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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
MOVIE STAR, INC.,
FRED MERGER CORP.
AND
FOH HOLDINGS, INC.
DATED AS OF DECEMBER 18, 2006
TABLE OF CONTENTS
ARTICLE I THE MERGER; CLOSING; EFFECTIVE
TIME..............................................................2
1.1. THE
MERGER.....................................................................................2
1.2.
CLOSING........................................................................................2
1.3. EFFECTIVE
TIME.................................................................................2
1.4. TAX
CONSEQUENCES...............................................................................2
ARTICLE II CHARTER AND BY-LAWS OF PARENT AND THE SURVIVING
CORPORATION.....................................2
2.1. CERTIFICATE OF INCORPORATION OF
PARENT.........................................................2
2.2. BY-LAWS OF
PARENT..............................................................................3
2.3. CERTIFICATE OF INCORPORATION OF SURVIVING
CORPORATION..........................................3
2.4. BY-LAWS OF SURVIVING
CORPORATION...............................................................3
ARTICLE III OFFICERS AND DIRECTORS OF PARENT AND THE SURVIVING
CORPORATION.................................3
3.1. DIRECTORS AND COMMITTEE MEMBERS OF
PARENT......................................................3
3.2. EXECUTIVE OFFICERS OF
PARENT...................................................................3
3.3. DIRECTORS OF SURVIVING
CORPORATION.............................................................3
3.4. OFFICERS OF SURVIVING
CORPORATION..............................................................3
ARTICLE IV EFFECT OF THE MERGER ON CAPITAL STOCK; EXCHANGE OF
CERTIFICATES.................................4
4.1. EFFECT ON CAPITAL
STOCK........................................................................4
4.2. EFFECTIVE TIME SHARES AND SUPPLEMENTAL DISTRIBUTION
SHARES.....................................4
4.3. DISPUTE
RESOLUTION.............................................................................6
4.4. LOST, STOLEN OR DESTROYED
CERTIFICATES.........................................................7
4.5. ADJUSTMENTS TO PREVENT
DILUTION................................................................7
4.6. NO FRACTIONAL SHARE
CERTIFICATES...............................................................7
4.7. EXEMPTION FROM REGISTRATION;
LEGENDS...........................................................7
4.8. ASSUMPTION OF OUTSTANDING STOCK
OPTIONS........................................................8
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE
COMPANY....................................................9
5.1. ORGANIZATION, GOOD STANDING AND
QUALIFICATION..................................................9
5.2. CAPITALIZATION OF THE COMPANY AND ITS
SUBSIDIARIES.............................................9
5.3. CORPORATE
AUTHORITY...........................................................................11
5.4. CONSENTS AND APPROVALS; NO
VIOLATIONS.........................................................11
5.5. COMPLIANCE WITH LAWS;
LICENSES................................................................11
5.6. NO
DEFAULT....................................................................................12
5.7. FINANCIAL
STATEMENTS..........................................................................12
5.8.
PROJECTIONS...................................................................................12
5.9. NO UNDISCLOSED
LIABILITIES....................................................................13
5.10. ABSENCE OF CERTAIN CHANGES OR
EVENTS..........................................................13
5.11.
LITIGATION....................................................................................14
5.12. MATERIAL
CONTRACTS............................................................................14
5.13. DISCLOSURE
DOCUMENTS..........................................................................15
5.14. LABOR AND EMPLOYMENT
MATTERS..................................................................15
5.15. EMPLOYEE BENEFIT
PLANS........................................................................15
5.16. INTELLECTUAL
PROPERTY.........................................................................17
5.17.
TAXES.........................................................................................20
5.18. RELATED PARTY
TRANSACTIONS....................................................................23
5.19. TITLE TO
PROPERTY.............................................................................23
5.20.
INSURANCE.....................................................................................24
5.21. TAKEOVER STATUTES; CHARTER
PROVISIONS.........................................................24
5.22.
BROKERS.......................................................................................24
5.23. SUPPLIERS AND
RELATIONSHIPS...................................................................24
5.24. ENVIRONMENTAL
MATTERS.........................................................................24
5.25. PLANT AND
EQUIPMENT...........................................................................26
5.26. COMPANY IT
SYSTEMS............................................................................26
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER
SUB........................................27
6.1. ORGANIZATION, GOOD STANDING AND
QUALIFICATION.................................................27
6.2. CAPITALIZATION OF PARENT AND ITS
SUBSIDIARIES.................................................28
6.3. CORPORATE
AUTHORITY...........................................................................29
6.4. CONSENTS AND APPROVALS; NO
VIOLATIONS.........................................................29
6.5. COMPLIANCE WITH LAWS;
LICENSES................................................................30
6.6. NO
DEFAULT....................................................................................30
6.7. PARENT REPORTS; FINANCIAL
STATEMENTS..........................................................30
6.8. NO UNDISCLOSED
LIABILITIES....................................................................31
6.9. ABSENCE OF CERTAIN CHANGES OR
EVENTS..........................................................31
6.10.
LITIGATION....................................................................................32
6.11. MATERIAL
CONTRACTS............................................................................32
6.12. DISCLOSURE
DOCUMENTS..........................................................................33
6.13. LABOR AND EMPLOYMENT
MATTERS..................................................................33
6.14. EMPLOYEE BENEFIT
PLANS........................................................................33
6.15. INTELLECTUAL
PROPERTY.........................................................................35
6.16.
TAXES.........................................................................................38
6.17. SUPPLIERS AND
RELATIONSHIPS...................................................................40
6.18. TITLE TO
PROPERTY.............................................................................40
6.19.
INSURANCE.....................................................................................41
6.20. TAKEOVER STATUTES; CHARTER
PROVISIONS.........................................................41
6.21.
BROKERS.......................................................................................41
6.22. MERGER
SUB....................................................................................41
6.23. ENVIRONMENTAL
MATTERS.........................................................................41
6.24.
PROJECTIONS...................................................................................42
6.25. PLANT AND
EQUIPMENT...........................................................................42
6.26. PARENT IT
SYSTEMS.............................................................................42
6.27. RELATED PARTY
TRANSACTIONS....................................................................43
ARTICLE VII
COVENANTS.....................................................................................43
7.1. CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE
TIME.............................................43
7.2. PARENT
FORBEARANCES...........................................................................43
7.3. COMPANY
FORBEARANCES..........................................................................45
7.4. NO
SOLICITATION...............................................................................47
7.5. REGULATORY AND TAX MATTERS; BEST REASONABLE
EFFORTS...........................................50
7.6. PARENT STOCKHOLDER
APPROVAL...................................................................51
7.7.
COOPERATION...................................................................................51
7.8. ACCESS;
CONFIDENTIALITY.......................................................................52
7.9. PUBLIC
ANNOUNCEMENTS..........................................................................52
7.10. EMPLOYEE
MATTERS..............................................................................53
7.11. TAKEOVER
STATUTES.............................................................................54
7.12. NO SOLICITATION WITH RESPECT TO THE
COMPANY...................................................54
7.13. STOCK EXCHANGE
LISTING........................................................................54
7.14. TAX
MATTERS...................................................................................55
7.15.
HEADQUARTERS..................................................................................55
7.16. COMPANY'S AUDITED FINANCIAL
STATEMENTS........................................................55
7.17. DIRECTORS AND OFFICERS
INSURANCE..............................................................55
7.18. ANTITRUST
MATTERS.............................................................................55
ARTICLE VIII
CONDITIONS...................................................................................55
8.1. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY, PARENT AND
MERGER SUB TO EFFECT THE MERGER......55
8.2. CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER
SUB............................................57
8.3. CONDITIONS TO OBLIGATION OF THE
COMPANY.......................................................57
ARTICLE IX
TERMINATION....................................................................................58
9.1. TERMINATION BY MUTUAL
CONSENT.................................................................58
9.2. TERMINATION BY EITHER PARENT OR THE
COMPANY...................................................58
9.3. TERMINATION BY THE
COMPANY....................................................................59
9.4. TERMINATION BY
PARENT.........................................................................59
ii
9.5. NOTICE OF
TERMINATION.........................................................................60
9.6. EFFECT OF TERMINATION AND ABANDONMENT; TERMINATION
FEE........................................60
9.7. FEES AND
EXPENSES.............................................................................60
9.8.
DAMAGES.......................................................................................60
ARTICLE X
INDEMNIFICATION.................................................................................61
10.1. SURVIVAL OF REPRESENTATIONS AND
WARRANTIES....................................................61
10.2. INDEMNITY BY
COMPANY..........................................................................61
10.3. INDEMNITY BY
PARENT...........................................................................61
10.4. INDEMNITY FOR THIRD-PARTY
CLAIMS..............................................................62
10.5. TAX CLAIMS
(A)................................................................................63
ARTICLE XI MISCELLANEOUS AND
GENERAL......................................................................63
11.1. MODIFICATION OR
AMENDMENT.....................................................................63
11.2. WAIVER OF
CONDITIONS..........................................................................64
11.3.
DEFINITIONS...................................................................................64
11.4.
COUNTERPARTS..................................................................................64
11.5. GOVERNING LAW AND VENUE; WAIVER OF JURY
TRIAL.................................................64
11.6.
NOTICES.......................................................................................65
11.7. ENTIRE
AGREEMENT..............................................................................66
11.8. NO THIRD PARTY
BENEFICIARIES..................................................................67
11.9.
SEVERABILITY..................................................................................67
11.10. INTERPRETATION; ABSENCE OF
PRESUMPTION........................................................67
11.11.
ASSIGNMENT....................................................................................67
11.12. COMPANY STOCKHOLDER
REPRESENTATIVES...........................................................67
EXHIBIT A FORM OF VOTING AGREEMENT
EXHIBIT B FORM OF STANDBY PURCHASE AGREEMENT
EXHIBIT C PARENT CHARTER
EXHIBIT D BY-LAWS, INCLUDING SUPERMAJORITY VOTING MATTERS
EXHIBIT E POST-MERGER DIRECTORS OF PARENT.
EXHIBIT F OFFICERS OF COMPANY AND PARENT
EXHIBIT G POST-MERGER DIRECTORS OF SURVIVING CORPORATION
EXHIBIT H FORM OF ESCROW AGREEMENT
EXHIBIT I SUMMARY OF DIRECTORS AND OFFICERS INSURANCE
EXHIBIT J FORM OF SHAREHOLDERS AGREEMENT
EXHIBIT K FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT L FORM OF WARRANTS
EXHIBIT M FORM OF COMPANY STOCKHOLDERS AGREEMENT
iii
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this
"Agreement"), dated as of
December 18, 2006, by and among Movie Star, Inc., a New York
corporation
("Parent"), Fred Merger Corp., a Delaware corporation and a
wholly-owned
subsidiary of Parent ("Merger Sub"), and FOH Holdings, Inc., a
Delaware
corporation (the "Company").
RECITALS
WHEREAS, the respective Boards of Directors of Parent, Merger
Sub
and the Company have approved this Agreement, and deem it
advisable and in the
best interests of their respective stockholders to consummate
the merger of
Merger Sub with and into the Company on the terms and subject to
the conditions
set forth in this Agreement (the "Merger") whereby the issued
and outstanding
shares of common stock, par value $0.01 per share, of the
Company (the "Company
Common Stock"), will be converted into the right to receive the
Merger
Consideration (as hereinafter defined) as set forth in this
Agreement;
WHEREAS, concurrently with the execution of this Agreement,
TTG
Apparel, LLC ("Apparel") is entering into a voting agreement in
substantially
the form attached hereto as Exhibit A (the "Voting Agreement"),
pursuant to
which Apparel has agreed to vote its shares of Parent Common
Stock (as
hereinafter defined) in favor of the transactions contemplated
hereby;
WHEREAS, concurrently with the execution of this Agreement, as
a
condition and inducement to Parent's and the Company's
willingness to enter into
this Agreement, Fursa Alternative Strategies LLC (formerly known
as Mellon HBV
Alternative Strategies LLC), Fursa Rediscovered Opportunities
Fund L.P.
(formerly known as Mellon HBV Rediscovered Opportunities Fund
L.P.), a Delaware
limited partnership, Fursa Global Event Driven Fund L.P.
(formerly known as
Mellon HBV Global Event Driven Fund L.P.), a Delaware limited
partnership, Fursa
Capital Partners LP (formerly known as Mellon HBV Capital
Partners LP), a
Delaware limited partnership, Blackfriars Master Vehicle LLC, a
Delaware limited
liability company and Axis RDO Ltd., a company incorporated in
the Bahamas
(collectively, the "Mellon HBV Group") and Tokarz Investments,
LLC
("Investments" and, together with Apparel, "TTG") are entering
into a standby
purchase agreement in connection with the Rights Offering (as
hereinafter
defined) in substantially the form attached hereto as Exhibit B
(the "Standby
Purchase Agreement"), pursuant to which Parent will seek to
raise $20,000,000
through the offering of rights to purchase shares of its common
stock, par value
$0.01 per share (the "Parent Common Stock"), to its stockholders
(the "Rights
Offering"), and Mellon HBV Group and TTG have agreed to purchase
any shares not
purchased by Parent's stockholders (the "Unsubscribed Shares"),
up to
$10,000,000 each on a several but not on a joint and several
basis; and
WHEREAS, for United States federal income tax purposes, it
is
intended that the Merger shall qualify as a tax-free
reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended
(together with
the rules and regulations promulgated thereunder, the "Code"),
and that this
Agreement is intended to be adopted as a plan of reorganization
for purposes of
Section 368 of the Code.
NOW, THEREFORE, in consideration of and reliance upon the
premises
and the representations, warranties, covenants and agreements
contained herein,
and for other good and valuable consideration, the receipt and
sufficiency of
which are hereby
acknowledged, and intending to be legally bound hereby, Parent,
Merger Sub and
the Company agree as follows:
ARTICLE I
THE MERGER; CLOSING; EFFECTIVE TIME
1.1. The Merger. Upon the terms and subject to the conditions
set
forth in this Agreement, at the Effective Time (as hereinafter
defined), Merger
Sub shall be merged with and into the Company and the separate
corporate
existence of Merger Sub shall thereupon cease. The Company shall
be the
surviving corporation in the Merger (sometimes hereinafter
referred to as the
"Surviving Corporation"), and the separate corporate existence
of the Company
with all its rights, privileges, immunities, powers and
franchises shall
continue unaffected by the Merger, except as set forth in
ARTICLE II of this
Agreement. The Merger shall have the effects specified in the
Delaware General
Corporation Law, as amended (the "DGCL").
1.2. Closing. Unless otherwise mutually agreed in writing
between
Parent and the Company, the closing for the Merger (the
"Closing") shall take
place at the offices of Cooley Godward Kronish LLP, 1114 Avenue
of the Americas,
New York, New York, at 10:00 A.M. local time on the second
business day (the
"Closing Date") following the day on which the last to be
satisfied or waived of
the conditions set forth in ARTICLE VIII (other than those
conditions that by
their nature are to be satisfied at the Closing, but subject to
the satisfaction
or waiver of those conditions) shall be satisfied or waived in
accordance with
this Agreement, or such other date, time or place agreed to by
Parent and the
Company.
1.3. Effective Time. As soon as practicable on the Closing
Date,
the parties will cause a Certificate of Merger (the "Certificate
of Merger") to
be executed, acknowledged and filed with the Secretary of State
of the State of
Delaware as provided in Section 251 of the DGCL. The Merger
shall become
effective at the time when the Certificate of Merger has been
duly filed with
the Secretary of State of the State of Delaware or at such later
time as may be
agreed by the parties in writing and specified in the
Certificate of Merger (the
"Effective Time").
1.4. Tax Consequences. It is intended that (a) the Merger
qualify
as a "reorganization" within the meaning of Section 368(a) of
the Code, (b) this
Agreement will constitute a "plan of reorganization" for
purposes of Sections
354 and 361 of the Code, and (c) Parent, the Company and Merger
Sub will each be
a party to the reorganization within the meaning of Section
368(b) of the Code.
ARTICLE II
CHARTER AND BY-LAWS OF PARENT
AND THE SURVIVING CORPORATION
2.1. Certificate of Incorporation of Parent. At the
Effective
Time, after amending and restating Parent's Restated Certificate
of
Incorporation to increase the authorized shares of Parent Common
Stock to
200,000,000 shares (the "Charter Amendment"), the Amended and
Restated
Certificate of Incorporation of Parent (the "Parent Charter")
will be
substantially in the form set forth on Exhibit C until
thereafter amended in
accordance with applicable Law (as hereinafter defined) and the
Parent Charter;
provided,
2
however, that as of the Effective Time the Parent Charter shall
provide that the
name of Parent is "Frederick's of Hollywood Group Inc."
2.2. By-laws of Parent. At the Effective Time, the Amended
and
Restated By-laws of Parent (the "Parent By-laws"), which shall
include all
matters requiring approval of at least 75% of the Board of
Directors of Parent,
shall be substantially in the form set forth on Exhibit D until
thereafter
amended in accordance with applicable Law and the Parent
By-laws.
2.3. Certificate of Incorporation of Surviving Corporation. As
of
the Effective Time, by virtue of the Merger and without any
action on the part
of Merger Sub or the Company, the certificate of incorporation
of the Surviving
Corporation (the "Surviving Corporation Charter") shall be
amended and restated
to read the same as 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 the Surviving Corporation Charter.
2.4. By-laws of Surviving Corporation. As of the Effective
Time,
by virtue of the Merger and without any action on the part of
Merger Sub or the
Company, the by-laws of the Surviving Corporation (the
"Surviving Corporation
By-laws") shall be amended and restated to read the same as the
by-laws of
Merger Sub, as in effect immediately prior to the Effective
Time, until
thereafter amended in accordance with the DGCL, the Surviving
Corporation
Charter and the Surviving Corporation By-laws.
ARTICLE III
OFFICERS AND DIRECTORS OF PARENT
AND THE SURVIVING CORPORATION
3.1. Directors and Committee Members of Parent. Immediately
following the Effective Time, the members of the Board of
Directors of Parent
and each Committee of the Board of Directors of Parent will be
as set forth on
Exhibit E (or as otherwise may be mutually agreed by Parent and
the Company
prior to the distribution of proxy materials to holders of
Parent Common Stock
in connection with the Merger) and each such member will serve
until their
respective successors are duly elected or appointed and
qualified or until their
earlier death, resignation or removal, as the case may be.
3.2. Executive Officers of Parent. Immediately following the
Effective Time, the individuals set forth on Exhibit F will have
the positions
at Parent as set forth therein, until their respective
successors are duly
elected or appointed and qualified or until their earlier death,
resignation or
removal, as the case may be. Prior to the Effective Time, the
Company (acting
through its Board of Directors) and the Parent (acting through
its Board of
Directors) will agree on the appointment of a senior executive
or other
individual who will have authority over Parent's and the
Company's operations.
3.3. Directors of Surviving Corporation. The individuals set
forth on Exhibit G shall, from and after the Effective Time, be
the directors of
the Surviving Corporation and will serve until their respective
successors are
duly elected or appointed and qualified or until their earlier
death,
resignation or removal, as the case may be.
3.4. Officers of Surviving Corporation. The officers of the
Company at the Effective Time shall, from and after the
Effective Time, be the
officers of the Surviving
3
Corporation until their successors have been duly elected or
appointed and
qualified or until their earlier death, resignation or removal,
as the case may
be.
ARTICLE IV
EFFECT OF THE MERGER ON CAPITAL STOCK;
EXCHANGE OF CERTIFICATES
4.1. Effect on Capital Stock.
(a) Merger Consideration. At the Effective Time, on the
terms
and subject to the conditions herein set forth, as a result of
the Merger and
without any action on the part of the holder of any capital
stock of the
Company, each share of Company Common Stock issued and
outstanding immediately
prior to the Effective Time (other than shares of Company Common
Stock owned by
the Company or any direct or indirect Subsidiary (as hereinafter
defined) of the
Company), shall be converted automatically into the right to
receive, at the
times and in the manner provided for herein: (x) the number of
shares of Parent
Common Stock that is equal to the product of (i) 0.8 multiplied
by (ii) the
number of shares of Company Common Stock held by each
stockholder of the Company
immediately prior to the Effective Time ("Company Stockholder")
multiplied by
(iii) the Exchange Ratio (as hereafter defined) (such shares of
Parent Company
Stock are hereafter referred to as "Effective Time Shares") plus
(y) the Company
Supplemental Distribution Shares (as hereinafter defined). At
the Effective
Time, all shares of Company Common Stock shall no longer be
outstanding and
shares of Company Common Stock shall be cancelled and retired
and shall cease to
exist, and each certificate (a "Company Certificate") formerly
representing any
such shares of Company Common Stock shall thereafter represent
only the right to
receive the Merger Consideration, as provided for herein,
without interest. The
Effective Time Shares and the Company Supplemental Distribution
Shares (together
with cash in lieu of fractional shares of Parent Common Stock,
if any, as
specified below) are referred to herein as the "Merger
Consideration." For
purposes of this Agreement, the "Exchange Ratio" shall be
17.811414.
(b) Cancellation of Shares. Each share of Company Common
Stock
issued and outstanding immediately prior to the Effective Time
that is owned by
the Company, or any direct or indirect Subsidiary of the Company
shall, by
virtue of the Merger and without any action on the part of the
holder thereof,
cease to be outstanding, shall be cancelled and retired without
payment of any
consideration therefor and shall cease to exist.
