SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 2, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF
1934
Commission file number 1-11609
TOYS "R" US, INC.
Incorporated pursuant to the Laws of Delaware
Internal Revenue Service - Employer Identification No. 22-3260693
461 From Road, Paramus, New Jersey 07652
(201) 262-7800
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
274,796,538 shares of the registrant's common stock were outstanding on
November 25, 1996.
<PAGE>
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets..................... 2
Condensed Consolidated Statements of Earnings............. 3
Condensed Consolidated Statements of Cash Flows........... 4
Notes to Condensed Consolidated Financial
Statements................................................ 5
Item 2. Management's Discussion and Analysis - Results of
Operations and Financial Condition............................. 7
PART II - OTHER INFORMATION......................................... 9
SIGNATURES.......................................................... 10
1
<PAGE>
<TABLE>
TOYS "R" US, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions)
<CAPTION>
November 2, October 28, February 3,
1996 1995 1996
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ....................................... $ 651.7 $ 220.3 $ 202.7
Accounts and other receivables .................................. 152.7 138.0 128.9
Merchandise inventories ......................................... 3,582.2 3,646.4 1,999.5
Prepaid expenses and other current assets ....................... 133.1 78.3 87.8
Total current assets ......................................... 4,519.7 4,083.0 2,418.9
Property and equipment, net and other assets ....................... 4,401.8 4,353.5 4,318.6
$ 8,921.5 $ 8,436.5 $ 6,737.5
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings ........................................... $ 1,377.1 $ 1,493.5 $ 332.8
Accounts payable ................................................ 2,198.5 2,201.7 1,182.0
Accrued expenses and other current liabilities .................. 428.1 256.6 438.1
Income taxes payable ............................................ - 23.9 139.9
Total current liabilities .................................... 4,003.7 3,975.7 2,092.8
Long-term debt ..................................................... 1,028.3 782.2 826.8
Deferred income taxes .............................................. 245.7 235.1 228.7
Other liabilities .................................................. 146.7 82.3 156.9
Stockholders' equity ............................................... 3,497.1 3,361.2 3,432.3
$ 8,921.5 $ 8,436.5 $ 6,737.5
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
TOYS "R" US, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In millions except per share data)
<CAPTION>
13 Weeks Ended 39 Weeks Ended
November 2, October 28, November 2, October 28,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales .................................................. $ 1,883.0 $ 1,714.5 $ 5,264.9 $ 4,821.7
Costs and expenses:
Cost of sales ........................................... 1,280.4 1,168.5 3,582.1 3,290.3
Selling, advertising, general &
administrative .......................................... 474.1 436.1 1,341.4 1,237.2
Other charges ........................................... -- -- 55.0 --
Depreciation and amortization ........................... 51.4 50.7 149.3 140.4
Interest expense - net .................................. 24.2 26.1 66.4 66.3
1,830.1 1,681.4 5,194.2 4,734.2
Earnings before taxes on income ............................ 52.9 33.1 70.7 87.5
Taxes on income ............................................ 19.6 12.3 26.2 32.4
Net earnings ............................................... $ 33.3 $ 20.8 $ 44.5 $ 55.1
Earnings per share ......................................... $ .12 $ .08 $ .16 $ .20
Common and common equivalent
shares .................................................. 278.7 275.2 277.0 277.8
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
TOYS "R" US, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
<CAPTION>
39 Weeks Ended
November 2, October 28,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net earnings ................................................................... $ 44.5 $ 55.1
Adjustments to reconcile net earnings to net cash used in operating
activities:
Depreciation and amortization ............................................ 149.3 140.4
Deferred income taxes .................................................... 9.0 (6.6)
Changes in operating assets and liabilities:
Merchandise inventories ............................................... (1,581.3 (1,638.9)
Prepaid expenses and other operating assets ........................... (78.5) (43.3)
Accounts payable and other operating liabilities ...................... 847.3 540.0
Net cash used in operating activities .............................. (609.7) (953.3)
Cash flows from investing activities:
Capital expenditures, net ...................................................... (315.4) (387.7)
Cash flow from financing activities:
Short-term borrowing, net ...................................................... 1,047.6 1,370.8
Long-term borrowings ........................................................... 325.4 --
Exercise of stock options ...................................................... 24.8 14.5
Long-term debt repayment ....................................................... (27.2) (2.8)
Share repurchase program ....................................................... -- (200.2)
Net cash provided by financing activities ................................ 1,370.6 1,182.3
Effect of exchange rate changes on cash and cash equivalents ................... 3.5 9.2
Cash and cash equivalents:
Increase/(decrease) during period .............................................. 449.0 (149.5)
Beginning of period ............................................................ 202.7 369.8
End of period .................................................................. $ 651.7 $ 220.3
Supplemental disclosures of cash flow information:
Income taxes paid .............................................................. $ 170.6 $ 204.6
Interest paid (net of amounts capitalized) ..................................... $ 79.5 $ 86.0
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
4
<PAGE>
TOYS "R" US, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Interim Reporting
The interim financial statements are unaudited and are subject to
year-end adjustments. However, in the opinion of management, all known
adjustments (which consist primarily of normal recurring accruals) have
been made and present fairly the consolidated operating results for the
unaudited periods. Because of the seasonal nature of the Company's
business, results for interim periods are not indicative of results to
be expected for the fiscal year.
