TABLE OF CONTENTS

 

ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions
ARTICLE II
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale of the Purchased Securities
SECTION 2.02. Purchase Price
SECTION 2.03. Closing
SECTION 2.04. Closing Deliveries by the Company
SECTION 2.05. Closing Deliveries by the Investors
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01. Organization and Qualification; Subsidiaries
SECTION 3.02. Certificate of Incorporation and By-laws
SECTION 3.03. Capitalization
SECTION 3.04. Authority
SECTION 3.05. No Conflict; Required Filings and Consents
SECTION 3.06. Permits; Compliance
SECTION 3.07. SEC Filings; Financial Statements
SECTION 3.08. Absence of Certain Changes or Events
SECTION 3.09. Absence of Litigation
SECTION 3.10. Employee Benefit Plans
SECTION 3.11. Labor Matters
SECTION 3.12. Proxy Statement

 

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SECTION 3.13. Property and Leases
SECTION 3.14. Intellectual Property
SECTION 3.15. Taxes
SECTION 3.16. Environmental Matters
SECTION 3.17. Contracts; Debt Instruments
SECTION 3.18. Related Party Transactions
SECTION 3.19. Insurance
SECTION 3.20. Controls
SECTION 3.21. Private Offering
SECTION 3.22. Vote Required
SECTION 3.23. Section 203 of the DGCL; Takeover Statute
SECTION 3.24. Fairness Opinion
SECTION 3.25. Brokers
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF INVESTORS
SECTION 4.01. Organization
SECTION 4.02. Authority
SECTION 4.03. No Conflict; Required Filings and Consents
SECTION 4.04. Investment Purpose
SECTION 4.05. Status of Shares; Limitations on Transfer and Other Restrictions
SECTION 4.06. Sophistication and Financial Condition of the Investors
SECTION 4.07. Available Funds
SECTION 4.08. Proxy Statement
SECTION 4.09. Ownership of Company Capital Stock
SECTION 4.10. Brokers

 

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ARTICLE V
CONDUCT OF BUSINESS PENDING THE CLOSING
SECTION 5.01. Conduct of Business by the Company Pending the Closing
SECTION 5.02. No Contrary Agreements or Actions
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Stockholders’ Meeting
SECTION 6.02. Proxy Statement; Other SEC Filings
SECTION 6.03. Access to Information; Confidentiality
SECTION 6.04. No Solicitation of Transactions
SECTION 6.05. Further Action; Reasonable Best Efforts; Consents; Filings
SECTION 6.06. Public Announcements
SECTION 6.07. Credit Agreement
SECTION 6.08. Board Representation
SECTION 6.09. Cooperation
SECTION 6.10. Certain Notices
SECTION 6.11. Investors’ Representative
ARTICLE VII
CONDITIONS
SECTION 7.01. Conditions to the Obligations of Each Party
SECTION 7.02. Conditions to the Obligations of the Investors
SECTION 7.03. Conditions to the Obligations of the Company
ARTICLE VIII
TERMINATION, AMENDMENT and WAIVER
SECTION 8.01. Termination

 

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SECTION 8.02. Effect of Termination
SECTION 8.03. Fees and Expenses
SECTION 8.04. Amendment
SECTION 8.05. Waiver
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Survival of Representations and Warranties; Indemnification
SECTION 9.02. Notices
SECTION 9.03. Severability
SECTION 9.04. Entire Agreement; Assignment
SECTION 9.05. Parties in Interest
SECTION 9.06. Specific Performance
SECTION 9.07. Governing Law
SECTION 9.08. Waiver of Jury Trial
SECTION 9.09. Attorneys’ Fees
SECTION 9.10. Headings
SECTION 9.11. Counterparts
EXHIBITS
Exhibit A	Investor Warrant Agreement
Exhibit B	Management Agreement
Exhibit C	Registration Rights Agreement
Exhibit D	Stockholders Agreement
Exhibit E	Form of Opinion of Counsel to Company
Exhibit F	Form of Opinion of Counsel to Investors

 

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SCHEDULE I   Investor Unit Allocation

 

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SECURITIES PURCHASE AGREEMENT, dated as of March 23, 2005 (this “ Agreement ”), between Yucaipa Corporate Initiatives Fund I, L.P., a Delaware limited partnership (“ YCI ”), Yucaipa American Alliance Fund I, L.P., a Delaware limited partnership (“ YAAF ”), Yucaipa American Alliance (Parallel) Fund I, L.P., a Delaware limited partnership (“ YAAF Parallel ” and, together with YCI and YAAF, the “ Investors ”, The Yucaipa Companies LLC, a Delaware limited liability company (“ Investors’ Representative ”) (which is a party to this Agreement solely with respect to Section 6.11 hereof), and Pathmark Stores, Inc., a Delaware corporation (the “ Company ”).

 

RECITALS

 

WHEREAS, the Company desires to sell to the Investors, and the Investors desire to purchase from the Company, pursuant to the terms and conditions set forth in this Agreement, an aggregate of 20,000,000 investment units (“ Units ”), which consist in the aggregate of (i) 20,000,000 shares (the “ Shares ”) of the common stock, par value $0.01 per share, of the Company (the “ Company Common Stock ”), (ii) 10,060,000 Series A warrants (the “ Series A Investor Warrants ”), the terms of which shall be governed by a warrant agreement between the Company and the Investors in the form attached hereto as Exhibit A (the “ Investor Warrant Agreement ”), to purchase additional shares of Company Common Stock and (iii) 15,046,350 Series B warrants (the “ Series B Investor Warrants ”; together with the Series A Investor Warrants, the “ Investor Warrants ”), the terms of which shall also be governed by the Investor Warrant Agreement, to purchase additional shares of Company Common Stock (the Units, the Shares and the Investor Warrants are collectively referred to herein as the “ Purchased Securities ”);

 

WHEREAS, each one Unit will consist of one Share, 0.503 Series A Investor Warrants, and 0.7523175 Series B Investor Warrants;

 

WHEREAS, concurrently with execution of this Agreement the Company will enter into a management agreement with the Investors’ Representative in the form attached hereto as Exhibit B (the “ Management Agreement ”), and concurrently with the closing of the sale and purchase of the Purchased Securities contemplated by this Agreement, the Company will enter into (i) the Investor Warrant Agreement, (ii) a registration rights agreement with the Investors with respect to the Shares and shares of Company Common Stock issuable upon exercise of the Investor Warrants, in the form attached hereto as Exhibit C (the “ Registration Rights Agreement ”) and (iii) a stockholders’ agreement with the Investors, in the form attached hereto as Exhibit D (the “ Stockholders Agreement ”).

 

AGREEMENT

 

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

 

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ARTICLE I

DEFINITIONS

 

SECTION 1.01 .  Definitions .

