AGREEMENT AND PLAN OF MERGER

 

TABLE OF CONTENTS

 

				Page
ARTICLE I
THE MERGER
Section 1.1		The Merger		2
Section 1.2		Effective Time		2
Section 1.3		Effects of the Merger		2
Section 1.4		Subsequent Actions		2
Section 1.5		Certificate of Incorporation; By-Laws; Directors and Officers		3
Section 1.6		Conversion of Securities		3
Section 1.7		Exchange of Certificates		4
Section 1.8		Stock Plans		7
Section 1.9		Time and Place of Closing		8
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF MERGER SUB AND PARENT
Section 2.1		Organization		8
Section 2.2		Authority		8
Section 2.3		No Conflict; Required Filings and Consents		9
Section 2.4		Financing Arrangements		9
Section 2.5		No Prior Activities		10
Section 2.6		Brokers		10
Section 2.7		Information Supplied		10
Section 2.8		Interested Stockholder		11
Section 2.9		Sufficiency of Funds		11
Section 2.10		No Reliance		11
Section 2.11		Solvency		11
Section 2.12		Parent Borrowing Availability		12
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1		Organization and Qualification		12
Section 3.2		Capitalization		13
Section 3.3		Subsidiaries		14
Section 3.4		Authority		15
Section 3.5		No Conflict; Required Filings and Consents		16
Section 3.6		SEC Filings; Financial Statements		16
Section 3.7		Absence of Certain Changes or Events		18

 

i

 

Section 3.8		Litigation		18
Section 3.9		Franchises		19
Section 3.10		Employee Benefit Plans		20
Section 3.11		Information Supplied		22
Section 3.12		Conduct of Business; Permits; Compliance with Laws		22
Section 3.13		Taxes		23
Section 3.14		Environmental Matters		25
Section 3.15		Real Property; Title to Assets; Liens		25
Section 3.16		Intellectual Property		26
Section 3.17		Material Contracts		27
Section 3.18		Insurance		29
Section 3.19		Collective Bargaining; Labor Disputes; Compliance		29
Section 3.20		Transactions with Affiliates		32
Section 3.21		Brokers		32
Section 3.22		Opinion of Financial Advisor		32
Section 3.23		Control Share Acquisition		33
Section 3.24		Vote Required		33
ARTICLE IV
COVENANTS AND AGREEMENTS
Section 4.1		Conduct of Business Pending the Merger		33
Section 4.2		No Solicitations		36
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1		Proxy Statement		37
Section 5.2		Meeting of Stockholders of the Company		38
Section 5.3		Additional Agreements		39
Section 5.4		Notification of Certain Matters		39
Section 5.5		Access to Information		40
Section 5.6		Public Announcements		41
Section 5.7		Approval and Consents; Cooperation		41
Section 5.8		Further Assurances		41
Section 5.9		Indemnification and Insurance		42
Section 5.10		Continuation of Employee Benefits		43
Section 5.11		Company ESPP		44
Section 5.12		Financing; Forbearance Agreements; Subordinated Loan Agreement		44
Section 5.13		Takeover Statutes		46
Section 5.14		Disposition of Litigation		46
Section 5.15		Delisting		46
Section 5.16		Insurance Claims		46
Section 5.17		Purchase Agreement		46
Section 5.18		Remaining Commitment Letter		47

 

ii

 

Section 5.19		Parent Borrowing Availability		47
ARTICLE VI
CONDITIONS OF MERGER
Section 6.1		Conditions to Each Party’s Obligation to Effect the Merger		47
Section 6.2		Additional Conditions to Obligation of the Company to Effect the Merger		47
Section 6.3		Additional Conditions to Obligations of Parent and Merger Sub to Effect the Merger		48
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1		Termination		50
Section 7.2		Effect of Termination; Termination Fee Payable in Certain Circumstances		51
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1		Non-Survival of Representations, Warranties and Agreements		53
Section 8.2		Notices		53
Section 8.3		Expenses		54
Section 8.4		Definitions		54
Section 8.5		Headings		63
Section 8.6		Severability		63
Section 8.7		Entire Agreement; No Third-Party Beneficiaries		63
Section 8.8		Assignment		63
Section 8.9		Governing Law; Jurisdiction		63
Section 8.10		Amendment		64
Section 8.11		Waiver		64
Section 8.12		Counterparts		64
Section 8.13		Waiver of Jury Trial		64
Section 8.14		Interpretation		65
Section 8.15		Disclosure Generally		65
Section 8.16		Specific Performance		65

 

iii

 

INDEX OF DEFINED TERMS

 

		Page
1996 Stock Incentive Plan		14
Actions		42
affiliate		54
Affiliate Transaction		32
Aggregated Commitment Letter		45
Agreement		1
Book-Entry Shares		5
Certificate of Merger		2
Certificates		5
Cleanup		54
Closing		8
Closing Date		8
Code		6
Commitment Letters		9
Company		1
Company Acquisition		55
Company Alternative Proposal		55
Company Board		1
Company Change of Recommendation		38
Company Common Stock		3
Company Disclosure Letter		12
Company ESPP		14
Company Material Contracts		29
Company Preferred Stock		13
Company Recommendation		38
Company SEC Reports		16
Company Stockholder Approval		33
Company Stockholders’ Meeting		10
Company Superior Proposal		56
Company Termination Fee		52
Confidentiality Agreement		56
control		57
Copyrights		27
DGCL		1
Dissenting Shares		4
Draft Company 2008 Form 10-K		17
Effect		12
Effective Time		2
Employee Plans		21
Employment Contract		32
Environmental Claim		57
Environmental Laws		57
ERISA		20
ERISA Affiliate		21
Exchange Act		9
Exchange Agent		4
Exchange Fund		5
Financing		10
Financing Agreement		10
Financing Agreement Repayment Amount		10
Financing Failure		58
Forbearance Agreements		58
FTC Rule		19
GAAP		58
Governance Agreement		58
Governmental Entity		11
Hazardous Materials		59
Incentive Plans		7
Indemnified Parties		42
Insurance Policies		29
Intellectual Property Rights		27
knowledge		59
Leased Real Property		59
Licensed Franchise		59
Lien		9
Material Adverse Effect		12
Maximum Amount		42
Merger		1
Merger Consideration		3
Merger Sub		1
Merger Sub Common Stock		3
New Commitment Letters		45
Non-Employee Director Program		14
Options		7
Parent		1
Parent Confidentiality Agreement		60
Parent Disclosure Letter		8
Parent First Lien Credit Agreement		12
Parent Representatives		40
Parent Termination Fee		52
Patents		27
Permits		23
Permitted Liens		60
Person		60
Proxy Statement		37
Purchase Agreement		1
Real Property		61

 

iv

 

Real Property Leases		61
Regulatory Laws		9
Release		61
Remaining Commitment Letter		47
Remaining Commitment Letter Amount		47
Representatives		36
Required Approvals		41
Restricted Stock		7
Restricted Stock Unit Award		7
Sarbanes-Oxley		17
SEC		61
Software		27
Solvent		11
Stock Incentive Plan		13
Subordinated Loan Agreement		61
Subsidiary		61
Surviving Corporation		2
Takeover Statute		33
Tax Return		62
Taxes		62
Termination Date		50
Termination Fee		52
Territorial Rights		20
Trademarks		27
Traditional Franchise		62
Treasury Regulations		62
U.S. Bank		10
UFOC		19
WARN Act		32
WUSA		10

 

v

 

AGREEMENT AND PLAN OF MERGER

 

This AGREEMENT AND PLAN OF MERGER, dated as of January 28, 2009 (this “ Agreement ”), by and among KOOSHAREM CORPORATION, a California corporation doing business as Select Staffing (“ Parent ”), SELECT MERGER SUB INC., a Delaware corporation and a wholly-owned subsidiary of Parent (“ Merger Sub ”), and WESTAFF, INC., a Delaware corporation (the “ Company ”).

 

W I T N E S S E T H:

 

WHEREAS, the respective Boards of Directors of Parent, Merger Sub and the Company have deemed it advisable and in the best interests of their respective corporations and stockholders that Parent and the Company consummate the merger and other transactions provided for herein; and

 

WHEREAS, the respective Boards of Directors of Merger Sub and the Company have approved, in accordance with the General Corporation Law of the State of Delaware (the “ DGCL ”), this Agreement and the transactions contemplated hereby, including the merger of Merger Sub with and into the Company with the Company continuing as the surviving corporation and a wholly owned subsidiary of Parent (the “ Merger ”), all in accordance with the DGCL and upon the terms and subject to the conditions set forth herein and the Board of Directors of the Company (the “ Company Board ”) has resolved to recommend to its stockholders the approval and adoption of this Agreement and the transactions contemplated hereby, including the Merger, upon the terms and subject to the conditions set forth herein; and

 

WHEREAS, in connection with the execution of this Agreement, DelStaff LLC, a Delaware limited liability company (“ DelStaff ”) intends to enter into a Stock & Note Purchase Agreement, dated as of the date hereof, with Parent (the “ Purchase Agreement ”), which agreement provides, among other things, that, subject to the terms and conditions thereof, DelStaff will vote its shares of Company Common Stock in favor of the Merger and the approval and adoption of this Agreement and against certain competing transactions and DelStaff will sell all of its shares of Company Common Stock to Parent immediately prior to the Effective Time; and

 

WHEREAS, the Company Board has approved the transactions contemplated by the Purchase Agreement, including for purposes of Section 203 of the DGCL; and

 

WHEREAS, Parent, as the sole stockholder of Merger Sub, has approved and adopted this Agreement and approved the transactions contemplated hereby, including the Merger; and

 

WHEREAS, Parent, Merger Sub and the Company desire to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe various conditions to the Merger; and

 

 

WHEREAS, terms used but not defined herein shall have the meanings set forth in Section 8.4 , unless otherwise noted.