(c) Merger Sub. At the Effective Time, each share of common
stock, par value $0.01 per share, of Merger Sub issued and
outstanding
immediately prior to the Effective Time shall be converted into
one share of
common stock, par value $0.01 per share, of the Surviving
Corporation.
4.2. Effective Time Shares and Supplemental Distribution
Shares.
(a) Surrender of Company Certificates. Subject to Section
4.6
and to the prior delivery to Parent by a Company Stockholder of
the Company
Certificate(s) formerly representing its shares of Company
Common Stock,
following the Effective Time, Parent shall cause to be delivered
to such Company
Stockholder a Parent certificate (a "Parent Certificate")
representing the
applicable number of Effective Time Shares and the appropriate
amount of cash,
in lieu of a fractional share (if applicable), as required
hereunder.
4
(b) Company Escrow. At the Effective Time, Parent shall cause
to
be delivered to the escrow agent (the "Escrow Agent") pursuant
to the escrow
agreement in substantially the form attached hereto as Exhibit H
(the "Escrow
Agreement") Parent Certificates registered in the name of the
Company
Stockholders, representing the applicable number of shares of
Parent Common
Stock that is equal to the product of (i) 0.20 multiplied by
(ii) the aggregate
number of shares of Company Common Stock held by the Company
Stockholders at the
Effective Time multiplied by (iii) the Exchange Ratio (the
"Company Escrowed
Shares"), and the appropriate amount of cash, in lieu of a
fractional share (if
applicable), as required hereunder. The Company Escrowed Shares
shall be issued
and deposited into escrow in accordance with the Escrow
Agreement to cover any
indemnification claims by the Parent Indemnified Persons against
the Company and
the Company Stockholders pursuant to ARTICLE X and the Company
Stockholders
Agreement (as hereinafter defined) and to the extent not so
utilized, shall be
distributed to the Company Stockholders as provided in the
Escrow Agreement. The
Company Escrowed Shares distributed to the Company Stockholders
pursuant to this
Agreement and the Escrow Agreement are referred to as the
"Company Supplemental
Distribution Shares".
(c) Parent Escrow. At the Effective Time, Parent shall cause
to
be delivered to the Escrow Agent pursuant to the Escrow
Agreement a Parent
Certificate registered in the name of the Parent representing
the applicable
number of treasury shares of Parent Common Stock that is equal
to the product of
(i) 0.075 multiplied by (ii) the aggregate number of shares of
issued and
outstanding shares of Parent Common Stock immediately prior to
the Effective
Time (the "Parent Escrowed Shares"). The Parent Escrowed Shares
shall be issued
in Parent's name and placed into escrow pursuant to the Escrow
Agreement to
cover any indemnification claims by the Company Indemnified
Persons against
Parent pursuant to ARTICLE X and to the extent not so utilized,
shall be
returned to Parent as provided in the Escrow Agreement.
(d) Resolution of Indemnity Claims. There shall be a
committee
of the Board of Directors of Parent composed of the directors
specified on
Exhibit E hereto (the "Indemnity Claims Committee"), which shall
in good faith
make determinations regarding pursuing and responding to
indemnification Claims,
the amount of Losses, the offset of Losses with Company Escrowed
Shares or
Parent Escrowed Shares, as the case may be, and related matters,
and each such
determination shall be made within 15 days after the date of the
applicable
Claim Notice (as hereinafter defined). The number of shares of
Company Escrowed
Shares or Parent Escrowed Shares, as the case may be, necessary
to offset a Loss
hereunder shall be calculated as set forth in the Escrow
Agreement. If the
Indemnity Claims Committee makes a determination under this
Section 4.2(d) and
such determination is either not disputed or Parent and the
Stockholders'
Representatives reach an agreement with respect to such issue,
then if such
resolution requires the distribution of shares from the Company
Escrow Fund or
the Parent Escrow Fund (each, as defined in the Escrow
Agreement) as applicable,
Parent and Company Stockholders' Representatives (as defined
below) shall
jointly instruct the Escrow Agent to make such distribution.
Notwithstanding the
foregoing, if Parent or the Company Stockholder Representatives
do not agree
with the determination made by the Indemnity Claims Committee
and if Parent and
the Company Stockholder Representatives are unable to reach
agreement within 30
days of such determination, Parent or the Company Stockholder
Representatives
may elect to have such determinations regarding pursuing and
responding to
indemnification Claims, the amount of Losses, the offset of
Losses with Company
Escrowed Shares or Parent Escrowed Shares, as the case may be,
and related
matters resolved in accordance with the provisions of
Section
5
4.3, the results of which shall be final and binding on the
Parent, the Company
and the Company Stockholders.
4.3. Dispute Resolution. (a) All disputes, claims, or
controversies arising out of or relating to Section 4.2 that are
not resolved by
mutual agreement between Parent and the Company Stockholder
Representatives
shall be resolved solely and exclusively by binding arbitration
to be conducted
before JAMS in New York, New York ("JAMS") before a single
arbitrator (the
"Arbitrator") pursuant to the JAMS Comprehensive Arbitration
Rules and
Procedures except as otherwise provided herein.
(b) The parties covenant and agree that the arbitration
shall
commence within 90 days of the date on which a written demand
for arbitration is
filed by Parent or the Company Stockholder Representatives (the
"Filing Date").
In connection with the arbitration proceeding, the Arbitrator
shall have the
power to order the production of documents by each party and any
third-party
witnesses. In addition, each party may take up to three
depositions as of right,
and the Arbitrator may in his or her discretion allow additional
depositions
upon good cause shown by the moving party. However, the
Arbitrator shall not
have the power to order the answering of interrogatories or the
response to
requests for admission. In connection with any arbitration, each
party shall
provide to the other, no later than seven Business Days (as
hereinafter defined)
before the date of the arbitration, the identity of all persons
that may testify
at the arbitration and a copy of all documents that may be
introduced at the
arbitration or considered or used by a party's witnesses or
experts. The
Arbitrator's decision and award shall be made and delivered
within 180 days of
the Filing Date. THE ARBITRATOR SHALL NOT HAVE POWER TO AWARD
DAMAGES IN EXCESS
OF ACTUAL COMPENSATORY DAMAGES AND SHALL NOT MULTIPLY ACTUAL
DAMAGES OR AWARD
PUNITIVE DAMAGES OR ANY OTHER DAMAGES THAT ARE SPECIFICALLY
EXCLUDED UNDER THIS
AGREEMENT, AND EACH PARTY HEREBY IRREVOCABLY WAIVES ANY CLAIM TO
SUCH DAMAGES.
(c) Each of Parent and each of the Company Stockholder
Representatives covenants and agrees that the Arbitrator shall
include in its
award the reasonable attorneys' fees, costs and expenses
incurred by the
prevailing party in connection with the arbitration. Any party
unsuccessfully
refusing to comply with an order of the Arbitrators shall be
liable for costs
and expenses, including attorneys' fees, incurred by the other
party in
enforcing the award.
(d) Parent and the Company Stockholder Representatives
irrevocably and unconditionally consent to the jurisdiction of
JAMS to resolve
all disputes, claims or controversies arising out of or relating
to Section 4.2
of this Agreement and further consent to the sole and exclusive
jurisdiction of
the courts of the State of New York and the Federal courts of
the United States
of America located in the County of New York for the purposes of
enforcing the
arbitration provisions of this Section 4.3 of this Agreement or
of any
arbitration award obtained hereunder. Each of Parent and each of
the Company
Stockholder Representatives further irrevocably waives any
objection to
proceeding before the Arbitrator or the courts of the State of
New York and the
Federal courts of the United States of America located in the
County of New
York, as the case may be, based upon lack of personal
jurisdiction or to the
laying of venue and further irrevocably and unconditionally
waive and agree not
to make a claim in any court that arbitration before the
Arbitrator has been
brought in an inconvenient forum. Each of Parent and each of the
Company
Stockholder Representatives hereby consents to service of
process by registered
mail at the
6
address to which notices are to be given. Each of Parent and
each of the Company
Stockholder Representatives agrees that its or his submission to
jurisdiction
and its or his consent to service of process by mail is made for
the express
benefit of the other parties hereto.
4.4. Lost, Stolen or Destroyed Certificates.
(a) In the event any Company Certificate shall have been
lost,
stolen or destroyed, upon the making of an affidavit of that
fact by the Person
(as hereinafter defined) claiming such Company Certificate to be
lost, stolen or
destroyed and providing for such customary terms as may be
required by Parent as
indemnity against any claim that may be made against it with
respect to such
Company Certificate, Parent will issue a Parent Certificate and
the appropriate
amount of cash, in lieu of a fractional share (if applicable),
as would be
required pursuant to Section 4.6 upon due surrender of a Company
Certificate.
(b) As used in this Agreement, "Person" shall mean an
individual, corporation, partnership, limited liability company,
association,
trust or other entity or organization, including a Governmental
Entity (as
hereinafter defined).
4.5. Adjustments to Prevent Dilution. In the event that the
Company or Parent changes the number of shares of Company Common
Stock or Parent
Common Stock, or securities convertible or exchangeable into or
exercisable for
shares of Company Common Stock or Parent Common Stock, as
applicable, issued and
outstanding prior to the Effective Time as a result of a
reclassification, stock
split (including a reverse stock split), stock dividend or
distribution,
recapitalization, merger, subdivision, issuer tender or exchange
offer, or other
similar transaction, the Merger Consideration shall be equitably
adjusted to
reflect such change.
4.6. No Fractional Share Certificates. No fractional share
Parent
Certificates shall be issued upon the surrender for exchange of
Company
Certificates or upon the issuance of any other Parent Common
Stock pursuant to
this Agreement, and an outstanding fractional share interest
shall not entitle
the owner thereof to vote, to receive dividends or to any rights
of a
stockholder of Parent or of Surviving Corporation with respect
to such
fractional share interest. At such time as Parent issues to a
Company
Stockholder any Parent Certificate pursuant to the Merger, if
applicable, Parent
shall pay to such Company Stockholder an amount in cash equal to
the product
obtained by multiplying (a) the fractional share interest to
which such holder
would otherwise be entitled (after taking into account all
shares of Parent
Common Stock to be issued to such holder at such time) by (b)
the closing price
for a share of Parent Common Stock on the American Stock
Exchange ("AMEX") on
the business day immediately preceding the Closing Date in the
case of Effective
Time Shares and the business day immediately preceding such
issuance of Company
Supplemental Distribution Shares or Parent Escrowed Shares, as
the case may be.
4.7. Exemption from Registration; Legends. (a) Assuming the
accuracy of the representations and warranties of the Company
Stockholders
included in the Company Stockholders Agreement, substantially in
the form
attached hereto as Exhibit M (the "Company Stockholders
Agreement"), which shall
be executed and delivered to Parent following the execution of
this Agreement,
the shares of Parent Common Stock to be issued in connection
with the Merger
will be issued in a transaction exempt from registration under
the Securities
Act of 1933, as amended, including the rules and regulations
promulgated
7
thereunder (the "Securities Act"), by reason of Section 4(2)
thereof and/or
Regulation D thereunder.
(b) Each Parent Certificate shall bear the following
legends:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR OTHER APPLICABLE SECURITIES LAWS, AND MAY
NOT
BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF (A) IN
THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH
SECURITIES
UNDER THE SECURITIES ACT OR (B) PURSUANT TO AN EXEMPTION
FROM
REGISTRATION UNDER THE SECURITIES ACT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO
FURTHER RESTRICTIONS ON TRANSFER PURSUANT TO THE TERMS OF A
SHAREHOLDERS AGREEMENT WITH THE COMPANY, DATED AS OF ____, 2007,
A
COPY OF WHICH IS ON FILE AT THE OFFICE OF THE COMPANY.
4.8. Assumption of Outstanding Stock Options. At the
Effective
time, each outstanding option to purchase shares of Company
Common Stock (each,
a "Company Stock Option") under the Company's 2003 Employee
Equity Incentive
Plan (the "Company Stock Plan"), whether or not exercisable or
vested or
unvested, shall by virtue of the Merger be assumed by Parent in
such a manner
that (a) Parent is a corporation "issuing or assuming a stock
option in a
transaction to which Section 424(a) applies" within the meaning
of the Code or
(b) to the extent that Section 424 of the Code does not apply to
any such
Company Stock Options, Parent would be such a corporation as if
Section 424 of
the Code were applicable to such Company Stock Options; provided
that the holder
of such Company Stock Option so assumed by Parent has consented
to such
assumption. Each Company Stock Option so assumed by Parent
pursuant to this
Agreement shall continue to have, and be subject to, the same
terms and
conditions of such option immediately prior to the Effective
Time (including,
without limitation, any repurchase rights, vesting provisions
and provisions
regarding acceleration of vesting upon certain transactions),
except that (i)
each Company Stock Option shall be exercisable in accordance
with its terms for
that number of whole shares of Parent Common Stock equal to the
product (rounded
down to the nearest whole number of shares of Parent Common
Stock) of the number
of shares of Company Common Stock that were issuable upon
exercise of such
Company Common Stock immediately prior to the Effective Time
multiplied by the
Exchange Ratio, and (ii) the per share exercise price for each
share of Parent
Common Stock issuable upon exercise of such assumed Company
Stock Option shall
be equal to the quotient (rounded up to the nearest whole cent)
determined by
dividing the exercise price per share of Company Common Stock at
which such
Company Stock Option was exercisable immediately prior to the
Effective Time by
the Exchange Ratio; provided, however, that the exercise price
and the number of
shares of Parent Common Stock purchasable pursuant to the
Company Stock Options
shall be determined in a manner consistent with the requirements
of Section 409A
of the Code.
8
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
Except as set forth in the disclosure schedule delivered by
the
Company to Parent on the date hereof (the "Company Disclosure
Schedule"), the
Company hereby represents and warrants to Parent and Merger Sub
as follows:
5.1. Organization, Good Standing and Qualification. Each of
the
Company and its Subsidiaries is a corporation or other legal
entity duly
organized, validly existing and in good standing under the Laws
of the
jurisdiction of its incorporation or organization and has all
requisite
corporate or other power and authority to own, lease and operate
its properties
and assets and to carry on its businesses as now being conducted
and is
qualified to do business and is in good standing as a foreign
corporation in
each jurisdiction where the ownership, leasing or operation of
its properties or
assets or conduct of its business requires such qualification,
except where the
failure to be so qualified or in good standing or to have such
power or
authority, would not, individually or in the aggregate, have a
Company Material
Adverse Effect (as hereinafter defined). The Company has
heretofore delivered or
made available to Parent accurate and complete copies of the
Amended and
Restated Certificate of Incorporation and Amended and Restated
By-Laws and other
organizational documents, as currently in effect, of the Company
and each of its
Subsidiaries. All Subsidiaries and their respective
jurisdictions of
incorporation or organization are identified in Section 5.1 of
the Company
Disclosure Schedule.
As used in this Agreement, (a) "Subsidiary" shall mean, with
respect
to any party, any corporation, limited liability company,
partnership or similar
entity, whether domestic or foreign to the United States, of
which (i) such
party or any other Subsidiary of such party is a general partner
or (ii) at
least a majority of the securities (or other interests having by
their terms
ordinary voting power to elect a majority of the board of
directors or others
performing similar functions with respect to such corporation or
other
organization) is, directly or indirectly, owned or controlled by
such party or
by any one or more of its Subsidiaries, or by such party and one
or more of its
Subsidiaries and (b) the term "Company Material Adverse Effect"
shall mean any
change, circumstance, event or occurrence (each, an "Event")
that is reasonably
expected to: (i) be materially adverse to the assets and
liabilities, business,
financial condition or results of operations of the Company and
its
Subsidiaries, taken as a whole, or (ii) prevent or materially
delay the ability
of the Company to consummate the transactions contemplated
hereby or to perform
its obligations hereunder; other than any such Event to the
extent resulting
from (A) an Event generally affecting the industries in which
the Company or its
Subsidiaries operate, other than an Event that has a
disproportionate effect on
the Company and its Subsidiaries, taken as a whole, (B) the
economy, the
financial or securities markets in general, or political
conditions in the
United States or any acts of terrorism, military actions or war,
other than an
Event that has a disproportionate effect on the Company and its
Subsidiaries,
taken as a whole, or (C) this Agreement or the transactions
contemplated hereby,
including the announcement or pendency thereof.
5.2. Capitalization of the Company and its Subsidiaries. (a)
The
authorized capital stock of the Company consists of 2,500,000
shares of capital
stock, including 2,250,000 shares of Company Common Stock, of
which 1,330,000
shares of Company Common Stock were issued and outstanding as of
the close of
business on the
9
date hereof, and 250,000 shares of preferred stock, par value$
0.01 per share
("Company Preferred Stock"), none of which Company Preferred
Stock is
outstanding as of the date hereof. All of the outstanding shares
of Company
Common Stock have been duly authorized and validly issued and
are fully paid and
nonassessable. The Company Stockholders are the record and
beneficial owners of
all of the issued and outstanding shares of Company Common
Stock. The Company
has no shares of Company Common Stock or Company Preferred Stock
reserved for or
otherwise subject to issuance, except that as of the close of
business on the
date hereof, there were 115,500 shares of Company Common Stock
subject to
issuance pursuant to options outstanding under the Company Stock
Plan. Section
5.2 of the Company Disclosure Schedule sets forth a complete and
accurate list
of (i) all shares of Company Common Stock beneficially owned by
the Company
Stockholders and (ii) all outstanding Company Stock Options,
which list includes
the name of each holder of Company Stock Options and the
exercise price and the
expiration date of the Company Stock Options so held. Except as
set forth in
this Section 5.2(a), there are no outstanding, and there have
not been reserved
for issuance, any (i) shares of capital stock or other voting
securities of the
Company, (ii) securities of the Company or any Subsidiary,
convertible into or
exchangeable for shares of capital stock or voting stock of the
Company or its
Subsidiaries, or (iii) Company Stock Options or other rights or
options to
acquire from the Company or its Subsidiaries any shares of
capital stock, voting
securities or securities convertible into or exchangeable for
shares of capital
stock or voting stock of the Company or its Subsidiaries. Each
of the
outstanding shares of capital stock or other ownership interests
of each of the
Company's Subsidiaries is duly authorized, validly issued, fully
paid and
nonassessable and owned by the Company or a direct or indirect
wholly owned
Subsidiary of the Company, in each case free and clear of all
Liens (as
hereinafter defined) other than as set forth in Section 5.2 of
the Company
Disclosure Schedule. Except as set forth above, there are no
registration rights
or preemptive or other outstanding rights, options, warrants,
conversion rights,
stock appreciation rights, redemption rights, repurchase rights,
agreements,
arrangements, calls, commitments or rights of any kind which
obligate the
Company or any of its Subsidiaries to register, issue or sell
any shares of
capital stock or other securities of the Company or any of its
Subsidiaries or
any securities or obligations convertible or exchangeable into
or exercisable
for, or giving any Person a right to subscribe for or acquire
from the Company
or any of its Subsidiaries, any securities of the Company or any
of its
Subsidiaries, and no securities or obligations evidencing such
rights are issued
or outstanding. The Company does not have outstanding any bonds,
debentures,
notes or other obligations the holders of which have the right
to vote (or which
are convertible into or exercisable for securities having the
right to vote)
with the stockholders of the Company on any matter.
(b) Other than as set forth in Section 5.2 of the Company
Disclosure Schedule, neither the Company nor any of its
Subsidiaries owns any
equity or similar interest in or any interest convertible into
or exchangeable
or exercisable for any equity or similar interest in, any
corporation,
partnership, joint venture or other business.
(c) There are no voting trusts or other agreements or
understandings to which the Company Stockholders, the Company or
any of its
Subsidiaries is a party with respect to the voting of any of the
capital stock
of the Company or any of the Subsidiaries. Other than as set
forth in Section
5.2 of the Company Disclosure Schedule, none of the Company or
any of its
Subsidiaries is obligated under any registration rights or
similar agreements to
register any shares of capital stock of the Company or any of
its Subsidiaries
on behalf of any Person.
10
5.3. Corporate Authority. The Company has all requisite power
and
authority and has taken all corporate and other action necessary
in order to
execute, deliver and perform its respective obligations under
this Agreement and
the Standby Purchase Agreement and Shareholders Agreement (as
hereinafter
defined) (collectively, the "Transaction Documents"), as
applicable, to
consummate the Merger and the transactions contemplated hereby.
This Agreement
has been unanimously adopted by the Company Stockholders and no
further vote of
the holders of any class or series of capital stock of the
Company is necessary
to adopt, approve or authorize this Agreement, the Merger and
the other
transactions contemplated hereby. Each of this Agreement and the
Standby
Purchase Agreement is, and upon execution and delivery, each
other Transaction
Document will be, a valid and binding agreement of the Company,
as applicable,
enforceable against the Company, as applicable, in accordance
with its terms
except for (a) the effect of any applicable bankruptcy,
insolvency,
reorganization, moratorium and similar laws relating to or
affecting the rights
of creditors generally and (b) the effect of equitable
principles of general
application.