 

(a)                                   For purposes of this Agreement:

 

“ Acquisition Proposal ” means any proposal or offer from any person relating to any direct or indirect (i) sale, lease or other disposition directly or indirectly by merger, consolidation, business combination, share exchange, joint venture or otherwise of assets of the Company or any Subsidiary representing 20% or more of the consolidated assets of the Company and its Subsidiaries (other than sales of inventory in the ordinary course of business and consistent with past practice); (ii) issuance, sale or other disposition, directly or indirectly (including, without limitation, by way of merger, consolidation, business combination, share exchange, joint venture or any similar transaction), of securities (or options, rights or warrants to purchase, or securities convertible into or exchangeable for, such securities) representing 20% or more of any class of equity securities of the Company; (iii) tender offer or exchange offer as defined pursuant to the Exchange Act that, if consummated, would result in any person beneficially owning 20% or more of any class or series (or the voting power of any class or series) of equity securities of the Company or any other transaction in which any person shall acquire beneficial ownership or the right to acquire beneficial ownership, of 20% or more of any class or series (or the voting power of any class or series) of equity securities; (iv) merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving the Company, or any Subsidiary representing 20% or more of the consolidated assets of the Company and its Subsidiaries; or (v) combination of the foregoing (in each case, other than the Transactions).

 

“ affiliate ” of a specified person means a person who, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified person.

 

“ Ancillary Agreements ” means the Investor Warrant Agreement, the Registration Rights Agreement, the Management Agreement and the Stockholders Agreement.

 

“ beneficial owner ” (and related terms such as “ beneficially owned ” or “ beneficial ownership ”) has the meaning ascribed to such term under Rule 13d-3 of the Exchange Act.

 

“ By-Laws ” means the Amended and Restated By-Laws of the Company effective April 16, 2004.

 

“ business day ” means any day on which the principal offices of the SEC in Washington, D.C. are open to accept filings, or, in the case of determining a date when any payment is due, any day on which banks are not required or authorized to close in New York City.

 

“ Board ” means the Board of Directors of the Company.

 

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“ Certificate of Incorporation ” means the Amended and Restated Certificate of the Company, dated as of September 19, 2000.

 

“ Code ” means the Internal Revenue Code of 1986, as amended.

 

“ contracts ” means any agreement, contract, lease, power of attorney, note, loan, evidence of indebtedness, purchase order, letter of credit, settlement agreement, franchise agreement, undertaking, covenant not to compete, employment agreement, license agreement, instrument, obligation, commitment, understanding, policy which constitutes an executory obligation, purchase and sales order, quotation which constitutes an executory commitment, and other executory commitments to which a person is a party or to which any of the assets of such person are subject, whether oral or written, express or implied.

 

“ control ” (including the terms “ controlled by ” and “ under common control with ”) means the possession, directly or indirectly, or as trustee or executor, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, as trustee or executor, by contract, credit arrangement or otherwise; including, without limitation, the ownership, directly or indirectly, of securities having the power to elect a majority of the board of directors or similar body governing the affairs of such person.

 

“ Data Site Index ” means the index at Section 1.01(a)(1) of the Disclosure Schedule  listing those items in the Electronic Data Room.

 

“ DGCL ” means the General Corporation Law of the State of Delaware.

 

“ Electronic Data Room ” means those documents included on an Internet site as of the date hereof, which has been made available to the Investors.

 

“ Environmental Laws ” means any United States federal, state, local or foreign Laws in existence on the date hereof relating to pollution or the protection, investigation or restoration of the environment or human health due to exposure to Hazardous Substances.

 

“ Equity Interest ” means any share, capital stock, partnership, member or similar interest in any person, and any option, warrant, right or security (including, without limitation, debt securities) convertible, exchangeable or exercisable therefor.

 

“ Expenses ” includes all reasonable and documented out-of-pocket costs, fees and expenses (including, without limitation, all fees and expenses of counsel, accountants, investment bankers, experts and consultants to a party hereto and its affiliates) incurred by a party or on its behalf in connection with or related to the authorization, preparation, negotiation and execution of this Agreement and the Ancillary Agreements and the performance of the Transactions contemplated by this Agreement, including, without limitation, all expenses incurred to obtain all consents, approvals and authorizations of any third party with respect to the Transactions.

 

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“ Hazardous Substances ” means (i) those substances defined in or regulated under the following federal statutes and their state counterparts, as each may be amended from time to time, and all regulations thereunder:  the Hazardous Materials Transportation Act, the Solid Waste Disposal Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Clean Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the Toxic Substances Control Act, the Federal Insecticide, Fungicide, and Rodenticide Act, the Occupational Health and Safety Act, and the Clean Air Act; (ii) petroleum and petroleum products, including crude oil and any fractions thereof; (iii) natural gas, synthetic gas, and any mixtures thereof; (iv) polychlorinated biphenyls, asbestos and radon; and (v) any substance, material, or waste defined as toxic or hazardous or as a pollutant or contaminant, or regulated by any Governmental Authority pursuant to any Environmental Law.

 

“ Intellectual Property ” means United States and non-United States (a) inventions and discoveries (whether or not patentable and whether or not reduced to practice), improvements thereto, and patents, patent applications, invention disclosures, and other rights of invention, worldwide, including without limitation any reissues, divisions, continuations and continuations-in-part, provisionals, reexamined patents or other applications or patents claiming the benefit of the filing date of any such application or patent; (b) trademarks, service marks, trade names, trade dress, logos, Internet domain names, product names and slogans, including any common law rights, registrations, and applications for registration for any of the foregoing, and the goodwill associated with all of the foregoing, worldwide; (c) copyrightable works, all rights in copyrights, including moral rights, copyrights, website content, packaging design and art work, and other rights of authorship and exploitation, and any applications, registrations and renewals in connection therewith, worldwide; (d) confidential and proprietary information, including without limitation, customer and supplier lists and related information, pricing and cost information, business and marketing plans, research and development, advertising statistics, any other financial, marketing and business data, technical data, databases, specifications, designs, drawings, methods, schematics and know-how (collectively, “ Trade Secrets ”); (e) to the extent not covered by subsections (a) through (d), above, software and website content; (f) all claims, causes of action and rights to sue for past, present and future infringement, misappropriation or unconsented use of any of the Intellectual Property, the right to file applications and obtain registrations, and all products, proceeds and revenues arising from or relating to any and all of the foregoing, throughout the world; and (g) the rights to use the names and likenesses of natural persons and any other proprietary, intellectual property and other rights relating to any or all of the foregoing anywhere in the world.

 

“ knowledge of the Company ” means the actual knowledge of the executive officers of the Company and those individuals identified on Section 1.01(a)(2) of the Disclosure Schedule , in each case, after reasonable inquiry.

 

“ Liens ” means any charge, mortgage, pledge, deed of trust, hypothecation, right of others, claim, security interest, encumbrance, burden, title defect, title retention agreement, lease, sublease, license, occupancy agreement, easement, covenant, condition,

 

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encroachment, voting trust agreement, interest, option, right of first offer, negotiation or refusal, proxy, lien or other similar restrictions or limitations.

 

“ Material Adverse Effect ” means any event, circumstance, change or effect that,  either individually or combined with all other events, circumstances, changes or effects, (i) has or would have a material adverse effect on the business, operations, assets, liabilities (including contingent liabilities), financial condition or results of operations of the Company and the Subsidiaries, taken as a whole or (ii) materially impairs or would materially impair the ability of the Company to consummate the Transactions and perform its other obligations under this Agreement; provided , however , that “Material Adverse Effect” shall not include any event, circumstance, change or effect arising out of or attributable to (i) any decrease in the market price of the shares of the Company Common Stock (but not any event, circumstance, change or effect underlying such decrease to the extent that such event, circumstance, change or effect would otherwise constitute a Material Adverse Effect), (ii) any events, circumstances, changes or effects that affect the supermarket business generally and that do not disproportionately impact the Company and its Subsidiaries, (iii) any changes in the securities markets generally that do not disproportionately impact the Company and its Subsidiaries, (iv) any changes in general economic, legal, regulatory or political conditions in the geographic regions in which the Company and its Subsidiaries operate that do not disproportionately impact the Company and its Subsidiaries.