2. Earnings Per Share
Earnings per share for the thirteen and thirty-nine weeks ended November
2, 1996 and October 28, 1995 are computed by dividing net earnings by
the weighted average number of common shares outstanding, after
reduction for treasury shares and assuming exercise of dilutive stock
options computed by the treasury stock method using the average market
price during the period.
3. Reclassification
Certain amounts in the October 28, 1995 Condensed Consolidated Balance
Sheet have been reclassified to conform with the November 2, 1996
presentation.
4. Long-term debt
On November 1, 1996, the Company entered into a (pound)200 million
British Pound Sterling ($325 million at November 2, 1996) financing
transaction that matures on November 1, 2001 and carries a fixed
interest rate of 5.61%. The Company has entered into a foreign currency
and an interest rate swap to effectively hedge the currency risk and to
transform the fixed rate into a floating U.S. dollar rate. The financing
is supported by a (pound)200 million bank letter of credit facility to
enhance the overall economics of the transaction.
5. Other Charges
On July 12, 1996, an arbitrator rendered an award in favor of Yusuf
Ahmed Alghanim & Sons, W.L.L. ("Alghanim") and against the Company and
awarded Alghanim $46.4 million plus interest from December 1994. This
award was rendered in connection with a dispute between Alghanim and the
Company involving rights under a 1982 license agreement for toy store
operations in the Middle East. Accordingly, the Company recorded a
provision of $55 million in the second quarter of 1996, representing all
costs in connection with this matter. In September 1996, the Company
filed a motion to vacate the arbitration award in the United States
District Court for the Southern District of New York. That motion was
denied on December 13, 1996 and the arbitration award was confirmed.
The Company is planning to appeal the District Court's decision to the
United States Court of Appeals for the Second Circuit.
5
<PAGE>
5. Contingencies
See Part II - Item I - Legal Proceedings, Paragraph 1
6. Merger Agreement
On October 1, 1996, the Company executed a definitive Merger Agreement
to acquire Baby Superstore, Inc. in a tax-free exchange of common stock
valued at approximately $376 million based upon the closing price of the
Company's Common Stock on that date. The Company will utilize the
purchase method of accounting to report this transaction which is
expected to close on or about January 31, 1997, pending approval by Baby
Superstore shareholders.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS - RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations
Comparable USA toy store sales increased by approximately 4% and 6% for the
thirteen and thirty-nine week periods ended November 2, 1996, as compared with
the same periods in 1995. The increases were primarily driven by strong sales of
basic toy products such as dolls, action figures and the resurgence of the video
hardware business with the release of Nintendo 64. International toy stores and
Kids "R" Us children's clothing stores also experienced an increase in
comparable store sales during the same periods. Total sales increased by
approximately $169 million or 10% and $443 million or 9% for the thirteen and
thirty-nine week periods ended November 2, 1996, respectively, as compared with
the same periods in 1995, primarily due to sales from new toy and children's
clothing stores and an overall increase in comparable store sales. Excluding the
impact of foreign currency, total sales increased 11% in the third quarter of
1996, as compared with the third quarter of 1995.
Cost of sales, as a percentage of sales, decreased by approximately 0.2% for
both the thirteen and thirty-nine week periods ended November 2, 1996,
respectively, as compared with the same periods in 1995, primarily due to a
favorable shift in the sales mix.
Selling, advertising, general and administrative expenses as a percentage of
sales decreased by approximately 0.2% for both the thirteen and thirty-nine week
periods ended August 3, 1996, respectively, as compared with the same periods in
1995, primarily as a result of leveraging the sales increase.
The arbitration award of $55 million had a material effect on the results of
operations for the thirty-nine week period ended November 2, 1996. The award
reduced earnings per share by $.13 for such period. Excluding the impact of the
award, earnings per share for the thirty-nine week period ended November 2, 1996
would have been $.29 per share.
Net interest expense decreased by approximately $2 million for the thirteen week
period ended November 2, 1996, as compared with the same period in 1995, due to
lower average short-term borrowings.
The effective tax rate remained constant at 37% for all periods presented.
Since February 3, 1996, foreign currency exchange rates have experienced
fluctuations; however, the impact on net earnings was not significant.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS - RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(Continued)
Financial Condition
The Company has opened 13 of its completely redesigned "Concept 2000" toy stores
in the United States this year, 3 of which are retrofits of existing toy stores.
Including the "Concept 2000" format, the Company has opened 30 new toy stores
and closed 2 stores in the United States this year. Internationally, the Company
has added 60 toy stores, including 27 franchise stores and closed 1 store this
year. The Company opened its first 6 Babies "R" Us stores in 1996. The Company's
new KidsWorld superstore design, combining all of the "R" Us concepts under one
roof, was unveiled in 2 locations in 1996, one of which is a retrofit of a side
by side Toys "R" Us and Kids "R" Us location. Finally, the Company has opened 7
new and closed 7 existing Kids "R" Us stores in the United States this year.
Short-term borrowings, net of investments decreased by approximately $548
million at November 2, 1996, as compared with October 28, 1995 and the current
ratio has improved to 1.13 to 1 at November 2, 1996, as compared with 1.03 to 1
at October 28, 1995 due in part to the closing of a medium-term $325 million
financing deal at the end of the third quarter of 1996.
