnifying party, such approval
not to be unreasonably withheld. If such indemnified party
selects its own legal counsel pursuant to the immediately
preceding sentence and the underlying Third Party Claim is
otherwise subject to the scope of the indemnification
obligations of the indemnifying party pursuant to this Section
11.2, the reasonable fees and expenses of such legal counsel
will be included within the indemnification obligations of the
indemnifying party; provided, however, that under no
circumstances will the indemnifying party be obligated to
indemnify such indemnified party against the fees and expenses
of more than one legal counsel selected by such indemnified
party in connection with a single Claim (notwithstanding the
number of persons against whom the Third Party Claim may be
asserted). To the extent a Claim with respect to
indemnification of representations and warranties is made
within the survival period set forth in Section 11.1, such
Claim shall survive until such Claim is resolved pursuant to
the provisions of Section 11.2, notwithstanding the expiration
of the applicable survival period set forth in Section 11.1.
For the avoidance of doubt, any Claim with respect to the
Disclosed
38
Contingent Liabilities shall survive until such Claim with
respect to the Disclosed Contingent Liabilities shall have
been settled and paid, either pursuant to a full settlement
agreement binding on all parties to such Disclosed Contingent
Liability, including a full release of the Surviving
Corporation, or a final nonappealable judgment is entered.
Notwithstanding the foregoing, Parent shall not be (i)
required to give notice of any Claim with respect to any
Disclosed Contingent Liability or (ii) entitled to make a
Claim for indemnification in excess of the amount listed in
Section 11.2(e)(ii) of the Parent Disclosure Schedules with
respect to any Disclosed Contingent Liability set forth
therein.
(ii) In the event any indemnified party should have a
Claim hereunder which does not involve a Third Party Claim,
the indemnified party shall send an Indemnity Claim Notice
with respect to such claim to the indemnifying party and, if
applicable, otherwise comply with the provisions of this
Section 11.2. In the event the parties cannot reach an
agreement regarding such non-Third Party Claim within 30 days,
the parties will submit such dispute to final and binding
arbitration held in Dallas, Texas. American Arbitration
Association ("AAA") rules relating to commercial arbitration
will apply. The parties will jointly select a single
arbitrator from an AAA panel. If they cannot agree on an
arbitrator, they will both select an arbitrator and the two
arbitrators so selected will pick the arbitrator who will
decide the dispute. The arbitrator will not have the authority
to award punitive or consequential damages. Arbitration awards
are not appealable and may be enforced through any court of
competent jurisdiction. The arbitrator must apply Delaware law
and has exclusive authority to resolve any dispute relating to
the interpretations, applicability, or formation of this
Agreement.
Section 11.3 Holdback Amount; Set-Off.
(a) Pursuant to Section 2.5, at the Effective Time, Parent
shall withhold from the Merger Consideration that would otherwise be
paid to the Shareholders of the Company the General Holdback Amount to
support the payment of (i) Claims for Indemnification under Section
11.2(b); (ii) the Company's share of the compensation of certain
transitional employees of the Company pursuant to Section 3.4; (iii)
any amounts payable by the Surviving Corporation as a result of the
payments due for Dissenting Shares pursuant to Section 2.6(i) to the
extent such payments exceed such Dissenting Shareholders' otherwise pro
rata portion of the Merger Consideration; (iv) the Adjustment Amount to
the extent it exceeds the Adjustment Holdback Amount; and/or (v) any
Claims incurred in connection with the Disclosed Contingent
Liabilities. During the General Holdback Period, Parent may set-off
against the General Holdback Amount, (x) any of the amounts provided in
clauses (ii), (iii) and (iv), above except to the extent such amounts
are in dispute; (y) and the amounts provided in clauses (i) and (v)
above and clauses (ii), (iii) and (iv), above to the extent such
amounts are in dispute only after final determination pursuant to
Section 11.2(e). Subject to the set-off provided in Section 11.3(d) of
the Parent Disclosure Schedules, Parent shall exercise its right of
set-off against the Cash Portion of General Holdback until the Cash
Portion of General Holdback is reduced to zero and then against the
Stock Portion of General Holdback. To the extent any portion of the
Stock Portion of General Holdback is set-off against the General
Holdback Amount, the number of shares of Parent Common Stock to be
deducted from the Stock Portion of General Holdback shall be calculated
as set forth in Section 11.3(d) of the Parent Disclosure Schedules. The
exercise of Parent's right to set-off against the General Holdback
Amount in accordance with clause (x) above in good faith, whether or
not ultimately determined to be justified, shall not be deemed a breach
of Parent's obligation to deliver the General Holdback Amount under
this Agreement. Neither the exercise nor the failure to exercise such
right of set-off will constitute an election of remedies or otherwise
limit Parent in any manner in the enforcement of any other remedies
that may be available to it.
(b) Upon expiration of the Adjustment Holdback Period, the
Adjustment Amount shall be paid to the Shareholders of the Company, to
the extent they are entitled to any portion of it, as provided in
Section 3.2.
(c) Upon expiration of the General Holdback Period and the
execution of all necessary documentation reasonably required by Parent,
Parent shall promptly (and in any event within five Business Days) pay
an amount equal to the Cash Portion of General Holdback , minus the sum
of all amounts for outstanding Claims for indemnification brought
pursuant to Section 11.2 which are still in dispute, to the Designated
Account by wire transfer of immediately available funds. With respect
to any Claims for
39
indemnification that are subject to dispute at the end of the General
Holdback Period, to the extent the Shareholders are entitled to any
additional amount of the General Holdback Amount upon settlement of
such disputed Claims, Parent shall promptly (and in any event within
five Business Days) pay such amount to the Designated Account upon
settlement or final determination of such Claims, by wire transfer of
immediately available funds. At such time, Parent shall also provide
the Shareholders' Representative a list describing what it has set-off
against the General Holdback. Notwithstanding the foregoing, the Stock
Portion of General Holdback shall not be paid to the Designated
Account, but shall be disbursed to the Shareholders by the Exchange
Agent; provided, however, that for each Shareholder of the Company for
which Parent does not receive at least one Business Day prior to the
Closing Date an Investor Questionnaire and Consent completed by such
Shareholder, and for each Shareholder of the Company for which, upon
Parent's review of such Shareholder's completed and executed Investor
Questionnaire and Consent, Parent is unable to form a reasonable belief
that such Shareholder constitutes an Accredited Investor, Parent shall
pay such Shareholder's pro rata portion of the General Holdback Amount
in cash only and no Stock Portion of General Holdback shall be issued
to such Shareholder. Such cash amounts shall be paid to the Designated
Account.
(d) Notwithstanding Section 11.3(c), if, prior to expiration
of the General Holdback Period, the Claims set forth in Section 11.3(d)
of the Parent Disclosure Schedules (the "SECTION 11.3(d) CLAIMS") shall
have been settled and paid, either pursuant to a full settlement
agreement binding on all parties to the Section 11.3(d) Claims,
including a full release of the Company or the Surviving Corporation,
as applicable, or pursuant to a final nonappealable judgment being
entered, the Shareholders shall be entitled to receive an amount (the
"SETTLED CLAIMS AMOUNT") calculated as set forth in Section 11.3(d) of
the Parent Disclosure Schedules. The cash portion of the Settled Claims
Amount (as set forth in Section 11.3(d) of the Parent Disclosure
Schedules) shall be paid to the Designated Account within five Business
Days following the date on which the Section 11.3(d) Claims shall have
been settled and paid and the Parent Common Stock portion of the
Settled Claims Amount (as set forth in Section 11.3(d) of the Parent
Disclosure Schedules) shall be disbursed to the Shareholders within
such five-day period.