 

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, the parties hereby agree as follows:

 

ARTICLE I

 

THE MERGER

 

Section 1.1                                       The Merger . At the Effective Time and subject to and upon the terms and conditions of this Agreement and the DGCL, Merger Sub shall be merged with and into the Company, the separate corporate existence of Merger Sub shall cease, and the Company shall continue as the surviving corporation. The Company, as the surviving corporation after the Merger, is hereinafter sometimes referred to as the “ Surviving Corporation .”

 

Section 1.2                                       Effective Time . As promptly as practicable, and in any event within two business days after the satisfaction or waiver of the conditions set forth in Article VI , the parties hereto shall cause the Merger to be consummated by filing a Certificate of Merger (the “ Certificate of Merger ”) with the Secretary of State of the State of Delaware, in such form as required by, and executed in accordance with the relevant provisions of, the DGCL (the time of such filing, or such later time as shall be specified therein, being the “ Effective Time ”).

 

Section 1.3                                       Effects of the Merger . At the Effective Time, the effects of the Merger shall be as provided in the applicable provisions of the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all the property, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation.

 

Section 1.4                                       Subsequent Actions . If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in the Surviving Corporation its right, title or interest in, to or under any of the rights, properties or assets of either of the Company or Merger Sub acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger or otherwise to carry out this Agreement, the officers and directors of the Surviving Corporation shall be authorized to execute and deliver, in the name and on behalf of either the Company or Merger Sub, all such deeds, bills of sale, assignments and assurances and to take and do, in the name and on behalf of each of such corporations or otherwise, all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under such rights, properties or assets in the Surviving Corporation or otherwise to carry out this Agreement.

 

2

 

Section 1.5                                       Certificate of Incorporation; By-Laws; Directors and Officers .

 

(a)                                   Subject to Section 5.9(b) , at the Effective Time, the Certificate of Incorporation of the Company shall be amended and restated in its entirety to be identical to the Certificate of Incorporation of Merger Sub, as in effect immediately prior to the Effective Time, until thereafter amended in accordance with the DGCL and as provided in such Certificate of Incorporation; provided , however , that at the Effective Time, Article I of the Certificate of Incorporation of the Surviving Corporation shall be amended and restated in its entirety to read as follows: “The name of the corporation is Westaff, Inc.”

 

(b)                                  Subject to Section 5.9(b) , at the Effective Time, the By-Laws of the Company shall be amended and restated in their entirety to be identical to the By-Laws of Merger Sub, as in effect immediately prior to the Effective Time, until thereafter amended in accordance with the DGCL and as provided in such By-Laws; provided , however , that at the Effective Time, the title of the By-Laws of the Surviving Corporation shall be amended and restated in its entirety to read as follows: “By-Laws of Westaff, Inc.”

 

(c)                                   At the Effective Time, the directors of Merger Sub immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation, and the officers of the Company immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation, in each case, until their successors are duly elected or appointed and qualified in the manner provided in the Surviving Corporation’s Certificate of Incorporation and By-Laws, or as otherwise provided by applicable law. In addition, unless otherwise determined by Parent prior to the Effective Time, the Company shall cause the directors and officers of each of the Company’s Subsidiaries immediately prior to the Effective Time to be directors and officers, respectively, of each of the Surviving Corporation’s Subsidiaries immediately after the Effective Time, each to hold office as a director or officer of each such Subsidiary in accordance with the provisions of the laws of the respective jurisdiction of organization and the respective organizational documents of each such Subsidiary.

 

Section 1.6                                       Conversion of Securities . At the Effective Time, by virtue of the Merger and without any action on the part of Merger Sub, the Company or the holder of any shares of Common Stock, par value $0.01 per share, of the Company (“ Company Common Stock ”), or any shares of common stock, par value $0.01 per share, of Merger Sub (the “ Merger Sub Common Stock ”):

 

(a)                                   Company Common Stock . Subject to adjustment in accordance with Section 1.6(e) , each share of Company Common Stock that is issued and outstanding immediately prior to the Effective Time (other than shares to be cancelled in accordance with Section 1.6(c) and Dissenting Shares) shall be converted into the right to receive from the Surviving Corporation, and become exchangeable for, an amount in cash equal to $1.25 per share of Company Common Stock (as such amount may be adjusted pursuant to Section 1.6(e) , without interest, the “ Merger Consideration ”). As of the Effective Time, all shares of Company Common Stock upon which the Merger Consideration is payable pursuant to this Section 1.6(a) shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate representing any such shares of Company Common Stock shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration.

 

3

 

(b)                                  Merger Sub Common Stock . Each share of Merger Sub Common Stock that is issued and outstanding immediately prior to the Effective Time shall be converted into and become one fully paid and nonassessable share of common stock, $0.01 par value per share, of the Surviving Corporation, and the Surviving Corporation shall become a wholly-owned subsidiary of Parent.

 

(c)                                   Cancellation of Treasury Stock and Parent and Merger Sub-Owned Company Common Stock . All shares of Company Common Stock that are owned by the Company or any direct or indirect Subsidiary of the Company and any shares of Company Common Stock owned by Parent, Merger Sub or any subsidiary of Parent or Merger Sub or held in the treasury of the Company shall, by virtue of the Merger and without any action on the part of the holder thereof, be cancelled and retired and shall cease to exist, and no cash or other consideration shall be delivered or deliverable in exchange therefor.

 

(d)                                  Dissenting Shares . Notwithstanding anything in this Agreement to the contrary, shares of Company Common Stock that are issued and outstanding immediately prior to the Effective Time and that are held by a holder who is entitled to demand and properly demands payment for such holder’s shares pursuant to, and who complies with, Section 262 of the DGCL (“ Dissenting Shares ”) shall not be converted into or be exchangeable for the right to receive the Merger Consideration (but instead shall be only entitled to such rights as are provided by the DGCL with respect to such Dissenting Shares), unless and until such holder shall have failed to perfect or shall have effectively withdrawn, waived or lost such holder’s right under the DGCL. If any such holder of Company Common Stock shall have failed to perfect or shall have effectively withdrawn or lost such right, each Dissenting Share held by such holder shall be treated, at the Company’s sole discretion, as a share of Company Common Stock that had been converted as of the Effective Time into the right to receive, and become exchangeable for, the Merger Consideration in accordance with Section 1.6(a) . Any payments made in respect of Dissenting Shares shall be made by the Surviving Corporation. The Company shall give prompt notice to Parent and Merger Sub of any demands received by the Company for appraisal of shares of Company Common Stock and of attempted withdrawals of such notice and any other instruments provided pursuant to applicable law, and Parent and Merger Sub shall have the right to participate in and direct all negotiations and proceedings with respect to such demands. The Company shall not, except with the prior written consent of Parent, make any payment with respect to, or settle or offer to settle, any such demands or approve any withdrawal of any such demands.

 

(e)                                   Adjustments . If, at any time during the period between the date of this Agreement and the Effective Time, a change in the outstanding shares of capital stock of the Company shall occur by reason of any reclassification, recapitalization, stock split or combination, exchange or readjustment of shares, the Merger Consideration and any other amounts payable pursuant to this Agreement shall be adjusted appropriately.

 

Section 1.7                                       Exchange of Certificates .

 

(a)                                   Exchange Agent . At and from time to time following the Effective Time, Parent shall deposit with a bank or trust company reasonably acceptable to the Company (the “ Exchange Agent ”), for the benefit of the holders of shares of Company Common Stock that have been converted into the right to receive, and become exchangeable for, the Merger

 

4

 

Consideration pursuant to Section 1.6(a) , for exchange in accordance with this Article I through the Exchange Agent, an amount sufficient to pay the aggregate Merger Consideration (such consideration being hereinafter referred to as the “ Exchange Fund ”). The Exchange Agent shall, pursuant to irrevocable instructions of the Surviving Corporation, make payments of the Merger Consideration out of the Exchange Fund. The Exchange Fund shall not be used for any other purpose.