5.4. Consents and Approvals; No Violations. Other than as
set
forth in Section 5.4 of the Company Disclosure Schedule, and
except for such
filings that may be required by the HSR Act (as hereinafter
defined) or other
Antitrust Law (as hereinafter defined) that may become
applicable to the Merger
or the other transactions contemplated by this Agreement, no
filing with or
notice to, and no permit, authorization, registration, consent
or approval of,
any court or tribunal or administrative, governmental or
regulatory body,
agency, authority or other entity (a "Governmental Entity") or
other third party
is required on the part of the Company or any of its
Subsidiaries for the
execution, delivery and performance by the Company of this
Agreement and the
Transaction Documents, as applicable, or the consummation by the
Company of the
transactions contemplated hereby, except the filing of the
Certificate of Merger
pursuant to the DGCL. Neither the execution, delivery and
performance of this
Agreement and the Transaction Documents, as applicable, by the
Company nor the
consummation by the Company of the transactions contemplated
hereby will (a)
conflict with or result in any breach, violation or infringement
of any
provision of the respective certificate of incorporation or
by-laws (or similar
governing documents) of the Company or of any its Subsidiaries,
(b) result in a
breach, violation or infringement of, or constitute (with or
without due notice
or lapse of time or both) a default (or give rise to the
creation of any Lien or
any right of termination, amendment, cancellation or
acceleration) under, any of
the terms, conditions or provisions of any note, bond, mortgage,
indenture,
guarantee, lease, license, contract, agreement or other
instrument or
obligation, whether written or oral (each a "Contract"), to
which the Company or
any of its Subsidiaries is a party or by which any of them or
any of their
respective properties or assets may be bound or under the
privacy or other
policies applicable to their Web Sites (as hereinafter defined),
(c) change the
rights or obligations of any party under any Contract, or (d)
violate or
infringe any order, writ, injunction, judgment, arbitration
award, agency
requirement, decree, law, statute, ordinance, rule or
regulation, concession,
franchise, permit, license or other governmental authorization
or approval (each
a "Law") applicable to the Company or any of its Subsidiaries or
any of their
respective properties or assets, except in the case of (b), (c)
or (d) for
breaches, violations, infringements, defaults or changes which
would not,
individually or in the aggregate, have a Company Material
Adverse Effect. For
purposes of this Agreement, "Lien" means, any option, claim,
mortgage, lien,
pledge, charge, security interest or encumbrance or restrictions
of any kind in
respect thereof.
5.5. Compliance with Laws; Licenses. The businesses of each
of
the Company and its Subsidiaries have not been conducted in
material violation
of any federal,
11
state, local or foreign Laws. No investigation or review by any
Governmental
Entity with respect to the Company or any of its Subsidiaries is
pending or, to
the knowledge of the Company, threatened, nor has any
Governmental Entity
indicated an intention to conduct the same. The Company and each
of its
Subsidiaries has all material governmental permits, licenses,
franchises,
variances, exemptions, orders issued or granted by a
Governmental Entity and all
other authorizations, consents and approvals issued or granted
by a Governmental
Entity ("Licenses") necessary to conduct its business as
presently conducted
(the "Company Material Licenses"). There is not pending or, to
the knowledge of
the Company, threatened before any Governmental Entity any
proceeding, notice of
violation, order of forfeiture or complaint or investigation
against the Company
or any of its Subsidiaries relating to any Company Material
License.
5.6. No Default. Neither the Company nor any of its
Subsidiaries
is in breach, default or violation (and no event has occurred
which with notice
or the lapse of time or both would constitute a default or
violation) of any
term, condition or provision of (a) its certificate of
incorporation or by-laws
(or similar governing documents), (b) any Contract to which the
Company or any
of its Subsidiaries is now a party or by which any of them or
any of their
respective properties or assets may be bound, or (c) any Law
applicable to the
Company, any of its Subsidiaries or any of their respective
properties or
assets, except in the case of (b) or (c) for violations,
breaches or defaults
that would not, individually or in the aggregate, have a Company
Material
Adverse Effect.
5.7. Financial Statements. The audited consolidated balance
sheets as of July 31, 2003, July 31, 2004, July 30, 2005, the
unaudited
consolidated balance sheets as of July 29, 2006 and the related
audited
consolidated statements of income and cash flows for each of the
years ended
July 31, 2003, July 31, 2004, July 30, 2005 and the related
unaudited
consolidated statements of income and cash flows for the year
ended July 29,
2006 and the unaudited interim consolidated balance sheet as of
October 28, 2006
and the related unaudited interim consolidated statements of
income and cash
flows for the three months ended October 28, 2006 of the Company
and its
Subsidiaries (the "Company Financial Statements") fairly
present, and the
Company Audited Financial Statements (as hereinafter defined)
will fairly
present, in all material respects, the financial position,
results of
operations, and cash flows, as the case may be, of the Company
and its
Subsidiaries as of such dates and for the periods then ended
(subject, in the
case of unaudited interim statements, to notes reclassifications
and adjustments
materially consistent with those reflected within the year-end
audited financial
statements that will not be otherwise material in amount or
effect). The Company
Financial Statements were prepared in accordance with US
generally accepted
accounting principles ("GAAP") consistently applied during the
periods involved,
except as may be noted therein and are complete in all material
respects,
correct and can be reconciled to the books of account and
records of the Company
and its Subsidiaries. The Company Audited Financial Statements
will be prepared
in accordance with GAAP consistently applied during the periods
involved, except
as may be noted therein and will be complete in all material
respects, correct
and will be able to be reconciled to the books of account and
records of the
Company and its Subsidiaries. Except as disclosed in Section 5.7
of the Company
Disclosure Schedule, the Company maintains an effective system
of internal
accounting controls. True and correct copies of the Company
Financial Statements
are attached as Section 5.7 of the Company Disclosure
Schedule.
5.8. Projections. The financial projections relating to the
Company and its Subsidiaries previously delivered to Parent were
prepared in
good faith and are based upon reasonable assumptions, and the
Company is not
aware of any fact or set of circumstances
12
that would lead it to believe that such projections are
incorrect or misleading
in any material respect.
5.9. No Undisclosed Liabilities. Except for (a) liabilities
and
obligations disclosed, reserved against or provided for in the
last unaudited
balance sheet of the Company as of July 29, 2006 or in the notes
thereto, (b)
liabilities and obligations set forth in Section 5.9 of the
Company Disclosure
Schedule, and (c) liabilities and obligations incurred in the
Ordinary Course of
Business (as hereinafter defined) since July 29, 2006, none of
which are
material to the business, results of operations or financial
condition of the
Company and its Subsidiaries, taken as a whole, neither the
Company nor any of
its Subsidiaries has any liabilities or financial obligation of
any nature
(whether accrued, contingent, absolute or otherwise) required to
be set forth,
reserved against or disclosed in a consolidated balance sheet of
the Company
prepared in accordance with GAAP or in the notes thereto.
5.10. Absence of Certain Changes or Events. Since July 29,
2006,
the Company and its Subsidiaries have conducted their business
in the ordinary
course consistent with past practice and, except as contemplated
herein or as
specifically described (including as to circumstances and
consequences) in
Section 5.10 of the Company Disclosure Schedule, there has not
been:
(a) any change or event that, by itself or together with
other
changes or events, has or is reasonably likely to have a Company
Material
Adverse Effect;
(b) any damage, destruction or loss (whether or not covered
by
insurance) materially adversely affecting the properties or
business of the
Company and its Subsidiaries, taken as a whole;
(c) any breach or amendment of any Company Material Contract
(as
hereinafter defined);
(d) the commencement or notice or, to the knowledge of the
Company, threat of commencement, of any lawsuit or proceeding
against, or
investigation of, the Company or any of its Subsidiaries or any
of their
affairs;
(e) any failure to use all commercially reasonable efforts
to
(i) maintain its properties and facilities, including those held
under leases,
in good working order and condition, ordinary wear and tear
excepted; (ii)
perform all of its obligations under Company Material Contracts
relating to or
affecting its assets, properties or rights, or operate, manage
or maintain its
leased premises in the usual and customary manner for similar
properties, or
(iii) keep in full force and effect all insurance policies;
(f) any advance or loan made to any Person except in the
Ordinary Course of Business;
(g) any payment, discharge or satisfaction of any material
claims or liabilities (absolute, accrued, asserted or
unasserted, contingent or
otherwise) other than payment, discharge or satisfaction in the
Ordinary Course
of Business;
(h) creation or assumption of any mortgage, pledge, or other
Lien or upon any assets or properties of the Company or any of
its Subsidiaries,
issuance of any debt instrument or guarantee of indebtedness of
a third party;
13
(i) cancellation of any debts owing to, or waiver of any
claims
or rights pertaining to, the business of the Company and its
Subsidiaries;
(j) shortening or lengthening of the customary payment cycles
in
any material manner for any payables or receivables of the
Company or its
Subsidiaries;
(k) sale, assignment, lease, pledge, or other transfer or
disposal of any assets, property, equipment or rights of the
Company or its
Subsidiaries except in the Ordinary Course of Business; or
(l) negotiation or agreement by the Company or any of its
Subsidiaries, or, to the knowledge of the Company, any director,
officer, or
employee thereof, to do any of the things described in the
preceding clauses (a)
through (k) (other than negotiations with Parent and the Parent
Representatives
(as hereinafter defined) regarding the transactions contemplated
by this
Agreement).
5.11. Litigation. There is no civil, criminal or
administrative
suit, claim, hearing, inquiry, action, proceeding or
investigation (each an
"Action") pending or, to the knowledge of the Company,
threatened against,
affecting or involving the Company or any of its Subsidiaries or
any of their
respective properties or assets, or which would make the Company
or any of its
Subsidiaries a party in such Action, except as would not,
individually or in the
aggregate, have a Company Material Adverse Effect. As of the
date hereof, to the
knowledge of the Company, neither the Company nor any of its
Subsidiaries is
subject to any outstanding order, writ, injunction or decree.
Section 5.11 of
the Company Disclosure Schedule sets forth each pending or, to
the knowledge of
the Company as of the date hereof, threatened Action.
5.12. Material Contracts. True and correct copies have been
made
available to Parent of all Contracts to which the Company or any
of its
Subsidiaries is a party and which fall within any of the
following categories:
(a) any Contract relating to indebtedness for borrowed money,
any financial
guaranty or a security interest in the assets of the Company or
its
Subsidiaries; (b) any Contract that limits the ability of the
Company or any of
its Subsidiaries to compete in any business line or in any
geographic area; (c)
any Contract material to the Company and its Subsidiaries, taken
as a whole,
that is terminable by or requires notice to the other party or
parties upon a
change in control of the Company or any of its Subsidiaries; (d)
any Contract
that requires aggregate future expenditures by or payments to
the Company or any
of its Subsidiaries of more than $100,000 in any one-year
period; (e) any
employment, consulting or severance Contract, policy or
arrangement; (f) any
Contract that by its terms limits the payment of dividends or
other
distributions by the Company or any of its Subsidiaries; (g) any
joint venture
or partnership agreement; (h) any Contract that grants any right
of first
refusal or right of first offer or similar right or that
purports to limit the
ability of the Company or any of its Subsidiaries to own,
operate, sell,
transfer, pledge or otherwise dispose of a material amount of
assets or any
material business; (i) any credit card association agreements;
(j) any real
property lease; and (k) any other Contracts that are material to
the Company and
its Subsidiaries, taken as a whole (the "Company Material
Contracts"). Section
5.12 of the Company Disclosure Schedule sets forth a true and
complete list of
the Company Material Contracts, and a written summary of all
material customer
and/or supplier arrangements or understandings. The Company
Material Contracts
are valid, binding and in full force and effect and, upon
consummation of the
Merger, shall continue in full force and effect without penalty,
acceleration,
termination, repurchase right or other adverse consequence.
Neither the Company
nor any of its
14
Subsidiaries nor, to the knowledge of the Company, any other
party, is in breach
of or in default under any Company Material Contract and no
event, act,
occurrence or condition has occurred which, with the giving of
notice or the
lapse of time or the happening or any other event or condition
would become a
material default or event of default under any Company Material
Contract.
5.13. Disclosure Documents. The information relating to the
Company and its Subsidiaries and their respective officers and
directors that
will be provided by the Company or its representatives for
inclusion in the
proxy statement and other related SEC (as hereinafter defined)
filings relating
to the Merger and the other transactions contemplated hereby
(the "Proxy
Statement"), the Registration Statement on Form S-1 with respect
to the Rights
Offering (the "Registration Statement"), and in any other
document filed with
any other Governmental Entity in connection with the
transactions contemplated
hereby, will not contain any untrue statement of material fact
or omit to state
any material fact required to be stated therein or necessary to
make the
statements therein, in light of the circumstances under which
they are made, not
misleading.
5.14. Labor and Employment Matters. (a) Neither the Company
nor
any of its Subsidiaries is a party to, nor do any of them have
any obligations
under or with respect to, any collective bargaining agreement or
other labor
union contract applicable to persons employed by the Company or
its Subsidiaries
except as otherwise disclosed in Section 5.14 of the Company
Disclosure Schedule
and no collective bargaining agreement is being negotiated by
the Company or any
person or entity that may obligate the Company or any of its
Subsidiaries
thereunder.
(b) The Company and its Subsidiaries are in material
compliance
with all currently applicable Laws respecting employment and
employment
practices, terms and conditions of employment and wages and
hours, and are not
engaged in any material respect in any unfair labor practice. To
the knowledge
of the Company, none of the Company or any of its
representatives or employees
has committed any unfair labor practice and there is no unfair
labor practice
complaint pending or, to the knowledge of the Company,
threatened against the
Company or any of its Subsidiaries before the National Labor
Relations Board.
5.15. Employee Benefit Plans. (a) Section 5.15(a) of the
Company
Disclosure Schedule sets forth a complete list of all material
"employee benefit
plans," as defined in Section 3(3) of the Employee Retirement
Income Security
Act of 1974, as amended ("ERISA"), and all other employee
benefit or
compensation plans, policies, agreements, programs, and
arrangements, written or
unwritten and including, any bonus, incentive, deferred
compensation, vacation,
stock purchase, stock option, severance, employment, change of
control or fringe
benefit plan, policy, agreement, program or arrangement, that
are sponsored or
maintained by the Company, any Subsidiary of the Company or to
which the Company
or any Subsidiary of the Company is a party or obligated to
contribute, or with
respect to which the Company or any of its Subsidiaries has any
material
liability, contingent or otherwise. Each plan, policy,
agreement, program or
arrangement required to be set forth in Section 5.15(a) of the
Company
Disclosure Schedule pursuant to the foregoing is referred to
herein as a
"Company Benefit Plan."
(b) True, correct and complete copies of the following
documents, with respect to each Company Benefit Plan, have been
delivered or
made available to Parent by the Company: (i) the Company Benefit
Plan document
(or a summary of any unwritten Benefit Plan) and related trust
documents,
insurance contract or other funding vehicle, and
15
any amendments to the any of the foregoing; (ii) if applicable,
the most recent
Annual Report (Form 5500 Series) and accompanying schedules;
(iii) if
applicable, the current summary plan description, together with
any summary or
summaries of material modifications thereto; (iv) if applicable,
the most recent
annual financial report and/or actuarial valuation; (v) all
material
correspondence to or from any Governmental Entity received in
the last three
years; and (vi) all material written agreements and contracts
currently in
effect, including administrative service agreements, group
annuity contracts and
group insurance contracts.
(c) Neither the Company nor any Subsidiary of the Company is
or
will be required to provide medical or other welfare benefits to
employees,
directors, former employees, former directors, or retirees after
their
termination of employment or service, other than pursuant to
applicable Law or
individual agreements, except as would not, individually or in
the aggregate,
have a Company Material Adverse Effect.
(d) Each Company Benefit Plan that is intended to qualify
under
Section 401 of the Code, and each trust maintained pursuant
thereto, has
received a currently effective favorable determination letter
from the Internal
Revenue Service, and to the knowledge of the Company, no
circumstances exist and
no events have occurred with respect to the operation of any
such Company
Benefit Plan that would be reasonably expected to cause the loss
of such
qualification.
(e) To the knowledge of the Company, all Company Benefit
Plans
have been maintained and administered, in all material respects,
in accordance
with their terms and in accordance with all applicable Laws
(including ERISA and
the Code). To the knowledge of the Company, there are no pending
or threatened
claims against or with respect to any of the Company Benefit
Plans, any related
trusts, any Company Benefit Plan sponsor or plan administrator,
or any fiduciary
of the Company Benefit Plans with respect to the operation of
such plans (other
than routine benefit claims), except for such claims as would
not, individually
or in the aggregate, have a Company Material Adverse Effect.
Except as would
not, individually or in the aggregate, have a Company Material
Adverse Effect,
all Company Benefit Plans subject to the laws of any
jurisdiction outside of the
United States (i) have been maintained in all material respects
in accordance
with all applicable Laws, (ii) if they are intended to qualify
for special tax
treatment meet all requirements for such treatment, and (iii) if
they are
intended to be funded and/or book-reserved are fully funded
and/or book
reserved, as appropriate, based upon reasonable actuarial
assumptions.
(f) Except as would not, individually or in the aggregate,
have
a Company Material Adverse Effect, neither the execution and
delivery of this
Agreement nor the consummation of the transactions contemplated
hereby (either
alone of in conjunction with another event, such as a
termination of employment)
will (i) result in any payment becoming due to any current or
former director or
current or former employee of the Company or any of its
Subsidiaries under any
Company Benefit Plan or otherwise, (ii) increase any benefits
otherwise payable
under any Company Benefit Plan, (iii) result in any acceleration
of the time of
payment or vesting of any such benefits, or (iv) trigger any
obligation to fund
any Company Benefit Plan. For purposes of this Section, the term
"payment" shall
include any payment, acceleration, forgiveness of indebtedness,
vesting,
distribution, increase in benefits or obligation to fund
benefits.
16
(g) Except as would not, individually or in the aggregate,
have
a Company Material Adverse Effect, no plan currently or in the
past six years
maintained, sponsored, contributed to or required to be
contributed to by the
Company, any of its Subsidiaries, or any of their respective
current or former
ERISA Affiliates is or in the past six years was (i) a
"multiemployer plan" as
defined in Section 3(37) of ERISA, (ii) a plan described in
Section 413 of the
Code, (iii) a plan subject to Title IV of ERISA, (iv) a plan
subject to the
minimum funding standards of Section 412 of the Code or Section
302 of ERISA, or
(v) a plan maintained in connection with any trust described in
Section
501(c)(9) of the Code. The term "ERISA Affiliate" means any
Person that,
together with the Company or Parent, as the case may be, or any
of its
Subsidiaries, would be deemed a "single employer" within the
meaning of Section
414(b), (c), (m) or (o) of the Code.
(h) Except as would not, individually or in the aggregate,
have
a Company Material Adverse Effect, neither the Company nor any
of its
Subsidiaries is subject to any liability or penalty under
Sections 4975 through
4980B of the Code or Title I of ERISA. The Company and its
Subsidiaries have
complied with all applicable health care continuation
requirements in Section
4980B of the Code and in ERISA. No "Prohibited Transaction,"
within the meaning
of Section 4975 of the Code or Sections 406 or 407 of ERISA and
not otherwise
exempt under Section 408 of ERISA, has occurred with respect to
any Company
Benefit Plan.
5.16. Intellectual Property. (a) For purposes of this
Agreement,
"Intellectual Property" means (i) United States and foreign
patents (including
design patents and industrial design registrations) and
applications therefor,
the inventions, designs and improvements described and claimed
therein, and
other rights (including the divisions, continuations,
continuations-in-part,
substitutions, or reissues thereof, whether or not registrations
are issued on
any such applications and whether or not any such applications
are amended,
modified, withdrawn or resubmitted), (ii) inventions and
designs, whether or not
registrable, whether or not reduced to practice and whether or
not yet made the
subject of a pending patent or industrial design application or
applications,
ideas and conceptions of potentially registrable subject matter,
including,
without limitation, any disclosures, whether or not reduced to
practice and
whether or not yet made the subject of a pending patent or
industrial design
application or applications, (iii) trademarks, service marks,
trade dress,
logos, trade names, corporate and company names, and Internet
domain names,
whether or not registered, including all common law rights
therein and all
goodwill associated therewith, and registrations and
applications for
registration thereof (collectively, "Trademarks" ), (iv)
copyrights (whether
registered or not) and registrations and applications for
registration thereof,
and all rights therein provided by multinational treaties or
conventions, (v)
computer software, including, without limitation, source code,
object code,
operating systems and specifications, data, data bases, files,
documentation and
other materials related thereto, (vi) trade secrets and
confidential, technical
or business information (including ideas, formulas,
compositions, internal
processes and procedures), (vii) whether or not confidential,
technology
(including know-how and show-how), production processes and
techniques, research
and development information, drawings, specifications, designs,
plans,
proposals, technical data, financial, marketing and business
data, pricing and
cost information, business and marketing plans and customer and
supplier lists
and information, (viii) copies and tangible embodiments of all
the foregoing, in
whatever form or medium, and (ix) all rights to sue and recover
and retain
damages and costs and attorneys' fees for present and past
infringement or other
violation of any of the rights hereinabove set out. Without
limiting the
generality of the foregoing, "Intellectual
17
Property" of a party includes all domain names and web sites
owned or operated
by such party or on behalf or for the benefit of such party
(collectively, a
party's "Web Sites" ).
(b) Each of the Company and its Subsidiaries owns, is
licensed
or otherwise possesses, the legally enforceable right to use,
all Intellectual
Property used in the operation of the business of the Company
and its
Subsidiaries as presently conducted or necessary for the
operation of the
business of the Company and its Subsidiaries as presently
proposed to be
conducted. Each item of Intellectual Property owned by or used
in the operation
of the business at any time during the respective periods
covered by the Company
Financial Statements and any other financial statements required
to be delivered
hereunder: (i) will be owned or available for use by the Company
or its
Subsidiaries on identical terms and conditions immediately
following the
Effective Time, and (ii) is not subject to any Lien. Each of the
Company and its
Subsidiaries has taken reasonable measures to protect the
proprietary nature of
each item of its Intellectual Property and to maintain in
confidence all trade
secrets and confidential information that it owns or uses. To
the knowledge of
the Company, no other Person has any rights to any of the
Intellectual Property
owned by the Company or any of its Subsidiaries that would have
a Company
Material Adverse Effect and to the knowledge of the Company no
other Person is
infringing, violating or misappropriating any of the
Intellectual Property that
the Company or any of its Subsidiaries owns that would have a
Company Material
Adverse Effect.