(e) The right to receive a portion of the Holdback Amount may
not be assigned, and is transferable only by operation of Law. Such
rights are solely consideration for the Merger and will not confer any
voting or dividend rights or any equity ownership rights in the
Surviving Corporation or Parent.
(f) It shall be the obligation of the Shareholders'
Representative to pay and distribute to the Shareholders any amounts
paid into the Designated Account. Neither Parent nor the Surviving
Corporation shall have any liabilities or obligations of any nature
with respect to such amounts other than to pay such amounts to the
Designated Account.
Section 11.4 Severance Payments. Parent or the Surviving Corporation
shall make severance payments to the employees and directors listed in Section
4.16(a) of the Company Disclosure Schedules in the amount and on the date set
forth next to each such employee's or director's name (collectively, the
"SEVERANCE PAYMENTS").
Section 11.5 Registration Statement.
(a) Within 45 days after the Closing Date, Parent shall use
commercially reasonable efforts to file a registration statement to
register all of the Parent Common Stock issued as Stock Consideration
(the "REGISTRATION SHARES") under the Securities Act for resale (the
"REGISTRATION") on Form S-3 (the "REGISTRATION STATEMENT"). Parent
shall use commercially reasonable efforts to cause the Registration
Statement to become effective and to remain effective for a period (the
"REGISTRATION PERIOD") (i) ending on the first anniversary of the
Closing Date; or (ii) in the event any shares of Parent Common Stock
are distributed to the Shareholders out of the Stock Portion of General
Holdback, ending on the first anniversary of the last date on which
such shares are distributed. For a period of one year following the
Registration Period, Parent shall file with the SEC all reports
required to be filed under the Exchange Act.
(b) Parent hereby agrees to prepare and file with the SEC such
amendments and supplements to the Registration Statement and the
prospectus used in connection therewith as may be necessary to keep the
Registration Statement effective for the Registration Period and to
comply with the provisions of the
40
Securities Act with respect to the disposition of all Registration
Shares covered by such Registration Statement.
(c) Nothing herein shall require Parent to cause the
Registration Statement to remain effective for any period of time
following the Registration Period. Parent shall have the right to
deregister with the SEC any Registration Shares that remain unsold at
the conclusion of the Registration Period.
(d) Parent shall furnish to each stockholder selling shares of
Parent Common Stock under the Registration Statement, a reasonable
number of copies of the Registration Statement and the prospectus
included therein as such Persons may reasonably request in order to
facilitate the resale or other disposition of the Registration Shares
covered by the Registration Statement.
(e) Notwithstanding the foregoing, Parent shall also have the
obligation to file the registration statement covering the shares of
Parent Common Stock issuable upon exercise of the Converted Options and
to keep it effective for the time periods as set forth in Section 2.3.
Section 11.6 Tax Returns. The Shareholders' Representatives shall cause
to be timely prepared and filed (or provided to Parent who will cause to be
filed, if applicable) when due (taking into account all extensions properly
obtained) all income and franchise Tax Returns that are required to be filed by
or with respect to each of the Acquired Corporations for taxable periods ending
on or before the Closing Date. Such Tax Returns shall be subject to Parent's
final review and approval and shall be prepared and filed in a manner consistent
with past practice and, on such Tax Returns, no position shall be taken,
elections made or method adopted that is inconsistent with positions taken,
elections made or methods used in preparing and filing similar Tax Returns in
prior periods without Parent's written consent. Parent shall have the right to
review any such Tax Return at least 30 days prior to the filing thereof.
Section 11.7 Assistance and Cooperation. After the Closing Date, the
Shareholders' Representative shall (and shall cause his respective affiliates
to):
(a) timely sign and deliver such certificates or forms as may
be reasonably necessary or appropriate to establish an exemption from
(or otherwise reduce), or file Tax Returns or other reports with
respect to sales, transfer and similar Taxes that are required to be
filed by or with respect to each of the Acquired Corporations for
taxable periods ending on or before the Closing Date;
(b) cooperate fully with Parent and the Surviving Corporation
in preparing any Tax Returns that Parent or Surviving Corporation may
be responsible for preparing and filing with respect to the Acquired
Corporations for periods ending on or before the Closing Date;
(c) cooperate fully in preparing for any claim, assessment,
deficiency, audit, review examination or other proposed change or
adjustment by any tax authority or any judicial or administrative
proceeding relating to a taxable period ending on or before the Closing
Date (each, a "TAX CLAIM");
(d) make available to Parent and Surviving Corporation and to
any tax authority as reasonably requested all information, records, and
documents relating to Taxes of the Acquired Corporations; and
(e) furnish Parent and Surviving Corporation with copies of
all written correspondence received from any tax authority in
connection with any Tax Claim or information request relating to the
Acquired Corporations.
Section 11.8 Payment of Account Receivables and Other Items. Promptly
after receipt by the Surviving Corporation after the Effective Time of a payment
for an account receivable or other items as set forth in Section 11.8 of the
Company Disclosure Schedules, the Surviving Corporation shall pay such amount
actually received to the Designated Account.