 

(b)                                  Exchange Procedure for Certificates . As soon as reasonably practicable after the Effective Time, the Surviving Corporation shall cause the Exchange Agent to mail to each holder of record of a certificate or certificates which immediately prior to the Effective Time represented outstanding shares of Company Common Stock (the “ Certificates ”) or of non-certificated shares represented by book entry (“ Book-Entry Shares ”) that were converted into the right to receive the Merger Consideration pursuant to Section 1.6(a) :  (x) a letter of transmittal in form and substance reasonably acceptable to the Company (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates or Book-Entry Shares shall pass, only upon delivery of the Certificates or Book-Entry Shares to the Exchange Agent and shall be in such form and have such other customary provisions as the Surviving Corporation may reasonably specify); and (y) instructions, in form and substance reasonably acceptable to the Company, for use in effecting the surrender of the Certificates or Book-Entry Shares in exchange for the Merger Consideration. Upon surrender of a Certificate or Book-Entry Shares for cancellation to the Exchange Agent, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required by the Exchange Agent, the holder of such Certificate or Book-Entry Shares shall be entitled to receive in exchange therefor the aggregate Merger Consideration into which the shares of Company Common Stock theretofore represented by such Certificate or Book-Entry Shares shall have been converted pursuant to Section 1.6(a) , and the Certificate or Book-Entry Shares so surrendered shall forthwith be cancelled. The Exchange Agent shall accept such Certificates and Book-Entry Shares upon compliance with such reasonable terms and conditions as the Exchange Agent may impose to effect an orderly exchange thereof in accordance with normal exchange practices. In the event of a transfer of ownership of such Company Common Stock which is not registered in the transfer records of the Company, payment may be made to a Person other than the Person in whose name the Certificate or Book-Entry Shares so surrendered is registered, if such Certificate or Book-Entry Shares shall be properly endorsed or otherwise be in proper form for transfer and the Person requesting such payment shall pay any transfer or other Taxes required by reason of the payment to a Person other than the registered holder thereof or establish to the reasonable satisfaction of the Surviving Corporation that such Taxes have been paid or are not applicable. Until surrendered as contemplated by this Section 1.7(b) , each Certificate or Book-Entry Share (other than a Certificate or Book-Entry Share representing shares of Company Common Stock cancelled in accordance with Section 1.6(c) and other than Dissenting Shares) shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the Merger Consideration, without interest, into which the shares of Company Common Stock theretofore represented by such Certificate or Book-Entry Share shall have been converted pursuant to Section 1.6(a) . No interest will be paid or will accrue on the consideration payable upon the surrender of any Certificate or Book-Entry Share.

 

(c)                                   No Further Ownership Rights in Company Common Stock . All consideration paid upon the surrender of Certificates or Book-Entry Shares in accordance with

 

5

 

the terms of this Article I shall be deemed to have been paid in full satisfaction of all rights pertaining to the shares of Company Common Stock theretofore represented by such Certificates or Book-Entry Shares, subject, however, to any obligation of the Surviving Corporation to pay any dividends or make any other distributions with a record date prior to the Effective Time which may have been authorized or made with respect to shares of Company Common Stock which remain unpaid or unsatisfied at the Effective Time, 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, the Certificates or Book-Entry Shares are presented to the Surviving Corporation or the Exchange Agent for any reason, they shall be cancelled and exchanged as provided in this Article I , except as otherwise provided by applicable law.

 

(d)                                  Termination of the Exchange Fund . Any portion of the Exchange Fund which remains unclaimed by the holders of Company Common Stock for six months after the Effective Time shall be delivered to the Surviving Corporation and any holders of the Certificates or Book-Entry Shares who have not theretofore complied with this Article I shall thereafter look only to the Surviving Corporation and only as general creditors thereof for payment of their claim for the Merger Consideration and, if applicable, any unpaid dividends or other distributions which such holder may be due on Company Common Stock, under applicable law. All rights of any former holder of Company Common Stock to receive the Merger Consideration hereunder shall, to the extent such Merger Consideration remains unclaimed, terminate on the date that is six months prior to the date on which such unclaimed Merger Consideration would otherwise become payable to a Governmental Entity pursuant to any applicable abandoned property, escheat or similar law.

 

(e)                                   No Liability . None of the Company, Merger Sub, Parent, the Surviving Corporation or the Exchange Agent, or any of their respective employees, officers, directors, stockholders, agents or affiliates, shall be liable to any Person in respect of any cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.

 

(f)                                     Investment of the Exchange Fund . The Exchange Agent shall invest any cash in the Exchange Fund as directed by Parent; provided , however , that such investments shall be in obligations of, or guaranteed by, the United States of America. Any interest and other income resulting from such investments shall be paid to Parent.

 

(g)                                  Withholding Rights . The Surviving Corporation shall be entitled, and shall be entitled to direct the Exchange Agent, to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of shares of Company Common Stock such amounts as the Surviving Corporation is required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code of 1986, as amended (the “ Code ”), or any provision of state, local or foreign tax law. To the extent that amounts are so deducted and withheld by the Surviving Corporation, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the shares of Company Common Stock in respect of which such deduction and withholding was made by the Surviving Corporation.

 

(h)                                  Lost Certificates . If any Certificate shall have been lost, stolen or

 

6

 

destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by the Surviving Corporation, the posting by such Person of a bond in such reasonable amount as the Surviving Corporation may require as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the Merger Consideration payable pursuant to this Agreement in respect of the shares of Company Common Stock represented by such Certificate.

 

Section 1.8                                       Stock Plans .

 

(a)                                   Prior to the Effective Time, the Company shall take all actions necessary to provide that, at the Effective Time, each then outstanding option to purchase shares of Company Common Stock (the “ Options ”) granted under any of the Company’s stock option or incentive plans listed in Section 3.2 of the Company Disclosure Letter, each as amended (collectively, the “ Incentive Plans ”), or granted other than pursuant to such Incentive Plans, whether or not then exercisable or vested, shall be cancelled in exchange for the right to receive, within ten (10) business days following the Effective Time, from the Surviving Corporation, an amount in cash in respect thereof equal to the product of (i) the excess, if any, of the Merger Consideration over the per share exercise price of such Option, multiplied by (ii) the number of shares of Company Common Stock subject to such Option (such payment to be net of applicable withholding Taxes, if any).

 

(b)                                  Except as provided herein or as otherwise agreed to by the parties and to the extent permitted by the Incentive Plans, (i) the Company shall cause the Incentive Plans to terminate as of the Effective Time and cause the provisions in any other plan, program or arrangement providing for the issuance or grant by the Company of any interest in respect of the capital stock of the Company to terminate and have no further force or effect as of the Effective Time and (ii) the Company shall ensure that following the Effective Time no holder of Options or any participant in the Incentive Plans or anyone other than Parent shall hold or have any right to acquire any equity securities of the Company or the Surviving Corporation.

 

(c)                                   Prior to the Effective Time, the Company shall take all actions necessary to provide that, at the Effective Time, all shares of Company Common Stock subject to vesting and transfer or other restrictions (“ Restricted Stock ”) shall become fully vested and all restrictions on such shares shall lapse. Pursuant to Section 1.6(a) , such shares shall be cancelled, retired and shall cease to exist, and shall be converted into the right to receive from the Surviving Corporation the Merger Consideration.

 

(d)                                  Prior to the Effective Time, each outstanding right to receive Company Common Stock pursuant to a restricted stock unit, stock unit award or stock appreciation right granted under any Incentive Plans that is subject to restrictions (whether performance-based, time-based, or otherwise) (each, a “ Restricted Stock Unit Award ”) shall terminate and be of no further value unless all applicable performance or vesting criteria with respect to such Restricted Stock Unit has been satisfied prior to the Effective Time. As of the Effective Time, each such Restricted Stock Unit Award which has not lapsed immediately prior to the Effective Time and for which all applicable performance or vesting criteria has been satisfied, shall be settled in shares of Company Common Stock in accordance with the terms of such Restricted Stock Unit Award.

 

7

 

Section 1.9                                       Time and Place of Closing . Unless otherwise mutually agreed upon in writing by Parent and the Company, the closing of the Merger (the “ Closing ”) will be held at such location as the parties shall mutually agree, at 10:00 a.m., local time, on the first business day following the date that all of the conditions precedent specified in Article VI (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions) have been satisfied or, to the extent permitted by applicable law, waived by the party or parties permitted to do so (such date being referred to hereinafter as the “ Closing Date ”).

 

ARTICLE II

REPRESENTATIONS AND WARRANTIES
OF MERGER SUB AND PARENT

 

Except as set forth in the Disclosure Letter delivered by Parent and Merger Sub to the Company prior to the execution and delivery of this Agreement, after giving effect to Section 8.15 (the “ Parent Disclosure Letter ”), each of Merger Sub and Parent hereby represents and warrants to the Company as follows:

 

Section 2.1                                       Organization . Each of Merger Sub and Parent is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated and has the requisite corporate power and authority to own, operate or lease the properties that it purports to own, operate or lease and to carry on its business in all material respects as it is now being conducted. Parent is duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where its business or the character of its properties owned, possessed, licensed, operated or leased, or the nature of its activities, makes such qualification necessary, except for such failure which, when taken together with all other such failures, would not reasonably be expected to prevent or materially impair the ability of Parent to consummate the transactions contemplated hereby.