(c) To the knowledge of the Company, none of the activities
or
businesses conducted by the Company or any of its Subsidiaries
infringes,
violates or constitutes a misappropriation of (or in the past
infringed,
violated or constituted a misappropriation of) any Intellectual
Property rights
of any other Person in any material manner. Neither the Company
nor any of its
Subsidiaries has received any complaint, claim or written notice
alleging any
such infringement, violation or misappropriation that would have
a Company
Material Adverse Effect, and to the knowledge of the Company,
there is no
reasonable basis for any such complaint, claim or notice.
(d) Section 5.16(d) of the Company Disclosure Schedule
identifies each (i) registration for a patent, a Trademark or a
copyright that
has been issued to the Company or any of its Subsidiaries, (ii)
pending
application for a patent, a Trademark or a copyright that has
been filed in the
name of the Company or any of its Subsidiaries, (iii) written
license or other
agreement pursuant to which the Company or any of its
Subsidiaries has granted
any rights to any third party with respect to any of its
Intellectual Property
and (iv) all Web Sites owned by the Company. The Company has
made available to
Parent correct and complete copies of all patents, Trademarks,
registered
copyrights, patent applications, applications for Trademarks and
copyright
registrations, and written licenses and agreements (as amended
to date) listed
in Section 5.16(d) of the Company Disclosure Schedule, and has
specifically
identified and made available to Parent correct and complete
copies of all other
written documentation, if any, evidencing ownership of, and any
claims or
disputes relating to, each such item. Other than those listed in
Section 5.16(d)
of the Company Disclosure Schedule, there are no agreements,
arrangements or
understandings (oral or otherwise) pursuant to which the Company
or any of its
Subsidiaries has granted any rights to any third party with
respect to any of
its Intellectual Property.
(e) With respect to each item of Intellectual Property that
the
Company or any of its Subsidiaries owns or, in the case of
Section 5.16(e)(ii)
below, has exclusively licensed from another Person:
18
(i) subject to such rights as have been granted by
the Company or such Subsidiary under license agreements entered
into in
the ordinary course of business, the Company or such Subsidiary
possesses
all right, title and interest in and to such item;
(ii) the license, sublicense or other agreement if
any with respect to such item is legal, valid and binding, and
enforceable
by the Company or any of its Subsidiaries party thereto and in
full force
and effect and, upon consummation of the Merger, shall continue
in full
force and effect without penalty, acceleration, termination or
other
adverse consequence. Neither the Company nor any of its
Subsidiaries nor,
to the knowledge of the Company, any other party, is in breach
of or in
default under any such license, sublicense or other agreement
covering
such item and no event, act, occurrence or condition has
occurred which,
with the giving of notice or the lapse of time or the happening
or any
other event or condition would become a material default or
event of
default under any such license, sublicense or other agreement
covering
such item;
(iii) such item is not subject to any outstanding
judgment, order, decree, stipulation or injunction;
(iv) neither the Company nor any of its Subsidiaries
has agreed to indemnify any Person from or against any
infringement,
misappropriation or other conflict with respect to such item;
and
(v) the rights in such item are valid and
enforceable.
(f) Section 5.16(f) of the Company Disclosure Schedule
identifies each written license, sublicense or other agreement
granting rights
to the Company or any of its Subsidiaries in respect to any
Intellectual
Property (other than off the-shelf commercially available
software and
documentation with a purchase price or license fee of less than
$5,000) owned by
a party other than the Company or any of its Subsidiaries that
is used in the
operations of the Company or any of its Subsidiaries at any time
during the
period covered by the Company Financial Statements through the
date of this
Agreement, or that the Company or any of its Subsidiaries has
currently licensed
or arranged to be used in the future for the use or benefit of
the Company or
any of its Subsidiaries. Other than (i) those listed in Section
5.16(f) of the
Company Disclosure Schedule and (ii) off the-shelf commercially
available
software and documentation with a purchase price or license fee
of less than
$5,000, there are no agreements, arrangements or understandings
(oral or
otherwise) pursuant to which the Company or any of its
Subsidiaries uses in its
operations any Intellectual Property owned by a party other than
the Company or
its Subsidiaries.
(g) The Company has provided to Parent correct and complete
copies of all written licenses, sublicenses or other agreements
(as amended to
date) related to the items listed in Section 5.16(f) of the
Company Disclosure
Schedule. With respect to each such item:
(i) the license, sublicense or other agreement
covering such item is legal, valid and binding, and enforceable
by the
Company or any of its Subsidiaries party thereto and in full
force and
effect;
(ii) such license, sublicense or other agreement
will continue to be legal, valid, binding, enforceable and in
full force
and effect
19
immediately following the Effective Time in accordance with the
terms
thereof as in effect prior to the Effective Time;
(iii) the Company or any of its Subsidiaries party to
such license, sublicense or other agreement and, to the best
knowledge of
the Company, any other party to such license, sublicense or
other
agreement are not in breach or default, and, to the best
knowledge of the
Company, no event has occurred which with notice or lapse of
time would
constitute a breach or default or permit termination,
modification or
acceleration thereunder;
(iv) to the best knowledge of the Company, the
underlying item is not subject to any outstanding judgment,
order, decree,
stipulation or injunction;
(v) neither the Company nor any of its Subsidiaries
has agreed to indemnify any Person from or against any
infringement,
misappropriation or other conflict with respect to such item;
and
(vi) no license or other fee is payable upon any
transfer or assignment of such license, sublicense or other
agreement.
(h) The Company and its Subsidiaries are, have been, and
following the consummation of the transactions contemplated
hereby will remain,
in compliance with all Laws and the Company's privacy policies
and security
policies. The Company and its Subsidiaries have taken reasonable
steps to
protect its systems from harmful code (i.e., code that contains
any "back door,"
"drop dead device," "time bomb," "Trojan horse," "virus," or
"worm" (as such
terms are commonly understood in the software industry) and from
reasonably
anticipated security threats (including implementation of
organizational and
technological protections, including firewalls). To the
knowledge of the
Company, no breach or violation of any Company security policy
has occurred or,
to the knowledge of the Company, is threatened. To the knowledge
of the Company,
there has been no unauthorized or illegal use of or access to
any of the data or
information in any of such Company or Subsidiary databases.
(i) Section 5.16(i) of the Company Disclosure Schedule
contains
each Company privacy policy presently in effect. To the
knowledge of the
Company, neither the execution, delivery or performance of this
Agreement or any
of the other agreements referred to in this Agreement nor the
consummation of
any of the transactions contemplated by this Agreement or any
such other
agreements, nor Parent's or its Subsidiaries' possession or use
of the customer
data or any data or information in the Company databases, will
result in any
violation of any Company privacy policy or any applicable
Law.
5.17. Taxes. (a) Each of the Company and its Subsidiaries
has
filed all Tax Returns (as hereinafter defined) that they were
required to file
under applicable laws and regulations. All such Tax Returns were
correct and
complete in all material respects and were prepared in
substantial compliance
with all applicable laws and regulations. All material Taxes due
and owing by
the Company or any of its Subsidiaries (whether or not shown on
any Tax Return)
have been paid. Neither the Company nor any of its Subsidiaries
currently is the
beneficiary of any extension of time within which to file any
Tax Return. No
claim has ever been made by an authority in a jurisdiction where
the Company or
any of its Subsidiaries does not file Tax Returns that the
Company or any of its
Subsidiaries is or may be subject to taxation by that
jurisdiction. There are no
Liens for Taxes (other than
20
Taxes not yet due and payable) upon any of the assets of the
Company or any of
its Subsidiaries.
(b) Each of the Company and its Subsidiaries have withheld
and
paid in a timely manner (or collected and paid) all Taxes
required to have been
withheld and paid (or collected and paid) in connection with any
amounts paid or
owing to or by any employee, independent contractor, creditor,
stockholder,
customer or other third party.
(c) The Company does not reasonably expect any authority to
assess any additional Taxes for any period for which Tax Returns
have been filed
or otherwise assert that any additional Taxes are owing. Except
as set forth in
Section 5.17(c) of the Company Disclosure Schedule, no foreign,
federal, state,
or local tax audits or administrative or judicial Tax
proceedings are pending or
being conducted with respect to the Company or any of its
Subsidiaries. Neither
the Company nor any of its Subsidiaries has received from any
foreign, federal,
state, or local taxing authority (including jurisdictions where
the Company or
its Subsidiaries have not filed Tax Returns) any (i) a notice
indicating an
intent to open an audit or other review, (ii) request for
information related to
Tax matters, or (iii) notice of deficiency or proposed
adjustment for any amount
of Tax proposed, asserted, or assessed by any taxing authority
against the
Company or any of its Subsidiaries. Section 5.17(c) of the
Company Disclosure
Schedule lists all federal, state, local, and foreign income Tax
Returns filed
with respect to any of the Company or its Subsidiaries for
taxable periods ended
on or after January 7, 2003 indicates those Tax Returns that
have been audited,
and indicates those Tax Returns that currently are the subject
of audit. The
Company and its Subsidiaries have delivered to Parent correct
and complete
copies of all federal income Tax Returns, examination reports,
and statements of
deficiencies assessed against or agreed to by the Company or any
of its
Subsidiaries filed or received since January 7, 2003.
(d) Neither the Company nor any of its Subsidiaries has
waived
any statute of limitations in respect of Taxes or agreed to any
extension of
time with respect to a Tax assessment or deficiency.
(e) Other than as set forth in Section 5.17(e) of the
Company
Disclosure Schedule, neither the Company nor any of its
Subsidiaries is a party
to any agreement, contract, arrangement or plan that has
resulted or could
reasonably be expected to result, separately or in the
aggregate, in the payment
of (i) any "excess parachute payment" within the meaning of Code
ss. 280G (or
any corresponding provision of state, local or foreign Tax law)
and (ii) any
amount that will not be fully deductible as a result of Code ss.
162(m) (or any
corresponding provision of state, local or foreign Tax law).
Neither the Company
nor any of its Subsidiaries has been a United States real
property holding
corporation within the meaning of Code ss. 897(c)(2) during the
applicable
period specified in Code ss. 897(c)(1)(A)(ii). Each of the
Company and its
Subsidiaries have disclosed on their federal income Tax Returns
all positions
taken therein that could give rise to a substantial
understatement of federal
income Tax within the meaning of Code ss. 6662. Neither the
Company nor any of
its Subsidiaries has engaged in any reportable transaction
within the meaning of
Treas. Reg. ss. 1.6011-4(b). Neither the Company nor any of its
Subsidiaries is
a party to or bound by any Tax allocation or sharing agreement,
Tax indemnity
agreement or other similar agreement. Neither the Company nor
any of its
Subsidiaries (A) has been a member of an Affiliated Group (as
hereinafter
defined) filing a consolidated federal income Tax Return (other
than a group the
common parent of which was the Company) or (B) has any Liability
for the Taxes
of any Person (other than the Company or any of its
Subsidiaries)
21
under Treas. Reg. ss. 1.1502-6 (or any similar provision of
state, local, or
foreign law), as a transferee or successor, by contract, or
otherwise.
(f) Section 5.17(f) of the Company Disclosure Schedule sets
forth the following information with respect to each of the
Company and its
Subsidiaries (or, in the case of clause (i) below, with respect
to each of the
Company's Subsidiaries) as of the most recent practicable date:
(i) the amount
of paid in capital for each Company Subsidiary with respect to
the stock and
retained earnings for each Company Subsidiary; (ii) the amount
of any net
operating loss, net capital loss, unused investment or other
credit, unused
foreign tax, or excess charitable contribution allocable to the
Company or its
Subsidiary; and (iii) the amount of any deferred gain or loss
allocable to the
Company or its Subsidiary arising out of any intercompany
transaction.
(g) The unpaid Taxes, whether or not due, of the Company and
its
Subsidiaries (i) did not, as of their respective most recent
fiscal month end,
exceed the reserve for Tax liability (rather than any reserve
for deferred Taxes
established to reflect timing differences between book and Tax
income) set forth
on the face of the Company's audited consolidated balance sheet
as of July 30,
2005 (the "Company Balance Sheet") (rather than in any notes
thereto) and (ii)
do not exceed that reserve as adjusted for the passage of time
through the
Closing Date in accordance with the past custom and practice of
the Company and
its Subsidiaries in filing their Tax Returns. Since the date of
the Company
Balance Sheet, neither the Company nor any of its Subsidiaries
has incurred any
liability for Taxes arising from extraordinary gains or losses,
as that term is
used in GAAP, outside the Ordinary Course of Business consistent
with past
custom and practice. As of the Closing Date, the Company Balance
Sheet reflects
an adequate accrual for (i) Taxes incurred on or before the
Closing Date, (ii)
Taxes for periods that ended on or before the Closing Date, and
(iii) Taxes for
periods commencing prior to the Closing Date and ending after
the Closing Date,
but only to the extent the Taxes were allocable to the periods
on or before the
Closing Date.
(h) Neither the Company nor any of its Subsidiaries will be
required to include any item of income in, or exclude any item
of deduction
from, taxable income for any taxable period (or portion thereof)
ending after
the Closing Date as result of any:
(i) change in method of accounting for a taxable
period ending on or prior to the Closing Date;
(ii) "closing agreement" as described in Code ss.
7121 (or any corresponding or similar provision of state, local
or foreign
income Tax law) executed on or prior to the Closing Date;
(iii) intercompany transaction or excess loss
account described in Treasury Regulations under Code ss. 1502
(or any
corresponding or similar provision of state, local or foreign
income Tax
law);
(iv) installment sale or open transaction
disposition made on or prior to the Closing Date; or
(v) prepaid amount received on or prior to the
Closing Date.
22
(i) Neither the Company nor any of its Subsidiaries has
distributed stock of another Person, or has had its stock
distributed by another
Person, in a transaction that was purported or intended to be
governed in whole
or in part by Code ss. 355 or Code ss. 361.
(j) As used in this Agreement, the term:
"Affiliated Group" means any affiliated group within the meaning
of
Code ss.1504(a) or any similar group defined under a similar
provision of state,
local or foreign law.
"Ordinary Course of Business" means the ordinary course of
business
consistent with past custom and practice (including with respect
to quantity and
frequency).
"Tax" or "Taxes" means any federal, state, local, or foreign
income,
gross receipts, license, payroll, employment, excise, severance,
stamp,
occupation, premium, windfall profits, environmental (including
taxes under Code
ss.59A), customs duties, capital stock, franchise, profits,
withholding, social
security (or similar), unemployment, disability, real property,
personal
property, sales, use, transfer, registration, value added,
alternative or add-on
minimum, estimated, or other tax of any kind whatsoever,
including any interest,
penalty, or addition thereto, whether disputed or not and
including any
obligations to indemnify or otherwise assume or succeed to the
Tax liability of
any other Person.
"Tax Return" means any return, declaration, report, claim
for
refund, or information return or statement relating to Taxes,
including any
schedule or attachment thereto, and including any amendment
thereof.
5.18. Related Party Transactions. Except as set forth in
Section
5.18 of the Company Disclosure Schedule no officer, director,
stockholder or
affiliate of the Company, directly or indirectly, is, or during
any of the
periods covered by the Company Financial Statements and any
other financial
statements required to be delivered hereunder has been a party
to any
transaction, Contract or other arrangement with the Company or
any of its
Subsidiaries or otherwise has any interest in the Company's or
its Subsidiaries'
assets.
5.19. Title to Property. (a) Neither the Company nor any of
its
Subsidiaries owns any real property as of the date hereof.
Section 5.19 of the
Company Disclosure Schedule sets forth as of the date hereof a
list of all real
property currently leased by the Company and any of its
Subsidiaries, the name
of the lessor, the date of the lease, the date of expiration of
the lease and,
with respect to any current lease, the current aggregate annual
rental and/or
other fees payable under any such lease (the "Company Leases").
All the Company
Leases are in full force and effect without penalty,
acceleration, termination,
repurchase right or other adverse consequence on account of the
execution,
delivery and performance of this Agreement by the Company nor
the consummation
by the Company of the transactions contemplated hereby. Neither
the Company nor
any of its Subsidiaries nor, to the knowledge of the Company as
of the date
hereof, any other party, is in breach of or in default under any
such Company
Lease.
(b) The Company and each of its Subsidiaries have good and
valid
title to, or, in the case of leased properties and assets, valid
leasehold
interests in, all of its properties and assets, real, personal
and mixed, used
or held for use in its business, free and clear of all Liens
except for (i)
Liens for Taxes not yet due and payable and (ii) statutory Liens
which arise in
the Ordinary Course of Business, are not material in amount and
do not
23
materially impair the Company's or its Subsidiaries' ownership
or use of such
properties and assets.
5.20. Insurance. Section 5.20 of the Company Disclosure
Schedule
lists all insurance policies covering the assets, business,
equipment,
properties, operations, employees, directors and officers, and
product warranty
and liability claims that the Company maintains for itself and
its Subsidiaries
as of the date hereof. All such insurance policies are in full
force and effect,
all premiums due and payable thereon have been paid, and the
Company and its
Subsidiaries are otherwise in compliance in all material
respects with the terms
and conditions of such policies.
5.21. Takeover Statutes; Charter Provisions. The Board of
Directors of the Company has approved the Merger and this
Agreement, and such
approval is sufficient to render inapplicable to the Merger and
this Agreement
the limitations on business combinations contained in any
restrictive provision
of any "fair price," "moratorium," "control share acquisition,"
"interested
stockholder" or other similar anti-takeover statute or
regulation (including
Section 203 of the DGCL to the extent applicable) or restrictive
provision of
any applicable anti-takeover provision in the Company's Amended
and Restated
Certificate of Incorporation or Amended and Restated By-laws. No
other state
takeover statute or similar statute or regulation or other
comparable takeover
provision of the Company's Amended and Restated Certificate of
Incorporation or
Amended and Restated By-Laws applies to the Merger, this
Agreement or any of the
transactions contemplated by this Agreement.
5.22. Brokers. No broker, finder or investment banker is
entitled
to any brokerage, finders' or other fee or commission in
connection with the
transactions contemplated hereby based upon arrangements made by
or on behalf of
the Company.
5.23. Suppliers and Relationships. Section 5.23 of the
Company
Disclosure Schedule lists the ten largest suppliers of the
Company and its
Subsidiaries (based on dollar value of purchases for the year
ended July 29,
2006) (the "Company Major Suppliers"). Since July 29, 2006,
there has not been,
and the Company has not received in writing any notice of or
threatening any
material change in relations with any of the Company Major
Suppliers the result
of which would be material to the Company and its Subsidiaries,
taken as a
whole.
5.24. Environmental Matters. Other than as set forth in
Section
5.24 of the Company Disclosure Schedule:
(a) The operations of each of the Company Stores and
Facilities
(as hereinafter defined) by the Company or any of its
Subsidiaries are, and at
all times have been, in full compliance with, and have not been
and are not in
violation of, any Environmental Law (as hereinafter defined),
except where the
failure to so comply or such violation would not, individually
or in the
aggregate, have a Company Material Adverse Effect. The Company
has no knowledge,
nor has it or any other Person for whose conduct it is
responsible received, any
actual or threatened Order (as hereinafter defined), notice or
other
communication from (i) any Governmental Entity or private
citizen acting in the
public interest or (ii) the current or prior owner or operator
of any Company
Stores and Facilities, of any actual violation or failure to
comply with any
Environmental Law, or of any actual obligation to undertake or
bear the cost of
any Environmental, Health and Safety Liabilities (as hereinafter
defined) with
respect to any Company Stores and Facilities. To
24
the knowledge of the Company, there has been no Release (as
hereinafter defined)
or threat of Release of any Hazardous Substances (as hereinafter
defined) at or
from any Company Stores and Facilities, and no Hazardous
Activity (as
hereinafter defined) has been conducted or is being conducted by
the Company or
any of its Subsidiaries with respect to any Company Stores and
Facilities.
(b) There are no pending or to the knowledge of the Company,
threatened claims, encumbrances or other restrictions of any
nature resulting
from any Environmental, Health and Safety Liabilities or arising
under or
pursuant to any Environmental Law with respect to or affecting
any Company
Stores and Facilities, nor does either the Company or any of its
Subsidiaries or
any other Person for whose conduct either the Company or any of
its Subsidiaries
is responsible have any Environmental, Health and Safety
Liabilities with
respect to any Company Stores and Facilities, except for such
claims,
encumbrances, restrictions or liabilities that would not,
individually or in the
aggregate, have a Company Material Adverse Effect.
(c) The Company has made available to Parent true and
complete
copies and results of any reports, studies, analyses, tests or
monitoring
possessed or initiated by the Company pertaining to Hazardous
Substances or
Hazardous Activities in, on, or under the Company Stores and
Facilities, or
concerning compliance, by the Company or any other Person for
whose conduct it
is or may be held responsible, with Environmental Laws other
than reports,
studies, notices, analyses, tests or monitoring information
delivered to the
Company in connection with its operation of the Company Stores
and Facilities in
the Ordinary Course of Business.