41
ARTICLE XII
TERMINATION
Section 12.1 Termination. This Agreement may be terminated prior to the
Effective Time (whether before or after approval of this Agreement by the
Company's Shareholders):
(a) by mutual written Consent of Parent and the Company;
(b) by either Parent or the Company if:
(i) the Merger shall not have been consummated by
June 30, 2004 (unless the failure to consummate the Merger is
attributable to a failure on the part of the party seeking to
terminate this Agreement to perform any material obligation
required to be performed by such party at or prior to the
Effective Time);
(ii) a court of competent jurisdiction or other
Governmental Body shall have issued a final and nonappealable
order, decree or ruling, or shall have taken any other action,
having the effect of permanently restraining, enjoining or
otherwise prohibiting the Merger; or
(iii) (A) the Company Shareholders' Meeting
(including any adjournments and postponements thereof) shall
have been held and completed and the Company's Shareholders
shall have voted on a proposal to approve this Agreement; and
(B) this Agreement shall not have been approved at such
meeting (and shall not have been adopted at any adjournment or
postponement thereof) by the Required Company Shareholder
Vote; provided, however, that a party shall not be permitted
to terminate this Agreement pursuant to this Section
12.1(b)(iii) if the failure to obtain such Shareholder
approval is attributable to a failure on the part of such
party to perform any material obligation required to be
performed by such party at or prior to the Effective Time;
(c) by Parent (i) if any of the Company's representations and
warranties shall have been inaccurate as of the date of this Agreement,
such that the condition set forth in Section 9.1 would not be
satisfied; or (ii) if (A) any of the Company's representations and
warranties become inaccurate as of a date subsequent to the date of
this Agreement (as if made on such subsequent date), such that the
condition set forth in Section 9.1 would not be satisfied; and (B) such
inaccuracy has not been cured by the Company within 10 Business Days
after its receipt of written notice thereof and remains uncured at the
time notice of termination is given; or (iii) any of the Company's
covenants contained in this Agreement shall have been breached, such
that the condition set forth in Section 9.2 would not be satisfied;
(d) by the Company (i) if any of Parent's representations and
warranties shall have been inaccurate as of the date of this Agreement,
such that the condition set forth in Section 10.1 would not be
satisfied; or (ii) if (A) any of Parent's or Merger Sub's
representations and warranties shall have become inaccurate as of a
date subsequent to the date of this Agreement (as if made on such
subsequent date), such that the condition set forth in Section 10.1
would not be satisfied; and (B) such inaccuracy has not been cured by
Parent or Merger Sub within 10 Business Days after its receipt of
written notice thereof and remains uncured at the time notice of
termination is given; or (iii) if any of Parent's or Merger Sub's
covenants contained in this Agreement shall have been breached such
that the condition set forth in Section 10.2 would not be satisfied;
(e) by Parent if, since the date of this Agreement, there
shall have occurred any Material Adverse Change with respect to the
Acquired Corporations, taken as a whole, or there shall have occurred
any event or circumstance that, in combination with any other events or
circumstances, could reasonably be expected to have a Material Adverse
Change with respect to the Acquired Corporations, taken as a whole;
(f) By the Company, upon the Company's execution of a binding
agreement with a third party with respect to a Superior Proposal;
provided, however, that for any termination by the Company under this
Section 12.1(f) to be effective, the Company must have complied with
all provisions of this Agreement, including, without limitation,
Section 6.3;
42
(g) By Parent, if the Company or the board of directors of the
Company shall have (i) withdrawn or modified, in a manner adverse to
Parent or Merger Sub, (a) the approval by the board of directors of the
Company of this Agreement or the Contemplated Transactions; or (b) the
recommendation of the Company's board of directors that the
Shareholders approve this Agreement, the Merger and the Contemplated
Transactions (an "ADVERSE RECOMMENDATION") (it being understood and
agreed that any communication by the Company or its board of directors
to the Shareholders that indicates that the board of directors had
determined not to withdraw or modify such recommendation, in whole or
in part, because such action would or might give rise to a right on the
part of Parent to terminate this Agreement and/or obligate the Company
to comply with the provisions of Section 12.3 of this Agreement shall
nevertheless be deemed to be an Adverse Recommendation); or (ii)
approved or entered into a definitive agreement with respect to a
Acquisition Proposal with a third party;
(h) By Parent, if any of the Shareholders party to the Voting
Agreement have failed to perform their respective obligations or caused
a breach of their obligations under the Voting Agreement; or
(i) By Parent, if the Closing Inventory is equal to or less
than the Closing Inventory Minimum.
Section 12.2 Effect of Termination. In the event of the termination of
this Agreement as provided in Section 12.1, this Agreement shall become void and
of no further force or effect; provided, however, that (i) Section 6.1(c),
ARTICLE XII and ARTICLE XIII shall survive the termination of this Agreement and
shall remain in full force and effect; and (ii) the termination of this
Agreement shall not relieve any party from any liability for any material
inaccuracy in or material breach of any representation or warranty, covenant or
other provision contained in this Agreement.
Section 12.3 Termination Fees; Expenses.
(a) Termination Fee and Expense Reimbursement. If this
Agreement is terminated pursuant to Section 12.1(b)(iii), Section
12.1(c)(iii), Section 12.1(f) or Section 12.1(g), then the Company
shall (i) pay Parent a fee equal to 5% of the Enterprise Value, which
amount shall be payable by check or wire transfer of immediately
available funds (the "TERMINATION FEE") simultaneously with such
termination of this Agreement; and (ii) the Company shall reimburse
Parent and Merger Sub for all reasonable fees and expenses (including
all attorneys' fees, accountants' fees, financial advisory fees and
filing fees) that have been paid or that may become payable by or on
behalf of Parent or Merger Sub in connection with the preparation and
negotiation of this Agreement and otherwise in connection with the
Merger. If this Agreement is terminated pursuant to Section 12.1(c)(i)
or Section 12.1(c)(ii), the Company shall reimburse Parent and Merger
Sub for all reasonable fees and expenses (including all attorneys'
fees, accountants' fees, financial advisory fees and filing fees) that
have been paid or that may become payable by or on behalf of Parent or
Merger Sub in connection with the preparation and negotiation of this
Agreement and otherwise in connection with the Merger. Any required
reimbursement under this Section 12.3(a) shall take place within two
Business Days of the later of the termination of this Agreement or
submission of evidence of such incurred expenses to the Company.
(b) Other Expenses. Subject to Section 2.4 and except as
provided otherwise in Section 12.3(a) above, all reasonable costs and
expenses incurred in connection with this Agreement, and the
Contemplated Transactions shall be paid by the party incurring such
expenses, whether or not the Merger is consummated.
(c) If the Company fails to pay when due any amount payable
under this Section 12.3, then (i) the Company shall reimburse Parent
for all costs and expenses (including fees and disbursements of
counsel) incurred in connection with the collection of such overdue
amount and the enforcement by Parent of its rights under this Section
12.3; and (ii) the Company shall pay to Parent interest on such overdue
amount (for the period commencing as of the date such overdue amount
was originally required to be paid and ending on the date such overdue
amount is actually paid to Parent in full) at a rate per annum equal to
3% over the "prime rate" (as published by the Wall Street Journal) in
effect on the date such overdue amount was originally required to be
paid.
43
ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.1 Amendment. This Agreement may be amended only by an
instrument in writing signed by the Company, Merger Sub and Parent at any time
(whether before or after adoption of this Agreement by the Shareholders of the
Company); provided, however, that (a) each amendment shall have been duly
authorized by the respective boards of directors of the Company, Parent and
Merger Sub; and (b) after adoption of this Agreement by the Company's
Shareholders, no amendment shall be made which by Law requires further approval
of the Shareholders of the Company without the further approval of such
Shareholders.
Section 13.2 Assignments and Successors. This Agreement shall be
binding upon, and shall be enforceable by and inure solely to the benefit of,
the parties hereto and their respective successors and assigns; provided,
however, that neither this Agreement nor any of any party's rights hereunder may
be assigned by such party without the prior written Consent of the other party.
Any attempted assignment of this Agreement or of any such rights without such
Consent shall be void and of no effect.
Section 13.3 No Third Party Rights. Nothing in this Agreement, express
or implied, is intended to or shall confer upon any Person (other than the
parties hereto) any right, benefit or remedy of any nature whatsoever under or
by reason of this Agreement; provided, however, that after the Effective Time,
the Indemnitees shall be third party beneficiaries of, and entitled to enforce,
Section 7.3.
Section 13.4 Notices. All notices and other communications given or
made pursuant hereto shall be in writing and will be deemed to have been duly
given, upon receipt, if delivered personally (including by courier or overnight
courier), mailed by registered or certified mail (postage prepaid, return
receipt requested) to the parties at the following addresses, or sent by
electronic transmission to the facsimile number specified below:
(a) if to Parent, Merger Sub, or the Surviving Corporation:
Rent-A-Center, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
With a copy, which shall not constitute notice, to:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ P.C.
5400 Renaissance Tower
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
(b) if to the Company (prior to the Closing Date):
Rent Rite, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
With a copy, which shall not constitute notice, to:
Bass, ▇▇▇▇▇ & ▇▇▇▇ PLC
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
Nashville, Tennessee 37238-3001
44
Attention: ▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Facsimile: 615-742-6293
(c) if to the Shareholders' Representative:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇.