 

“ Other Filings ” means all filings made by, or required to be made by, the Company with the SEC other than the Proxy Statement.

 

“ Permitted Liens ” means (i) liens for current Taxes not yet due and payable and Liens for Taxes being contested in good faith through proper proceedings (for which contested Taxes adequate reserves have been made), (ii) inchoate mechanics’ and materialmen’s liens for construction in progress, and, (iii) such (A) inchoate workmen’s, repairmen’s, warehousemen’s and carriers’ liens arising in the ordinary course of business of the Company or any Subsidiary consistent with past practice, and (B) zoning restrictions, survey exceptions, utility easements, rights of way and similar Liens that are typical for the applicable property type and locality (excluding, in each case, any mortgages or other Liens securing borrowed money) which do not materially interfere with the current use of such Owned Real Property or Leased Real Property and (iv) mortgages provided pursuant to the Credit Agreement.

 

“ person ” includes, without limitation, an individual, corporation, partnership, limited partnership, limited liability company, syndicate, person (including, without limitation, a “person” or “group” each within the meaning of Section 13(d)(3) of the Exchange Act), trust, association or entity or government, political subdivision, agency or instrumentality of a government.

 

“ Release ” shall have the meaning given to such term in the United States Comprehensive Environmental Response, Compensation and Liability Act, 42 USC Section 9601 et seq.

 

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“ subsidiary ” or “ subsidiaries ” of the Company, the Investors or any other person means an affiliate controlled by such person, directly or indirectly, through one or more intermediaries.

 

“ Superior Proposal ” means a bona fide Acquisition Proposal concerning the sale of 50% or more of the consolidated assets of the Company or any issuance, sale, disposition, tender offer, exchange offer, acquisition of ownership or other transfer of 50% or more of the voting power of the Company made by any person (other than an Investor and its affiliates) which was not solicited by the Company, any Subsidiary, any directors, officers, employees, accountants, consultants, legal counsel, advisors, agents or other representatives of the Company or any Subsidiary or any other affiliates and which, in the good faith judgment of the Board (taking into account the various legal, financial and regulatory aspects of the proposal (including whether or not such a proposal is subject to a financing contingency), and the identity of the person making the proposal) (i) if accepted, is reasonably expected to be consummated and, if applicable, financed, and  (ii) if consummated would, based upon the advice of the Company’s financial advisor, result in a transaction that is more favorable to the Company and to the Company’s stockholders, from a financial point of view, than the Transactions contemplated by this Agreement (as the same may be proposed by the Investors to be amended pursuant to Section 8.01(e)).

 

“ Tax Returns ” means any return, report or other form filed with or submitted to, or required to be filed with or submitted to, any Governmental Authority in respect of Taxes.

 

“ Taxes ” means any and all taxes, fees, levies, duties, tariffs, imposts and other similar charges of any kind (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any Governmental Authority or taxing authority, including, without limitation:  taxes or other charges on or with respect to income, franchise, windfall or other profits, gross receipts, property (real or personal), sales, use, capital stock, payroll, employment, occupation, severance, disability, premium, environmental (including taxes under Code Section 59A), social security, workers’ compensation, estimated, unemployment compensation or net worth; alternative or add-on minimum; taxes or other charges in the nature of excise, withholding, ad valorem, stamp, transfer, value-added or gains taxes; license, registration and documentation fees; and customers’ duties, tariffs and similar charges.

 

“ Transactions ” shall mean execution and delivery of this Agreement and the Ancillary Agreements, the purchase and sale of the Purchased Securities as contemplated by this Agreement, the issuance of the Purchased Securities by the Company, and the performance of the obligations contemplated by this Agreement and the Ancillary Agreements.

 

“ 2000 Warrant Agreement ” means the Warrant Agreement dated as of September 19, 2000, between the Company and ChaseMellon Shareholder Services, LLC.

 

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“ 2000 Warrants ” means the warrants issued by the Company pursuant to the Warrant Agreement.

 

(b)                                  The following terms have the meaning set forth in the Sections set forth below:

 

Defined Term		Location of Definition
Action			§ 3.09
Agreement			Preamble
Blue Sky Laws			§ 3.05(b)
Claim Notice			§ 9.01(e)
Code			§ 3.10(a)
Closing			§ 2.03
Company			Preamble
Company Common Stock			Recitals
Company Material Contract			§ 3.17
Company Options			§ 3.03(a)
Company Preferred Stock			§ 3.03(a)
Company Recommendation			§ 6.04(d)
Company Stock Option Plans			§ 3.03(a)
Confidentiality Agreement			§ 6.03(b)
Continuing Independent Directors			§ 6.08(b)
Credit Agreement			§ 6.07
Disclosure Schedule			Article III
Dispute Notice			§ 9.01(h)
ERISA			§ 3.10(a)
Exchange Act			§ 3.05(b)
GAAP			§ 3.07(b)
Governmental Authority			§ 3.05(b)
HSR Act			§ 3.05(b)
Indemnified Party			§ 9.01(e)
Indemnifying Party			§ 9.01(e)
Indemnity Notice			§ 9.01(h)
Investors			Preamble
Investor Director Designees			§ 6.08(a)
Investors’ Representative			Preamble
Investor Warrant Agreement			Recitals
Investor Warrants			Recitals
IRS			§ 3.10(a)
Law			§ 3.05(a)
Leased Real Property			§ 3.13(a)
Losses			§ 9.01(b)
Management Agreement			Recitals
Multiemployer Plan			§ 3.10(a)
Nasdaq			§ 3.05(b)
New Independent Directors			§ 6.08(c)
Open Years			§ 3.15(c)

 

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Owned Real Property			§ 3.13(a)
Permits			§ 3.06
PBGC			§ 3.10(d)
Plan			§ 3.10(a)
Proxy Statement			§ 3.05(b)
Purchase Price			§ 2.02
Purchased Securities			Recitals
Registered IP			§ 3.14(a)
Registration Rights Agreement			Recitals
SEC			§ 3.05(b)
SEC Reports			§ 3.07(a)
Securities Act			§ 3.07(a)
Series A Investor Warrant			Recitals
Series B Investor Warrant			Recitals
Shares			Recitals
SOX			§ 3.20
Stockholders Agreement			Recitals
Stockholder Approval			§ 6.01
Stockholders’ Meeting			§ 6.01
Subsidiary			§ 3.01(a)
Tenant Leases			§ 3.13(a)
Termination Date			§ 8.01
Third Party Claim			§ 9.01(e)
Title IV Plan			§ 3.10(d)
Units			Recitals
Warrant Shares			§ 4.04
YAAF			Preamble
YAAF Parallel			Preamble
YCI			Preamble

 

ARTICLE II

PURCHASE AND SALE

 

SECTION 2.01 .  Purchase and Sale of the Purchased Securities .  Upon the terms and subject to the conditions of this Agreement, at the Closing, the Company shall issue to Investors, and Investors shall purchase, accept and acquire from the Company, that number of Units set forth opposite their respective names on Schedule I hereto.