Annual capital expenditures for new and existing facilities are estimated to be
approximately $500 million for 1996. Cash requirements for operations, capital
expenditures, lease commitments and the share repurchase program will be met
primarily through operating activities, borrowings under the $1 billion
revolving credit facility, the medium-term financing referred to above, issuance
of short-term commercial paper and bank borrowings by foreign subsidiaries.
The strategic inventory repositioning initiative portion of the Company's
worldwide restructuring Program is substantially complete. This portion of the
program streamlined the number of different product items carried in the
Company's toy stores to present a more in-depth merchandise presentation and
allow the Company to better compete in the future. The Company believes that all
remaining reserves associated with the worldwide restructuring program are
sufficient to complete the program as planned.
8
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
1) On May 22, 1996, the Staff of the Federal Trade Commission
(the "FTC") filed an administrative complaint against the Company
alleging that the Company is in violation of Section 5 of the
Federal Trade Commission Act for its practices relating to
warehouse clubs. The complaint alleges that the Company reached
understandings with various suppliers that such suppliers not
sell to the clubs the same items that they sell to the Company.
The complaint also alleges that the Company "facilitated
understandings" among the manufacturers that such manufacturers
not sell to clubs. The complaint seeks an order that the Company
cease and desist from this practice. Since the filing of the FTC
complaint, several class action suits have been filed against the
Company, alleging that the Company has violated certain state
competition laws as a consequence of the behavior alleged in the
FTC complaint. These class action suits seek damages in
unspecified amounts and other relief under state law. The Company
believes that both its policy and its conduct in connection with
the foregoing are within the law and plans to contest the action
vigorously. The Company also believes that these actions will not
have a material adverse effect on its business or financial
condition.
2) On July 12, 1996, an arbitrator rendered an award in favor of
Yusuf Ahmed Alghanim & Sons, W.L.L. ("Alghanim") and against the
Company and awarded Alghanim $46.4 million plus interest from
December 1994. This award was rendered in connection with a
dispute between Alghanim and the Company involving rights under
a 1982 license agreement for toy store operations in the Middle
East. Accordingly, the Company has recorded a provision of $55
million representing all costs in connection with this matter.
In September 1996, the Company filed a motion to vacate the
arbitration award in the United States District Court for the
Southern District of New York. That motion was denied on
December 13, 1996 and a the arbitration award was confirmed.
The Company believes that this award will not have a material
adverse effect on its business or financial condition.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 2 - Agreement and Plan of Merger among
Toys "R" Us, Inc., Baby Superstore, Inc., and
Jack P. Tate dated October 1, 1996.
Exhibit 27 - Financial Data Schedule.
(b) On October 2, 1996, the Company filed a Form
8-K in connection with the signing of an Agreement
and Plan of Merger with Baby Superstore, Inc.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: December 17, 1996 Toys "R" Us, Inc.
-----------------
(Registrant)
s/Louis Lipschitz
-----------------
(Signature)
Louis Lipschitz
Executive Vice President and
Chief Financial Officer
10
<PAGE>
INDEX TO EXHIBITS
The following is a list of all exhibit files as part of this document:
<TABLE>
<CAPTION>
Exhibit No. Page No. Document
<S> <C> <C>
2 Agreement and Plan of Merger
Among Toys "R" Us, Inc., and
Baby Superstore, Inc. and
Jack P. Tate
27 Financial Data Schedule
</TABLE>
AGREEMENT AND PLAN OF MERGER
AMONG
TOYS "R" US, INC.,
BABY SUPERSTORE, INC.
AND
JACK P. TATE
Dated October 1, 1996
<PAGE>
TABLE OF CONTENTS
-----------------
Page
ARTICLE I
The Merger; Effective Time; Closing
1.1. The Merger . . . . . . . . . . . . . . . . . . . . . 2
1.2. Effective Time . . . . . . . . . . . . . . . . . . . 2
1.3. Closing . . . . . . . . . . . . . . . . . . . . . . . 2
1.4. Effects of the Merger . . . . . . . . . . . . . . . . 2
ARTICLE II
Certificate of Incorporation and By-Laws
of the Surviving Corporation
2.1. Certificate of Incorporation . . . . . . . . . . . . 3
2.2. The By-Laws . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III
Directors and Officers
of the Surviving Corporation
3.1. Directors . . . . . . . . . . . . . . . . . . . . . . 3
3.2. Officers . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE IV
Merger Consideration; Conversion
or Cancellation of Shares in the Merger