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
With a copy, which shall not constitute notice, to:
Bass, ▇▇▇▇▇ & ▇▇▇▇ PLC
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Facsimile: 615-742-6293
or to such other address or facsimile number as any party may, from time to
time, designate in a written notice given in like manner. Notice given by
facsimile will be deemed delivered on the day the sender receives facsimile
confirmation that such notice was reached at the facsimile number of the
addressee. Notices delivered personally shall be deemed delivered as of actual
receipt and mailed notices shall be deemed delivered three days after mailing.
Section 13.5 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. References to Sections and Articles refer to
sections and articles of this Agreement unless otherwise stated.
Section 13.6 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law
or public policy, all other conditions and provisions of this Agreement will
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision 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 the transactions contemplated hereby are fulfilled to the extent
possible.
Section 13.7 Entire Agreement. This Agreement (together with all other
documents and instruments referred to herein) constitutes the entire agreement
among the parties, and supersedes all other prior agreements and undertakings,
both written and oral, among the parties with respect to the subject matter
hereof.
Section 13.8 Governing Law. THIS AGREEMENT AND THE AGREEMENTS,
INSTRUMENTS AND DOCUMENTS CONTEMPLATED HEREBY WILL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE (EXCLUSIVE OF CONFLICTS OF
LAW PRINCIPLES). COURTS WITHIN THE STATE OF DELAWARE WILL HAVE EXCLUSIVE
JURISDICTION OVER ANY AND ALL DISPUTES BETWEEN THE PARTIES HERETO, WHETHER IN
LAW OR EQUITY, ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE AGREEMENTS,
INSTRUMENTS AND DOCUMENTS CONTEMPLATED HEREBY. THE PARTIES CONSENT TO AND AGREE
TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS. 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 (i) SUCH PARTY IS NOT
PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS; (ii) SUCH PARTY AND SUCH
PARTY'S PROPERTY IS IMMUNE FROM ANY LEGAL PROCESS ISSUED BY SUCH COURTS OR (iii)
ANY LITIGATION COMMENCED IN SUCH COURTS IS BROUGHT IN AN INCONVENIENT FORUM.
Section 13.9 No Consequential Damages. Notwithstanding anything to the
contrary elsewhere in this Agreement, no party (or its affiliates) shall, in any
event, be liable to any other party (or its affiliates) for any
45
consequential damages, including, but not limited to, loss of revenue or income,
cost of capital, or loss of business reputation or opportunity relating to the
breach or alleged breach of this Agreement.
Section 13.10 Counterparts. This Agreement may be executed in multiple
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed will be deemed to be an original but all of which taken
together will constitute one and the same agreement.
Section 13.11 Cooperation. The Company agrees to cooperate fully with
Parent and to execute and deliver such further documents, certificates,
agreements and instruments and to take such other actions as may be reasonably
requested by Parent to evidence or reflect the Contemplated Transactions and to
carry out the intent and purposes of this Agreement.
Section 13.12 Construction; Usage.
(a) Interpretation. In this Agreement, unless a clear contrary
intention appears:
(i) the singular number includes the plural number
and vice versa;
(ii) reference to any Person includes such Person's
successors and assigns but, if applicable, only if such
successors and assigns are not prohibited by this Agreement,
and reference to a Person in a particular capacity excludes
such Person in any other capacity or individually;
(iii) reference to any gender includes each other
gender;
(iv) reference to any agreement, document or
instrument means such agreement, document or instrument as
amended or modified and in effect from time to time in
accordance with the terms thereof;
(v) reference to any Legal Requirement means such
Legal Requirement as amended, modified, codified, replaced or
reenacted, in whole or in part, and in effect from time to
time, including rules and regulations promulgated thereunder,
and reference to any section or other provision of any Legal
Requirement means that provision of such Legal Requirement
from time to time in effect and constituting the substantive
amendment, modification, codification, replacement or
reenactment of such section or other provision;
(vi) "hereunder," "hereof," "hereto," and words of
similar import shall be deemed references to this Agreement as
a whole and not to any particular Article, Section or other
provision hereof;
(vii) "including" (and with correlative meaning
"include") means including without limiting the generality of
any description preceding such term;
(viii) "or" is used in the inclusive sense of
"and/or";
(ix) with respect to the determination of any period
of time, "from" means "from and including" and "to" means "to
but excluding"; and
(x) references to documents, instruments or
agreements shall be deemed to refer as well to all appendices,
addenda, exhibits, schedules or amendments thereto.
(b) Legal Representation of the Parties. This Agreement was
negotiated by the parties with the benefit of legal representation and
any rule of construction or interpretation otherwise requiring this
Agreement to be construed or interpreted against any party shall not
apply to any construction or interpretation hereof.
(c) Headings. The headings contained in this Agreement are for
the convenience of reference only, shall not be deemed to be a part of
this Agreement and shall not be referred to in connection with the
construction or interpretation of this Agreement.
46
Section 13.13 Disclosure Schedules. The Company and Parent have set
forth information in the Company Disclosure Schedules and the Parent Disclosure
Schedules, respectively, in the sections thereof that correspond to the section
of this Agreement to which each relates; provided, however, that where the same
item is required to be disclosed by more than one section of this Agreement,
disclosure of the item in one section of the applicable disclosure schedule will
constitute disclosure of the item wherever else required only to the extent that
such applicability is manifestly evident on the face of such disclosures.
Section 13.14 Failure or Indulgence Not Waiver. No failure or delay on
the part of any party hereto in the exercise of any right hereunder will impair
such right or be construed to be a waiver of, or acquiescence in, any breach of
any representation, warranty or agreement herein, nor will any single or partial
exercise of any such right preclude other or further exercise thereof or of any
other right.
Section 13.15 Enforcement of Agreement. The parties acknowledge and
agree that they would be irreparably damaged if any of the provisions of this
Agreement are not performed in accordance with their specific terms and that any
breach of this Agreement could not be adequately compensated in all cases by
monetary damages alone. Accordingly, in addition to any other right or remedy to
which a party may be entitled, at Law or in equity, it shall be entitled to
enforce any provision of this Agreement by a decree of specific performance and
temporary, preliminary and permanent injunctive relief to prevent breaches or
threatened breaches of any of the provisions of this Agreement, without posting
any bond or other undertaking.
Section 13.16 Time of Essence. With regard to all dates and time
periods set forth or referred to in this Agreement, time is of the essence.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
47
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
RENT-A-CENTER, INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President
RAC RR, INC.
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Vice President
RENT RITE, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Title: Chairman
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ joins this Agreement and agrees to be the Shareholders'
Representatives and perform the obligations of the Shareholders' Representative.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
48
APPENDIX A
CERTAIN DEFINITIONS
For purposes of this Agreement (including this Appendix A):
ACCOUNTANTS. "Accountants" has the meaning set forth in Section 3.1.
ACCREDITED INVESTOR. "Accredited Investor" has the meaning set forth in
Rule 501(a) promulgated under the Securities Act.
ACQUIRED CORPORATION(s). "Acquired Corporation" means the Company or
any of its Subsidiaries, and the "Acquired Corporations" means the Company and
all of its Subsidiaries.