 

SECTION 2.02 .  Purchase Price .   The purchase price for each Unit shall be $7.50, or $150.0 million in the aggregate (the “ Purchase Price ”).

 

SECTION 2.03 .  Closing .  Unless this Agreement shall have been terminated in accordance with Section 8.01, and subject to the satisfaction or waiver of the conditions set forth in Article VII, the closing of the issuance, purchase and sale of the Units (the “ Closing ”) will take place at 11:00 a.m., New York time, on the second business day after the satisfaction or waiver of the conditions set forth in Article VII (other than those that by their terms are to be

 

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satisfied or waived at the Closing), at the offices of Shearman & Sterling LLP, 599 Lexington Avenue, New York, New York 10022, unless another time, date or place is agreed to in writing by Investors and the Company.

 

SECTION 2.04 .  Closing Deliveries by the Company .  At the Closing, the Company shall deliver or cause to be delivered to the Investors:

 

(a)                                   duly executed certificates evidencing the Shares, the Series A Warrants, and the Series B Warrants, registered in the name of the Investors (it being understood that any fractional Warrants shall be rounded to the nearest whole Warrant);

 

(b)                                  executed counterparts of each Ancillary Agreement (other than the Management Agreement) to which the Company is a party;

 

(c)                                   a receipt for the Purchase Price; and

 

(d)                                  the documents, instruments, writings and payments contemplated or required to be delivered by the Company at the Closing pursuant to Section 7.02.

 

SECTION 2.05 .  Closing Deliveries by the Investors .  At the Closing, the Investors shall deliver to the Company:

 

(a)                                   the Purchase Price by wire transfer in immediately available funds to an account specified by the Company in writing no less than three business days prior to the Closing;

 

(b)                                  executed counterparts of each Ancillary Agreement (other than the Management Agreement) to which any Investor is a party; and

 

(c)                                   the documents, instruments and writings contemplated or required to be delivered by the Investors at the Closing pursuant to Section 7.03.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE CO MPANY

 

As an inducement to the Investors to enter into this Agreement, except as set forth in the Disclosure Schedule, which identifies exceptions by specific Section references (it being understood that the listing or setting forth of any matter in one Section shall be deemed to be a listing or setting forth in another Section if such matter is disclosed in such a way as to make its relevance to the information called for by such other Section reasonably apparent on its face), dated as of the date hereof delivered by the Company to the Investors (the “ Disclosure Schedule ”), the Company hereby represents and warrants to the Investors that:

 

SECTION 3.01 .  Organization and Qualification; Subsidiaries .

 

(a)                                   Each of the Company and each subsidiary of the Company (each, a “ Subsidiary ”) is an entity duly organized, validly existing and in good standing under the Laws of the jurisdiction of its incorporation or organization and has the requisite corporate or other

 

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power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted.  The Company and each Subsidiary is duly qualified or licensed as a foreign corporation or other entity to do business, and is in good standing, in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification, licensing or good standing necessary, except for such failures to be so qualified or licensed and in good standing that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(b)                                  A true and complete list of each Subsidiary, together with the jurisdiction of incorporation of each Subsidiary and the percentage of the outstanding capital stock of each Subsidiary owned by the Company and each other Subsidiary, is set forth in Section 3.01(b) of the Disclosure Schedule .  The Company does not directly or indirectly own any Equity Interest, or any interest convertible into or exchangeable or exercisable for any Equity Interest in, any person.

 

SECTION 3.02 .  Certificate of Incorporation and By-laws .  The Company has heretofore made available to the Investors in the Electronic Data Room a complete and correct copy of the Certificate of Incorporation and the By-laws or equivalent organizational documents, each as amended to date, of the Company and each Subsidiary.  Such Certificates of Incorporation, By-laws or equivalent organizational documents of each Subsidiary are in full force and effect.   As of the date hereof, such Certificate of Incorporation and By-laws of the Company are in full force and effect and, as of the Closing, the Certificate of Incorporation and the Restated By-laws shall be in full force and effect.  Neither the Company nor any Subsidiary is in violation of any of the provisions of its Certificate of Incorporation, By-laws or equivalent organizational documents.  True and complete copies of all minute books of the Company and each Subsidiary containing minutes for the five-year period preceding the date of this Agreement have been made available by the Company to the Investors in the Electronic Data Room, except that minutes relating to the Board’s review of strategic alternatives for the Company have been redacted.

 

SECTION 3.03 .  Capitalization .

 

(a)                                   The authorized capital stock of the Company consists of 100,000,000 shares of Company Common Stock and 5,000,000 shares of preferred stock, par value $0.01 per share (the “ Company Preferred Stock ”).  As of March 21, 2005, (i) 30,099,510 shares of Company Common Stock (other than treasury shares) were issued and outstanding, all of which were validly issued, fully paid, nonassessable and free of preemptive rights, (ii) 28,318 shares of Company Common Stock were held in the treasury of the Company and (iii) no shares of Company Common Stock were held by the Subsidiaries.  As of March 21, 2005, 5,476,685 shares of Company Common Stock were issuable (and such number was reserved for issuance) upon exercise of outstanding employee stock options or stock incentive rights granted pursuant to the Pathmark Stores, Inc. 2000 Employee Equity Plan and the 2000 Non-Employee Directors’ Plan, in each case as amended through the date of this Agreement (collectively, the “ Company Stock Option Plans ”), and 5,294,118 shares of Company Common Stock were issuable upon exercise of the 2000 Warrant Agreement.  As of the date hereof, no shares of Company Preferred Stock are issued and outstanding.  Except as set forth in this Section 3.03 and Section 3.10, there are no options, warrants or other rights, agreements, arrangements or commitments of any character to which the Company or any Subsidiary is a party or by which the Company or any

 

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Subsidiary is bound relating to the issued or unissued capital stock or other Equity Interests of the Company or any Subsidiary, or securities convertible into or exchangeable for such capital stock or other Equity Interests, or obligating the Company or any Subsidiary to issue or sell any shares of its capital stock or other Equity Interests, or securities convertible into or exchangeable for such capital stock of, or other Equity Interests in, the Company or any Subsidiary.  Since March 21, 2005 the Company has not issued any shares of its capital stock, or securities convertible into or exchangeable for such capital stock or other Equity Interests, other than those shares of capital stock reserved for issuance as set forth in this Section 3.03 or in Section 3.03(a) of the Disclosure Schedule .  Set forth in Section 3.03(a) of the Disclosure Schedule  is a true and complete list, as of March 21, 2005, of the prices at which outstanding options issued under the Company Stock Option Plans (the “ Company Options ”) may be exercised under the applicable Company Stock Option Plan, the number of Company Options outstanding at each such price and the vesting schedule of the Company Options for each “executive officer” of the Company (within the meaning of such term under Section 16 of the Exchange Act).  None of the Company Options are “incentive stock options” within the meaning of Section 422 of the Code.  All shares of Company Common Stock subject to issuance as aforesaid, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, will be duly authorized, validly issued, fully paid and nonassessable.  There are no outstanding contractual obligations of the Company or any Subsidiary (A) restricting the transfer of, (B) affecting the voting rights of, (C) requiring the repurchase, redemption or disposition of, or containing any right of first refusal with respect to, (D) requiring the registration for sale of, or (E) granting any preemptive or antidilutive right with respect to, any shares of Company Common Stock or any capital stock of, or other Equity Interests in, the Company or any Subsidiary.  There are no outstanding contractual obligations of the Company or any Subsidiary to provide funds to, or make any investment (in the form of a loan, capital contribution or otherwise) in, any Subsidiary or any other person, other than guarantees by the Company of any indebtedness or other obligations of any wholly-owned Subsidiary.  Each outstanding share of capital stock of, or other Equity Interest in, each Subsidiary is duly authorized, validly issued, and, if applicable, fully paid and, in the case of corporations, nonassessable (except for any corporation incorporated in the State of New York) and free of preemptive rights, and is owned, beneficially and of record, by the Company or another Subsidiary free and clear of all security interests, liens, claims, pledges, options, rights of first refusal, agreements, limitations on the Company’s or such other Subsidiary’s voting rights, charges and other encumbrances of any nature whatsoever.