4.1. Share Consideration for the Merger; Conversion or
Cancellation of Shares in the Merger . . . . . . . . 3
4.2. Exchange Procedures. . . . . . . . . . . . . . . . 6
4.3. Dividends, Fractional Shares, Etc . . . . . . . . . . 7
4.4. Dissenting Shares . . . . . . . . . . . . . . . . . . 10
<PAGE>
Page
ARTICLE V
Representations and Warranties
5.1. Representations and Warranties of the Company . . . . 11
(a) Corporate Organization and Qualification . . . . 11
(b) Capitalization . . . . . . . . . . . . . . . . . 11
(c) Approvals; Fairness Opinion . . . . . . . . 12
(d) Authority Relative to This Agreement . . . . . . 12
(e) Consents and Approvals; No Violation . . . . . . 13
(f) Litigation; Compliance with Laws . . . . . . . . 14
(g) SEC Reports; Financial Statements . . . . . . . 15
(h) Undisclosed Liabilities; Absence of Certain
Changes or Events . . . . . . . . . . . . . . . . . . 16
(i) Employment Agreements . . . . . . . . . . . . . 17
(j) Brokers and Finders . . . . . . . . . . . . . . 17
(k) S-4 Registration Statement and Proxy
Statement/Prospectus . . . . . . . . . . . . . . 17
(l) Taxes . . . . . . . . . . . . . . . . . . . . . 18
(m) Employee Benefits . . . . . . . . . . . . . . . 20
(n) Title to Properties; Assets Other Than Real
Property Interests . . . . . . . . . . . . . . . 22
(o) Intangible Property . . . . . . . . . . . . . . 24
(p) Certain Contracts . . . . . . . . . . . . . . . 25
(q) Insurance . . . . . . . . . . . . . . . . . . . 26
(r) Unlawful Payments and Contributions . . . . . . 26
(s) Listings . . . . . . . . . . . . . . . . . . . . 27
(t) Environmental Matters . . . . . . . . . . . . . 27
(u) State Takeover Statutes . . . . . . . . . . . . 28
(v) Inventories; Receivables; Payables . . . . . . . 28
(x) Disclosure . . . . . . . . . . . . . . . . . . . 29
5.2. Representations and Warranties of Acquiror . . . . . 29
(a) Corporate Organization and Qualification . . . . 29
(b) Capitalization . . . . . . . . . . . . . . . . . 29
(c) Authorization for Acquiror Common Shares . . . . 30
(d) Authority Relative to This Agreement . . . . . . 30
(e) Consents and Approvals; No Violation . . . . . . 31
(f) SEC Reports; Financial Statements . . . . . . . 32
(g) Undisclosed Liabilities; Absence of Certain
Changes or Events . . . . . . . . . . . . . . . 32
(h) Litigation . . . . . . . . . . . . . . . . . . . 33
(i) S-4 Registration Statement and Proxy
Statement/Prospectus . . . . . . . . . . . . . . 33
(j) Brokers and Finders . . . . . . . . . . . . . . 33
(k) Ownership of Shares . . . . . . . . . . . . . . 34
(l) Disclosure . . . . . . . . . . . . . . . . . . . 34
5.3. Representations and Warranties of Tate . . . . . . . 34
(a) Authority Relative to This Agreement and
<PAGE>
Page
Shareholders Agreement . . . . . . . . . . . . . . 34
(b) The Tate Shares . . . . . . . . . . . . . . . . . 34
(c) Consents and Approvals; No Violation . . . . . . . 34
(d) Certain Acknowledgements . . . . . . . . . . . . . 35
ARTICLE VI
Additional Covenants and Agreements
6.1. Conduct of Business . . . . . . . . . . . . . . . . . 35
6.2. No Solicitation . . . . . . . . . . . . . . . . . . . 39
6.3. Meeting of Shareholders . . . . . . . . . . . . . . . 41
6.4. S-4 Registration Statement; Proxy Statement . . . . . 41
6.5. Access to Information . . . . . . . . . . . . . . . . 42
6.6. Publicity . . . . . . . . . . . . . . . . . . . . . . 43
6.7. Indemnification of Directors and Officers . . . . . . 43
6.8. Affiliates of the Company . . . . . . . . . . . . . . 44
6.9. Taxes . . . . . . . . . . . . . . . . . . . . . . . . 44
6.10. Maintenance of Insurance . . . . . . . . . . . . . . 44
6.11. Representations and Warranties . . . . . . . . . . . 44
6.12. Antitrust Notification . . . . . . . . . . . . . . . 45
6.14. Notification of Certain Matters . . . . . . . . . . 46
6.15. Blue Sky Permits . . . . . . . . . . . . . . . . . . 47
6.16. NYSE Listing . . . . . . . . . . . . . . . . . . . . 47
6.17. Comfort Letter . . . . . . . . . . . . . . . . . . . 47
6.18. Benefit Matters . . . . . . . . . . . . . . . . . . 47
6.19. Convertible Notes . . . . . . . . . . . . . . . . . 47
ARTICLE VII
Conditions
7.1. Conditions to the Obligations of Acquiror . . . . . . 48
(a) Certificate . . . . . . . . . . . . . . . . . . 48
(b) Company Shareholder Approval . . . . . . . . . . 48
(c) No Litigation . . . . . . . . . . . . . . . . . 48
(d) S-4 Registration Statement . . . . . . . . . . . 49
(e) Listing of Acquiror Common Shares . . . . . . . 49
(f) Governmental Filings and Consents; HSR Act . . . 49
(g) Third-Party Consents . . . . . . . . . . . . . . 49
(h) Delivery of Comfort Letter . . . . . . . . . . . 50
(i) Affiliate Letters . . . . . . . . . . . . . . . 50
(j) Delivery of Tax Opinion . . . . . . . . . . . . 50
7.2. Conditions to the Obligations of the Company . . . . 50
<PAGE>
Page
(a) Certificate. . . . . . . . . . . . . . . . . . . 50
(b) Company Shareholder Approval . . . . . . . . . . 51
(c) Injunction . . . . . . . . . . . . . . . . . . . 51