(d) As used in this Agreement, the term:
"Cleanup" means any cleanup, removal, containment or other
remediation or response actions.
"Company Stores and Facilities" means those retail stores,
distribution centers and corporate offices listed in Section
5.19 of the Company
Disclosure Schedule.
"Environmental, Health and Safety Liabilities" means any
cost,
damages, expense, liability, obligation or other responsibility
arising from or
under any Environmental Law or Occupational Safety and Health
Law (as
hereinafter defined), including those consisting of or relating
to:
(i) any environmental, health or safety matter or
condition (including on-site or off-site contamination,
occupational
safety and health and regulation of any chemical substance or
product);
(ii) any fine, penalty, judgment, award,
settlement, legal or administrative proceeding, damages, loss,
claim,
demand or response, remedial or inspection cost or expense
arising under
any Environmental Law or Occupational Safety and Health Law;
(iii) financial responsibility under any
Environmental Law or Occupational Safety and Health Law for
Cleanup costs
or corrective action, including any Cleanup (as hereinafter
defined)
required by any Environmental Law or Occupational Safety and
Health Law
(whether or not such Cleanup has been
25
required or requested by any Governmental Entity or any other
Person) and
for any natural resource damages; or
(iv) any other compliance, corrective or remedial
measure required under any Environmental Law or Occupational
Safety and
Health Law.
"Environmental Laws" means any applicable Law or any agreement
with
any Governmental Entity or other third party, relating to human
health and
safety, the environment or to Hazardous Substances.
"Hazardous Substances" means any pollutant, contaminant, waste
or
chemical or any toxic, radioactive, ignitable, corrosive,
reactive or otherwise
hazardous substance, waste or material, or any substance, waste
or material
having any constituent elements displaying any of the foregoing
characteristics,
including petroleum, its derivatives, by-products and other
hydrocarbons, and
any substance, waste or material regulated under any
Environmental Law.
"Hazardous Activity" means the distribution, generation,
handling,
importing, management, manufacturing, processing, production,
refinement,
Release, storage, transfer, transportation, treatment or use
(including any
withdrawal or other use of ground water) of Hazardous Substances
in, on, under,
about or from any of the Company Stores and Facilities or the
Parent Facilities
(as hereinafter defined), as the case may be, or any part
thereof into the
environment.
"Occupational Safety and Health Law" means any Law designed
to
provide safe and healthful working conditions and to reduce
occupational safety
and health hazards, including Occupational Safety and Health
Act, and any
program, whether governmental or private (such as those
promulgated or sponsored
by industry associations and insurance companies), designed to
provide safe and
healthful working conditions.
"Order" means any order, injunction, decree, ruling, assessment
or
arbitration award of any Governmental Entity or arbitrator.
"Release" means any release, spill, emission, leaking,
pumping,
pouring, dumping, emptying, injection, deposit, disposal,
discharge, dispersal,
leaching or migration on or into the environment or into or out
of any property.
The terms "removal," "remedial" and "response action" include
the
types of activities covered by the United States Comprehensive
Environmental
Response, Compensation and Liability Act of 1980. The terms
"Company" and
"Subsidiary" in this Section 5.24 shall include any entity which
is, in whole or
in part, a predecessor of the Company or any Subsidiary.
5.25. Plant and Equipment. The plants, structures and
equipment
owned or used by the Company and its Subsidiaries are
structurally sound in all
material respects and are in reasonably good operating condition
and repair and
are adequate in all material respects for the uses to which they
are being put.
None of such plants, structures or equipment are in need of
maintenance or
repairs except for ordinary, routine maintenance and repairs
which are not
material in nature or cost.
5.26. Company IT Systems.
26
(a) For purposes of this Agreement, "Company IT Systems"
means
the information and communications technologies used by the
Company and its
Subsidiaries, including hardware, proprietary and third party
software,
networks, peripherals and associated documentation.
(b) The Company IT Systems are either owned by, or properly
licensed or leased to, the Company or any of its Subsidiaries.
The relevant
Company or Subsidiary is not in default under the licenses or
leases and there
are no grounds on which they might be terminated. The Company IT
Systems have
not failed to any material extent and the data which they
process has not been
corrupted. To the knowledge of the Company, the Company IT
Systems do not
contain viruses, bugs or things which distort their proper
functioning, permit
unauthorized access or disable them without the consent of the
user, or that
would have a Company Material Adverse Effect. The Company and
its Subsidiaries
have, in accordance with industry practice, taken precautions to
preserve the
availability, security and integrity of the Company IT Systems
and the data and
information stored on the Company IT Systems.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Except as set forth in the disclosure schedule delivered by
Parent
and Merger Sub to the Company on the date hereof (the "Parent
Disclosure
Schedule"), Parent and Merger Sub hereby represent and warrant
to the Company as
follows:
6.1. Organization, Good Standing and Qualification. Each of
Parent and Merger Sub is a corporation duly organized, validly
existing and in
good standing under the Laws of the jurisdiction of its
incorporation and has
all requisite corporate power and authority to own, lease and
operate its
properties and assets and to carry on its businesses as now
being conducted.
Parent is qualified to do business and is in good standing as a
foreign
corporation in each jurisdiction where the ownership, leasing or
operation of
its properties or assets or conduct of its business requires
such qualification,
except where the failure to be so qualified or in good standing
or to have such
power or authority, would not, individually or in the aggregate,
have a Parent
Material Adverse Effect (as hereinafter defined). Parent has
heretofore
delivered or made available to the Company accurate and complete
copies of the
Restated Certificate of Incorporation and By-Laws and other
organizational
documents, as currently in effect, of Parent and each of its
Subsidiaries. All
Subsidiaries and their respective jurisdictions of incorporation
are identified
in Section 6.1 of the Parent Disclosure Schedule.
As used in this Agreement, the term "Parent Material Adverse
Effect"
shall mean any Event that is reasonably expected to: (a) be
materially adverse
to the assets and liabilities, business, financial condition or
results of
operations of Parent and its Subsidiaries, taken as a whole, or
(b) prevent or
materially delay the ability of Parent to consummate the
transactions
contemplated hereby or to perform its obligations hereunder;
other than any such
Event to the extent resulting from (i) an Event generally
affecting the
industries in which Parent or its Subsidiaries operate, other
than an Event that
has a disproportionate effect on Parent and its Subsidiaries,
taken as a whole,
(ii) the economy, the financial or securities markets in
general, or political
conditions in the United States or any acts of terrorism,
military actions or
war, other than an Event that has a disproportionate
27
effect on Parent and its Subsidiaries, taken as a whole, or
(iii) this Agreement
or the transactions contemplated hereby, including the
announcement or pendency
thereof. For the avoidance of doubt, a decrease in the trading
price of Parent
Common Stock and/or litigation arising therefrom, in and of
themselves, shall
not be considered a Parent Material Adverse Effect.
6.2. Capitalization of Parent and its Subsidiaries. (a) The
authorized capital stock of Parent consists of 30,000,000 shares
of Parent
Common Stock, of which 15,792,787 shares of Parent Common Stock
were issued and
outstanding as of the close of business on the date hereof. All
of the
outstanding shares of Parent Common Stock have been duly
authorized and validly
issued and are fully paid and nonassessable. Parent has no
shares of Parent
Common Stock reserved for or otherwise subject to issuance,
except that as of
the close of business on the date hereof, there were 2,053,000
shares of Parent
Common Stock subject to issuance pursuant to (i) options
currently granted under
Parent's Incentive Stock Option Plan, Performance Equity Plan
and Key Employee
Non-Qualified Stock Option Plan and (ii) a warrant to purchase
50,000 shares of
Parent Common Stock granted by Parent to a consultant
(collectively, the "Parent
Stock Plans"); provided, however, that Parent will issue shares
of Parent Common
Stock to comply with its obligations under the Parent Stock
Plans as set forth
in Section 6.2(a) of the Parent Disclosure Schedule. The
authorized capital
stock of Merger Sub consists of 100 shares of common stock of
Merger Sub, par
value $0.01 per share. Section 6.2 of the Parent Disclosure
Schedule sets forth
a complete and accurate list of all outstanding options to
purchase shares of
Parent Common Stock, whether vested or unvested (each a "Parent
Stock Option"),
which list includes the name of each holder of Parent Stock
Options and the
exercise price and the expiration date of Parent Stock Options
so held. Except
as set forth in this Section 6.2, there are no outstanding, and
there have not
been reserved for issuance, any (A) shares of capital stock or
other voting
securities of Parent or Merger Sub, (B) securities of Parent or
any Subsidiary
or Merger Sub, convertible into or exchangeable for shares of
capital stock or
voting stock of Parent or its Subsidiaries or Merger Sub, or (C)
Parent Stock
Options or other rights or options to acquire from Parent or its
Subsidiaries or
Merger Sub any shares of capital stock, voting securities or
securities
convertible into or exchangeable for shares of capital stock or
voting stock of
Parent or its Subsidiaries or Merger Sub. Each of the
outstanding shares of
capital stock or other ownership interests of each of Parent's
Subsidiaries is
duly authorized, validly issued, fully paid and nonassessable
and owned by
Parent or a direct or indirect wholly owned Subsidiary of
Parent, in each case
free and clear of all Liens other than as set forth in Section
6.2 of the Parent
Disclosure Schedule. Except as set forth above, in Section 6.2
of the Parent
Disclosure Schedule or otherwise contemplated by this Agreement,
there are no
registration rights or preemptive or other outstanding rights,
options,
warrants, conversion rights, stock appreciation rights,
redemption rights,
repurchase rights, agreements, arrangements, calls, commitments
or rights of any
kind which obligate Parent or any of its Subsidiaries or Merger
Sub to register,
issue or sell any shares of capital stock or other securities of
Parent or any
of its Subsidiaries or Merger Sub or any securities or
obligations convertible
or exchangeable into or exercisable for, or giving any Person a
right to
subscribe for or acquire from Parent or any of its Subsidiaries
or Merger Sub,
any securities of Parent or any of its Subsidiaries or Merger
Sub, and no
securities or obligations evidencing such rights are issued or
outstanding.
Parent does not have outstanding any bonds, debentures, notes or
other
obligations the holders of which have the right to vote (or
which are
convertible into or exercisable for securities having the right
to vote) with
the stockholders of Parent on any matter.
28
(b) Other than as set forth in Section 6.2 of the Parent
Disclosure Schedule, neither Parent nor any of its Subsidiaries
owns any equity
or similar interest in or any interest convertible into or
exchangeable or
exercisable for any equity or similar interest in, any
corporation, partnership,
joint venture or other business.
(c) Except as otherwise contemplated by this Agreement,
there
are no voting trusts or other agreements or understandings to
which Parent or
any of its Subsidiaries is a party with respect to the voting of
any of the
capital stock of Parent or any of the Subsidiaries or Merger
Sub. Other than as
set forth in Section 6.2 of the Parent Disclosure Schedule, none
of Parent or
any of its Subsidiaries is obligated under any registration
rights or similar
agreements to register any shares of capital stock of Parent or
any of its
Subsidiaries or Merger Sub on behalf of any Person.
6.3. Corporate Authority. Each of Parent and Merger Sub has
all
requisite power and authority and has taken all corporate action
necessary in
order to execute, deliver and perform its respective obligations
under this
Agreement and the Transaction Documents, as applicable, subject
only to
obtaining the Parent Stockholder Approval (as hereinafter
defined), which is the
only vote of the holders of any class or series of capital stock
of Parent
necessary to adopt, approve or authorize the transactions
contemplated hereby.
Each of this Agreement and the Standby Purchase Agreement is,
and upon execution
and delivery, each other Transaction Document will be, a valid
and binding
agreement of Parent and Merger Sub, as applicable, enforceable
against Parent
and Merger Sub, as applicable, in accordance with its terms
except for (a) the
effect of any applicable bankruptcy, insolvency, reorganization,
moratorium and
similar laws relating to or affecting the rights of creditors
generally and (b)
the effect of equitable principles of general application.
6.4. Consents and Approvals; No Violations. Other than as
set
forth in Section 6.4 of the Parent Disclosure Schedule, and
except for such
filings that may be required by the HSR Act (as hereinafter
defined) or other
Antitrust Law (as hereinafter defined) that may become
applicable to the Merger
or the other transactions contemplated by this Agreement, no
filing with or
notice to, and no permit, authorization, registration, consent
or approval of,
any Governmental Entity or other third party is required on the
part of Parent
or any of its Subsidiaries for the execution, delivery and
performance by Parent
and Merger Sub of this Agreement and the Transaction Documents,
as applicable,
or the consummation by Parent and Merger Sub of the transactions
contemplated
hereby, except (a) the filing with the United States Securities
and Exchange
Commission ("SEC") of the Proxy Statement (including in
definitive form after
clearing all SEC comments, if any) relating to the Stockholders
Meeting (as
hereinafter defined), the filing of the Registration Statement
with the SEC and
the declaration of the effectiveness by the SEC of the
Registration Statement,
(b) such filings and approvals as are required to be made or
obtained under the
securities or "Blue Sky" laws of various states in connection
with the issuance
of the shares of Parent Common Stock in connection with the
Merger and the
Rights Offering, (c) the filing of the Parent Charter with the
Secretary of
State of the State of New York, (d) the filing of the
Certificate of Merger
pursuant to the DGCL and (e) such filings and approvals as are
required to be
made or obtained under the AMEX rules in connection with the
transactions
contemplated hereby. Neither the execution, delivery and
performance of this
Agreement and the Transaction Documents, as applicable, by
Parent and Merger Sub
nor the consummation by Parent and Merger Sub of the
transactions contemplated
hereby will (i) conflict with or result in any breach, violation
or infringement
of any provision of the respective certificate of incorporation
or by-laws (or
similar governing documents) of Parent
29
or of any its Subsidiaries, (ii) result in a breach, violation
or infringement
of, or constitute (with or without due notice or lapse of time
or both) a
default (or give rise to the creation of any Lien or any right
of termination,
amendment, cancellation or acceleration) under, any of the
terms, conditions or
provisions of any Contract, to which Parent or any of its
Subsidiaries is a
party or by which any of them or any of their respective
properties or assets
may be bound or under the privacy or other policies applicable
to their Web
Sites, (iii) change the rights or obligations of any party under
any Contract,
or (iv) violate or infringe any Law applicable to Parent or any
of its
Subsidiaries or any of their respective properties or assets,
except in the case
of (ii), (iii) or (iv) for breaches, violations, infringements,
defaults or
changes which would not, individually or in the aggregate, have
a Parent
Material Adverse Effect.
6.5. Compliance with Laws; Licenses. The businesses of each
of
Parent and its Subsidiaries have not been conducted in material
violation of any
federal, state, local or foreign Laws. No investigation or
review by any
Governmental Entity with respect to Parent or any of its
Subsidiaries is pending
or, to the knowledge of Parent, threatened, nor has any
Governmental Entity
indicated an intention to conduct the same. Parent and each of
its Subsidiaries
has all Licenses necessary to conduct its business as presently
conducted (the
"Parent Material Licenses"). There is not pending or, to the
knowledge of
Parent, threatened before any Governmental Entity any
proceeding, notice of
violation, order of forfeiture or complaint or investigation
against Parent or
any of its Subsidiaries relating to any Parent Material
License.
6.6. No Default. None of Parent, any of its Subsidiaries or
Merger Sub is in breach, default or violation (and no event has
occurred which
with notice or the lapse of time or both would constitute a
default or
violation) of any term, condition or provision of (a) its
certificate of
incorporation or by-laws (or similar governing documents), (b)
any Contract to
which Parent or any of its Subsidiaries or Merger Sub is now a
party or by which
any of them or any of their respective properties or assets may
be bound, or (c)
any Law applicable to Parent, any of its Subsidiaries, Merger
Sub or any of
their respective properties or assets, except in the case (b) or
(c) for
violations, breaches or defaults that would not, individually or
in the
aggregate, have a Parent Material Adverse Effect.
6.7. Parent Reports; Financial Statements. (d) Parent has
made
available to the Company each registration statement, report,
proxy statement or
information statement prepared by it since June 2003, including
(i) Parent's
Annual Report on Form 10-K for the year ended June 30, 2006, and
(ii) Parent's
Quarterly Reports on Form 10-Q for the periods ended September
30, 2005,
December 31, 2005, March 31, 2006 and September 30, 2006, each
in the form
(including exhibits, annexes and any amendments thereto) filed
with the SEC.
Other than as set forth in Section 6.7 of the Parent Disclosure
Schedule, Parent
has filed and furnished all forms, statements, reports and
documents required to
be filed or furnished by it with the SEC pursuant to applicable
federal
securities Laws since July 1, 2005 (the forms, statements,
reports and documents
filed since July 1, 2005, or those filed subsequent to the date
of this
Agreement, and as amended, the "Parent Reports"). Parent Reports
were prepared
in all material respects in accordance with the applicable
requirements of the
Securities Act and the Securities Exchange Act of 1934, as
amended (including
the rules and regulations promulgated thereunder, the "Exchange
Act") and
complied in all material respects with the then applicable
accounting standards.
As of their respective dates (and, if amended, as of the date of
such
amendment), Parent Reports did not contain any untrue statement
of a material
fact or omit to state a material fact required to be
30
stated therein or necessary to make the statements made therein,
in light of the
circumstances in which they were made, not misleading.
(b) Each of the consolidated balance sheets included in or
incorporated by reference into the Parent Reports (including the
related notes
and schedules) filed prior to the date of this Agreement fairly
presents, in
each case, in all material respects, the consolidated financial
position of
Parent and its Subsidiaries, as of its date, and each of the
consolidated
statements of operations, cash flows and changes in
shareholders' equity
included in or incorporated by reference into the Parent Reports
(including any
related notes and schedules) filed prior to the date of this
Agreement fairly
presents, in all material respects, the results of operations,
retained earnings
and changes in financial position, as the case may be, of Parent
and its
Subsidiaries for the periods set forth therein (subject, in the
case of
unaudited statements, to notes and normal year-end audit
adjustments that will
not be material in amount or effect), in each case in accordance
with GAAP
consistently applied during the periods involved, except as may
be noted therein
and are complete in all material respects, correct and can be
reconciled to the
books of account and records of Parent and its Subsidiaries.
(c) Parent is in compliance in all material respects with
the
published rules and regulations of the Sarbanes-Oxley Act of
2002, including the
rules and regulations promulgated thereunder applicable to
it.
6.8. No Undisclosed Liabilities. Except for (a) liabilities
and
obligations disclosed, reserved against or provided for in the
last audited
balance sheet of Parent as of June 30, 2006 (the "Parent Audit
Date") or in the
notes thereto, (b) liabilities and obligations set forth in
Section 6.8 of the
Parent Disclosure Schedule or in the Parent Reports, and (c)
liabilities and
obligations incurred in the Ordinary Course of Business since
the Parent Audit
Date, none of which are material to the business, results of
operations or
financial condition of Parent and its Subsidiaries, taken as a
whole, neither
Parent nor any of its Subsidiaries has any liabilities or
financial obligation
of any nature (whether accrued, contingent, absolute,
determined, determinable
or otherwise) required to be set forth, reserved against or
disclosed in a
consolidated balance sheet of Parent prepared in accordance with
GAAP or in the
notes thereto.
6.9. Absence of Certain Changes or Events. Since the Parent
Audit
Date, Parent and its Subsidiaries have conducted their business
in the ordinary
course consistent with past practice and, except as contemplated
herein or as
specifically described (including as to circumstances and
consequences) in
Section 6.9 of the Parent Disclosure Schedule or in the Parent
Reports, there
has not been:
(a) any change or event that, by itself or together with
other
changes or events, has or is reasonably likely to have a Parent
Material Adverse
Effect;
(b) any damage, destruction or loss (whether or not covered
by
insurance) materially adversely affecting the properties or
business of Parent
and its Subsidiaries, taken as a whole;
(c) any breach or amendment of any Parent Material Contract
(as
hereinafter defined);
31
(d) the commencement or notice or, to the knowledge of
Parent,
threat of commencement, of any lawsuit or proceeding against, or
investigation
of, Parent or any of its Subsidiaries or any of their
affairs;
(e) any failure to use all commercially reasonable efforts
to
(i) maintain its properties and facilities, including those held
under leases,
in good working order and condition, ordinary wear and tear
excepted; (ii)
perform all of its obligations under Parent Material Contracts
relating to or
affecting its assets, properties or rights, or operate, manage
or maintain its
leased premises in the usual and customary manner for similar
properties, or
(iii) keep in full force and effect all insurance policies;
(f) any advance or loan made to any Person except in the
Ordinary Course of Business;
(g) any payment, discharge or satisfaction of any material
claims or liabilities (absolute, accrued, asserted or
unasserted, contingent or
otherwise) other than payment, discharge or satisfaction in the
Ordinary Course
of Business;
(h) creation or assumption of any mortgage, pledge, or other
Lien or upon any assets or properties of Parent or any of its
Subsidiaries,
issuance of any debt instrument or guarantee of indebtedness of
a third party;
(i) cancellation of any debts owing to, or waiver of any
claims
or rights pertaining to, the business of Parent and its
Subsidiaries;
(j) shortening or lengthening of the customary payment cycles
in
any material manner for any payables or receivables of Parent or
its
Subsidiaries;
(k) sale, assignment, lease, pledge, or other transfer or
disposal of any assets, property, equipment or rights of Parent
or its
Subsidiaries except in the Ordinary Course of Business; or
(l) negotiation or agreement by Parent or any of its
Subsidiaries, or, to the knowledge of Parent, any other
director, officer, or
employee thereof, to do any of the things described in the
preceding clauses (a)
through (k) (other than negotiations with the Company and its
Subsidiaries and
their respective officers, directors, employees, agents,
advisors, affiliates
and other representatives (such Persons, together with the
Subsidiaries of the
Company, collectively, the "Company Representatives") regarding
the transactions
contemplated by this Agreement).