ACQUIRED CORPORATION CONTRACT. "Acquired Corporation Contract" means
any contract: (a) to which any of the Acquired Corporations is a party; (b) by
which any of the Acquired Corporations or any asset of any of the Acquired
Corporations is or may become bound or under which any of the Acquired
Corporations has, or may become subject to, any obligation; or (c) under which
any of the Acquired Corporations has or may acquire any right or interest.
ACQUISITION PROPOSAL. "Acquisition Proposal" means any offer, proposal,
inquiry or indication of interest (other than an offer, proposal, inquiry or
indication of interest by Parent) contemplating or otherwise relating to any
Acquisition Transaction.
ACQUISITION TRANSACTION. "Acquisition Transaction" means any
transaction or series of transactions involving:
(a) any merger, consolidation, share exchange, business
combination, issuance of securities, acquisition of securities, tender
offer, exchange offer or other similar transaction (i) in which any of
the Acquired Corporations is a constituent corporation; (ii) in which a
Person or "group" (as defined in the Exchange Act and the rules
promulgated thereunder) of Persons directly or indirectly acquires
beneficial or record ownership of securities representing more than 15%
of the outstanding securities of any class of voting securities of any
of the Acquired Corporations; or (iii) in which any of the Acquired
Corporations issues or sells securities representing more than 20% of
the outstanding securities of any class of voting securities of any of
the Acquired Corporations; or
(b) any sale (other than sales of rental merchandise in the
Ordinary Course of Business), lease (other than in the Ordinary Coarse
of Business), exchange, transfer (other than sales of rental
merchandise in the Ordinary Course of Business), license (other than
nonexclusive licenses in the Ordinary Course of Business), acquisition
or disposition of any business or businesses or assets that constitute
or account for 20% or more of the consolidated net revenues, net income
or assets of the Acquired Corporations.
ADJUSTMENT AMOUNT. "Adjustment Amount" has the meaning set forth in
Section 2.4(c).
ADJUSTMENT HOLDBACK AMOUNT. "Adjustment Holdback Amount" has the
meaning set forth in Section 2.5(b).
ADJUSTMENT HOLDBACK PERIOD. "Adjustment Holdback Period" has the
meaning set forth in Section 2.5(b).
ADVERSE RECOMMENDATION. "Adverse Recommendation" has the meaning set
forth in Section 12.1(g).
AGREEMENT. "Agreement" means the Agreement and Plan of Merger and
Reorganization to which this Appendix A is attached, as it may be amended from
time to time.
ANTITRUST LAWS. "Antitrust Laws" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act of 1976, as amended, and any other antitrust, unfair
competition, merger or acquisition notification, or merger or acquisition
control Legal Requirements under any applicable jurisdictions, whether federal,
state, local or foreign.
A-1
ARTICLES OF MERGER. "Articles of Merger" has the meaning set forth in
Section 1.3.
AVERAGE PER SHARE VALUE. "Average Per Share Value" has the meaning set
forth in Section 2.1(e)(i).
BENEFIT PLANS. "Benefit Plans" has the meaning set forth in Section
4.16(a).
BLUE SKY LAWS. "Blue Sky Laws" has the meaning set forth in Section
4.2(c).
BUSINESS DAY. "Business Day" means any day except Saturday, Sunday and
any day which shall be a legal holiday or a day on which banking institutions in
the State of New York, the State of Texas or the State of Tennessee are
authorized or required by Law or other government actions to close.
CASH CONSIDERATION. "Cash Consideration" has the meaning set forth in
Section 2.1(e)(i).
CASH PORTION OF GENERAL HOLDBACK. "Cash Portion of General Holdback"
has the meaning set forth in Section 2.5(a).
CERTIFICATE OF MERGER. "Certificate of Merger" has the meaning set
forth in Section 1.3.
CLAIMS. "Claims" has the meaning set forth in Section 11.2(a).
CLOSING. "Closing" has the meaning set forth in Section 1.3.
CLOSING AGREEMENT. "Closing Agreement" has the meaning set forth in
Section 4.15(k).
CLOSING BALANCE SHEET. "Closing Balance Sheet" has the meaning set
forth in Section 3.1.
CLOSING DATE. "Closing Date" has the meaning set forth in Section 1.3.
CLOSING INVENTORY. "Closing Inventory" has the meaning set forth in
Section 9.6.
CLOSING INVENTORY MINIMUM. "Closing Inventory Minimum" has the meaning
set forth in Section 2.4(f).
CLOSING THREE MONTH RECURRING REVENUE. "Closing Three Month Recurring
Revenue" has the meaning set forth in Section 9.4.
CODE. "Code" has the meaning set forth in the recitals hereto.
COMPANY. "Company" has the meaning set forth in the preamble hereto.
COMPANY BALANCE SHEET. "Company Balance Sheet" has the meaning set
forth in Section 4.6.
COMPANY BOARD RECOMMENDATION. "Company Board Recombination" has the
meaning set forth in Section 6.4(b).
COMPANY COMMON STOCK. "Company Common Stock" means the common stock, no
par value per share, of the Company.
COMPANY DISCLOSURE SCHEDULES. "Company Disclosure Schedules" means the
disclosure schedules that have been prepared by the Company in accordance with
the requirements of Section 13.13 and that have been delivered by the Company to
Parent on the date of this Agreement.
COMPANY FINANCIAL STATEMENTS. "Company Financial Statements" has the
meaning set forth in Section 4.5(a).
COMPANY PERMITS. "Company Permits" has the meaning set forth in Section
4.18(a).
A-2
COMPANY PREFERRED STOCK. "Company Preferred Stock" means the preferred
stock, no par value per share, of the Company.
COMPANY SHAREHOLDERS' MEETING. "Company Shareholders' Meeting" has the
meaning set forth in Section 6.4(a).
COMPANY STOCK CERTIFICATE. "Company Stock Certificate" has the meaning
set forth in Section 2.6(c).
COMPANY STOCK OPTIONS. "Company Stock Options" has the meaning set
forth in Section 4.3.
CONFIDENTIALITY AGREEMENT. "Confidentiality Agreement" has the meaning
set forth in Section 6.2(b).
CONSENT. "Consent" means any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTEMPLATED TRANSACTIONS. "Contemplated Transactions" has the meaning
set forth in Section 4.2(a).
CONTROLLED GROUP LIABILITY. "Controlled Group Liability" has the
meaning set forth in Section 4.16(b).
CONVERTED OPTION. "Converted Option" has the meaning set forth in
Section 2.3.
CONVERTED OPTION SHAREHOLDERS. "Converted Option Shareholders" has the
meaning set forth Section 2.3(e).
DESIGNATED ACCOUNT. "Designated Account" means that certain account
designated by the Shareholders' Representative in writing and given to Parent
prior to the Closing Date or such other account designated by the Shareholders'
Representative in writing and given to Parent at least five Business Days in
advance of any payment to such account.
DGCL. "DGCL" has the meaning set forth in the recitals hereto.
DISCLOSED CONTINGENT LIABILITIES. "Disclosed Contingent Liabilities"
has the meaning set forth in Section 2.5(a).
DISSENTING SHAREHOLDER. "Dissenting Shareholder" has the meaning set
forth in Section 2.6(i)(ii).