 

Section 2.2                                       Authority . Each of Merger Sub and Parent has all requisite corporate power and authority to enter into this Agreement and the Purchase Agreement, as applicable, and carry out their respective obligations hereunder and thereunder. The execution and delivery of this Agreement by each of Merger Sub and Parent and the consummation by each of Merger Sub and Parent of the transactions contemplated hereby and by the Purchase Agreement have been duly authorized by all necessary corporate action on the part of each of Merger Sub and Parent and no other corporate proceeding is necessary for the execution and delivery of this Agreement or the Purchase Agreement by either Merger Sub or Parent, the performance by each of Merger Sub and Parent of their respective obligations hereunder or thereunder and the consummation by each of Merger Sub and Parent of the transactions contemplated hereby and thereby. This Agreement and the Purchase Agreement have been duly executed and delivered by each of Merger Sub and Parent and constitute a legal, valid and binding obligation of each of Merger Sub and Parent, enforceable against each of Merger Sub and Parent in accordance with their terms, except that (i) such enforcement may be subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws, now or hereafter in effect, relating to creditors’ rights generally and (ii) equitable remedies of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.

 

8

 

Section 2.3                                       No Conflict; Required Filings and Consents .

 

(a)                                   The execution and delivery of this Agreement and the Purchase Agreement by each of Merger Sub and Parent, as applicable, do not, and the performance of this Agreement and the Purchase Agreement by each of Merger Sub and Parent, as applicable, and the consummation of the transactions contemplated hereby will not, (i) subject to the requirements, filings, consents and approvals referred to in Section 2.3(b) , conflict with or violate any law, regulation, court order, judgment or decree applicable to Merger Sub or Parent or by which their respective property is bound or subject, (ii) violate or conflict with the Certificate of Incorporation or By-Laws of Merger Sub or the Certificate of Incorporation or By-Laws of Parent or (iii) subject to the requirements, filings, consents and approvals referred to in Section 2.3(b) , result in any breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, cancellation or preemption of, or result in the creation of a lien, security interest, pledge, claim, charge, restriction, covenant, condition or encumbrance of any nature whatsoever (“ Lien ”) on any of the property or assets of Merger Sub or Parent pursuant to, any contract, agreement, indenture, lease or other instrument of any kind, permit, license or franchise to which Merger Sub or Parent is a party or by which either Merger Sub or Parent or any of their respective properties are bound or subject except, in the case of clause (iii), for such breaches, defaults, rights, or Liens which would not materially impair the ability of Parent or Merger Sub to consummate the transactions contemplated hereby.

 

(b)                                  Except for applicable requirements, if any, of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), and the filing of the Certificate of Merger with the Secretary of State of the State of Delaware, neither Parent nor Merger Sub is required to submit any notice, report or other filing with any Governmental Entity in connection with the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby, except for such of the foregoing, including under Regulatory Laws, as are required by reason of the legal or regulatory status or the activities of the Company or its Subsidiaries or by reason of facts specifically pertaining to any of them. No waiver, consent, approval or authorization of any Governmental Entity is required to be obtained or made by Parent or Merger Sub in connection with their execution, delivery or performance of this Agreement or the Purchase Agreement, except for such of the foregoing as are required by reason of the legal or regulatory status or the activities of the Company or its Subsidiaries or by reason of facts specifically pertaining to any of them. For purposes of this Agreement, “ Regulatory Laws ” means any Federal, state, county, municipal, local or foreign statute, ordinance, rule, regulation, permit, consent, waiver, notice, approval, registration, finding of suitability, license, judgment, order, decree, injunction or other authorization applicable to, governing or relating to the legal or regulatory status or the activities of the Company.

 

Section 2.4                                       Financing Arrangements . A true and correct copy of each fully-executed commitment letter, on behalf of Parent and by and among certain affiliates of Parent and Bank of the West, Community Bank of Nevada and Pacific Western Bank, respectively, and dated as of January 16, 2009, January 13, 2009, and January 16, 2009, respectively (the “ Commitment Letters ”), has previously been provided to the Company. Pursuant to the Commitment Letters, the lenders party thereto have committed in the aggregate, subject to the respective terms and conditions set forth therein, to provide financing on the terms set forth

 

9

 

therein in an aggregate amount equal to $23,000,000, which, when aggregated with the amount of the financing contemplated by the Remaining Commitment Letter, would equal $28,000,000 (collectively, the “ Financing Agreement Repayment Amount ”), to replace the financing agreement, dated as of February 14, 2008 (as amended, the “ Financing Agreement ”) among Westaff (USA), Inc. (“ WUSA ”), the Company, as parent guarantor, certain lenders party thereto and U.S. Bank National Association, as agent for the lenders thereto and letter of credit issuer (“ U.S. Bank ”) (the “ Financing ”). The Commitment Letters, in the respective forms so delivered are, as of the date hereof, in full force and effect and are a valid and binding obligation of the parties thereto other than the lenders party thereto (such non-lender parties, the “ Non-Lender Parties ”) and, to the knowledge of Parent, the lenders party thereto. As of the date hereof, no event has occurred which, with or without notice, lapse of time or both, would, individually or in the aggregate constitute a default or breach on the part of the Non-Lender Parties under any term or condition of any Commitment Letter other than to the extent that any term or condition requires any action by, or otherwise relates to, the Company. Parent and Merger Sub have fully paid any and all commitment fees or other fees required by each Commitment Letter to be paid on or before the date of this Agreement. As of the date hereof, Parent and Merger Sub have no reason to believe that they will be unable to satisfy on a timely basis any term or condition of closing to be satisfied by them and/or the Non-Lender Parties contained in any Commitment Letter or that the Financing will not be available to them on the Closing Date. No Commitment Letter has been amended or modified except as permitted by this Agreement and, as of the date hereof, the commitments contained in each Commitment Letter have not been withdrawn or rescinded in any respect. There are no conditions precedent or other similar contingencies to obtaining the funding of the full amount of the Financing to be made available on the Closing Date as described in the Commitment Letters, other than as set forth in the respective Commitment Letters.

 

Section 2.5                                       No Prior Activities . Except for obligations or liabilities incurred in connection with its incorporation or the negotiation and consummation of this Agreement and the transactions contemplated hereby (including the Financing), Merger Sub has not incurred any obligations or liabilities, other than in connection with its incorporation, and has not engaged in any business or activities of any type or kind whatsoever.

 

Section 2.6                                       Brokers . No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by and on behalf of Merger Sub, Parent or any of its affiliates.

 

Section 2.7                                       Information Supplied . None of the information to be supplied in writing by Merger Sub or Parent specifically for inclusion in the Proxy Statement contemplated by Section 5.1 will, on the date it is filed and on the date it is first published, sent or given to the holders of Company Common Stock or at the time of any meeting of the Company’s stockholders to consider and vote upon the Merger Agreement (the “ Company Stockholders’ Meeting ”), contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. If, at any time prior to the Company Stockholders’ Meeting, any event with respect to either Merger Sub or Parent, or with respect to information supplied in writing by either Merger Sub or Parent specifically for inclusion in the

 

10

 

Proxy Statement, shall occur which is required to be described in an amendment of, or supplement to, such Proxy Statement, such event shall be so described by either Merger Sub or Parent, as applicable, and provided to the Company. All documents that Merger Sub or Parent is responsible for filing with any federal, state, provincial, local and foreign government, governmental, quasi-governmental, supranational, regulatory or administrative authority, agency, commission or any court, tribunal, or judicial or arbitral body (each, a “ Governmental Entity ”) will comply in all material respects with the provisions of applicable law as to the information required to be contained therein. Notwithstanding the foregoing, neither Merger Sub nor Parent makes any representation or warranty with respect to the information supplied or to be supplied by or on behalf of the Company for inclusion or incorporation by reference in the Proxy Statement.

 

Section 2.8                                       Interested Stockholder . As of the date hereof, neither Parent nor Merger Sub is an “interested stockholder” with respect to the Company, as such term is defined in Section 203 of the DGCL.

 

Section 2.9                                       Sufficiency of Funds . Parent has sufficient funds to pay in full the Merger Consideration pursuant to Section 1.6(a) .

 

Section 2.10                                 No Reliance . Parent and Merger Sub acknowledge that none of the Company, its Subsidiaries, nor any other Person has made any representation or warranty, express or implied, as to the accuracy or completeness of any information regarding the Company, its Subsidiaries, their respective businesses or financial condition or any of their assets, liabilities or operations or other matters that is not included in this Agreement or the Company Disclosure Letter. Without limiting the generality of the foregoing, none of the Company, its Subsidiaries, nor any other Person has made a representation or warranty to Parent or Merger Sub with respect to (a) any projections, estimates or budgets for the businesses of the Company or its Subsidiaries, or (b) any material, documents or information relating to the Company or its Subsidiaries made available to Parent and Merger Sub or their counsel, accountants or advisors in any data room or otherwise, except as expressly covered by a representation or warranty set forth in Article III or specifically referred to in the Company Disclosure Letter.