6.10. Litigation. There is no Action pending or, to the
knowledge
of Parent, threatened against, affecting or involving Parent or
any of its
Subsidiaries or any of their respective properties or assets, or
which would
make Parent or any of its Subsidiaries a party in such Action,
except as would
not, individually or in the aggregate, have a Parent Material
Adverse Effect. As
of the date hereof, to the knowledge of Parent, neither Parent
nor any of its
Subsidiaries is subject to any outstanding order, writ,
injunction or decree.
Section 6.10 of the Parent Disclosure Schedule sets forth each
pending or, to
the knowledge of Parent as of the date hereof, threatened
Action.
6.11. Material Contracts. True and correct copies have been
made
available to the Company of all Contracts to which Parent or any
of its
Subsidiaries is a party and which fall within any of the
following categories:
(a) any Contract relating to indebtedness
32
for borrowed money, any financial guaranty or a security
interest in the assets
of Parent or its Subsidiaries; (b) any Contract that limits the
ability of
Parent or any of its Subsidiaries to compete in any business
line or in any
geographic area; (c) any Contract material to Parent and its
Subsidiaries, taken
as a whole, that is terminable by or requires notice to the
other party or
parties upon a change in control of Parent or any of its
Subsidiaries; (d) any
Contract that requires aggregate future expenditures by or
payments to Parent or
any of its Subsidiaries of more than $100,000 in any one-year
period; (e) any
employment, consulting or severance Contract, policy or
arrangement; (f) any
Contract that by its terms limits the payment of dividends or
other
distributions by Parent or any of its Subsidiaries; (g) any
joint venture or
partnership agreement; (h) any Contract that grants any right of
first refusal
or right of first offer or similar right or that purports to
limit the ability
of Parent or any of its Subsidiaries to own, operate, sell,
transfer, pledge or
otherwise dispose of a material amount of assets or any material
business; (i)
any credit card association agreements; (j) any real property
lease; and (k) any
other Contracts that are material to Parent and its
Subsidiaries, taken as a
whole (the "Parent Material Contracts"). Section 6.11 of the
Parent Disclosure
Schedule sets forth a true and complete list of Parent Material
Contracts, and a
written summary of all material customer and/or supplier
arrangements or
understandings. The Parent Material Contracts are valid, binding
and in full
force and effect and, upon consummation of the Merger, shall
continue in full
force and effect without penalty, acceleration, termination,
repurchase right or
other adverse consequence. Neither Parent nor any of its
Subsidiaries nor, to
the knowledge of Parent, any other party, is in breach of or in
default under
any Parent Material Contract and no event, act, occurrence or
condition has
occurred which, with the giving of notice or the lapse of time
or the happening
or any other event or condition would become a material default
or event of
default under any Parent Material Contract.
6.12. Disclosure Documents. The information relating to Parent
and
its Subsidiaries and their respective officers and directors
that will be
provided by Parent or its representatives for inclusion in the
Proxy Statement,
the Registration Statement and in any other document filed with
any other
Governmental Entity in connection with the transactions
contemplated hereby,
will not contain any untrue statement of material fact or omit
to state any
material fact required to be stated therein or necessary to make
the statements
therein, in light of the circumstances under which they are
made, not
misleading.
6.13. Labor and Employment Matters. (a) Neither Parent nor any
of
its Subsidiaries is a party to, nor do any of them have any
obligations under or
with respect to, any collective bargaining agreement or other
labor union
contract applicable to persons employed by Parent or its
Subsidiaries except as
otherwise disclosed in Section 6.13 of the Parent Disclosure
Schedule and no
collective bargaining agreement is being negotiated by Parent or
any person or
entity that may obligate Parent or any of its Subsidiaries
thereunder.
(b) Parent and its Subsidiaries are in material compliance
with
all currently applicable Laws respecting employment and
employment practices,
terms and conditions of employment and wages and hours, and are
not engaged in
any material respect in any unfair labor practice. To Parent's
knowledge, none
of Parent or any of its representatives or employees has
committed any unfair
labor practice and there is no unfair labor practice complaint
pending or, to
the knowledge of Parent, threatened against Parent or any of its
Subsidiaries
before the National Labor Relations Board.
6.14. Employee Benefit Plans. (a) Section 6.14(a) of the
Parent
Disclosure Schedule sets forth a complete list of all material
"employee benefit
plans," as defined in
33
Section 3(3) of ERISA, and all other employee benefit or
compensation plans,
policies, agreements, programs, and arrangements, written or
unwritten and
including, any bonus, incentive, deferred compensation,
vacation, stock
purchase, stock option, severance, employment, change of control
or fringe
benefit plan, policy, agreement, program or arrangement, that
are sponsored or
maintained by Parent, any Subsidiary of Parent or to which
Parent or any
Subsidiary of Parent is a party or obligated to contribute, or
with respect to
which Parent or any of its Subsidiaries has any material
liability, contingent
or otherwise. Each plan, policy, agreement, program or
arrangement required to
be set forth in Section 6.14(a) of the Parent Disclosure
Schedule pursuant to
the foregoing is referred to herein as a "Parent Benefit
Plan."
(b) True, correct and complete copies of the following
documents, with respect to each Parent Benefit Plan, have been
delivered or made
available to the Company by Parent: (i) the Parent Benefit Plan
document (or a
summary of any unwritten Parent Benefit Plan) and related trust
documents,
insurance contract or other funding vehicle, and any amendments
to the any of
the foregoing; (ii) if applicable, the most recent Annual Report
(Form 5500
Series) and accompanying schedules; (iii) if applicable, the
current summary
plan description, together with any summary or summaries of
material
modifications thereto; (iv) if applicable, the most recent
annual financial
report and/or actuarial valuation; (v) all material
correspondence to or from
any Governmental Entity received in the last three years; and
(vi) all material
written agreements and contracts currently in effect, including
administrative
service agreements, group annuity contracts and group insurance
contracts.
(c) Neither Parent nor any Subsidiary of Parent is or will
be
required to provide medical or other welfare benefits to
employees, directors,
former employees, former directors, or retirees after their
termination of
employment or service, other than pursuant to applicable Law or
individual
agreements, except as would not, individually or in the
aggregate, have a Parent
Material Adverse Effect.
(d) Each Parent Benefit Plan that is intended to qualify
under
Section 401 of the Code, and each trust maintained pursuant
thereto, has
received a currently effective favorable determination letter
from the Internal
Revenue Service, and to Parent's knowledge, no circumstances
exist and no events
have occurred with respect to the operation of any such Parent
Benefit Plan that
would be reasonably expected to cause the loss of such
qualification.
(e) To Parent's knowledge, all Parent Benefit Plans have
been
maintained and administered, in all material respects, in
accordance with their
terms and in accordance with all applicable Laws (including
ERISA and the Code).
To Parent's knowledge, there are no pending or threatened claims
against or with
respect to any of the Parent Benefit Plans, any related trusts,
any Parent
Benefit Plan sponsor or plan administrator, or any fiduciary of
the Parent
Benefit Plans with respect to the operation of such plans (other
than routine
benefit claims), except for such claims as would not,
individually or in the
aggregate, have a Parent Material Adverse Effect. Except as
would not,
individually or in the aggregate, have a Parent Material Adverse
Effect, all
Parent Benefit Plans subject to the laws of any jurisdiction
outside of the
United States (i) have been maintained in all material respects
in accordance
with all applicable Laws, (ii) if they are intended to qualify
for special tax
treatment meet all requirements for such treatment, and (iii) if
they are
intended to be funded and/or book-reserved are fully funded
and/or book
reserved, as appropriate, based upon reasonable actuarial
assumptions.
34
(f) Except as would not, individually or in the aggregate,
have
a Parent Material Adverse Effect, neither the execution and
delivery of this
Agreement nor the consummation of the transactions contemplated
hereby (either
alone of in conjunction with another event, such as a
termination of employment)
will (i) result in any payment becoming due to any current or
former director or
current or former employee of Parent or any of its Subsidiaries
under any Parent
Benefit Plan or otherwise, (ii) increase any benefits otherwise
payable under
any Parent Benefit Plan, (iii) result in any acceleration of the
time of payment
or vesting of any such benefits, or (iv) trigger any obligation
to fund any
Parent Benefit Plan. For purposes of this Section, the term
"payment" shall
include any payment, acceleration, forgiveness of indebtedness,
vesting,
distribution, increase in benefits or obligation to fund
benefits.
(g) Except as would not, individually or in the aggregate,
have
a Parent Material Adverse Effect, no plan currently or in the
past six years
maintained, sponsored, contributed to or required to be
contributed to by
Parent, any of its Subsidiaries, or any of their respective
current or former
ERISA Affiliates is or in the past six years was (i) a
"multiemployer plan" as
defined in Section 3(37) of ERISA, (ii) a plan described in
Section 413 of the
Code, (iii) a plan subject to Title IV of ERISA, (iv) a plan
subject to the
minimum funding standards of Section 412 of the Code or Section
302 of ERISA, or
(v) a plan maintained in connection with any trust described in
Section
501(c)(9) of the Code.
(h) Except as would not, individually or in the aggregate,
have
a Parent Material Adverse Effect, neither Parent nor any of its
Subsidiaries is
subject to any liability or penalty under Sections 4975 through
4980B of the
Code or Title I of ERISA. Parent and its Subsidiaries have
complied with all
applicable health care continuation requirements in Section
4980B of the Code
and in ERISA. No "Prohibited Transaction," within the meaning of
Section 4975 of
the Code or Sections 406 or 407 of ERISA and not otherwise
exempt under Section
408 of ERISA, has occurred with respect to any Parent Benefit
Plan.
6.15. Intellectual Property. (a) Each of Parent and its
Subsidiaries owns, is licensed or otherwise possesses, the
legally enforceable
right to use, all Intellectual Property used in the operation of
the business of
Parent and its Subsidiaries as presently conducted or necessary
for the
operation of the business of Parent and its Subsidiaries as
presently proposed
to be conducted. Each item of Intellectual Property owned by or
used in the
operation of the business at any time during the respective
periods covered by
the financial statements included in the Parent Reports filed
with the SEC on or
prior to the date of this Agreement (i) will be owned or
available for use by
Parent or its Subsidiaries on identical terms and conditions
immediately
following the Effective Time, and (ii) is not subject to any
Lien. Each of
Parent and its Subsidiaries has taken reasonable measures to
protect the
proprietary nature of each item of its Intellectual Property and
to maintain in
confidence all trade secrets and confidential information that
it owns or uses.
To the knowledge of Parent, no other Person has any rights to
any of the
Intellectual Property owned by Parent or any of its Subsidiaries
that would have
a Parent Material Adverse Effect and to the knowledge of Parent
no other Person
is infringing, violating or misappropriating any of the
Intellectual Property
that Parent or any of its Subsidiaries owns that would have a
Parent Material
Adverse Effect.
(b) To the knowledge of the Parent, none of the activities
or
businesses conducted by Parent or any of its Subsidiaries
infringes, violates or
constitutes a misappropriation of (or in the past infringed,
violated or
constituted a misappropriation of) any Intellectual Property
rights of any other
Person in any material manner. Neither Parent
35
nor any of its Subsidiaries has received any complaint, claim or
written notice
alleging any such infringement, violation or misappropriation
that would have a
Parent Material Adverse Effect, and to the knowledge of Parent,
there is no
reasonable basis for any such complaint, claim or notice.
(c) Section 6.15(c) of the Parent Disclosure Schedule
identifies
each (i) registration for a patent, a Trademark and a registered
copyright that
has been issued to Parent or any of its Subsidiaries, (ii)
pending application
for a patent, a Trademark or a copyright registration that has
been filed in the
name of Parent or any of its Subsidiaries, (iii) written license
or other
agreement pursuant to which Parent or any of its Subsidiaries
has granted any
rights to any third party with respect to any of its
Intellectual Property and
(iv) all Web Sites owned by Parent. Parent has made available to
the Company
correct and complete copies of all such patents, Trademarks,
registered
copyrights, patent applications, applications for Trademarks and
copyright
registrations, and written licenses and agreements (as amended
to date) listed
in Section 6.15(c) of the Parent Disclosure Schedule, and has
specifically
identified and made available to the Company correct and
complete copies of all
other written documentation, if any, evidencing ownership of,
and any claims or
disputes relating to, each such item. Other than those listed in
Section 6.15(c)
of the Parent Disclosure Schedule, there are no agreements,
arrangements or
understandings (oral or otherwise) pursuant to which Parent or
any of its
Subsidiaries has granted any rights to any third party with
respect to any of
its Intellectual Property.
(d) With respect to each item of Intellectual Property that
Parent or any of its Subsidiaries owns, in the case of Section
6.16(d)(ii)
below, or has exclusively licensed from another Person:
(i) subject to such rights as have been granted by
Parent or such Subsidiary under license agreements entered into
in the
ordinary course of business, Parent or such Subsidiary possesses
all
right, title and interest in and to such item;
(ii) the license, sublicense or other agreement if
any with respect to such item is legal, valid and binding, and
enforceable
by Parent or any of its Subsidiaries party thereto and in full
force and
effect and, upon consummation of the Merger, shall continue in
full force
and effect without penalty, acceleration, termination or other
adverse
consequence. Neither Parent nor any of its Subsidiaries nor, to
the
knowledge of Parent, any other party, is in breach of or in
default under
any such license, sublicense or other agreement covering such
item and no
event, act, occurrence or condition has occurred which, with the
giving of
notice or the lapse of time or the happening or any other event
or
condition would become a material default or event of default
under any
such license, sublicense or other agreement covering such
item;
(iii) such item is not subject to any outstanding
judgment, order, decree, stipulation or injunction;
(iv) neither Parent nor any of its Subsidiaries has
agreed to indemnify any Person from or against any
infringement,
misappropriation or other conflict with respect to such item;
and
(v) the rights in such item are valid and
enforceable.
36
(e) Section 6.15(e) of the Parent Disclosure Schedule
identifies
each written license, sublicense or other agreement granting
rights to Parent or
any of its Subsidiaries in respect to any Intellectual Property
(other than off
the-shelf commercially available software and documentation with
a purchase
price or license fee of less than $5,000) owned by a party other
than Parent or
any of its Subsidiaries used in the operations of Parent or any
of its
Subsidiaries at any time during the period covered by the
financial statements
included in the Parent Reports filed with the SEC on or prior to
the date of
this Agreement, or that Parent or any of its Subsidiaries has
currently licensed
or arranged to be used in the future for the use or benefit of
Parent or any of
its Subsidiaries. Other than those listed in Section 6.15(e) of
the Parent
Disclosure Schedule, there are no agreements, arrangements or
understandings
(oral or otherwise) pursuant to which Parent or any of its
Subsidiaries uses in
its operations any Intellectual Property owned by a party other
than Parent or
its Subsidiaries.
(f) Parent has provided to the Company correct and complete
copies of all written licenses, sublicenses or other agreements
(as amended to
date) related to the items listed in Section 6.15(c) of the
Parent Disclosure
Schedule. With respect to each such item:
(i) the license, sublicense or other agreement
covering such item is legal, valid and binding, and enforceable
by Parent
or any of its Subsidiaries party thereto and in full force and
effect;
(ii) such license, sublicense or other agreement
will continue to be legal, valid, binding, enforceable and in
full force
and effect immediately following the Effective Time in
accordance with the
terms thereof as in effect prior to the Effective Time;
(iii) Parent or any of its Subsidiaries party to
such license, sublicense or other agreement and, to the best
knowledge of
Parent, any other party to such license, sublicense or other
agreement are
not in breach or default, and, to the best knowledge of Parent,
no event
has occurred which with notice or lapse of time would constitute
a breach
or default or permit termination, modification or acceleration
thereunder;
(iv) to the best knowledge of Parent, the
underlying item is not subject to any outstanding judgment,
order, decree,
stipulation or injunction;
(v) neither Parent nor any of its Subsidiaries has
agreed to indemnify any Person from or against any
infringement,
misappropriation or other conflict with respect to such item;
and
(vi) no license or other fee is payable upon any
transfer or assignment of such license, sublicense or other
agreement.
(g) Parent and its Subsidiaries are, have been, and
following
the consummation of the transactions contemplated hereby will
remain, in
compliance with all Laws and Parent's privacy policies and
security policies.
Parent and its Subsidiaries have taken reasonable steps to
protect its systems
from harmful code (i.e., code that contains any "back door,"
"drop dead device,"
"time bomb," "Trojan horse," "virus," or "worm" (as such terms
are commonly
understood in the software industry) and from reasonably
anticipated security
threats (including implementation of organizational and
technological
protections, including firewalls). To the knowledge of Parent,
no breach or
violation of any Parent
37
security policy has occurred or, to the knowledge of Parent, is
threatened. To
the knowledge of Parent, there has been no unauthorized or
illegal use of or
access to any of the data or information in any of such Parent
or Subsidiary
databases.
(h) Section 6.15(h) of the Parent Disclosure Schedule
contains
each Parent privacy policy presently in effect. To the knowledge
of Parent.
neither the execution, delivery or performance of this Agreement
or any of the
other agreements referred to in this Agreement nor the
consummation of any of
the transactions contemplated by this Agreement or any such
other agreements,
nor Company's or its Subsidiaries' possession or use of the
customer data or any
data or information in Parent databases, will result in any
violation of any
Parent privacy policy or any applicable Law.
6.16. Taxes.
(a) Each of Parent and its Subsidiaries has filed all Tax
Returns that they were required to file under applicable laws
and regulations.
All such Tax Returns were correct and complete in all material
respects and were
prepared in substantial compliance with all applicable laws and
regulations. All
material Taxes due and owing by Parent or any of its
Subsidiaries (whether or
not shown on any Tax Return) have been paid. Neither Parent nor
any of its
Subsidiaries currently is the beneficiary of any extension of
time within which
to file any Tax Return. No claim has ever been made by an
authority in a
jurisdiction where Parent or any of its Subsidiaries does not
file Tax Returns
that Parent or any of its Subsidiaries is or may be subject to
taxation by that
jurisdiction. There are no Liens for Taxes (other than Taxes not
yet due and
payable) upon any of the assets of Parent or any of its
Subsidiaries.
(b) Each of Parent and its Subsidiaries have withheld and
paid
in a timely manner (or collected and paid) all Taxes required to
have been
withheld and paid (or collected and paid) in connection with any
amounts paid or
owing to or by any employee, independent contractor, creditor,
stockholder,
customer or other third party.
(c) Parent does not reasonably expect any authority to
assess
any additional Taxes for any period for which Tax Returns have
been filed or
otherwise assert that any additional Taxes are owing. No
foreign, federal,
state, or local tax audits or administrative or judicial Tax
proceedings are
pending or being conducted with respect to Parent or any of its
Subsidiaries.
Neither Parent nor any of its Subsidiaries has received from any
foreign,
federal, state, or local taxing authority (including
jurisdictions where Parent
or its Subsidiaries have not filed Tax Returns) any (i) a notice
indicating an
intent to open an audit or other review, (ii) request for
information related to
Tax matters, or (iii) notice of deficiency or proposed
adjustment for any amount
of Tax proposed, asserted, or assessed by any taxing authority
against Parent or
any of its Subsidiaries. Section 6.16(c) of the Parent
Disclosure Schedule lists
all federal, state, local, and foreign income Tax Returns filed
with respect to
any of Parent or its Subsidiaries for taxable periods ended on
or after June 30,
2003 indicates those Tax Returns that have been audited, and
indicates those Tax
Returns that currently are the subject of audit. Parent and its
Subsidiaries
have delivered to the Company correct and complete copies of all
federal income
Tax Returns, examination reports, and statements of deficiencies
assessed
against or agreed to by Parent or any of its Subsidiaries filed
or received
since June 30, 2003.
38
(d) Neither Parent nor any of its Subsidiaries has waived
any
statute of limitations in respect of Taxes or agreed to any
extension of time
with respect to a Tax assessment or deficiency.
(e) Other than as set forth in Section 6.16(e) of the Parent
Disclosure Schedule, neither Parent nor any of its Subsidiaries
is a party to
any agreement, contract, arrangement or plan that has resulted
or could
reasonably be expected to result, separately or in the
aggregate, in the payment
of (i) any "excess parachute payment" within the meaning of Code
ss. 280G (or
any corresponding provision of state, local or foreign Tax law)
and (ii) any
amount that will not be fully deductible as a result of Code ss.
162(m) (or any
corresponding provision of state, local or foreign Tax law).
Neither Parent nor
any of its Subsidiaries has been a United States real property
holding
corporation within the meaning of Code ss. 897(c)(2) during the
applicable
period specified in Code ss. 897(c)(1)(A)(ii). Each of Parent
and its
Subsidiaries have disclosed on their federal income Tax Returns
all positions
taken therein that could give rise to a substantial
understatement of federal
income Tax within the meaning of Code ss. 6662. Neither Parent
nor any of its
Subsidiaries has engaged in any reportable transaction within
the meaning of
Treas. Reg. ss. 1.6011-4(b). Neither Parent nor any of its
Subsidiaries is a
party to or bound by any Tax allocation or sharing agreement,
Tax indemnity
agreement or other similar agreement. Neither Parent nor any of
its Subsidiaries
(A) has been a member of an Affiliated Group filing a
consolidated federal
income Tax Return (other than a group the common parent of which
was Parent) or
(B) has any Liability for the Taxes of any Person (other than
Parent or any of
its Subsidiaries) under Treas. Reg. ss. 1.1502-6 (or any similar
provision of
state, local, or foreign law), as a transferee or successor, by
contract, or
otherwise.