 

(b)                                  The Shares, when issued, paid for and delivered in accordance with the terms of this Agreement, and the shares of Company Common Stock to be issued pursuant to the Investor Warrants, will be duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights.

 

SECTION 3.04 .  Authority .  The Company has all necessary power and authority to execute and deliver this Agreement and the Ancillary Agreements to which it is a party, to perform its obligations hereunder and thereunder and to consummate the Transactions.  The Company’s execution and delivery of this Agreement and the Ancillary Agreements to which it is a party and the consummation by the Company of the Transactions have been duly and validly authorized by all necessary corporate action and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or the Ancillary Agreements to which the Company is a party, to consummate the Transactions (other than with respect to the issuance of the Purchased Securities, the approval of a majority of the votes cast at the Stockholders’

 

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Meeting).  The Board has approved this Agreement, each Ancillary Agreement and the issuance of the Purchased Securities and has directed that the Transactions be submitted to the Company’s stockholders for approval at a meeting of such stockholders.  This Agreement and the Management Agreement have been, and at the Closing each of other Ancillary Agreements to which it is a party will be, duly authorized and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery by the Investors, this Agreement and the Management Agreement constitute, and at the Closing each of the other Ancillary Agreements to which the Company is a party will constitute, a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms.

 

SECTION 3.05 .  No Conflict; Required Filings and Consents .

 

(a)                                   The execution and delivery by the Company of this Agreement and the Ancillary Agreements to which it is a party do not, and the performance of its obligations hereunder and thereunder will not, (i) conflict with or violate the Certificate of Incorporation or By-laws or equivalent organizational documents of the Company or any Subsidiary, (ii) assuming that all consents, approvals, authorizations and other actions described in subsection (b) have been obtained and all filings and obligations described in subsection (b) have been made, conflict with or violate any foreign or domestic statute, law, ordinance, regulation, rule, code, executive order, injunction, judgment, decree or other order (“ Law ”) applicable to the Company or any Subsidiary or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) require any consent or approval under, result in any breach of or constitute a default (or an event which, with notice or lapse of time or both, would become a default) under, or give to others any right of termination, amendment, acceleration or cancellation of, or give to others a right to require any payment to be made under, or result in the creation of a lien or other encumbrance on any property or asset of the Company or any Subsidiary pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation, except, with respect to clauses (ii) and (iii), for any such conflicts, violations, breaches, defaults or other occurrences which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(b)                                  The execution and delivery by the Company of this Agreement and the Ancillary Agreements to which it is a party do not, and the performance of its obligations hereunder and thereunder will not, require any consent, approval, authorization or permit of, or filing with or notification to, any United States federal, state, county or local or any foreign government, governmental, Tax, regulatory or administrative authority, agency, instrumentality or commission or any court, tribunal, or judicial or arbitral body (a “ Governmental Authority ”), except (i) for (A) applicable requirements, if any, of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the “ Exchange Act ”), state securities or “blue sky” laws (“ Blue Sky Laws ”), (B) the pre-merger notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “ HSR Act ”), (C) the filing with the Securities and Exchange Commission (the “ SEC ”) of a proxy statement relating to the issuance of the Purchased Securities to be sent to the Company’s stockholders (as amended or supplemented from time to time, the “ Proxy Statement ”), and (D) any filings required under the rules and regulations of the Nasdaq Stock Market (“ Nasdaq ”), and (ii) where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not, individually or in the aggregate, reasonably be expected to (1) prevent or materially delay consummation of the Transactions, (2) otherwise prevent or

 

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materially delay performance by the Company of any of its material obligations under this Agreement or any Ancillary Agreement, or (3) have a Material Adverse Effect.

 

SECTION 3.06 .  Permits; Compliance .  Each of the Company and the Subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exceptions, consents, certificates, approvals and orders of any Governmental Authority necessary for each of the Company or the Subsidiaries to own, lease and operate its properties or to carry on its business as it is now being conducted and substantially as described in the Company’s SEC Reports filed prior to the date hereof (the “ Permits ”), and all such Permits are valid, and in full force and effect, except where the failure to have, or the suspension or cancellation of, or failure to be valid or in full force and effect of, any of the Permits would not, individually or in the aggregate, reasonably be expected to (A) prevent or materially delay consummation of the Transactions, (B) otherwise prevent or materially delay performance by the Company of any of its material obligations under this Agreement or any Ancillary Agreement or (C) have a Material Adverse Effect.  As of the date hereof, no suspension or cancellation of any of the Permits is pending or, to the knowledge of the Company, threatened, except where the failure to have, or the suspension or cancellation of, any of the Permits would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.  Neither the Company nor any Subsidiary is in conflict with, or in default, breach or violation of, (i) any Law applicable to the Company or any Subsidiary or by which any property or asset of the Company or any Subsidiary is bound or affected, or (ii) any Permits, except for any such conflicts, defaults or violations that would not, individually or in the aggregate, reasonably be expected to (A) prevent or materially delay consummation of the Transactions, (B) otherwise prevent or materially delay performance by the Company of any of its material obligations under this Agreement or any Ancillary Agreement or (C) have a Material Adverse Effect.  Since the enactment of SOX, the Company and each of its officers and directors have been and are in compliance in all material respects with (A) the applicable provisions of SOX and the related rules and regulations promulgated thereunder and under the Exchange Act and (B) the applicable listing and corporate governance rules and regulations of the Nasdaq.

 

SECTION 3.07 .  SEC Filings; Financial Statements .

 

(a)                                   The Company has timely filed all forms, reports and documents (including all exhibits) required to be filed by it with the SEC since February 1, 2002 (the “ SEC Reports ”).  The SEC Reports (i) were prepared in accordance with the requirements of the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the “ Securities Act ”) or the Exchange Act, as the case may be, and the rules and regulations promulgated thereunder, and (ii) did not at the time they were filed contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading.  No Subsidiary is required to file any form, report or other document with the SEC.  As of the date hereof, the Company is eligible to register securities on Form S-3 of the Securities Act.

 

(b)                                  Each of the consolidated financial statements (including, in each case, any notes thereto) contained in the SEC Reports was prepared in accordance with United States generally accepted accounting principles (“ GAAP ”) applied on a consistent basis throughout the periods indicated (except as may be indicated in the notes thereto) and the Company’s books and records, and each fairly presented the consolidated financial position, results of operations and

 

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cash flows of the Company and its consolidated Subsidiaries as at the respective dates thereof and for the respective periods indicated therein except as otherwise noted therein (subject, in the case of unaudited statements, to normal year-end adjustments which individually or in the aggregate did not have, and would not reasonably be expected to have, a Material Adverse Effect).  The books and records of the Company and each Subsidiary have been, and are being, maintained in accordance with applicable legal and accounting requirements in all material respects.