(d) S-4 Registration Statement . . . . . . . . . . . 51
(e) Listing of Acquiror Common Shares . . . . . . . 51
(f) HSR Act . . . . . . . . . . . . . . . . . . . . 51
(g) Delivery of Tax Opinion . . . . . . . . . . . . 51
ARTICLE VIII
Termination
8.1. Termination by Mutual Consent . . . . . . . . . . . . 52
8.2. Termination by Either Acquiror or the Company . . . . 52
8.3. Termination by Acquiror . . . . . . . . . . . . . . . 52
8.4. Termination by the Company . . . . . . . . . . . . . 53
8.5. Effect of Termination and Abandonment . . . . . . . . 53
ARTICLE IX
Miscellaneous and General
9.1. Payment of Expenses . . . . . . . . . . . . . . . . . 54
9.2. Survival of Representations and Warranties . . . . . 54
9.3. Modification or Amendment . . . . . . . . . . . . . . 54
9.4. Waiver of Conditions . . . . . . . . . . . . . . . . 55
9.5. Counterparts . . . . . . . . . . . . . . . . . . . . 55
9.6. Governing Law . . . . . . . . . . . . . . . . . . . . 55
9.7. Notices . . . . . . . . . . . . . . . . . . . . . . . 55
9.8. Entire Agreement; Assignment . . . . . . . . . . . . 56
9.9. Parties in Interest . . . . . . . . . . . . . . . . . 56
9.10. Certain Definitions . . . . . . . . . . . . . . . . 56
(a)"Affiliate" . . . . . . . . . . . . . . . . . . . 56
(b) "subsidiary" . . . . . . . . . . . . . . . . . . 56
(c) "Material Adverse Effect" . . . . . . . . . . . 56
(d) "Person" . . . . . . . . . . . . . . . . . . . . 57
9.11. Severability . . . . . . . . . . . . . . . . . . . . 57
9.12. Specific Performance . . . . . . . . . . . . . . . . 57
9.13. Captions . . . . . . . . . . . . . . . . . . . . . . 57
EXHIBITS
Shareholders Agreement . . . . . . . . . . . . . . . . . . Exhibit A
Registration Rights Agreement . . . . . . . . . . . . . . . Exhibit B
Affiliate Letter . . . . . . . . . . . . . . . . . . . . . Exhibit C
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
October 1, 1996, among Toys "R" Us, Inc., a Delaware corporation
("Acquiror"), Baby Superstore, Inc., a South Carolina corporation (the
"Company"), and Jack P. Tate ("Tate").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Boards of Directors of Acquiror and the Company
each have determined that it is in the best interests of their
respective stockholders for the Company to merge with and into the
Acquiror upon the terms and subject to the conditions of this
Agreement;
WHEREAS, for federal income tax purposes, it is intended
that the Merger (as defined in Section 1.1) shall qualify as a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code");
WHEREAS, Tate is the beneficial owner and holder of record
of 9,000,000 shares of Common Stock, no par value, of the Company
(collectively, the "Tate Shares").
WHEREAS, concurrently with the execution hereof, certain
holders (each, a "Shareholder" and, collectively, the "Shareholders")
of Shares (as defined in Section 4.1(b)), including Tate, are entering
into the Shareholders Agreement, a copy of which is attached as
Exhibit A hereto (the "Shareholders Agreement") and the Registration
Rights Agreement, a copy of which is attached as Exhibit B hereto (the
"Registration Rights Agreement"); and
WHEREAS, Acquiror and the Company desire to make certain
representations, warranties, covenants and agreements in connection
with the Merger.
NOW, THEREFORE, in consideration of the mutual
representations, warranties, covenants and agreements set forth
herein, Acquiror and the Company hereby agree as follows:
<PAGE>
ARTICLE I
The Merger; Effective Time; Closing
1.1. The Merger. Upon the terms and subject to the
----------
conditions set forth in this Agreement, and in accordance with the
General Corporation Law of the State of Delaware (the "DGCL") and the
Business Corporation Act of the State of South Carolina (the "BCA"),
at the Effective Time (as defined in Section 1.2 below), Acquiror and
the Company shall consummate a merger (the "Merger") in which (a) the
Company shall be merged with and into Acquiror and the separate
corporate existence of the Company shall thereupon cease, and
(b) Acquiror shall continue as the surviving corporation in the Merger
("Surviving Corporation") and shall succeed to and assume all of the
rights, properties, liabilities and obligations of the Company.
1.2. Effective Time. Subject to the provisions of this
--------------
Agreement, Acquiror and the Company shall cause the Merger to be
consummated by filing a Certificate of Merger (the "Certificate of
Merger") with the Secretary of State of the State of Delaware and an
Articles of Merger (the "Articles of Merger") with the Secretary of
State of the State of South Carolina, in such form as required by, and
executed in accordance with, the relevant provisions of the DGCL and
the BCA, respectively, as soon as practicable on or after the Closing
Date (as defined in Section 1.3). The Merger shall become effective
upon such filing or at such time thereafter as is provided in the
Certificate of Merger and the Articles of Merger (the "Effective
Time").