(f) Section 6.16(f) of the Parent Disclosure Schedule sets
forth
the following information with respect to each of Parent and its
Subsidiaries
(or, in the case of clause (i) below, with respect to each of
Parent's
Subsidiaries) as of the most recent practicable date (as well as
on an estimated
pro forma basis as of the Closing giving basis of Parent or its
Subsidiary in
its assets: (i) the basis of the stockholder(s) of each Parent
Subsidiary in its
stock (or the amount of any excess loss account); (ii) the
amount of any net
operating loss, net capital loss, unused investment or other
credit, unused
foreign tax, or excess charitable contribution allocable to
Parent or its
Subsidiary; and (iii) the amount of any deferred gain or loss
allocable to
Parent or its Subsidiary arising out of any intercompany
transaction.
(g) The unpaid Taxes, whether or not due, of Parent and its
Subsidiaries (i) did not, as of their respective most recent
fiscal month end,
exceed the reserve for Tax liability (rather than any reserve
for deferred Taxes
established to reflect timing differences between book and Tax
income) set forth
on the face of Parent's audited consolidated balance sheet as of
June 30, 2005
(the "Parent Balance Sheet") (rather than in any notes thereto)
and (ii) do not
exceed that reserve as adjusted for the passage of time through
the Closing Date
in accordance with the past custom and practice of Parent and
its Subsidiaries
in filing their Tax Returns. Since the date of the Parent
Balance Sheet, neither
Parent nor any of its Subsidiaries has incurred any liability
for Taxes arising
from extraordinary gains or losses, as that term is used in
GAAP, outside the
Ordinary Course of Business consistent with past custom and
practice. As of the
Closing Date, the Parent Balance Sheet reflects an adequate
accrual for (i)
Taxes incurred on or before the Closing Date, (ii) Taxes for
periods that ended
on or before the Closing Date, and (iii) Taxes for periods
commencing prior to
the Closing Date and ending after the Closing Date, but only to
the extent the
Taxes were allocable to the periods on or before the Closing
Date.
39
(h) Neither Parent nor any of its Subsidiaries will be
required
to include any item of income in, or exclude any item of
deduction from, taxable
income for any taxable period (or portion thereof) ending after
the Closing Date
as result of any:
(i) change in method of accounting for a taxable
period ending on or prior to the Closing Date;
(ii) "closing agreement" as described in Code ss.
7121 (or any corresponding or similar provision of state, local
or foreign
income Tax law) executed on or prior to the Closing Date;
(iii) intercompany transaction or excess loss
account described in Treasury Regulations under Code ss. 1502
(or any
corresponding or similar provision of state, local or foreign
income Tax
law);
(iv) installment sale or open transaction
disposition made on or prior to the Closing Date; or
(v) prepaid amount received on or prior to the
Closing Date.
(i) Neither Parent nor any of its Subsidiaries has
distributed
stock of another Person, or has had its stock distributed by
another Person, in
a transaction that was purported or intended to be governed in
whole or in part
by Code ss. 355 or Code ss. 361.
(j) It is the present intention of Parent to "continue" at
least
one "significant historic business line" of the Company and/or
one of the
Subsidiaries or "use" at least a "significant portion" of the
Company's and/or
Subsidiaries' "historic business assets" in a business, in each
case as such
terms are used within the meaning of Treasury Regulation ss.
1.368-1.
6.17. Suppliers and Relationships. Section 6.17 of the
Parent
Disclosure Schedule lists the ten largest suppliers of Parent
and its
Subsidiaries (based on dollar value of purchases for the year
ended June 30,
2006) (the "Parent Major Suppliers"). Since March 31, 2006,
there has not been,
and Parent has not received in writing any notice of or
threatening any material
change in relations with any of the Parent Major Suppliers the
result of which
would be material to Parent and its Subsidiaries, taken as a
whole.
6.18. Title to Property. (a) Section 6.18 of the Parent
Disclosure
Schedule sets forth as of the date hereof a list of all real
property currently
leased or owned by Parent and any of its Subsidiaries, and with
respect to
leased real property, the name of the lessor, the date of the
lease, the date of
expiration of the lease and, with respect to any current lease,
the current
aggregate annual rental and/or other fees payable under any such
lease (the
"Parent Leases"). All the Parent Leases are in full force and
effect without
penalty, acceleration, termination, repurchase right or other
adverse
consequence on account of the execution, delivery and
performance of this
Agreement by Parent nor the consummation by Parent of the
transactions
contemplated hereby. Neither Parent nor any of its Subsidiaries
nor, to the
knowledge of Parent as of the date hereof, any other party, is
in breach of or
in default under any such Parent Lease.
(b) Parent and each of its Subsidiaries have good and valid
title to, or, in the case of leased properties and
40
assets, valid leasehold interests in, all of its properties and
assets, real,
personal and mixed, used or held for use in its business, free
and clear of all
Liens except for (i) Liens for Taxes not yet due and payable and
(ii) statutory
Liens which arise in the Ordinary Course of Business, are not
material in amount
and do not materially impair Parent's or its Subsidiaries
ownership or use of
such properties and assets.
6.19. Insurance. Section 6.19 of the Parent Disclosure
Schedule
lists all insurance policies covering the assets, business,
equipment,
properties, operations, employees, directors and officers, and
product warranty
and liability claims that Parent maintains for itself and its
Subsidiaries as of
the date hereof. All such insurance policies are in full force
and effect, all
premiums due and payable thereon have been paid, and Parent and
its Subsidiaries
are otherwise in compliance in all material respects with the
terms and
conditions of such policies.
6.20. Takeover Statutes; Charter Provisions. The Board of
Directors of Parent has approved the Merger and this Agreement,
and such
approval is sufficient to render inapplicable to the Merger and
this Agreement
the limitations on business combinations contained in any
restrictive provision
of any "fair price," "moratorium," "control share acquisition,"
"interested
stockholder" or other similar anti-takeover statute or
regulation (including
Section 912 of the New York Business Corporation Law, as
amended, to the extent
applicable) or restrictive provision of any applicable
anti-takeover provision
in Parent's Restated Certificate of Incorporation or By-laws. No
other state
takeover statute or similar statute or regulation or other
comparable takeover
provision of Parent's Restated Certificate of Incorporation or
By-Laws applies
to the Merger, this Agreement or any of the transactions
contemplated by this
Agreement.
6.21. Brokers. No broker, finder or investment banker, other
than
Chanin Capital L.L.C., is entitled to any brokerage, finders' or
other fee or
commission in connection with the transactions contemplated
hereby based upon
arrangements made by or on behalf of Parent. Parent has
heretofore furnished the
Company with a complete and correct copy of all agreements
between Parent and
Chanin Capital L.L.C. pursuant to which such firm would be
entitled to any fee
or commission relating to the transactions contemplated
hereby.
6.22. Merger Sub. Merger Sub has been formed solely for the
purpose of engaging in the transactions contemplated hereby and
prior to the
Effective Time will have engaged in no other business activities
and will have
incurred no liabilities or obligations other than as
contemplated herein.
6.23. Environmental Matters. Other than as set forth in
Section
6.23 of the Parent Disclosure Schedule:
(a) The operations of each of the Parent Facilities by Parent
or
any of its Subsidiaries are, and at all times have been, in full
compliance
with, and have not been and are not in violation of, any
Environmental Law,
except where the failure to so comply or such violation would
not, individually
or in the aggregate, have a Parent Material Adverse Effect.
Neither Parent nor
any of its Subsidiaries has any knowledge, nor has any of them
or any other
Person for whose conduct they are responsible received, any
actual or threatened
Order, notice or other communication from (i) any Governmental
Entity or private
citizen acting in the public interest or (ii) the current or
prior owner or
operator of any Parent Facilities, of any actual violation or
failure to comply
with any Environmental Law, or of any actual obligation to
undertake or bear the
cost of any Environmental, Health and Safety
41
Liabilities with respect to any Parent Facilities. To the
knowledge of Parent,
there has been no Release or threat of Release of any Hazardous
Substances at or
from any Parent Facilities, and no Hazardous Activity has been
conducted or is
being conducted by Parent or any of its Subsidiaries with
respect to any Parent
Facilities.
(b) There are no pending or to the knowledge of Parent,
threatened claims, encumbrances or other restrictions of any
nature resulting
from any Environmental, Health and Safety Liabilities or arising
under or
pursuant to any Environmental Law with respect to or affecting
any Parent
Facilities, nor does either Parent or any of its Subsidiaries or
any other
Person for whose conduct either Parent or any of its
Subsidiaries is responsible
have any Environmental, Health and Safety Liabilities with
respect to any Parent
Facilities, except for such claims, encumbrances, restrictions
or liabilities
that would not, individually or in the aggregate, have a Parent
Material Adverse
Effect.
(c) Parent has made available to the Company true and
complete
copies and results of any reports, studies, analyses, tests, or
monitoring
possessed or initiated by Parent pertaining to Hazardous
Substances or Hazardous
Activities in, on, or under the Parent Facilities, or concerning
compliance, by
Parent or any other Person for whose conduct it is or may be
held responsible,
with Environmental Laws other than reports, studies, notices,
analyses, tests or
monitoring information delivered to Parent in connection with
its operation of
the Parent Facilities in the Ordinary Course of Business.
(d) As used in this Agreement, the term:
"Parent Facilities" means those manufacturing facilities and
corporate offices listed in Section 6.18 of the Parent
Disclosure Schedule.
The terms "Parent" and "Subsidiary" in this Section 6.23
shall
include any entity which is, in whole or in part, a predecessor
of Parent or any
Subsidiary.
6.24. Projections. The financial projections relating to
Parent
and its Subsidiaries previously delivered to the Company were
prepared in good
faith and are based upon reasonable assumptions, and Parent is
not aware of any
fact or set of circumstances that would lead it to believe that
such projections
are incorrect or misleading in any material respect.
6.25. Plant and Equipment. The plants, structures and
equipment
owned or used by Parent and its Subsidiaries are structurally
sound in all
material respects and are in reasonably good operating condition
and repair and
are adequate in all material respects for the uses to which they
are being put.
None of such plants, structures or equipment are in need of
maintenance or
repairs except for ordinary, routine maintenance and repairs
which are not
material in nature or cost.
6.26. Parent IT Systems.
(a) For purposes of this Agreement, "Parent IT Systems"
means
the information and communications technologies used by Parent
and its
Subsidiaries, including hardware, proprietary and third party
software,
networks, peripherals and associated documentation.
(b) The Parent IT Systems are either owned by, or properly
licensed or leased to, Parent or any of its Subsidiaries. The
relevant Company
or Subsidiary is not in
42
default under the licenses or leases and there are no grounds on
which they
might be terminated. The Parent IT Systems have not failed to
any material
extent and the data which they process has not been corrupted.
To the knowledge
of Parent, the Parent IT Systems do not contain viruses, bugs or
things which
distort their proper functioning, permit unauthorized access or
disable them
without the consent of the user, or that would have a Parent
Material Adverse
Effect. The Company and its Subsidiaries have, in accordance
with industry
practice, taken precautions to preserve the availability,
security and integrity
of the Parent IT Systems and the data and information stored on
the Parent IT
Systems.
6.27. Related Party Transactions. Except as set forth in
Section
6.27 of the Parent Disclosure Schedule or in the Parent Reports,
no officer,
director, stockholder or affiliate of Parent, directly or
indirectly, is, or
during any of the periods covered by the Parent Reports and any
other financial
statements required to be delivered hereunder has been a party
to any
transaction, Contract or other arrangement with Parent or any of
its
Subsidiaries or otherwise has any interest in Parent's or its
Subsidiaries'
assets.
ARTICLE VII
COVENANTS
7.1. Conduct of Businesses Prior to the Effective Time.
During
the period from the date of this Agreement to the earlier of the
Effective Time
or the termination of this Agreement pursuant to ARTICLE IX,
each of Parent and
the Company shall (a) conduct its business in all material
respects in the
ordinary course consistent with past practice, and (b) use best
reasonable
efforts to maintain and preserve intact its business
organization and
advantageous business relationships and retain the services of
its officers and
key employees.
7.2. Parent Forbearances. During the period from the date of
this
Agreement to the earlier of the Effective Time or the
termination of this
Agreement pursuant to ARTICLE IX, except as set forth in Section
7.2 of the
Parent Disclosure Schedule and except as required by Law or as
expressly
contemplated or permitted by this Agreement, Parent will not,
and will not
permit any of its Subsidiaries to, without the prior written
consent of the
Company:
(a) incur any indebtedness for borrowed money (other than
pursuant to its existing revolving credit facility), assume,
guarantee, endorse
or otherwise as an accommodation become responsible for the
obligations of any
other individual, corporation or other entity, or make any loan
or advance
(other than employee advances made in the Ordinary Course of
Business);
(b) adjust, split, combine or reclassify any of its capital
stock;
(c) make, declare or pay any dividend, or make any other
distribution on, or directly or indirectly redeem, purchase or
otherwise
acquire, any shares of its capital stock or any securities or
obligations
convertible (whether currently convertible or convertible only
after the passage
of time or the occurrence of certain events) into or
exchangeable for any shares
of its capital stock (except dividends paid by any of the wholly
owned
Subsidiaries of Parent to Parent or to any of its wholly owned
Subsidiaries);
(d) grant any right to acquire any shares of its capital
stock
or any stock appreciation right, other than (i) grants in
connection with
regular stock option grants or
43
other stock-based awards under a Parent Stock Plan by Parent to
its or its
Subsidiaries' non-executive employees, grants to newly-hired
non-executive
employees of Parent and its Subsidiaries or grants in connection
with promotions
of non-executive employees of Parent and its Subsidiaries, in
each case
consistent with past practice, and (ii) pursuant to employment
agreements with
Parent as in effect on the date hereof;
(e) issue any additional shares of capital stock or any
securities convertible into or exchangeable for, or any warrants
or options to
acquire (except as permitted by this Section 7.2(e)), any such
shares, except
(i) pursuant to the exercise of Parent Stock Options outstanding
as of the date
of this Agreement or issued thereafter in compliance with this
Agreement, (ii)
upon the conversion of convertible securities outstanding as of
the date of this
Agreement, or (iii) issuances of Parent Common Stock to
non-employee members of
Parent's Board of Directors under Parent's Key Employee
Non-Qualified Stock
Option Plan;
(f) other than in the Ordinary Course of Business or as
required
to comply with applicable Law or a Parent Benefit Plan as in
effect on the date
hereof or collective bargaining or similar labor union or other
agreement the
existence of which does not breach this Agreement, (i) increase
the wages,
salaries, compensation, bonus, pension or other benefits or
perquisites payable
to any officer or employee, (ii) grant or increase any
severance, change in
control, termination or similar compensation or benefits payable
to any officer
or employee, (iii) pay any bonus, (iv) adopt, enter into,
terminate or amend in
any material respect any Parent Benefit Plan or any collective
bargaining or
similar labor union agreement, other than the entry into of
employment
agreements with newly hired non-executive employees, (v)
accelerate the time of
payment or vesting of, or the lapsing of restrictions with
respect to, or fund
or otherwise secure the payment of, any compensation or benefits
under any
Parent Benefit Plan; provided, however that in no event may any
such
acceleration of vesting, lapse of restrictions or funding be as
a result of the
execution and delivery of this Agreement or the consummation of
the transactions
contemplated by this Agreement unless required to comply with
applicable Law;
(g) sell, transfer, license, lease, mortgage, encumber or
otherwise dispose of any of its properties or assets that are
material to Parent
and its Subsidiaries, taken as a whole, in any transaction or
series of
transactions, to any Person, or cancel, release or assign to any
such Person any
indebtedness or any claims held by Parent or any of its
Subsidiaries, in each
case that is material to Parent and its Subsidiaries, taken as a
whole, other
than (i) in the Ordinary Course of Business or (ii) Liens
pursuant to its bank
credit facilities;
(h) enter into any new line of business;
(i) make any acquisition or investment either by purchase of
securities, mergers, consolidation, contributions to capital,
property
transfers, or by purchase of any property or assets of any other
Person, or make
any capital expenditures, in each case other than (i)
investments in wholly
owned Subsidiaries, (ii) acquisitions of assets used in the
operations of Parent
and its Subsidiaries in the Ordinary Course of Business, or
(iii) acquisitions
or investments not in excess of the amounts set forth in Section
7.2(i) of the
Parent Disclosure Schedule;
(j) amend its articles of incorporation or by-laws or
similar
organizational documents;
44
(k) settle any material claim, action or proceeding, except
in
the Ordinary Course of Business;
(l) take any action that is intended or would be reasonably
likely to result in any of the conditions to the Merger set
forth in ARTICLE
VIII not being satisfied, except as may be required by
applicable Law;
(m) implement or adopt any material change in its tax
accounting
or financial accounting policies, practices or methods, other
than as may be
required by applicable Law, GAAP or regulatory guidelines;
(n) amend in any material respect or waive any of its
material
rights under any Parent Material Contract, terminate or fail to
renew any Parent
Material Contract or enter into any contract or binding
agreement that would be
a Parent Material Contract;
(o) adopt a plan or agreement of complete or partial
liquidation, dissolution, winding up, merger, consolidation,
amalgamation,
restructuring, recapitalization or other material reorganization
(other than a
merger or consolidation between wholly owned Subsidiaries);
(p) write down the value of any inventory or write-off as
uncollectible any notes or accounts receivable;
(q) dispose of or permit to lapse any rights to any
Intellectual
Property owned or licensed by Parent or any of its Subsidiaries
which is
material to Parent and its Subsidiaries, taken as a whole;
(r) permit any insurance policy naming Parent or any of its
Subsidiaries as beneficiary to be cancelled or terminated;
(s) agree or commit to take any of the actions prohibited by
this Section 7.2; or
(t) take any action reasonably likely to result in the
Merger
not being treated as a tax-free reorganization pursuant to Code
ss.354.
7.3. Company Forbearances. During the period from the date
of
this Agreement to the earlier of the Effective Time or the
termination of this
Agreement pursuant to Article IX, except as set forth in Section
7.3 of the
Company Disclosure Schedule and except as required by Law or as
expressly
contemplated or permitted by this Agreement, the Company will
not, and will not
permit any of its Subsidiaries to, without the prior written
consent of Parent:
(a) incur any indebtedness for borrowed money (other than
pursuant to its existing revolving credit facility), assume,
guarantee, endorse
or otherwise as an accommodation become responsible for the
obligations of any
other individual, corporation or other entity, or make any loan
or advance
(other than employee advances made in the Ordinary Course of
Business);
(b) adjust, split, combine or reclassify any of its capital
stock;
45
(c) make, declare or pay any dividend, or make any other
distribution on, or directly or indirectly redeem, purchase or
otherwise
acquire, any shares of its capital stock or any securities or
obligations
convertible (whether currently convertible or convertible only
after the passage
of time or the occurrence of certain events) into or
exchangeable for any shares
of its capital stock (except dividends paid by any of the wholly
owned
Subsidiaries of the Company to the Company or to any of its
wholly owned
Subsidiaries);
(d) grant any right to acquire any shares of its capital
stock
or any stock appreciation right, other than (i) grants in
connection with
regular stock option grants or other stock-based awards under a
Company Stock
Plan by the Company to its or its Subsidiaries' non-executive
employees, grants
to newly-hired non-executive employees of the Company and its
Subsidiaries or
grants in connection with promotions of non-executive employees
of the Company
and its Subsidiaries, in each case consistent with past
practice, and (ii)
pursuant to employment agreements with Parent as in effect on
the date hereof;
(e) issue any additional shares of capital stock or any
securities convertible into or exchangeable for, or any warrants
or options to
acquire (except as permitted by this Section 7.3(e)), any such
shares, except
(i) pursuant to the exercise of Company Stock Options
outstanding as of the date
of this Agreement or issued thereafter in compliance with this
Agreement, or
(ii) upon the conversion of convertible securities outstanding
as of the date of
this Agreement;
(f) other than in the Ordinary Course of Business or as
required
to comply with applicable Law or a Company Benefit Plan as in
effect on the date
hereof or collective bargaining or similar labor union or other
agreement the
existence of which does not breach this Agreement, (i) increase
the wages,
salaries, compensation, bonus, pension or other benefits or
perquisites payable
to any officer or employee, (ii) grant or increase any
severance, change in
control, termination or similar compensation or benefits payable
to any officer
or employee, (iii) pay any bonus, (iv) adopt, enter into,
terminate or amend in
any material respect any Company Benefit Plan or any collective
bargaining or
similar labor union agreement, other than the entry into of
employment
agreements with newly hired non-executive employees, (v)
accelerate the time of
payment or vesting of, or the lapsing of restrictions with
respect to, or fund
or otherwise secure the payment of, any compensation or benefits
under any
Company Benefit Plan; provided, however that in no event may any
such
acceleration of vesting, lapse of restrictions or funding be as
a result of the
execution and delivery of this Agreement or the consummation of
the transactions
contemplated by this Agreement unless required to comply with
applicable Law;
(g) sell, transfer, license, lease, mortgage, encumber or
otherwise dispose of any of its properties or assets that are
material to the
Company and its Subsidiaries, taken as a whole, in any
transaction or series of
transactions, to any Person, or cancel, release or assign to any
such Person any
indebtedness or any claims held by the Company or any of its
Subsidiaries, in
each case that is material to the Company and its Subsidiaries,
taken as a
whole, other than (i) in the Ordinary Course of Business or (ii)
Liens pursuant
to its bank credit facilities;
(h) enter into any new line of business;
(i) make any acquisition or investment either by purchase of
securities, mergers, consolidation, contributions to capital,
property
transfers, or by purchase of any
46
property or assets of any other Person, or make any capital
expenditures, in
each case other than (i) investments in wholly owned
Subsidiaries, (ii)
acquisitions of assets used in the operations of the Company and
its
Subsidiaries in the Ordinary Course of Business, or (iii)
acquisitions or
investments not in excess of the amounts set forth in Section
7.3(i) of the
Company Disclosure Schedule;
(j) amend its articles of incorporation or by-laws or
similar
organizational documents;
(k) settle any material claim, action or proceeding, except
in
the Ordinary Course of Business;
(l) take any action that is intended or would be reasonably
likely to result in any of the conditions to the Merger set
forth in ARTICLE
VIII not being satisfied, except as may be required by
applicable Law;
(m) implement or adopt any material change in its tax
accounting
or financial accounting policies, practices or methods, other
than as may be
required by applicable Law, GAAP or regulatory guidelines;
(n) amend in any material respect or waive any of its
material
rights under any Company Material Contract, terminate or fail to
renew any
Company Material Contract or enter into any contract or binding
agreement that
would be a Company Material Contract;
(o) adopt a plan or agreement of complete or partial
liquidation, dissolution, winding up, merger, consolidation,
amalgamation,
restructuring, recapitalization or other reorganization (other
than a merger or
consolidation between wholly owned Subsidiaries) or otherwise
agree to any share
exchange, business combination, sale of business or similar
transaction;
(p) write down the value of any inventory or write-off as
uncollectible any notes or accounts receivable except with
respect to write
downs for store inventory from time to time in the Ordinary
Course of Business.