 

(c)                                   Except as and to the extent set forth on the consolidated balance sheet of the Company and the consolidated Subsidiaries as of January 31, 2004 included in the Company Form 10-K for the year ended January 31, 2004, including the notes thereto, none of the Company or any consolidated Subsidiary has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise), except for liabilities or obligations incurred since January 31, 2004 that would not, individually or in the aggregate, reasonably be expected to (A) prevent or materially delay consummation of the Transactions, (B) otherwise prevent or materially delay performance by the Company of any of its material obligations under this Agreement or any Ancillary Agreement or (C) have a Material Adverse Effect.

 

(d)                                  The Company has previously made available to the Investors in the Electronic Data Room a complete and correct copy of any amendment or modification which has not yet been filed with the SEC to any agreement, document or other instrument which previously had been filed by the Company with the SEC pursuant to the Securities Act or the Exchange Act.

 

(e)                                   As of the date hereof, neither the Company nor, to the knowledge of the Company, any of the Company’s or any Subsidiary’s employees, is the subject of any formal or informal investigation by the SEC, and, to the knowledge of the Company, no such investigation has been threatened or fact exists which would reasonably be expected to result in the institution of any such investigation.  Written correspondence (other than any transmittal letter or other correspondence that does not address substantively any comments or questions from, or ongoing discussions with, the SEC), with the SEC since February 1, 2002 until the date hereof has been made available to the Investors in the Electronic Data Room.  The audit committee of the Board has established “whistleblower” procedures that meet the requirements of Exchange Act Rule 10A-3, and has made available to the Investors in the Electronic Data Room true, complete and correct copies of such procedures.  Neither the Company nor any Subsidiary has received any “complaints” (within the meaning of Exchange Act Rule 10A-3) in respect of any accounting, internal accounting controls or auditing matters.  To the knowledge of the Company, no complaints seeking relief under Section 806 of SOX have been filed with the United States Secretary of Labor and no employee has threatened to file any such complaint.

 

(f)                                     The Company has made available to the Investors in the Electronic Data Room true and complete copies of (i) any written communications or presentations, however transmitted, delivered to the Board or the Audit Committee of the Board or the Company’s external auditor that discusses any potential material weakness or potential significant deficiency in the Company’s or any Subsidiary’s disclosure controls and procedures or internal control over financial reporting or the Company’s compliance, or ability to timely comply, with Section 404 of SOX,  (ii) formal documentation of their internal controls over financial reporting, in each case as in effect as of January 31, 2005, (iii) all notices received from its external auditor prior to the date hereof of any significant deficiencies or material weaknesses in the Company’s internal

 

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control over financial reporting since January 31, 2004 and any other management letter or similar correspondence from any independent auditor of the Company or any of its Subsidiaries received since January 31, 2003 and prior to the date hereof.

 

SECTION 3.08 .  Absence of Certain Changes or Events .  Except as set forth in the SEC Reports filed with the SEC prior to the date of this Agreement or as expressly contemplated by this Agreement, since January 31, 2004 through the date hereof, each of the Company and the Subsidiaries has conducted its business in the ordinary course consistent with past practice and, since such date through the date hereof, (i) there has not occurred any Material Adverse Effect or an event or development that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or any event or development that would, individually or in the aggregate, reasonably be expected to prevent or materially delay the performance of this Agreement or any Ancillary Agreement by the Company and (ii) the Company and the Subsidiaries have not (A) issued, sold, pledged, disposed, granted or encumbered any shares of any class of capital stock or other Equity Interests in or of the Company or any Subsidiary, (B) sold, pledged, disposed, transferred, leased, licensed, guaranteed or encumbered any material property or assets of the Company or any Subsidiary, except in the ordinary course of business consistent with past practice, (C) acquired (including, without limitation, by merger, consolidation, or acquisition of stock or assets or any other business combination) any corporation, partnership, other business organization or any division thereof, (D) except for borrowings under the Credit Agreement or borrowings under the predecessor credit facility, incurred any indebtedness for borrowed money which, individually or together with all such other indebtedness , exceeds $2 million, (E) granted any security interest in any of their material assets except for such security interests as would constitute a Permitted Lien, (F) made or authorized any capital expenditure or purchase of fixed assets other than in the ordinary course of business, (G) increased the compensation or benefits payable to or to become payable to its directors, officers or employees, except for increases in accordance with past practices in salaries or wages of employees of the Company or any Subsidiary which are not across-the-board increases, or granted any rights to severance or termination pay to, or entered into any employment or severance agreement with, any director, officer or other employee (other than severance for employees other than officers, in accordance with past practice, in connection with such employee’s termination of employment with the Company) of the Company or any Subsidiary, or taken any affirmative action to amend or waive any performance or vesting criteria or accelerate vesting, exercisability or funding under any Plan, (H) made or changed any material election in respect of Taxes, adopted or changed any material accounting method in respect of Taxes or settled or compromised any material claim, notice, audit report or assessment in respect of Taxes, (I) made any material change, other than changes required by GAAP or in the ordinary course of business, with respect to accounting policies or procedures of the Company or any of its Subsidiaries, (J) pre-paid any long-term debt or paid, discharged or satisfied any claims, liabilities or obligations (absolute, accrued, contingent or otherwise), except for such payments, discharges or satisfaction of claims as were in the ordinary course of business consistent with past practice,  or (K) written up, written down or written off the book value of any material assets, or a material amount of any other assets, other than in the ordinary course of business or except as required by GAAP.

 

SECTION 3.09 .  Absence of Litigation .  Except as disclosed in the SEC Reports filed prior to the date of this Agreement, there is no litigation, suit, claim, action, formal complaint, prosecution, indictment, formal investigation, arbitration or proceeding (whether

 

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civil, criminal or administrative, an “ Action ”) pending or, to the knowledge of the Company, threatened against the Company or any Subsidiary, or any property or asset of the Company or any Subsidiary, or, to the knowledge of the Company, for which the Company or any Subsidiary is obligated to indemnify a third party, before any Governmental Authority that (i) has had or would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or (ii) challenges the validity or propriety or seeks to materially delay or prevent the consummation of the Transactions and which is reasonably expected to be adversely determined against the Company.  Neither the Company nor any Subsidiary nor any property or asset of the Company or any Subsidiary is subject to any order of, consent decree, settlement agreement or similar written agreement with, any Governmental Authority, or any order, writ, judgment, injunction, decree, ruling, determination or award of any Governmental Authority that would, individually or in the aggregate, reasonably be expected to (A) prevent or materially delay consummation of the Transactions, (B) otherwise prevent or materially delay performance by the Company of any of its material obligations under this Agreement or any Ancillary Agreement or (C) result in a Material Adverse Effect.

 

SECTION 3.10 .  Employee Benefit Plans .