 

Section 2.11                                 Solvency . As of the Effective Time, after giving effect to all of the transactions contemplated by this Agreement and the Purchase Agreement, including without limitation the Financing, any alternative financing and the payment of the aggregate Merger Consideration, any repayment or refinancing of debt contemplated in this Agreement or the Commitment Letters, and payment of all related fees and expenses, and assuming for these purposes that, as of the Effective Time, the representations set forth in Article III shall be true and correct in all material respects, to the knowledge of Parent, each of Parent and the Surviving Corporation are Solvent. For the purposes of this Section 2.11 , the term “Solvent” when used with respect to any Person, means that, as of any date of determination: (a) the “fair saleable value” of the assets of such Person will, as of such date, exceed (i) the value of all liabilities of such Person, including contingent and other liabilities, as of such date, as such quoted terms are generally determined in accordance with applicable federal laws governing determinations of the insolvency of debtors, and (ii) the amount that will be required to pay the probable liabilities of such Person on its existing debts (including contingent liabilities) as such debts become absolute and matured, (b) such Person will not have, as of such date, unreasonably small capital for the operation of the businesses in which it is engaged or proposed to be engaged following such date,

 

11

 

and (c) such Person will be able to pay its liabilities, including contingent and other liabilities, as they mature.

 

Section 2.12                                 Parent Borrowing Availability . As of the date hereof, Parent has at least $5,000,000 in aggregate borrowing availability under that certain First Lien Credit and Guaranty Agreement, dated as of July 12, 2007, among Parent, certain subsidiaries of Parent (as guarantors), the lenders party thereto, BNP Paribas Securities Corp. (as co-lead arranger) and Bank of the West (as administrative agent, collateral agent, documentation agent, co-lead arranger, co-bookrunner, issuing bank and swing line lender) (as amended, the “Parent First Lien Credit Agreement” ); provided , however , that the representation and warranty in this Section 2.12 shall terminate at the time Parent delivers to the Company the Remaining Commitment Letter as set forth in Section 5.18 .

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

Except as set forth in the Disclosure Letter delivered by the Company to Parent and Merger Sub at or prior to the execution and delivery of this Agreement, after giving effect to Section 8.15 (the “ Company Disclosure Letter ”), or in any Company SEC Reports (as defined in Section 3.6(a)) filed and publicly available prior to the date of this Agreement or the Draft Company 2008 Form 10-K (as defined in Section 3.6(c)), but, in each case, as applicable, excluding (i) any prospective or forward looking information in any “Risk Factors” sections or in any other sections, and (ii) any documents incorporated by reference but which have not been filed with the SEC as of the date of this Agreement, the Company hereby represents and warrants to Merger Sub and Parent as follows:

 

Section 3.1                                       Organization and Qualification . Each of the Company and the Company’s Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and has all requisite power and authority necessary to own, possess, license, operate or lease the properties that it purports to own, possess, license, operate or lease and to carry on its business as it is now being conducted. Each of the Company and the Company’s Subsidiaries is duly qualified or licensed to do business, and is in good standing, in each jurisdiction where its business or the character of its properties owned, possessed, licensed, operated or leased, or the nature of its activities, makes such qualification necessary, except for such failure which, when taken together with all other such failures, would not reasonably be expected to result in a Material Adverse Effect. For purposes of this Agreement, “ Material Adverse Effect ” means any effect, change, fact, event, occurrence, development or circumstance (any such item, an “ Effect ”) that, individually or together with any other Effect, (A) is or would reasonably be expected to result in a material adverse effect on or change in the condition (financial or otherwise), properties, business, operations, results of operations, assets or liabilities of the Company and its Subsidiaries, taken as a whole, or (B) would reasonably be expected to prohibit, restrict or materially impede the consummation of the transactions contemplated by this Agreement, including the Merger; provided , however , that none of the following shall constitute, or be taken into account in determining whether there has been or will be, a “Material Adverse Effect”: any Effect caused by or resulting from (i) general changes or developments in the industry in which the Company operates, except to the extent such effect has a materially disproportionate effect on the Company and its Subsidiaries and

 

12

 

Franchises, taken as a whole, relative to others in the industries in which the Company and any of its Subsidiaries or Franchises operate, (ii) political instability, acts of terrorism or war, except to the extent such effect has a materially disproportionate effect on the Company and its Subsidiaries and Franchises, taken as a whole, relative to others in the industries in which the Company and any of its Subsidiaries or Franchises operate, (iii) any change affecting the securities, credit, financial or other capital markets or the United States economy generally or the economy of any region in which the Company and any of its Subsidiaries or Franchises conducts business that is material to the business of the Company and its Subsidiaries and Franchises, taken as a whole, except to the extent such effect has a materially disproportionate effect on the Company and its Subsidiaries and Franchises, taken as a whole, relative to others in the industries in which the Company and any of its Subsidiaries or Franchises operate, (iv) any change in the Company’s stock price or trading volume or listing status on any exchange or inter-dealer quotation market (it being understood that the facts or occurrences giving rise to or contributing to such change in stock price or trading volume may be deemed to constitute, or be taken into account in determining whether there has been or will be, a Material Adverse Effect), (v) any failure, in and of itself, by the Company to meet any internal or published projections, forecasts or revenue or earnings predictions for any period ending on or after the date of this Agreement (it being understood that the facts or occurrences giving rise to or contributing to such failure may be deemed to constitute, or be taken into account in determining whether there has been or will be, a Material Adverse Effect), (vi) the announcement of the execution of this Agreement, or the pendency of the consummation of the Merger, (vii) any change in any applicable law, rule or regulation of GAAP or interpretation thereof after the date hereof, except to the extent such effect has a materially disproportionate effect on the Company and its Subsidiaries and Franchises, taken as a whole, relative to others in the industries in which the Company and any of its Subsidiaries or Franchises operate, or (viii) the execution and performance of or compliance with this Agreement. Notwithstanding the foregoing, the parties agree that a Material Adverse Effect shall have occurred if the consolidated revenues derived from the Company’s Domestic Business Services segment for the six (6) week period ending on the Saturday immediately prior to the Closing Date (the “ pre-closing period ”) shall be, in the aggregate, less than 75% of the consolidated revenues derived from the Company’s Domestic Business Services segment for an assumed six (6) week period that is comprised of each of the weeks ended December 6, 2008, December 13, 2008, December 20, 2008, January 10, 2009, January 17, 2009 and January 24, 2009 (the “ pre-signing period ”); provided , however , that if any customer from which the Company derives revenues during the pre-signing period shall, after the date of this Agreement, (i) terminate or reduce the level of services provided to it by the Company or any of its Subsidiaries and (ii) enter into any new or expanded contract for services with Parent or any affiliate of Parent, then the Company shall be deemed to have derived revenues from such customer during the pre-closing period in an amount equal to the revenues derived from such customer during the pre-signing period.

 

Section 3.2                                       Capitalization . The authorized capital stock of the Company consists of (i) 25,000,000 shares of Company Common Stock and (ii) 1,000,000 shares of preferred stock, par value $0.01 per share (“ Company Preferred Stock ”). As of the date of this Agreement: (A) 16,697,010 shares of Company Common Stock were issued and outstanding; (B) no shares of Company Preferred Stock were issued and outstanding; (C) 1,500,000 shares of Company Common Stock were reserved for grants of Options, Restricted Stock, and Restricted Stock Units under the 2006 Stock Incentive Plan (the “ Stock Incentive Plan ”), of which 647,500

 

13

 

shares of Company Common Stock were subject to issued and outstanding Options granted under the Stock Incentive Plan, no shares of Restricted Stock were issued and outstanding under the Stock Incentive Plan; and 90,000 shares of Company Common Stock were subject to issued and outstanding Restricted Stock Units granted under the Stock Incentive Plan; (D) 90,000 shares of Restricted Stock were reserved for issuance under the 2006 Non-Employee Directors Equity Rights Program (the “ Non-Employee Director Program ”), of which no shares of Restricted Stock were issued and outstanding; (E) 2,550,718 shares of Company Common Stock were subject to issued and outstanding Options granted under the 1996 Stock Option/Stock Issuance Plan (the “ 1996 Stock Incentive Plan ”), and no shares of Restricted Stock were issued and outstanding under the 1996 Stock Incentive Plan and no Restricted Stock Units were issued and outstanding under the 1996 Stock Incentive Plan]; (F) 673,781 shares of Company Common Stock are available for issuance pursuant to the Company’s Employee Stock Purchase Plan (as amended, and together with the Company’s International Employee Stock Purchase Plan and all stock agreements evidencing grants thereunder, the “ Company ESPP ”); and (G) all Options, Restricted Stock and Restricted Stock Units were granted under the Incentive Plans and not under any other plan, program or agreement (other than any individual award agreements made pursuant to the Incentive Plans and forms of which have been made available to Parent). The shares of Company Common Stock issuable pursuant to the Incentive Plans have been duly reserved for issuance by the Company, and upon any issuance of such shares in accordance with the terms of the Incentive Plans, such shares will be duly authorized, validly issued, fully paid and nonassessable and free and clear from any preemptive or other similar rights. All outstanding shares of Company Common Stock are, and all shares which may be issued prior to the Effective Time pursuant to the Incentive Plans will be when issued, duly authorized, validly issued, fully paid and nonassessable and free and clear from any preemptive or other similar rights. There are (i) no other options, puts, calls, warrants or other rights, agreements, arrangements, restrictions or commitments of any character obligating the Company or any of its Subsidiaries to issue, sell, redeem, repurchase or exchange any shares of capital stock of or other equity interests in the Company or any securities convertible into or exchangeable for any capital stock or other equity interests in the Company or any debt securities of the Company or to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any other entity and (ii) no bonds, debentures, notes or other indebtedness having the right to vote on any matters on which stockholders of the Company may vote (whether or not dependent on conversion or other trigger event). There are no existing registration covenants with respect to Company Common Stock or any other securities of the Company. The Company has provided to Parent and Merger Sub a correct and complete list of each outstanding Option, including the holder, date of grant, exercise price and number of shares of Company Common Stock subject thereto. Prior to the Closing, the Company will provide Parent and Merger Sub with a correct and complete list of any changes to such information as of the Closing Date. To the knowledge of the Company after due inquiry, no stockholder is a party to or holds shares of Company Common Stock bound by or subject to any voting agreement, voting trust, proxy or similar arrangement, except for the Purchase Agreement and the Governance Agreement.