DISSENTING SHARES. "Dissenting Shares" has the meaning set forth in
Section 2.6(i)(i).
▇▇▇▇▇. "▇▇▇▇▇" has the meaning set forth in Section 5.5.
EFFECTIVE TIME. "Effective Time" has the meaning set forth in Section
1.3.
ENCUMBRANCE. "Encumbrance" means any Lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
ENTERPRISE VALUE. "Enterprise Value" has the meaning set forth in
Section 2.1(e)(i).
ENTITY. "Entity" means any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any company
limited by shares, limited liability company or joint stock company), firm,
society or other enterprise, association, organization or entity.
A-3
ENVIRONMENT. "Environment" means soil, land surface or subsurface
strata, surface waters (including navigable waters, ocean waters, streams,
ponds, drainage basins, and wetlands), groundwaters, drinking water supply,
stream sediments, ambient air (including indoor air), plant and animal life, and
any other environmental medium or natural resource.
ENVIRONMENTAL, HEALTH, AND SAFETY LIABILITIES. "Environmental, Health,
and Safety Liabilities" means any cost, damages, expense, liability, obligation,
or other responsibility arising from or under any Environmental Law or
Occupational Safety and Health Law and consisting of or relating to:
(a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational safety and
health, and regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative Legal Proceedings, damages, losses, claims, demands and
response, investigative, remedial, or inspection costs and expenses
arising under Environmental Law or Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or
Occupational Safety and Health Law for cleanup costs or corrective
action, including any investigation, cleanup, removal, containment, or
other remediation or response actions ("CLEANUP") required by
applicable Environmental Law or Occupational Safety and Health Law
(whether or not such Cleanup has been required or requested by any
Governmental Body or any other Person) and for any natural resource
damages; or
(d) any other compliance, corrective, investigative, or
remedial measures required under Environmental Law or Occupational
Safety and Health Law.
ENVIRONMENTAL LAW. "Environmental Law" means any Legal Requirement that
requires or relates to:
(a) advising appropriate authorities, employees, and the
public of intended or actual releases of pollutants or hazardous
substances or materials, violations of discharge limits, or other
prohibitions and of the commencements of activities, such as resource
extraction or construction, that could have significant impact on the
Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or
minimizing the hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged,
and used so that they do not present unreasonable risks to human health
or the Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil, or other
potentially harmful substances;
(g) cleaning up pollutants that have been released, preventing
the threat of release, or paying the costs of such clean up or
prevention; or
(h) making responsible parties pay private parties, or groups
of them, for damages done to their health or the Environment, or
permitting self-appointed Representatives of the public interest to
recover for injuries done to public assets.
ERISA. "ERISA" has the meaning set forth in Section 4.16(b).
ERISA AFFILIATE. "ERISA Affiliate" has the meaning set forth in Section
4.16(b).
EXCHANGE ACT. "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
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EXCHANGE AGENT. "Exchange Agent" has the meaning set forth in Section
2.6(a).
EXCHANGE FUND. "Exchange Fund" has the meaning set forth in Section
2.6(a).
EXISTING LIABILITIES. "Existing Liabilities" means the Company's
liabilities or obligations reflected or reserved against in the Closing Balance
Sheet.
FACILITIES. "Facilities" means any real property, leaseholds, or other
interests currently or formerly owned or operated by any Acquired Corporation
and any buildings, plants, structures, or equipment (including motor vehicles,
tank cars, and rolling stock) currently or formerly owned or operated by any
Acquired Corporation.
GAAP. "GAAP" means generally accepted accounting principles for
financial reporting in the United States, applied on a basis consistent with the
basis on which the Company Financial Statements were prepared.
GENERAL HOLDBACK AMOUNT. "General Holdback Amount" has the meaning set
forth in Section 2.5(a).
GENERAL HOLDBACK PERIOD. "General Holdback Period" has the meaning set
forth in Section 2.5(a).
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" means any: (a)
permit, license, certificate, franchise, permission, variance, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any contract with any Governmental
Body.
GOVERNMENTAL BODY. "Governmental Body" means any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or Entity and any court or
other tribunal).
HAZARDOUS MATERIALS. "Hazardous Materials" means any waste or other
substance that is listed, defined, designated, or classified as, or otherwise
determined to be, hazardous, radioactive, or toxic or a pollutant or a
contaminant under or pursuant to any Environmental Law, including any admixture
or solution thereof, and specifically including petroleum and all derivatives
thereof or synthetic substitutes therefor and asbestos or asbestos-containing
materials.
HOLDBACK AMOUNT. "Holdback Amount" has the meaning set forth in Section
2.5(c).
INDEMNITEE(s). "Indemnitee" or "Indemnitees" have the meanings set
forth in Section 7.3(a).
INDEMNITY CLAIM NOTICE. "Indemnity Claim Notice" has the meaning set
forth in Section 11.2(c).
INTELLECTUAL PROPERTY. "Intellectual Property" means all (a)
inventions, discoveries, processes, designs, techniques, developments,
technology, and related improvements, whether or not patentable; (b) United
States patents and applications therefor and all divisionals, reissues,
renewals, registrations, confirmations, re-examinations, certificates of
inventorship, extensions, continuations and continuations-in-part thereof; (c)
United States, state and foreign trademarks, trade dress, service marks, service
names, trade names, brand names, insignias, designs, logos or business symbols,
whether registered or unregistered, and pending applications to register the
foregoing, including all extensions and renewals thereof and all goodwill
associated therewith; (d) United States and foreign copyrights in writings,
designs, software, mask works or other works, whether registered or
unregistered, and pending applications to register the same; (e) technical,
scientific, and other know-how, trade secrets, methods, processes, practices,
formulas and techniques, computer software programs and software systems,
including all databases, compilations, tool sets, compilers, higher level or
"proprietary" languages, related documentation and materials, whether in
interpretive code, source code, object code or human readable form; (f) rights
of publicity and privacy, "name and likeness" rights and other similar rights;
(g) books and records kept in the Ordinary Course of Business describing or used
in connection with any of the foregoing; and (h) claims or causes of action
arising out of or related to past, present or future infringement or
misappropriation of any of the foregoing.
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INVESTOR QUESTIONNAIRE AND CONSENT. "Investor Questionnaire and
Consent" has the meaning set forth in Section 6.8.
KNOWLEDGE. "Knowledge" means (a) with respect to the Company or any
other Acquired Corporation, the actual knowledge, after due inquiry, of the
Company's or the Acquired Corporation's directors or officers; and (b) with
respect to Parent, the actual knowledge, after due inquiry, of its Chief
Executive Officer, Chief Operating Officer or Chief Financial Officer.
LAW(s). "Law" or "Laws" means any statute, law, ordinance, regulation,
rule, order, writ, injunction or decree of any state, commonwealth, federal,
foreign, territorial or other court or Governmental Body, subdivision, agency,
department, commission, board, bureau or instrumentality of a Governmental Body.
LEASE. "Lease" has the meaning set forth in Section 4.7(a).
LEGAL PROCEEDING. "Legal Proceeding" means any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by or
before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
LEGAL REQUIREMENT. "Legal Requirement" means any federal, state, local,
municipal, foreign or other Law, statute, constitution, principle of common Law,
resolution, ordinance, code, edict, decree, rule, regulation, ruling or
requirement issued, enacted, adopted, promulgated, implemented or otherwise put
into effect by or under the authority of any Governmental Body (or under the
authority of the Nasdaq National Market).