1.3. Closing. Unless this Agreement shall have been
-------
terminated and the transactions herein contemplated shall have been
abandoned pursuant to Article VIII, and subject to the satisfaction or
waiver of the conditions set forth in Article VII, the closing of the
Merger (the "Closing") shall take place at 10:00 a.m., New York City
time, on the second business day after satisfaction of the conditions
set forth in Article VII (or as soon as practicable thereafter
following satisfaction or waiver of the conditions set forth in
Article VII) (the "Closing Date"), at the offices of Weil, Gotshal &
Manges LLP, 767 Fifth Avenue, New York, New York 10153, unless another
date, time or place is agreed to in writing by the parties hereto.
1.4. Effects of the Merger. The Merger shall have the
---------------------
effects set forth in the applicable provisions of the DGCL and the
BCA.
<PAGE>
ARTICLE II
Certificate of Incorporation and By-Laws
of the Surviving Corporation
2.1. Certificate of Incorporation. At the Effective Time,
----------------------------
the Restated Certificate of Incorporation of Acquiror as in effect
immediately prior to the Effective Time shall become the Restated
Certificate of Incorporation of the Surviving Corporation.
2.2. The By-Laws. At the Effective Time, the Restated
-----------
By-Laws of Acquiror as in effect immediately prior to the Effective
Time shall become the Restated By-Laws of the Surviving Corporation.
ARTICLE III
Directors and Officers
of the Surviving Corporation
3.1. Directors. The directors of Acquiror at the Effective
---------
Time shall, from and after the Effective Time, be the directors of the
Surviving Corporation until their successors have been duly elected or
appointed and qualified or until their earlier death, resignation or
removal in accordance with the Surviving Corporation's Restated
Certificate of Incorporation and Restated By-Laws.
3.2. Officers. The officers of Acquiror at the Effective
--------
Time shall, from and after the Effective Time, be the officers of the
Surviving Corporation until their successors have been duly elected or
appointed and qualified or until their earlier death, resignation or
removal in accordance with the Surviving Corporation's Restated
Certificate of Incorporation and Restated By-Laws.
ARTICLE IV
Merger Consideration; Conversion
or Cancellation of Shares in the Merger
4.1. Share Consideration for the Merger; Conversion or
-------------------------------------------------
Cancellation of Shares in the Merger. The manner of converting or
------------------------------------
canceling shares of the Company in the Merger shall be as follows:
<PAGE>
(a) Subject to Section 4.4, at the Effective Time, each
share of common stock, no par value, of the Company (the "Shares")
issued and outstanding immediately prior to the Effective Time (other
than Shares owned by Acquiror or any direct or indirect wholly owned
subsidiary of Acquiror (collectively, "Acquiror Companies") or by the
Company) shall, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into: (i) for each Share
other than the Tate Shares, the right to receive 0.8121 of a Share of
Common Stock, par value $0.10 per share, of Acquiror ("Acquiror Common
Shares") and (ii) for each Tate Share, the right to receive 0.5150 of
an Acquiror Common Share (as applicable, the "Merger Consideration").
If, prior to the Effective Time, Acquiror should split or combine the
Acquiror Common Shares, or pay a stock dividend or other stock
distribution in Acquiror Common Shares, then the Merger Consideration
will be appropriately adjusted to reflect such split, combination,
dividend or other distribution.
(b) Each Share that is directly owned by any of the
Acquiror Companies and each Share that is directly owned by the
Company shall be canceled and retired and shall cease to exist and no
consideration shall be delivered or deliverable in exchange therefor.
(c) All Shares to be converted pursuant to this Section 4.1
shall, by virtue of the Merger and without any action on the part of
the holders thereof, cease to be outstanding, be canceled and retired
and cease to exist, and each holder of a certificate representing any
such Shares (a "Company Certificate") shall thereafter cease to have
any rights with respect to such Shares, except the right to receive
for each of the Shares, upon the surrender of such certificate in
accordance with Section 4.2, the Merger Consideration and cash in lieu
of fractional Acquiror Common Shares as contemplated by Section
4.4(c).
(d) At the Effective Time, each share of capital stock of
Acquiror issued and outstanding immediately prior to the Effective
Time shall remain an issued and outstanding share of the same class of
capital stock of the Surviving Corporation.
(e) Subject to Section 4.1(f), at the Effective Time, each
outstanding option to purchase Shares (each, an "Option") issued
pursuant to the 1988 non-qualified stock option plan and the 1988
qualified stock option plan of the Company (collectively, the "1988
Plans"), the 1994 Baby Superstore, Inc. Stock Incentive Plan (the
"1994 Plan"), the 1995 Stock Option Plan for Outside Directors of the
Company (the "1995 Plan") (collectively, the 1988 Plans, the 1994 Plan
and the 1995 Plan
<PAGE>
are referred to herein as the "Option Plans") whether vested or
unvested, shall be assumed by Acquiror and shall constitute an option
to acquire, on substantially the same terms and subject to
substantially the same conditions as were applicable under such
Option, including, without limitation, term, exercisability, vesting
schedule, status as an "incentive stock option" under Section 422 of
the Code, acceleration and termination provisions, the same number of
Acquiror Common Shares, rounded down to the nearest whole share,
determined by multiplying the number of Shares subject to such Option
immediately prior to the Effective Time by 0.8121, at an exercise
price per share of Acquiror Common Shares (increased to the nearest
whole cent) equal to the exercise price per share of Shares
immediately prior to the Effective Time divided by 0.8121; provided,
--------
however, that in the case of any Option to which Section 421 of the
-------
Code applies by reason of its qualification as an incentive stock
option under Section 422 of the Code, the conversion formula shall be
adjusted if necessary to comply with Section 424(a) of the Code.