 

Section 3.3                                       Subsidiaries . All the outstanding shares of capital stock or voting securities of, or other equity interests in, each Subsidiary of the Company have been validly issued and are fully paid and nonassessable and are owned by the Company, by another Subsidiary of the Company or by the Company and another Subsidiary of the Company, free and clear of all Liens, and free of any other restriction (including any restriction on the right to vote,

 

14

 

sell or otherwise dispose of such capital stock, voting securities or other equity interests), except for restrictions imposed by applicable securities laws. Section 3.3 of the Company Disclosure Letter sets forth, as of the date of this Agreement, a true and complete list of the Subsidiaries of the Company. Except for the capital stock and voting securities of, and other equity interests in, the Subsidiaries of the Company, neither the Company nor any Subsidiary of the Company owns, directly or indirectly, any capital stock or voting securities of, or other equity interests in, or any interest convertible into or exchangeable or exercisable for, any capital stock or voting securities of, or other equity interests in, any firm, corporation, partnership, company, limited liability company, trust, joint venture, association or other entity. There are no proxies or voting agreements with respect to any shares of capital stock or other equity interests of any such Subsidiary. There are no options, puts, calls, warrants or other rights, agreements, arrangements, restrictions or commitments of any character obligating the Company or any of its Subsidiaries to issue, sell, redeem, repurchase or exchange any shares of capital stock of or other equity interests in any of the Company’s Subsidiaries or any securities convertible into or exchangeable for any capital stock or other equity interests, or any debt securities of any of the Company’s Subsidiaries or to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in the Company’s Subsidiaries or any other Person.

 

Section 3.4                                       Authority .

 

(a)                                   The Company has all requisite corporate power and authority to enter into this Agreement and, subject to obtaining the Company Stockholder Approval of the Merger, to carry out its obligations hereunder. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been authorized by all requisite corporate action on the part of the Company, subject to obtaining the Company Stockholder Approval, no other corporate action is necessary for the execution and delivery of this Agreement by the Company, the performance by the Company of its obligations hereunder and the consummation by the Company of the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company, enforceable against it in accordance with its terms, except that (i) such enforcement may be subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws, now or hereafter in effect, relating to creditors’ rights generally and (ii) equitable remedies of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.

 

(b)                                  The Company Board, acting upon the unanimous recommendation of the special committee of the Board of Directors, duly and unanimously (with three directors abstaining): (i) approved and adopted this Agreement and the transactions contemplated hereby, including the Merger; (ii) approved the Purchase Agreement and the transactions contemplated thereby, (iii) resolved (subject to Section 4.2 ) to recommend that this Agreement and the transactions contemplated hereby, including the Merger, be submitted for consideration by the Company’s stockholders at the Company Stockholders’ Meeting; (iv) resolved to recommend that the stockholders of the Company approve this Agreement and the transactions contemplated hereby, including the Merger; (v) determined that this Agreement and the Purchase Agreement and the transactions contemplated hereby and thereby, including the Merger, are fair to, advisable and in the best interests of the stockholders of the Company and (vi) has approved this

 

15

 

Agreement and the Purchase Agreement and the transactions contemplated hereby and thereby for the purposes of Section 203(a)(i) of the DGCL.

 

Section 3.5                                       No Conflict; Required Filings and Consents .

 

(a)                                   The execution and delivery of this Agreement by the Company does not, and the performance of this Agreement by the Company and the consummation of the transactions contemplated hereby will not (i) subject to the requirements, filings, consents and approvals referred to in Section 2.3(b) , conflict with or violate in any material respect any law, regulation, court order, judgment or decree or Regulatory Laws applicable to the Company or any of its Subsidiaries or by which each of its or any of their respective properties are bound or subject, (ii) violate or conflict with the Certificate of Incorporation or By-Laws of the Company or any of its Subsidiaries, or (iii) subject to the requirements, filings, consents and approvals referred to in Section 2.3(b) , result in any material breach of or constitute a material default (or an event which with notice or lapse of time or both would become a material default) under, or terminate or cancel or give to others any rights of termination, acceleration or cancellation of (with or without notice or lapse of time or both), or result in the creation of a material Lien on any of the properties or assets of the Company or its Subsidiaries pursuant to any of the terms, conditions or provisions of any material contract, agreement, indenture, note, bond, mortgage, deed of trust, agreement, Employee Plan, lease or other instrument or obligation of any kind, including any permit, license or certificate or franchise to which the Company or any of its Subsidiaries is a party, of which the Company or any of its Subsidiaries is the beneficiary or by which the Company or any of its Subsidiaries or any of its or their respective properties are bound or subject.

 

(b)                                  Except for applicable requirements of the Exchange Act, and filing of the Certificate of Merger and other documents required by the DGCL, neither the Company nor any of its Subsidiaries is required to prepare or submit any application, notice, report or other filing with, or obtain any consent, authorization, approval, registration or confirmation from, any Governmental Entity or third party in connection with the execution, delivery or performance of this Agreement by the Company and the consummation of the transactions contemplated hereby.

 

Section 3.6                                       SEC Filings; Financial Statements .

 

(a)                                   The Company has timely filed (after giving effect to any extended time for filing under Rule 12b-25 under the Exchange Act) all forms, reports, documents, proxy statements and exhibits required to be filed or furnished with the SEC since October 29, 2005 (collectively, the “ Company SEC Reports ”; provided , however , that the term Company SEC Reports shall be deemed to refer to the Draft Company 2008 Form 10-K and not to the Form 10-K actually filed by the Company with the SEC after the date hereof). The Company SEC Reports (i) were prepared in accordance with the requirements of the Securities Act of 1933, as amended (the “ Securities Act ”) or the Exchange Act, as the case may be, as in effect at the time they were filed (or, in the case of registration statements and proxy statements, on the dates of effectiveness and the dates of mailing, respectively, and, in the case, of the Draft Company 2008 Form 10-K, on the date of preparation and delivery to Parent, and, in the case of any Company SEC Report amended or superseded by a filing prior to the date of the Agreement, then on the date of such amending or superseding filing) and (ii) did not at the time they were filed (but after giving effect to any amendments thereto filed by the Company prior to the date hereof), or at the

 

16

 

time prepared and delivered to Parent in the case of the Draft Company Form 10-K, and do not, as amended and supplemented, if applicable, 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 therein, in light of the circumstances under which they were made, not misleading. None of the Subsidiaries is required to file any form, report, proxy statement or other document with the SEC.

 

(b)                                  The consolidated financial statements contained in the Company SEC Reports complied, as of their respective dates of filing with the SEC (or the date of preparation and delivery to Parent with respect to the Draft Company Form 10-K), and the Company SEC Reports filed with the SEC after the date of this Agreement will comply 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, have been, and the Company SEC Reports filed after the date of this Agreement will be, prepared in accordance with GAAP (except, in the case of unaudited consolidated quarterly statements, as permitted by Form 10-Q under the Exchange Act and except as may be indicated in the notes thereto) and fairly present, and the financial statements contained in the Company SEC Reports filed after the date of this Agreement will fairly present, in all material respects, the consolidated financial position of the Company and its Subsidiaries as of the respective dates thereof and the consolidated statements of operations and cash flows of the Company for the periods indicated, except in the case of unaudited quarterly financial statements that were or are subject to normal and recurring non-material year-end adjustments.

 

(c)                                   Except for those liabilities and obligations that are reflected or reserved against on the balance sheet contained in the Company’s draft Annual Report on Form 10-K for the fiscal year ended November 1, 2008 as attached to the Company Disclosure Letter (the “ Draft Company 2008 Form 10-K ”) or in the footnotes to such balance sheet, neither the Company nor any of its Subsidiaries has any material liabilities or obligations of any nature whatsoever (whether accrued, absolute, contingent, known, unknown or otherwise), except for liabilities or obligations incurred since November 1, 2008 in the ordinary course of business consistent with past practice or in connection with this Agreement.

 

(d)                                  The Company is in compliance with, and has complied, in all material respects with the applicable provisions of the Sarbanes-Oxley Act of 2002 and the related rules and regulations promulgated under such Act or the Exchange Act (collectively, “ Sarbanes-Oxley ”). The management of the Company has (i) implemented disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) to ensure that material information relating to the Company and its Subsidiaries is made known to the management of the Company by others within those entities and (ii) disclosed, based on its most recent evaluation, to the Company’s outside auditors and the audit committee of the Board of Directors of the Company (A) all significant deficiencies and material weaknesses in the design or operation of internal controls (as defined in Rule 13a-15(f) of the Exchange Act) that are reasonably likely to materially affect the Company’s ability to record, process summarize and report financial data and (B) any fraud, whether or not material, that involves management or other employees who, in each case, have a significant role in the Company’s internal controls.