LIEN. "Lien" means any security interest, mortgage, deed of trust,
pledge, lien, charge, encumbrance, title retention agreement or analogous
instrument or device, including the interest of each lessor under any
capitalized lease and the interest of any bondsman under any payment or
performance bond, in, of or on any assets or properties of a Person, whether now
owned or hereafter acquired and whether arising by agreement or operation of
Law.
MAJOR SUPPLIER. "Major Supplier" has the meaning set forth in Section
4.13.
MATERIAL ADVERSE CHANGE. "Material Adverse Change" means any Material
Adverse Effect and, specifically including:
(a) The commencement of any actions, suits, investigations,
complaints or proceedings, at Law or in equity, in any court or before
any Governmental Body, by a Person or Persons seeking class action
status and alleging violation of the provisions of the Rental Purchase
Agreements, rent-to-own statutes or any other consumer protection law;
provided that such action involves five or more stores; and
(b) The commencement of any actions, suits, investigations,
complaints, or proceedings, at law or in equity, in any court or before
any Governmental Body, by a Person or Persons seeking class action
status and alleging violations of federal or state laws respecting
employment, including, but not limited to, gender, race, disability,
national origin or age discrimination, violations of the Occupational
Safety and Health Act of 1970, as amended, the Family and Medical Leave
Act of 1993, as amended, terms and conditions of employment or the
federal or state Legal Requirements regarding wages and hours;
provided, however, that the commencement of any such actions, suits,
investigations, complaints or proceedings shall not constitute a
Material Advance Change in the event the Company can demonstrate to the
reasonable satisfaction of Parent that the potential size of the
purported class does not exceed 25 persons.
MATERIAL ADVERSE EFFECT. An event, violation, inaccuracy, circumstance
or other matter will be deemed to have a "Material Adverse Effect" on the
Acquired Corporations if such event, violation, inaccuracy, circumstance or
other matter (considered together with all other matters that would constitute
exceptions to the representations and warranties set forth in the Agreement but
for the presence of "Material Adverse Effect" or other materiality
qualifications, or any similar qualifications, in such representations and
warranties) had or would reasonably be expected to have a material adverse
effect on (a) the business, condition, capitalization, assets, liabilities,
operations or financial performance of the Acquired Corporations taken as a
whole; (b) the ability of the Company to consummate the Merger or any of the
Contemplated Transactions or to perform any of its obligations under the
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Agreement; or (c) Parent's ability to vote, receive dividends with respect to or
otherwise exercise ownership rights with respect to the stock of the Surviving
Corporation.
An event, violation, inaccuracy, circumstance or other matter will be
deemed to have a "Material Adverse Effect" on Parent if such event, violation,
inaccuracy, circumstance or other matter (considered together with all other
matters that would constitute exceptions to the representations and warranties
set forth in the Agreement but for the presence of "Material Adverse Effect" or
other materiality qualifications, or any similar qualifications, in such
representations and warranties) had or would reasonably be expected to have a
material adverse effect on (a) the business, condition, capitalization, assets,
liabilities, operations or financial performance of Parent and its Subsidiaries
taken as a whole; provided, however, that a decline in Parent's stock price
shall not, in and of itself, be deemed to constitute a Material Adverse Effect
on Parent; or (b) the ability of Parent to consummate the Merger or any of the
other transactions contemplated by the Agreement or to perform any of its
obligations under the Agreement.
MATERIAL CONTRACT. "Material Contract" means:
(a) any contract upon which the Acquired Corporations'
business as a whole is substantially dependent;
(b) any management contract or compensatory plan, contract or
arrangement, including but not limited to plans relating to options,
warrants or rights, pension, retirement or deferred compensation or
bonus, incentive or profit sharing (or if not set forth in any formal
document, a written description thereof) in which any director, officer
or employee participates;
(c) any noncompetition agreement or other agreement that
limits or will limit an Acquired Corporation from engaging in any line
of business;
(d) any agreement, contract or commitment not in the Ordinary
Course of Business involving in excess of $50,000;
(e) the scheduled Severance Payments, the Stay Bonus Plan and
any change of control agreements;
(f) any franchise agreement;
(g) any contract or agreement relating to the acquisition or
disposition of assets having a value in excess of $50,000 other than
the purchase or sale of rental merchandise in the Ordinary Course of
Business;
(h) any material licenses, registrations or memberships
required by a Governmental Body;
(i) any shareholder, voting trust or similar contract or
agreement relating to the voting of shares of Company Common Stock;
(j) joint venture agreements, partnership agreements and other
similar contracts involving a sharing of profits and expenses;
(k) any material agreement or commitment relating to the
borrowing of money or a guaranty thereof in excess of $50,000,
including any security agreement relating thereto;
(l) the Leases;
(m) contracts and agreements for the purchase of inventories,
goods or other materials, by or for the furnishing of services to any
Acquired Corporation that (i) requires payments in excess of $50,000;
or (ii) are not terminable by the Company on notice of 90 days or less
without penalty; and
(n) all employment agreements.
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MERGER. "Merger" has the meaning set forth in the recitals hereto.
MERGER CONSIDERATION. "Merger Consideration" has the meaning set forth
in Section 2.1(e)(i).
MERGER CONSIDERATION REDUCTION(s). "Merger Consideration Reduction" or
"Merger Consideration Reductions" have the meanings set forth in Section 2.4.
MERGER SUB. "Merger Sub" has the meaning set forth in the preamble
hereto.
MERGER SUB COMMON STOCK. "Merger Sub Common Stock" means the common
Stock, $1.00 par value per share, of Merger Sub.
MONTHLY RECURRING REVENUE. "Monthly Recurring Revenue" means monthly
revenue of the Company calculated in accordance with GAAP, less revenues from
product sales and early purchase options, plus $293,000.
MULTIEMPLOYER PLAN. "Multiemployer Plan" has the meaning set forth in
Section 4.16(j).
MULTIPLE EMPLOYER PLAN. "Multiple Employer Plan" has the meaning set
forth in Section 4.16(j).
NOTICE PERIOD. "Notice Period" has the meaning set forth in Section
11.2(c).
OCCUPATIONAL SAFETY AND HEALTH LAW. "Occupational Safety and Health
Law" means any Legal Requirement designed to provide safe and healthful working
conditions and to reduce occupational safety and health hazards, and any
program, whether governmental or private (including those promulgated or
sponsored by industry associations and insurance companies), designed to provide
safe and healthful working conditions.
OFF-BALANCE SHEET ARRANGEMENT. "Off-Balance Sheet Arrangement" means
with respect to any Person, any securitization transaction to which that Person
or its Subsidiaries is a party and any other transaction, agreement or other
contractual arrangement to which an Entity unconsolidated with that Person is a
party, under which that Person or its Subsidiaries, whether or not a party to
the arrangement, has, or in the future may have:
(a) any obligation under a direct or indirect guarantee or
similar arrangement;
(b) a retained or contingent interest in assets transferred to
an unconsolidated Entity or similar arrangement;
(c) derivatives to the extent that the fair value thereof is
not fully reflected as a liability or asset in the financial
statements; or
(d) any obligation or liability, including a contingent
obligation or liability, to the extent that it is not fully reflected
in the financial statements (excluding the footnotes thereto) (for this
purpose, obligations or liabilities that are not fully reflected in the
financial statements (excluding the footnotes thereto) including,
without limitation: obligations that are not classified as a liability
according to GAAP; contingent liabilities as to which, as of the date
of the financial statements, it is not probable that a loss has been
incurred or, if probable, is not reasonably estimable; or liabilities
as to which the amount recognized in the financial statements is less
than the reasonably possible maximum exposure to loss under the
obligation as of the date of the financial statements, but excluding
contingent liabilities arising out of litigation, arbitration or
regulatory actions (not otherwise related to off-balance sheet
arrangements)).