(q) dispose of or permit to lapse any rights to any
Intellectual
Property owned or licensed by the Company or any of its
Subsidiaries which is
material to the Company and its Subsidiaries, taken as a
whole;
(r) permit any insurance policy naming the Company or any of
its
Subsidiaries as beneficiary to be cancelled or terminated;
(s) agree or commit to take any of the actions prohibited by
this Section 7.3; or
(t) take any action reasonably likely to result in the
Merger
not being treated as a tax-free reorganization pursuant to Code
ss.354.
7.4. No Solicitation. (a) Subject to Section 7.4(b), from
the
date of this Agreement, except as may relate to any Person or
group of related
Persons from whom Parent has received, prior to the date hereof,
a written
indication of interest that the Board of Directors of Parent
(acting through the
Parent Special Committee) believes in good faith is
47
bona fide and could reasonably be expected to result in a
Superior Proposal (as
hereinafter defined) (each such Person or group, an "Excluded
Party"), until the
Effective Time or, if earlier, the termination of this Agreement
in accordance
with ARTICLE IX, Parent shall not, and shall not direct,
authorize or permit any
of its or its Subsidiaries' respective officers, directors,
employees, agents,
advisors, affiliates and other representatives (the "Parent
Representatives" ),
and shall direct and use its best reasonable efforts to cause
the Parent
Representatives not to, directly or indirectly, (i) initiate,
solicit or
encourage (including by way of providing information) the
submission of any
inquiries, proposals or offers or any other efforts or attempts
that constitute
or may reasonably be expected to lead to, any Parent Acquisition
Proposal (as
hereinafter defined) or engage in any discussions or
negotiations with respect
thereto or otherwise cooperate with or assist or participate in,
or facilitate
any such inquiries, proposals, discussions or negotiations or
(ii) accept a
Parent Acquisition Proposal or enter into any agreement or
agreement in
principle (other than an Acceptable Confidentiality Agreement
(as hereinafter
defined)) providing for or relating to a Parent Acquisition
Proposal or enter
into any agreement or agreement in principle requiring Parent to
abandon,
terminate or fail to consummate the transactions contemplated
hereby or breach
its obligations hereunder. Subject to Section 7.4(b) and except
as may relate to
an Excluded Party, Parent shall immediately cease and cause to
be terminated any
existing solicitation, encouragement, discussion or negotiation
with any Persons
conducted theretofore by Parent or any Parent Representatives
with respect to
any Parent Acquisition Proposal. Notwithstanding anything to the
contrary
contained herein, Parent (A) shall not, and shall not permit any
of the Parent
Representatives to, provide any non-public information to any
Excluded Party
without first entering into an Acceptable Confidentiality
Agreement (as
hereinafter defined) and (B) will promptly provide to the
Company any material
non-public information concerning Parent or its Subsidiaries
provided to any
Excluded Party which was not previously provided to the
Company.
(b) Notwithstanding anything to the contrary contained in
7.4(b), if at any time prior to obtaining Parent Stockholder
Approval, (i)
Parent has otherwise complied with its obligations under this
Section 7.4 and
Parent has received a written Parent Acquisition Proposal from a
third party
that the Board of Directors of Parent (acting through the
Special Committee of
the Board of Directors of Parent formed in connection with
Parent's
consideration of the Merger and the transactions contemplated
hereby (the
"Parent Special Committee" )) believes in good faith to be bona
fide, (ii) the
Board of Directors of Parent (acting through the Parent Special
Committee)
determines in good faith, after consultation with its
independent financial
advisors and outside counsel, that such Parent Acquisition
Proposal constitutes
or could reasonably be expected to result in a Superior Proposal
(as hereinafter
defined) and (iii) after consultation with its outside counsel,
the Board of
Directors of Parent (acting through the Parent Special
Committee) determines in
good faith that the failure to take such action would be
inconsistent with its
fiduciary duties under applicable Law, then Parent may (x)
furnish information
with respect to Parent and its Subsidiaries to the Person making
such Parent
Acquisition Proposal (and its representatives) and (y)
participate in
discussions or negotiations with the Person making such Parent
Acquisition
Proposal (and its representatives) regarding such Parent
Acquisition Proposal;
provided, that Parent (A) will not, and will not allow Parent
Representatives
to, disclose any non-public information to such Person without
entering into an
Acceptable Confidentiality Agreement, (B) will promptly provide
to the Company
any non-public information concerning Parent or its Subsidiaries
provided to
such other Person which was not previously provided to the
Company and (C) will
promptly notify (within one business day) the Company in the
event it receives
such Parent Acquisition Proposal, including the material terms
and conditions
thereof and shall keep the Company apprised as to the status
48
and any material developments concerning the same, including
furnishing copies
of any such written inquiries, correspondence, draft
documentation and written
summaries of any material oral inquiries or discussions. Nothing
contained in
this Section 7.4(b) shall prohibit Parent or the Board of
Directors of Parent
from taking and disclosing to Parent's stockholders a position
with respect to a
tender or exchange offer by a third party pursuant to Rules
14d-9 and 14e-2(a)
promulgated under the Exchange Act or from making any other
disclosure required
by applicable Law.
(c) Except as otherwise provided herein, neither the Board
of
Directors of Parent nor any committee thereof shall directly or
indirectly (i)
(A) withdraw (or modify in a manner adverse to the Company), or
publicly propose
to withdraw (or modify in a manner adverse to the Company), the
approval,
recommendation or declaration of advisability by such Board of
Directors or any
such committee thereof of the Merger or (B) recommend, adopt or
approve, or
propose publicly to recommend, adopt or approve, any alternative
Parent
Acquisition Proposal (any action described in this clause (i)
being referred to
as an "Adverse Recommendation Change") or (ii) approve or
recommend, or publicly
propose to approve or recommend, or allow Parent or any of its
Subsidiaries to
execute or enter into, any letter of intent, memorandum of
understanding,
agreement in principle, merger agreement, acquisition agreement,
option
agreement, joint venture agreement, partnership agreement or
other similar
agreement constituting or related to, or that is intended to
lead to, any Parent
Acquisition Proposal (other than an Acceptable Confidentiality
Agreement and, to
the extent a Parent Acquisition Proposal involves the issuance
of securities to
stockholders of Parent, other than an appropriate
confidentiality agreement that
allows Parent to receive and review confidential information
with respect to a
proposed issuer of any such securities) (a "Parent Acquisition
Agreement").
Prior to terminating this Agreement following the receipt of a
Superior
Proposal, Parent shall, and shall cause its financial and legal
advisors to
negotiate with the Company in good faith (to the extent the
Company desires to
negotiate) to make such improvements in the terms and conditions
of this
Agreement so that such Parent Acquisition Proposal ceases to
constitute a
Superior Proposal, which obligation to negotiate shall expire
five Business Days
after the date on which Parent commences to negotiate with the
Company. Parent
shall not be prohibited from terminating this Agreement and
entering into a
Permitted Alternative Agreement in accordance with Section 9.4.
Notwithstanding
anything to the contrary contained herein, Parent (acting on the
recommendation
of the Parent Special Committee) shall not be prevented from
discharging its
disclosure obligations pursuant to applicable Law or from
making, prior to
obtaining Stockholder Approval, an Adverse Recommendation
Change, if it
determines in good faith (after consultation with its
independent financial
advisors and outside counsel) that failure to take such action
would be
inconsistent with its fiduciary duties to the stockholders of
Parent under
applicable Law. For purposes of this Agreement, "Business Day"
shall mean any
day which is not a Saturday, Sunday or any other day on which
banks in New York
City, New York are authorized or required by law to close.
(d) From and after the date hereof, Parent shall provide
notice
promptly to the Company of any resolution to take any of the
actions described
in this Section 7.4 or to terminate this Agreement pursuant to
Section 9.4.
(e) As used in this Agreement, the term:
(i) "Acceptable Confidentiality Agreement" means a
confidentiality and standstill agreement that contains
provisions that are
no less favorable in the aggregate to Parent than those
contained in the
Company
49
Confidentiality Agreement (as hereinafter defined); provided,
however,
that an Acceptable Confidentiality Agreement may include
provisions that
are less favorable to Parent than those contained in the
Company
Confidentiality Agreement so long as Parent offers to amend the
Company
Confidentiality Agreement, concurrently with execution of such
Acceptable
Confidentiality Agreement, to include substantially similar
provisions for
the benefit of the Company;
(ii) "Parent Acquisition Proposal" means any
inquiry, proposal or offer from any Person or group of Persons
other than
the Company or its affiliates relating to any direct or
indirect
acquisition or purchase of a business that constitutes 15% or
more of the
net revenues, net income or assets of Parent and its
Subsidiaries, taken
as a whole, or 15% or more of the outstanding Parent Common
Stock, any
tender offer or exchange offer that if consummated would result
in any
Person or group of Persons beneficially owning 15% or more of
the
outstanding Parent Common Stock, or any merger,
reorganization,
consolidation, share exchange, business combination,
recapitalization,
liquidation, dissolution or similar transaction involving Parent
(or any
Subsidiary or Subsidiaries of Parent whose business constitutes
15% or
more of the net revenues, net income or assets of Parent and
its
Subsidiaries, taken as a whole);
(iii) "Superior Proposal" means a Parent Acquisition
Proposal (but changing the references to "15% or more" in the
definition
of "Parent Acquisition Proposal" to "50% or more") which the
Board of
Directors of Parent (acting through the Parent Special
Committee) in good
faith determines (based on such matters as it deems relevant,
including
the advice of its independent financial advisor and outside
counsel)
would, if consummated, result in a transaction that is more
favorable from
a financial point of view to the stockholders of Parent (in
their
capacities as stockholders) than the transactions contemplated
hereby.
7.5. Regulatory and Tax Matters; Best Reasonable Efforts.
(a)
Parent, with the Company's cooperation, will promptly prepare
and file with the
SEC the Proxy Statement and the Registration Statement and any
amendments or
supplements thereto. Each of Parent and the Company will use
their best
reasonable efforts to have the Registration Statement declared
effective under
the Securities Act and clear all SEC comments on the Proxy
Statement as promptly
as practicable after such filings, and Parent will thereafter
mail or deliver
the Proxy Statement and the Registration Statement to its
stockholders. Each
party will use their best reasonable efforts to cause to be
delivered to Parent
"comfort letters" from their respective independent public
accountants and will
also use its best reasonable efforts to obtain all necessary
state securities
law or "Blue Sky" permits and approvals required to carry out
the transactions
contemplated by this Agreement, and each party will furnish all
information
concerning such party and the holders of its capital stock as
may be reasonably
requested in connection with any such action. The parties will
promptly provide
copies to and consult with each other and prepare written
responses with respect
to any written comments received from the SEC with respect to
the Registration
Statement and the Proxy Statement and promptly advise the other
party of any
oral comments received from the SEC.
(b) Subject to the other provisions of this Agreement, the
parties will cooperate with each other and use their respective
best reasonable
efforts to take, or cause to be taken, all actions, to promptly
prepare and
file, or cause to be filed, all necessary documentation, to
effect all
applications, notices, petitions and filings, and to do, or
cause to be done,
all things necessary, proper or advisable to consummate the
transactions
50
contemplated by this Agreement (including the Merger) including,
without
limitation, obtaining all necessary permits, consents, approvals
and
authorizations of all third parties and Governmental Entities
and to comply with
the terms and conditions of all such permits, consents,
approvals and
authorizations. Parent and the Company will have the right to
review in advance,
and, to the extent practicable, each will consult the other on,
in each case,
subject to applicable Law relating to the exchange of
information, all the
information relating to Parent and the Company, as the case may
be, and any of
their respective Subsidiaries, that appears in any filing made
with, or written
materials submitted to, any third party or any Governmental
Entity in connection
with the transactions contemplated by this Agreement. In
exercising the
foregoing right, each of the parties will act reasonably and as
promptly as
practicable. The parties will consult with each other with
respect to obtaining
all permits, consents, approvals and authorizations of all third
parties and
Governmental Entities necessary or advisable to consummate the
transactions
contemplated by this Agreement, and each party will keep the
other apprised of
the status of matters relating to completion of the transactions
contemplated by
this Agreement.
(c) Subject to the other terms of this Agreement and the
applicable provisions of the DGCL, each party hereto agrees to
use best
reasonable efforts to cause the Effective Time to occur as soon
as practicable
after the Parent Stockholder Approval and the expiration of the
Rights Offering
subscription period.
7.6. Parent Stockholder Approval. Subject to Sections 7.4
and
9.4, the Board of Directors of Parent will use its best
reasonable efforts to
obtain from its stockholders at the special meeting of Parent's
Stockholders to
be held in connection with the transactions contemplated hereby
(the
"Stockholders Meeting") the approval, by both (a) a majority of
the outstanding
shares of Parent Common Stock and (b) a majority of the shares
of Parent Common
Stock that are held by Parent's stockholders other than Apparel
and its
affiliates and associates, of (i) the issuance of the shares of
Parent Common
Stock in the Merger, the Rights Offering and the other
transactions contemplated
thereby, and (ii) the Charter Amendment (the "Parent Stockholder
Approval").
7.7. Cooperation. (a) The Company and Parent shall use their
respective best reasonable efforts to work together in seeking
to refinance
their existing indebtedness for borrowed money in connection
with the
consummation of the transactions contemplated hereby, other than
$7,500,000 owed
under the Fursa Debt Agreement (as defined under the Company
Stockholders
Agreement), which refinancing shall require the approval of each
of the Company
and Parent, which approvals shall not be unreasonably withheld,
conditioned or
delayed. Concurrently with the consummation of the transactions
contemplated
under the Merger Agreement, the Fursa Debt Holders shall cancel
a portion of the
Fursa Debt held by them as of the Effective Time in the
aggregate amount of
$7,500,000 in exchange for receiving from Parent that number of
shares of
Parent's Series A 7.5% Convertible Preferred Stock ("Preferred
Stock") equal to
the quotient obtained by dividing 7,500,000 by the average daily
closing price
of the shares of the Parent Common Stock (on its principal
trading market), for
the twenty (20) trading days immediately preceding the record
date of the Rights
Offering, which shares of Preferred Stock shall have the rights
and preferences
set forth in Parent's Restated Certificate of Incorporation. In
the event that
as of the Effective Time there are any amounts outstanding under
the Fursa Debt
Agreement, the management fee set forth in Section 11.3 of the
Fursa Debt
Agreement and any other management or services fees related to,
or arising out,
of the Fursa Debt Agreement shall be terminated as of the
Effective Time, as set
forth in the Company Stockholders Agreement.
51
(b) The Company and Parent each shall, upon request by the
other, furnish the other with all information concerning itself,
its
Subsidiaries, directors, officers and stockholders and such
other matters as may
be reasonably necessary or advisable in connection with the
Proxy Statement, the
Registration Statement or any other statement, filing, notice or
application
made by or on behalf of Parent, the Company or any of their
respective
Subsidiaries to any third party or any Governmental Entity in
connection with
the Merger and the transactions contemplated by this
Agreement.
(c) Subject to applicable Law, the Company and Parent each
shall
keep the other apprised of the status of matters relating to
completion of the
transactions contemplated hereby, including promptly furnishing
the other with
copies of notices or other communications between Parent or the
Company, as the
case may be, or any of their respective Subsidiaries, and any
third party or any
Governmental Entity with respect to such transactions. The
Company shall give
prompt notice to Parent of any change, fact or condition, that
is reasonably
likely to result in a Company Material Adverse Effect or of any
failure of any
condition to Parent's obligations to effect the Merger, and
Parent shall give
prompt notice to the Company of any change, fact or condition,
that is
reasonably likely to result in a Parent Material Adverse Effect
or of any
failure of any condition to the Company's obligations to effect
the Merger.
Neither Parent nor the Company shall independently participate
in any meeting,
or engage in any substantive conversation, with any Governmental
Entity with
respect to the transactions contemplated hereby without giving
the other prior
notice of the meeting and, to the extent permitted by such
Governmental Entity,
the opportunity to attend and/or participate.
(d) In case at any time after the Effective Time any further
action is necessary to carry out the purposes of this Agreement,
the proper
officers and directors of each party hereto shall use best
reasonable efforts to
take all such necessary action.
7.8. Access; Confidentiality. (a) Subject to applicable Laws
relating to the sharing of information, upon reasonable notice,
each of Parent
and the Company shall, and shall cause its respective
Subsidiaries to, afford
the other party, and its officers, employees, counsel,
accountants, financial
advisors and other authorized representatives, reasonable
access, during normal
business hours throughout the period prior to the Effective Time
or earlier
termination of this Agreement, to its properties, books,
contracts and records
and, during such period, shall, and shall cause its Subsidiaries
to, furnish
promptly to the other party all information concerning its
business, properties
and personnel as may reasonably be requested.
(b) All information and materials provided pursuant to this
Agreement will be subject to (i) that certain Confidentiality
and
Non-circumvention Agreement, dated March 5, 2004, by and between
the Company and
Frederick's of Hollywood, Inc. and their respective
subsidiaries, as the
disclosing party and Parent, as the receiving party (the
"Company
Confidentiality Agreement"), and (ii) that certain
Confidentiality and
Non-circumvention Agreement, dated March 4, 2004, by and between
Parent, as the
disclosing party and the Company and Frederick's of Hollywood,
Inc. and their
respective subsidiaries, as the receiving party, (collectively,
the
"Confidentiality Agreements").
7.9. Public Announcements. The initial press release
regarding
the Merger shall be a joint press release mutually agreed upon,
and thereafter
no party shall issue any press releases or make any public
statement regarding
the Merger or any of the transactions contemplated hereby
without the prior
written consent of Parent and the
52
Company, except as may be required by applicable Law or by
obligations pursuant
to AMEX rules, in which case the parties must consult with each
other prior to
such release or public statement to the extent practicable.
7.10. Employee Matters. (a) From and after the Effective Time,
the
Parent Benefit Plans and the Company Benefit Plans in effect at
the Effective
Time will remain in effect (except as provided in Section 4.8)
with respect to
employees and former employees of Parent or the Company and
their Subsidiaries
(the "Covered Employees"), as applicable, covered by such plans
at the Effective
Time, until such time as Parent otherwise determines, subject to
applicable Law
and the terms of such plans. Prior to the Closing Date, Parent
and the Company
will cooperate in reviewing, evaluating and analyzing the Parent
Benefit Plans
and the Company Benefit Plans with a view towards developing
appropriate
employee benefits and compensation plans, programs and
arrangements ("Benefit
Plans") for Covered Employees. It is the intention of Parent and
the Company, to
the extent permitted by applicable Law, for Parent and the
Company to develop
Benefit Plans as soon as reasonably practicable after the
Effective Time which,
among other things, (i) treat similarly situated employees on a
substantially
equivalent basis, taking into account all relevant factors,
including duties,
geographic location, tenure, qualifications and abilities, and
(ii) do not
discriminate between Covered Employees who were covered by
Parent Benefit Plans,
on the one hand, and those covered by Company Benefit Plans on
the other, at the
Effective Time. It is the current intention of Parent and the
Company that, for
one year following the Effective Time, Parent will, and will
cause the Company
to, provide employee benefits under Benefit Plans to Covered
Employees that are
substantially equivalent in the aggregate to those provided to
such Persons
pursuant to the Parent Benefit Plans or Company Benefit Plans,
as applicable, in
effect at the Effective Time. Nothing herein will prohibit any
changes to the
Benefit Plans that may be (A) required to comply with applicable
Law (including
any applicable qualification requirements of Section 401(a) of
the Code) or (B)
required for Parent to provide for o
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