 

(e)                                   Since November 1, 2008, none of the Company, the Company’s independent accountants, the Company Board nor any committee of the Company Board has

 

17

 

received any oral or written notification of any (x) “significant deficiency” in the internal controls over financial reporting of the Company, (y) “material weakness” in the internal controls over financial reporting of the Company or (z) fraud, whether or not material, that involves management or other employees of the Company or its Subsidiaries who have a significant role in the internal controls over financial reporting.

 

(f)                                     The Company’s Annual Report on Form 10-K for the fiscal year ended November 1, 2008 that will actually be filed by the Company with the SEC after the date hereof will not be, when filed, significantly and substantially different, in the aggregate, from the Draft Company 2008 Form 10-K attached to the Company Disclosure Letter.

 

(g)                                  For all purposes under this Agreement, the facts and circumstances related to any period ended on or commencing on November 1, 2008, shall refer only to those facts and circumstances disclosed in the Draft Company 2008 Form 10-K attached to the Company Disclosure Letter.

 

Section 3.7                                       Absence of Certain Changes or Events . Since November 1, 2008, except as contemplated by this Agreement, there has not been:

 

(a)                                   any Effect that, individually or in the aggregate, has had, or would reasonably be expected to result in, a Material Adverse Effect; or

 

(b)                                  any event, action or occurrence, that, if taken after the date hereof without the consent of Parent and Merger Sub, would violate Section 4.1(a),(b),(c), (f), (h), (i), (j), (k), (l), (n), or (p) .

 

Section 3.8                                       Litigation .

 

(a)                                   There are no claims, actions, suits, arbitrations, grievances, proceedings or investigations pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries or any of its or their respective properties or rights or any of its or their respective officers or directors in their capacity as such, before any Governmental Entity, nor any internal investigations (other than investigations in the ordinary course of the Company’s or any of its Subsidiaries’ compliance programs) being conducted by the Company or any of its Subsidiaries nor have any acts of alleged misconduct by the Company or any of its Subsidiaries been reported to the Company or any of its Subsidiaries. Neither the Company nor its Subsidiaries, nor any of its or their respective properties is subject to any order, judgment, injunction or decree related to the conduct of the respective businesses of the Company and its Subsidiaries.

 

(b)                                  To the knowledge of the Company, there are no claims, actions, suits, arbitrations, grievances, proceedings or investigations pending or threatened against the Company’s Franchises or any of their respective properties or rights or any of their respective officers or directors in their capacity as such, before any Governmental Entity, nor, to the knowledge of the Company, are there any internal investigations (other than investigations in the ordinary course of the Company’s or any of its Subsidiaries’ compliance programs) being conducted by the Company’s Franchises nor, to the knowledge of the Company, have any acts of alleged misconduct by the Company’s Franchises been reported to the Company or any of its

 

18

 

Subsidiaries. To the knowledge of the Company, neither the Company’s Franchises, nor any of their respective properties is subject to any order, judgment, injunction or decree related to the conduct of the respective businesses of the Company’s Franchises.

 

Section 3.9                                       Franchises .

 

(a)                                   Compliance with Laws . (i) The Company and its Subsidiaries have timely effected all filings, and registrations, including any updates and modifications based on material changes to reported items, required by applicable law for the offer and sale of franchises and the conduct of a franchising business required by their activities in every jurisdiction in which they operate or offer franchise opportunities, (ii) all offers and sales of franchises have been made pursuant to effective registrations, exemptions or exclusions as required by applicable law, and in connection with consummation of each transaction evidenced by a Franchising Contract, disclosure documents, if required, and execution copies of Franchising Contracts and related documents were provided on a timely basis as required by applicable law applicable to the transaction, and (iii) each disclosure document delivered to current or former Franchisees and each disclosure document provided to any Governmental Entity was correct and complete in all material respects when delivered or provided, made all disclosures required by applicable law, and did not omit to state any material fact necessary to make the disclosures contained in the disclosure document not misleading.

 

(b)                                  Franchise Registrations . All franchise registrations and required updates and modifications thereof of the Company and its Subsidiaries remain in full force and effect and are not subject of any existing or, to the knowledge of the Company, threatened, claim, action, suit or proceeding which might, in whole or in part, result in the termination, revocation, modification, suspension, conditioning or dissolution of any such franchise registration and/or any other circumstance which may impede or preclude the Company’s ability routinely to renew or amend (as the case may be) any such franchise registration and/or enter into Franchising Contracts in any jurisdictions in any material respect.

 

(c)                                   FTC Rule . The Company is in compliance, and has since October 29, 2005 been in compliance, in all material respects with the applicable requirements of the FTC Trade Regulation Rule entitled “Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures” (the “ FTC Rule ”), and is in compliance, and has since October 9, 2006 been in compliance, in all material respects, with the applicable requirements of law pertaining to the offer and sale of franchises.

 

(d)                                  UFOC, FDD Disclosure . Since October 29, 2005, each uniform franchise offering circular or franchise disclosure document, as applicable, of the Company and its Subsidiaries (each, an “ UFOC ” or “ FDD ”), was in material compliance, as of the effective date of such UFOC of FDD, with the applicable disclosure provisions of the FTC Rule and the franchise disclosure laws of those states with which the Company has obtained registration or exemption of franchise offers and sales.

 

(e)                                   Certain Violations . The Company is not subject to a notice of violation of the FTC Rule or any franchise registration law, and the Company is not the subject of any cease and desist order issued by the Federal Trade Commission regarding the Company’s franchising activities.

 

19

 

(f)                                     Exclusivity Arrangements . Except as set forth in the Franchising Contracts, or except as may be granted by operation of law, no Franchisee or developer of the Company has a protected territory, exclusive territory, covenant not to compete, right of first refusal, option to acquire additional territories or other similar arrangement with the Company or any of its affiliates which in any case would be material to the Company (collectively, the “ Territorial Rights ”) pursuant to which (i) the Company or any of its affiliates is restricted in any way in its right to own or operate, or license others to own or operate, any business or line of business; or expansion of the Franchisee’s territory. Except as may be granted by operation of law, no Franchisee’s Territorial Rights conflict with the Territorial Rights of any other Franchisee. The consummation of the transactions contemplated hereby will not cause the Company to violate or breach any provisions with respect to Territorial Rights under any Franchise Agreements, licenses or area development agreements between the Company, any Subsidiary or any Franchisee.

 

(g)                                  Certain Additional Matters . Section 3.9(g) of the Company Disclosure Letter sets forth a true and complete list of each Franchise of the Company, setting forth the location of such Franchise, the operator thereof, the date of termination of the applicable Franchise relationship, the royalty rate or other payment arrangements applicable thereto and whether the applicable Franchisee owes any amounts to the Company or any of its Subsidiaries, whether pursuant to a loan, royalty abatement or otherwise. The Franchising Contracts previously provided by the Company to Parent and Merger Sub accurately reflect in all material respects, the royalty and other payment arrangements applicable to the subject Franchisee, and there has been no material amendment, modification or waiver, whether written or oral, of any such royalty or fee arrangement.

 

(h)                                  No Brokers . The Company and its Subsidiaries do not, and have not, engaged any Person or entity to act as a franchise broker in connection with any transaction evidenced by a Franchising Contract. No Person or entity other than the Company, the Subsidiaries and their respective employees has been involved in the identification, recruitment, lead generation and solicitation of prospective franchisees.

 

(i)                                      No Consent . The Company may enter into this Agreement and consummate the transactions contemplated hereby without the consent of any Franchisee.

 

(j)                                      Insolvencies . To the knowledge of the Company, there are no pending or threatened, insolvencies or bankruptcies of any Franchisee.