Employment with the Company shall be credited to the optionees for
purposes of determining the number of vested Acquiror Common Shares
subject to exercise under converted Options after the Effective Time.
Except as set forth in Section 5.1(m) of the Company Disclosure
Schedule (as defined in Section 5.1), none of the Options that are
unvested at the Effective Time shall become vested as a result of the
execution and delivery of this Agreement or the consummation of the
Merger. As soon as practicable after the Effective Time, but no later
than 30 days thereafter, Acquiror shall deliver to the holders of
Options appropriate notices informing such holders that such Options
have been assumed by Acquiror and will constitute options to purchase
Acquiror Common Shares on substantially the same terms and conditions
as their Options (subject to the adjustments required by this Section
4.1 after giving effect to the Merger).
(f) On the date hereof, Tate is the holder of 202,500
Options and Linda M. Robertson ("Robertson") is the holder of 67,500
Options. At the Effective Time, (i) each then outstanding vested
Option held by Tate shall be settled by the Company in exchange for an
amount of cash equal to the difference between (A) 0.5150 multiplied
by the closing per share sales price of the Acquiror Common Shares on
the NYSE composite tape on the Closing Date (the "Closing Price") and
(B) the exercise price per share of such Option, subject to any
required withholding of taxes and (ii) each then outstanding vested
Option held by Robertson shall be settled by the Company in exchange
for an amount of cash equal to the difference between (A) 0.8121
multiplied by the Closing Price and (B) the exercise price per share
of such Option, subject to any required withholding of taxes (each
such amount being hereinafter referred to as, the "Option
Consideration"). From and after the Effective Time, such Options
shall represent
<PAGE>
only the right of Tate and Robertson to receive the Option
Consideration upon the surrender thereof. Upon receipt of the Option
Consideration, the corresponding Option shall be canceled. The
surrender by Tate and Robertson of such Options to the Company in
exchange for the Option Consideration shall be deemed a release of any
and all rights which Tate and Robertson had or may have had in respect
of such Options.
(g) Acquiror shall use its best efforts to cause there to
be effective as of a date as soon as practicable after the Effective
Time a registration statement on Form S-8 (or any successor form) or
another appropriate form, with respect to the Acquiror Common Shares
subject to such Options, and shall use its best efforts to maintain
the effectiveness of such registration statement or registration
statements (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such Options remain
outstanding.
(h) At the Effective Time, the warrants to purchase Shares
listed in Section 5.1(b)(2.) of the Company Disclosure Schedule (each,
a "Warrant" and, collectively, the "Warrants") shall be assumed by
Acquiror pursuant to the terms of the Warrants, and shall be deemed to
constitute a warrant to acquire, on the terms and conditions as were
applicable under such Warrant, the same number of Acquiror Common
Shares as the holder of such Warrant would have been entitled to
receive pursuant to the Merger had such holder exercised such Warrant
in full immediately prior to the Effective Time (not taking into
account whether such Warrant was in fact exercisable at such time), at
a price per share equal to (x) the aggregate exercise price for the
Shares subject to such Warrant divided by (y) the number of Acquiror
Common Shares deemed purchasable pursuant to such Warrant; provided,
--------
however, that the number of Acquiror Common Shares that may be
-------
purchased upon exercise of such Warrant shall not include any
fractional share and, upon exercise of the Warrant, a cash payment
shall be made for any fractional share based upon the closing price of
an Acquiror Common Share on the NYSE on the trading day immediately
preceding the date of exercise.
4.2. Exchange Procedures. (a) Prior to the Effective
-------------------
Time, Acquiror shall designate a bank or trust company to act as
exchange agent in the Merger (the "Exchange Agent"), and Acquiror
shall deposit with the Exchange Agent as of the Effective Time (or
otherwise when requested by the Exchange Agent from time to time in
order to effect any exchange pursuant to this Section 4.2) for the
benefit of the holders of the Shares for exchange in accordance with
this Article IV, through the Exchange Agent, certificates evidencing
the Acquiror Common Shares issuable pursuant to Section 4.1 in
exchange for outstanding Shares. Such
<PAGE>
Acquiror Common Shares, together with any dividends or distributions
with respect thereto with a record date after the Effective Time,
shall hereinafter be referred to as the "Exchange Fund." The Exchange
Agent shall, pursuant to irrevocable instructions, deliver the
Acquiror Common Shares pursuant to Section 4.1 out of the Exchange
Fund.
(b) As soon as reasonably practicable after the Effective
Time, the Exchange Agent shall mail to each holder of record of Shares
immediately prior to the Effective Time (excluding any Shares which
will be canceled pursuant to Section 4.1(b) or which are subject to
Section 4.4) (i) a letter of transmittal (the "Letter of Transmittal")
(which shall specify that delivery shall be effected, and risk of loss
and title to the Company Certificates shall pass, only upon delivery
of such Company Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Acquiror shall specify)
and (ii) instructions for use in effecting the surrender of the
Company Certificates in exchange for the Merger Consideration with
respect to the Shares formerly represented thereby.