OPTION ADMINISTRATION FEE. "Option Administration Fee" has the meaning
set forth in Section 2.4(a).
OPTION QUESTIONNAIRE AND CONSENT. "Option Questionnaire and Consent"
has the meaning set forth in Section 6.8.
OPTION REGISTRATION SHARES. "Option Registration Shares" has the
meaning set forth in Section 2.3(d).
ORDINARY COURSE OF BUSINESS. "Ordinary Course of Business" means
ordinary course of business consistent with past business practices.
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ORGANIZATIONAL DOCUMENTS. "Organizational Documents" has the meaning
set forth in Section 4.1(b).
PARENT. "Parent" has the meaning set forth in the preamble hereto.
PARENT COMMON STOCK. "Parent Common Stock" means the common stock,
$0.01 par value per share, of Parent.
PARENT DISCLOSURE SCHEDULES. "Parent Disclosure Schedules" means the
disclosure schedules that have been prepared by Parent in accordance with the
requirements of Section 13.13 and that have been delivered by Parent to the
Company on the date of this Agreement.
PARENT SEC REPORTS. "Parent SEC Reports" has the meaning set forth in
Section 5.5.
PERSON. "Person" means any individual, Entity or Governmental Body.
PLANS. "Plans" has the meaning set forth in Section 4.16(c).
POST-SIGNING RETURNS. "Post-Signing Returns" has the meaning set forth
in Section 6.2(a)(vi).
PRE-CLOSING PERIOD. "Pre-Closing Period" has the meaning set forth in
Section 6.1(a).
PROFIT AND LOSS STATEMENT(s). "Profit and Loss Statement" and "Profit
and Loss Statements" have the meanings set forth in Section 4.5(b).
PROPOSAL NOTICE. "Proposal Notice" has the meaning set forth in Section
6.3(b).
QUALIFIED PLANS. "Qualified Plans" has the meaning set forth in Section
4.16(e).
REALLOCATED PARENT SHARES. "Reallocated Parent Shares" has the meaning
set forth in Section 2.3(e)(i).
REGISTRATION. "Registration" has the meaning set forth in Section 11.6.
REGISTRATION EXPENSES. "Registration Expenses" means all reasonable,
out-of-pocket expenses incurred by Parent in connection with the Registration,
including, without limitation, all registration and filing fees, printing
expenses, reasonable, out-of-pocket fees and disbursements of counsel and
independent public accountants for Parent, transfer Taxes, fees of transfer
agents and registrars.
REGISTRATION PERIOD. "Registration Period" has the meaning set forth in
Section 11.6.
REGISTRATION SHARES. "Registration Shares" has the meaning set forth in
Section 11.6.
REGISTRATION STATEMENT. "Registration Statement" has the meaning set
forth in Section 11.6.
RENTAL PURCHASE AGREEMENTS. "Rental Purchase Agreements" has the
meaning set forth in Section 4.12(c).
REPRESENTATIVES. "Representatives" means officers, directors,
employees, agents, attorneys, accountants, advisors and other representatives.
REQUIRED COMPANY SHAREHOLDER VOTE. "Required Company Shareholder Vote"
has the meaning set forth in Section 4.2(a).
RIGHT. "Right" has the meaning set forth in Section 4.3.
SEC. "SEC" means the United States Securities and Exchange Commission.
SEC FILINGS. "SEC Filings" has the meaning set forth in Section 6.4(c).
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SECTION 11.3(d) CLAIMS. "Section 11.3(d) Claims" has the meaning set
forth in Section 11.3(d).
SECURITIES ACT. "Securities Act" means the Securities Act of 1933, as
amended.
SEVERANCE PAYMENTS. "Severance Payments" has the meaning set forth in
Section 11.4.
SHAREHOLDER(s). "Shareholder" or "Shareholders" has the meaning set
forth in Section 2.1.
SHAREHOLDERS' REPRESENTATIVE. "Shareholders' Representative" means
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, or in the event of his death, incapacity, or unwillingness
to serve as such, such successor as shall be appointed by written notice to
Parent by a majority of the individuals who were members of the board of
directors of the Company immediately prior to the Effective Time and shall
become a Shareholder Representative upon such Person's written acceptance to act
as a Shareholders' Representative and of the obligations of the Shareholders'
Representative under the Agreement.
STAY BONUS PLAN. "Stay Bonus Plan" has the meaning set forth in Section
6.2(b)(xvi).
STOCK CONSIDERATION. "Stock Consideration" has the meaning set forth in
Section 2.1(e)(i).
STOCK CONSIDERATION AMOUNT. "Stock Consideration Amount" has the
meaning set forth in Section 2.1(e)(i).
STOCK CONSIDERATION CAP. "Stock Consideration Cap" has the meaning set
forth in Section 2.1(e)(i).
STOCK OPTION PLAN. "Stock Option Plan" means the Company's Amended and
Restated RR 2001 Incentive Compensation Plan.
STOCK PORTION OF GENERAL HOLDBACK. "Stock Portion of General Holdback"
has the meaning set forth in Section 2.5(a).
SUBSEQUENT DETERMINATION. "Subsequent Determination" has the meaning
set forth in Section 6.3(b).
SUBSIDIARY. An Entity is deemed to be a "Subsidiary" of another Person
if such Person directly or indirectly owns, beneficially or of record, (a) an
amount of voting securities of other interests in such Entity that is sufficient
to enable such Person to elect at least a majority of the members of such
Entity's board of directors or other governing body; or (b) at least 50% of the
outstanding equity or financial interests of such Entity.
SUPERIOR PROPOSAL. "Superior Proposal" has the meaning set forth in
Section 6.3(b).
SURVIVING CORPORATION. "Surviving Corporation" has the meaning set
forth in Section 1.1.
TAX "Tax" means any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including
any customs duty), deficiency or fee, and any related charge or amount
(including any fine, penalty or interest), imposed, assessed or collected by or
under the authority of any Governmental Body.
TAX CLAIM. "Tax Claim" has the meaning set forth in Section 11.7.
TAX RETURN. "Tax Return" means any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
TAX RULING. "Tax Ruling" has the meaning set forth in Section 4.15(k).
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TENNESSEE CORPORATE STATUTES. "Tennessee Corporate Statutes" has the
meaning set forth in the recitals hereto.
TERMINATION FEE. "Termination Fee" has the meaning set forth in Section
12.3(a).
THIRD PARTY CLAIM. "Third Party Claim" has the meaning set forth in
Section 11.2(c).
TOTAL PARENT SHARES. "Total Parent Shares" has the meaning set forth in
Section 2.1(e)(i).
VOTING AGREEMENT. "Voting Agreement" has the meaning set forth in
Section 1.5.
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