 

(a)           Section 3.10(a)(i) of the Disclosure Schedule  lists (i) all employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”)) and all bonus, incentive, stock option, stock purchase, restricted stock, phantom stock, or other stock-based compensation, deferred compensation, retiree medical or life insurance, supplemental executive retirement, severance or other benefit plans, programs, trusts or arrangements, and all employment, termination, severance, compensation or other contracts or agreements, to which the Company or any of its affiliates is a party, or which are sponsored by the Company or any of its affiliates for the benefit of any employee, officer or director of the Company or any Subsidiary, and (ii) any material contracts, arrangements, agreements, policies, practices or understandings between the Company or any of its affiliates and any employee of the Company or of any Subsidiary, including, without limitation, any contracts, arrangements or understandings or change in control arrangements relating to a sale of the Company (collectively, the “ Plans ”).  Section 3.10(a)(ii) of the Disclosure Schedule  lists each “multiemployer plan” (as defined in Section 3(37) or 4001(a)(3) of ERISA) in which any employee of the Company or any Subsidiary participates (the “ Multiemployer Plans ”).  All Plans are in writing and the Company has made available to the Investors in the Electronic Data Room true, correct and complete copies of (i) such Plans, (ii) the most recent annual report (Form 5500) filed with the Internal Revenue Service (the “ IRS ”), if any, with respect to any Plan and, to the extent in the Company’s possession, any Multiemployer Plan, (iii) the most recent summary plan description for each Plan for which a summary plan description is available or is required by applicable Law, (iv) the most recent actuarial report or valuation, if any, relating to a Plan and, to the extent in the Company’s possession, any Multiemployer Plan, and (v) the most recent determination letter, if any, issued by the IRS with respect to any Plan that is intended to qualify under Section 401(a) of the Internal Revenue Code of 1986, as amended (the “ Code ”).

 

(b)                                  Each Plan has been operated and administered in all material respects in accordance with its terms and the requirements of all applicable Laws, including, without limitation, ERISA and the Code.  As of the date hereof, no action, claim or proceeding is pending or, to the knowledge of the Company, threatened with respect to any Plan (other than claims for benefits in the ordinary course) that would result in any material liability to the

 

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Company and, to the knowledge of the Company, no fact or event exists that would give rise to any such action, claim or proceeding.

 

(c)                                   Each Plan that is intended to be qualified under Section 401(a) of the Code has timely received a favorable determination letter from the IRS and each trust established in connection with any Plan which is intended to be exempt from federal income taxation under Section 501(a) of the Code has received a determination letter from the IRS that it is so exempt, and, to the knowledge of the Company, no fact or event has occurred since the date of such determination letter or letters from the IRS that would reasonably be expected to adversely affect the qualified status of any such Plan or the exempt status of any such trust.

 

(d)                                  With respect to any Plan which is an “employee pension benefit plan” as defined in Section 3(2) of ERISA and which is subject to Part 3 of Title I or to Title IV of ERISA (a “ Title IV Plan ”): (i) there is no lien under Section 412(n) of the Code by reason of an accumulated funding deficiency, whether or not waived, under Section 412 of the Code; (ii) no liability (other than liability for premiums) to the Pension Benefit Guaranty Corporation (“ PBGC ”) has been incurred and all premiums required to be paid to the PBGC have been paid by or on behalf of such Title IV Plan; (iii) the assets of each Title IV Plan equal or exceed the benefit liabilities of such Title IV Plan determined on a termination basis; and (iv) as of the date hereof, the Company has received no actual notice from the PBGC that an event or condition exists which (A) would constitute grounds for termination of such Title IV Plan by the PBGC or (B) has caused a partial termination of such Title IV Plan.

 

(e)                                   None of the Plans provides medical, health or life insurance or any other welfare-type benefits for current or future retired or terminated employees of the Company or its Subsidiaries or their spouses of dependents (other than in accordance with Part 6 of Title I of ERISA or Code Section 4980B).

 

(f)                                     The Transactions contemplated hereby will not entitle any employee, officer or director of the Company and its Subsidiaries to any amount (whether in cash or property) that would be received under any Plan, or increase the amount of or accelerate the time of payment of vesting thereof.

 

(g)                                  No amount or acceleration referred to in subsection (f) above (whether or not disclosed on Section 3.10(f) of the Disclosure Schedule) would (i) be characterized as an “excess parachute payment” (as defined in Section 280G(b)(1) of the Code) or (ii) not be deductible under Section 162(a)(1) or 404 of the Code.

 

(h)                                  As of the date hereof, (i) all of the options issued under the Company Stock Option Plans are either (A) unvested or (B) were issued at no less than fair market value and (ii) no shares of restricted Common Stock issued by the Company provide for a deferral opportunity beyond vesting.

 

SECTION 3.11 .  Labor Matters   (i) Neither the Company nor any Subsidiary is a party to any collective bargaining agreement or other labor union contract applicable to persons employed by the Company or any Subsidiary, nor, to the knowledge of the Company as of the date hereof, are there any activities or proceedings of any labor union to organize any such employees; and (ii) neither the Company nor any Subsidiary has materially breached or

 

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otherwise failed to comply with any material provision of any such agreement or contract, and, to the knowledge of the Company as of the date hereof, there are no material grievances outstanding against the Company or any Subsidiary under such agreement or contract.  Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, (i) there are no controversies pending or, to the knowledge of the Company, threatened between the Company or any Subsidiary and any of their respective employees; and (ii) there is no organized strike, slowdown, work stoppage or lockout by or with respect to any employees of the Company or any Subsidiary.

 

SECTION 3.12 .  Proxy Statement .  The Proxy Statement shall not, at the date the Proxy Statement (or any amendment or supplement thereto) is first mailed to stockholders of the Company and at the time of the Stockholders’ Meeting, as the case may be, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading except that no representation or warranty is made by the Company with respect to any information supplied by the Investors for inclusion in the Proxy Statement.  The Proxy Statement, and any amendments or supplements thereto, when filed by the Company with the SEC, or when distributed or otherwise disseminated to the Company’s stockholders, as applicable, shall comply as to form in all material respects with the requirements of the Exchange Act the rules and regulations thereunder and other applicable Laws.

 

SECTION 3.13 .  Property and Leases .

 

(a)                                   As of the date hereof, Section 3.13 of the Disclosure Schedule  contains a true, correct and complete list of (i) all real property owned by the Company or its Subsidiaries (“ Owned Real Property ”), (ii) all leases, subleases or other occupancy agreements relating to all real property that any of the Company or its Subsidiaries owns, leases or subleases or otherwise has any right, title or interest in or to and sets forth the Company or applicable Subsidiary that leases, subleases or otherwise has an interest in same (the property demised thereunder herein referred to as the “ Leased Real Property ”) and (iii) with respect to each of the Owned Real Properties and Leased Real Properties, all existing leases, subleases, licenses or other occupancy agreements to which the Company or any of its Subsidiaries is a party as landlord or lessor thereunder or by which the Company or any of its Subsidiaries is bound as landlord or lessor thereunder, and all amendments, modifications, extensions and supplements thereto (collectively, the “ Tenant Leases ”), regardless of whether the terms thereof have commenced.  Section 3.13 of the Disclosure Schedule  briefly describes the current use or non-use, as the case may be, of such Owned Real Property and Leased Real Property, and neither the Company nor any of its Subsidiaries has any interest in any other real property.