 

Section 3.10                                 Employee Benefit Plans . Section 3.10 of the Company Disclosure Letter sets forth a list of all employee welfare benefit plans (as defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”)), employee pension benefit plans (as defined in Section 3(2) of ERISA) and all other employment, compensation, consulting, bonus, stock option, restricted stock grant, stock purchase, benefit, profit sharing, savings, retirement, disability, insurance, severance, incentive, deferred compensation and other similar fringe or employee benefit plans, programs, agreements or arrangements (other than workers’ compensation, unemployment compensation and other government programs) sponsored, maintained, contributed to or required to be contributed, or entered into to by the Company or any other entity, whether or not incorporated, that together with the Company would be deemed a “single employer” for purposes of Section 414 of the Code or Section 4001

 

20

 

of ERISA (an “ ERISA Affiliate ”) for the benefit of, or relating to, any current or former employee, director or other independent contractor of, or consultant to, the Company or any of its Subsidiaries (together, the “ Employee Plans ”). The Company has made available to Parent and Merger Sub true and complete copies of (i) all Employee Plans, together with all amendments thereto, (ii) the latest Internal Revenue Service determination letters obtained with respect to any Employee Plan intended to be qualified under Section 401(a) or 501(a) of the Code, (iii) the two most recent annual actuarial valuation reports, if any, (iv) the two most recently filed Forms 5500 together with all related schedules, if any, (v) the “summary plan description” (as defined in ERISA), if any, and all modifications thereto communicated to employees, and (vi) the two most recent annual and periodic accountings of related plan assets, if any. Neither the Company or any of its Subsidiaries nor, to the knowledge of the Company, any of their respective directors, officers, employees or agents has, with respect to any Employee Plan, engaged in or been a party to any “prohibited transaction” (as defined in Section 4975 of the Code or Section 406 of ERISA), which could result in the imposition of either a penalty assessed pursuant to Section 502(i) of ERISA or a material tax liability imposed by Section 4975 of the Code, in each case applicable to the Company or any of its Subsidiaries or any Employee Plan. All Employee Plans have been approved and administered in all material respects in accordance with their terms and are in compliance in all material respects with the currently applicable requirements prescribed by all statutes, orders, or governmental rules or regulations currently in effect with respect to such Employee Plans, including, but not limited to, ERISA and the Code. There are no pending or, to the knowledge of the Company, threatened claims, lawsuits or arbitrations (other than routine claims for benefits), relating to any of the Employee Plans, or the assets of any trust for any Employee Plan. Each Employee Plan intended to qualify under Section 401(a) of the Code, and the trusts created thereunder intended to be exempt from tax under the provisions of Section 501(a) of the Code, either (i) has received a favorable determination letter (or is a prototype document for which the opinion letter of the sponsor may be relied upon) from the Internal Revenue Service to such effect or (ii) is still within the “remedial amendment period,” as described in Section 401(b) of the Code and the regulations thereunder. All contributions or payments required to be made or accrued before the Effective Time under the terms of any Employee Plan will have been made or accrued by the Effective Time in accordance with GAAP or in a manner consistent with past practice. Neither the Company nor any of its ERISA Affiliates contributes, nor within the six-year period ending on the date hereof has any of them contributed or been obligated to contribute, to any plan, program or agreement which is a “multiemployer plan” (as defined in Section 3(37) of ERISA) or which is subject to Section 412 of the Code or Section 302 or Title IV of ERISA. No Employee Plan provides coverage for medical, surgical, hospitalization, or similar health benefits or death benefits (whether or not insured) for employees or former employees of the Company or any of its Subsidiaries for periods extending beyond their retirement or other termination of service, other than coverage mandated by applicable law or benefits in the nature of severance pay with respect to one or more of the agreements set forth on Section 3.10 or 3.17 of the Company Disclosure Letter. No condition exists that would prevent the Company or any of its Subsidiaries from amending or terminating any Employee Plan providing health or medical benefits in respect of any active employee of the Company or any of its Subsidiaries. No amounts payable under any Employee Plan or otherwise as a result of the transactions contemplated by this

 

21

 

Agreement (either alone or in combination with another event) will fail to be deductible to the Company or the Surviving Corporation or their Subsidiaries for federal income tax purposes by virtue of Section 280G of the Code. The consummation of the transactions contemplated by this Agreement will not, either alone or in combination with any other event, (i) entitle any current or former employee, director or officer of the Company or its Subsidiaries to severance pay or any other payment, (ii) accelerate the time of payment or vesting, or increase the amount of compensation due any such employee, director or officer or (iii) require the Company to place in trust or otherwise set aside any amounts in respect of severance pay or any other payment. Except for determination letters issued by the Internal Revenue Service with respect to plans intended to qualify under Section 401(a) of the Code, neither the Company, nor any Subsidiary, nor any ERISA Affiliate is a party to any material agreement or understanding, whether written or unwritten, with the Internal Revenue Service, the Department of Labor or the Pension Benefit Guaranty Corporation in regard to any Employee Plan. No representations or communications, oral or written, with respect to the participation, eligibility for benefits, vesting, benefit accrual or coverage under any Employee Plan have been made to current or former employees or directors (or any of their representatives or beneficiaries) of the Company or any Subsidiary that are not in accordance with the terms and conditions of the Employee Plans.

 

Section 3.11                                 Information Supplied . None of the information included or incorporated by reference in the Proxy Statement will, on the date it is filed and on the date it is first published, sent or given to the holders of Company Common Stock and on the date of any Company Stockholders’ Meeting, will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. If, at any time prior to the date of the Company Stockholders’ Meeting, any event with respect to the Company or any of its Subsidiaries, or with respect to information supplied by or on behalf of the Company specifically for inclusion in the Proxy Statement, shall occur which is required to be described in an amendment of, or supplement to, the Proxy Statement, such event shall be so described by the Company, and provided in writing to Parent and Merger Sub. All documents that the Company is responsible for filing with the SEC in connection with the transactions contemplated herein, to the extent relating to the Company or any of its Subsidiaries or other information supplied by the Company for inclusion therein, will comply as to form, in all material respects, with the provisions of the Exchange Act and the respective rules and regulations thereunder, and each such document required to be filed with any Governmental Entity will comply in all material respects with the provisions of applicable law as to the information required to be contained therein. Notwithstanding the foregoing, the Company makes no representation or warranty with respect to the information supplied or to be supplied by either Merger Sub or Parent specifically for inclusion in the Proxy Statement.

 

Section 3.12                                 Conduct of Business; Permits; Compliance with Laws . Since November 1, 2008, the business of the Company has not been and is not being conducted in default or violation in any material respect of any term, condition or provision of (i) the Certificate of Incorporation or By-Laws of the Company, (ii) any note, bond, mortgage or indenture or any material contract, agreement, lease or other instrument or agreement of any kind to which the Company or any of its Subsidiaries is now a party or by which the Company, its Subsidiaries or any of its or their respective properties or assets may be bound, or (iii) any federal, state, or county, regional, municipal, local or foreign statute, law, ordinance, rule, regulation, judgment, decree, order, concession, grant, franchise, permit or license or other governmental authorization or approval applicable to the Company, its Subsidiaries or its or their respective businesses, including, without limitation, Regulatory Laws, except, in the case of the

 

22

 

foregoing clause (ii), where such default or violation would not reasonably be expected to result in a Material Adverse Effect. The material permits, licenses, approvals, certifications and authorizations from any Governmental Entity, including, without limitation, those obtained under Regulatory Laws (collectively, “ Permits ”) held by the Company and its Subsidiaries are valid and sufficient in all material respects for all business presently conducted by the Company and its Subsidiaries. Neither the Company nor any of its Subsidiaries has received any written claim or notice that not it or they are not in compliance with, or, to the knowledge of the Company, not in compliance with, the terms of any such Permits or any requirements, standards and procedures of the Governmental Entity which issued them, or any limitation or proposed limitation on any Permit, except where the failure to be in compliance would not reasonably be expected to result in a Material Adverse Effect. None of the Permits will lapse, terminate or otherwise cease to be valid as a result of the consummation of the transactions contemplated hereby.

 

Section 3.13                                 Taxes .

 

(a)                                   The Company and its Subsidiaries have duly and timely filed all material Tax Returns required to be filed by them, and all such material Tax Returns are true, correct and complete in all material respects.

 

(b)                                  The Company and its Subsidiaries have timely paid all material Taxes required to be paid by (whether or not shown due on any Tax Return).

 

(c)                                   The Company has made adequate provision in the financial statements of the Company (in accordance with GAAP) for all Taxes of the Company or its Subsidiaries not yet due.

 

(d)                                  The Company and its Subsidiaries have complied, in all material respects, with all applicable Laws relating to the payment and withholding of Taxes and have, within the time and manner prescribed by Law, withheld and paid over to the proper tax authorities all amounts required to be withheld and paid over.

 

(e)                                   Neither the Company nor any of its Subsidiaries have received notice (written or oral) of any pending or threatened audit, proceeding, examination or litigation or similar claim that has been commenced or is presently pending with respect to the Company or any of its Subsidiaries.

 

(f)                                     No written claim has been made by any tax authority in a jurisdiction where neither the Company nor any of its Subsidiaries file a Tax Return that the Company or any of its Subsidiaries is or may be subject to taxation in that jurisdiction.

 

(g)                                  No material deficiency with respect to any Taxes has been proposed, asserted or assessed in writing against the Company or any of its Subsidiaries; and no requests for waivers of the time to assess any material amount Taxes are pending.

 

(h)                                  There are no outstanding written agreements, consents or waivers to extend the statutory period of limitations applicable to the assessment of any material Taxes or

 

23

 

deficiencies against the Company or any of its Subsidiaries, and no power of attorney granted by the Company or any of its Subsidiaries with respect to any material Taxes is currently in force.

 

(i)                                      The Company is not a party to any agreement providing for the allocation or sharing of any material amount of Taxes imposed on or with respect to any individual or other Person, and the Company (A) has not been a member of an affiliated group (or similar state, local or foreign filing group) filing a consolidated U.S. federal income Tax Return or (B) does not have any liability for the Taxes of any Person (other than the Company) under Treasury Regulations Section 1.1502-6 (or any similar provision of state, local or foreign law), or as a transferee or successor.

 

(j)                                      The federal income Tax Returns of the Company and its Subsidiaries have been examined by and settled with the Internal Revenue Service (or the appli