 

(b)                                  Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, (i) each of the Company and its Subsidiaries is the record owner of, and has good and marketable fee title to (including all improvements located thereon) the Owned Real Property, and valid and enforceable leasehold interests in all Leased Real Property and (ii) none of the Owned Real Property or Leased Real Property is subject to any Liens (other than Permitted Liens) or any other easements, rights of way, licenses, grants, building or use restrictions, exceptions, reservations, limitations or other impediments.  There are no options or rights to purchase or lease all or any part of the Owned Real Property or any interest therein of any other person other than as set forth in the Tenant Leases.  No person other

 

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than the Company or a Subsidiary leases, has a tenancy or otherwise occupies, or has the right to occupy or use, the Owned Real Property and Leased Real Property other than pursuant to a Tenant Lease.

 

(c)                                   With respect to each Leased Real Property and Tenant Lease, except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect:  (i) such lease or sublease is legal, valid, binding, enforceable and in full force and effect; (ii) there exists no default under any such lease or sublease by the Company or any Subsidiary which has not been cured, and, to the knowledge of the Company, there has not occurred any event that (with the lapse of time or the giving of notice or both) would constitute, and no party to any such lease has given the Company or any Subsidiary written notice of or made a claim with respect to, a default on the part of the Company or any of its Subsidiaries under any such lease or sublease; (iii) to the knowledge of the Company, no party (other than the Company or any Subsidiary) is in default, and there has not occurred any event that (with the lapse of time or giving of notice or both) would constitute a default by any such party under any such lease or sublease; (iv) all leasing, brokerage, finder and other similar fees and commissions that are due and payable by the Company or any of its Subsidiaries with respect to such leases and subleases have been paid in full; and (v) a true, correct and complete copy of each such lease and sublease (including any renewal notices delivered thereunder) and any guaranty given with respect thereto has been furnished or made available to the Investors in the Electronic Data Room.

 

(d)                                  Except in each case as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, all Owned Real Property and Leased Real Property is in good and usable condition, subject to normal wear and tear and normal industry practice with respect to maintenance, and has such rights of egress and ingress, and such easements, rights of way and grants, as are necessary to allow such real property to be operated, and the business of the Company and each of its Subsidiaries conducted with respect thereto to be conducted, as now operated and conducted.  Except in each case as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, to the Company’s knowledge, no improvement on any Owned Real Property or any Leased Real Property encroaches on an adjacent property owner’s property, and no property owner’s property encroaches on any Owned Real Property or Leased Real Property.  The Owned Real Property and Leased Real Property are all of the material real property assets which are used in or necessary to the continued conduct of the Company’s business as it is currently operated.

 

(e)                                   Except in each case as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, (i) neither the Company nor any of its Subsidiaries, with respect to the Owned Real Property and the Leased Real Property, has violated (or will violate with notice or the passing of time or both) any zoning, subdivision or building Law applicable thereto, including all applicable health, fire and safety Laws, ordinances and administrative regulations; and (ii) neither the Company nor any of its Subsidiaries has violated (or will violate with notice or the passing of time or both) any covenants, conditions or restrictions contained in any easement, restrictive covenant or other similar instrument or agreement affecting the Owned Real Property or Leased Real Property.  As of the date hereof, except as provided in the Electronic Data Room, neither the Company nor any Subsidiary has received from any Governmental Authority or any other person any written notice of any current or potential material violation of or material noncompliance with any of the matters set forth in clauses (i) and (ii) of the immediately preceding sentence.

 

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(f)                                     Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, there is no pending or, to the knowledge of the Company, threatened condemnation or eminent domain proceeding or changes in zoning affecting the Owned Real Property or Leased Real Property that would adversely affect the use, operation, maintenance, enjoyment or value thereof in any material respect.

 

SECTION 3.14 .  Intellectual Property .

 

(a)                                   Section 3.14(a) of the Disclosure Schedule  lists all of the (i) registered trademarks and service marks and applications therefor, (ii) registered copyrights and applications therefor, (iii) issued patents and patent applications, and (iv) domain names, in each case, that are owned by the Company or any Subsidiary and are material to the conduct of the business of the Company and the Subsidiaries (collectively, the “ Registered IP ”).

 

(b)                                  Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect:

 

(i)  The Company and the Subsidiaries have used reasonable measures to protect the proprietary nature of the trade secrets and confidential information that they own or use.

 

(ii)  The Company or the Subsidiaries own all right, title and interest in and to, or has the valid right to use, free and clear of all Liens (other than Permitted Liens and encumbrances arising pursuant to license agreements), the Intellectual Property necessary for or used in the conduct of their business.

 

(iii)  The conduct of the Company and the Subsidiaries, and the conduct of the business of the Company and the Subsidiaries as currently conducted, do not conflict with, infringe upon, misappropriate, violate or interfere with the Intellectual Property rights of any third party.

 

(iv)  To the knowledge of the Company, no third party is infringing upon any Intellectual Property owned by the Company or any Subsidiary.

 

(v)  The Company and the Subsidiaries have taken commercially reasonable measures to maintain and protect the Registered IP.

 

(c)                                   The execution and delivery by the Company of this Agreement and the Ancillary Agreements to which it is a party do not, and the performance of its obligations hereunder and thereunder will not, adversely affect the validity of, or the Company or the Subsidiaries rights in, any Registered IP, or any other Intellectual Property (other than, in the case of other Intellectual Property, which would not reasonably be expected to have a Material Adverse Effect).

 

SECTION 3.15 .  Taxes .

 

(a)                                   Filing of Tax Returns .  Each of the Company and the Subsidiaries has timely filed with the appropriate taxing authority all Tax Returns required to be filed through the date hereof (after giving effect to any filing extension properly granted by a Governmental

 

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Authority having authority to do so or otherwise permitted by applicable Law) subject to such exceptions as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.  All such Tax Returns are complete and accurate in all material respects.  All Taxes due and owing by any of the Company and the Subsidiaries on or before the date hereof (whether or not shown on any Tax Return) have been paid subject to such exceptions as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.  No claim has ever been made in writing by a Governmental Authority in a jurisdiction where any of the Company and the Subsidiaries does not file Tax Returns that it is or may be subject to taxation by that jurisdiction, except for such claims as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(b)                                  Reserves for Taxes .  The unpaid Taxes of the Company and the Subsidiaries (i) did not, as of the dates of the financial statements contained in the SEC Reports filed with the SEC prior to the date of the Agreement, exceed the reserve for Tax liability (excluding any reserve for deferred Taxes established to reflect timing differences between book and Tax income) included in the balance sheets contained in such financial statements, and (ii) will not exceed that reserve as adjusted for operations and transactions through the Closing Date in accordance with the past custom and practice of the Company and the Subsidiaries in filing their Tax Returns, subject to such exceptions as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.  Since the date of the most recent financial statement contained in the SEC Reports filed with the SEC prior to the date of this Agreement, neither the Company nor any of the Subsidiaries has incurred any liability for Taxes outside the ordinary course of business or otherwise inconsistent with past custom and practice subject to such exceptions as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(c)                                   Claims and Provisions of Tax Returns .  No deficiencies for Taxes against any of the Company and the Subsidiaries have been claimed or assessed in writing by a Governmental Authority, subject to such exceptions as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.  There are no pending or, to the knowledge of any of the Company or the Subsidiaries, threatened audits, assessments or other Actions for or relating to any liability in respect of Taxes of any of the Company and the Subsidiaries, and there are no matters under discussion with any Governmental Authority, or known to any of the Company and the Subsidiaries, with respect to Taxes that are likely to resul