(c) Upon surrender of a Company Certificate for
cancellation to the Exchange Agent, together with the Letter of
Transmittal, duly executed, and such other documents as Acquiror or
the Exchange Agent shall reasonably request, the holder of such
Company Certificate shall be entitled to receive in exchange therefor
(i) Acquiror Certificates representing that number of Acquiror Common
Shares, if any, which such holder has the right to receive pursuant to
this Article IV and (ii) a certified or bank cashier's check in the
amount equal to any cash in lieu of fractional shares which such
holder is entitled to receive pursuant to Section 4.3(c) (in each case
less the amount of any required withholding taxes, if any, determined
in accordance with Section 4.4(g)), and the Company Certificate so
surrendered shall forthwith be canceled. Until surrendered as
contemplated by this Section 4.2, each Company Certificate shall be
deemed at any time after the Effective Time to represent only the
right to receive the Merger Consideration with respect to the Shares
formerly represented thereby.
4.3. Dividends, Fractional Shares, Etc.
---------------------------------
(a) Notwithstanding any other provisions of this Agreement,
no dividends or other distributions declared after the Effective Time
on Acquiror Common Shares shall be paid with respect to any whole
Acquiror Common Shares represented by a Company Certificate until such
Company Certificate is surrendered for exchange as provided herein.
Subject to the effect of applicable laws, following surrender of any
such Company Certificate, there shall be paid to the holder of the
Acquiror
<PAGE>
Certificates issued in exchange therefor, without interest, (i) at the
time of such surrender, the amount of dividends or other distributions
with a record date after the Effective Time theretofore payable with
respect to such whole Acquiror Common Shares and not paid, less the
amount of any withholding taxes which may be required thereon, and
(ii) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with
respect to such whole Acquiror Common Shares, less the amount of any
withholding taxes which may be required thereon.
(b) At or after the Effective Time, there shall be no
transfers on the stock transfer books of the Company of the Shares
which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Company Certificates representing any such
shares are presented to the Surviving Corporation, they shall be
canceled and exchanged for certificates for the Merger Consideration
deliverable in respect thereof pursuant to this Agreement in
accordance with the procedures set forth in this Article IV. Company
Certificates surrendered for exchange by any Person constituting an
"affiliate" of the Company for purposes of Rule 145(c) under the
Securities Act shall not be exchanged until Acquiror has received a
written agreement from such Person as provided in Section 6.8.
(c) (i) No certificates or scrip evidencing
fractional Acquiror Common Shares shall be issued upon the
surrender for exchange of Company Certificates, and such
fractional share interests will not entitle the owner
thereof to vote or to any rights of a stockholder of
Acquiror. In lieu of any such fractional shares, the
Exchange Agent shall, on behalf of all holders of fractional
Acquiror Common Shares, as soon as practicable after the
Effective Time, aggregate all such fractional interests
(collectively, the "Fractional Shares") and, at Acquiror's
option, such Fractional Shares shall be purchased by
Acquiror or otherwise sold by the Exchange Agent as agent for
the holders of such Fractional Shares, in either case at
the then prevailing price on the NYSE, all in the manner
provided hereinafter. Until the net proceeds of such sale or
sales have been distributed to the holders of Fractional
Shares, the Exchange Agent shall retain such proceeds in trust
for the benefit of such holders. Acquiror shall pay
all commissions, transfer taxes and other out-of-pocket
transaction costs, including expenses and compensation of the
Exchange Agent, incurred in connection with such sale of
the Fractional Shares.
<PAGE>
(ii) To the extent not purchased by Acquiror, the sale of
the Fractional Shares by the Exchange Agent shall be executed on
the NYSE or through one or more member firms of the NYSE and will
be executed in round lots to the extent practicable. In either
case, the Exchange Agent will determine the portion, if any, of
the net proceeds of such sale to which each holder of Fractional
Shares is entitled, by multiplying the amount of the aggregate
net proceeds of the sale of the Fractional Shares by a fraction,
the numerator of which is the amount of Fractional Shares to
which such holder is entitled and the denominator of which is the
aggregate amount of Fractional Shares to which all holders of
Fractional Shares are entitled.
(iii) As soon as practicable after the determination of the
amount of cash, if any, to be paid to holders of Fractional
Shares in lieu of such Fractional Shares, the Exchange Agent
shall mail such amounts, without interest, to such holders;
provided, however, that no such amount will be paid to any holder
-------- -------
of such Fractional Shares prior to the surrender by such holder
of the Company Certificates formerly representing such holder's
Shares.
(d) Any portion of the Exchange Fund that remains
undistributed to the holders of Shares for six months after the
Effective Time shall be delivered to Acquiror, upon demand, and any
holders of Shares who have not theretofore complied with this Article
IV shall thereafter look only to Acquiror for the Merger
Consideration, net cash proceeds from the sale of Fractional Shares
and unpaid dividends and distributions on the Acquiror Common Shares
to which they are entitled. All interest accrued in respect of the
Exchange Fund shall inure to the benefit of and be paid to Acquiror.
(e) None of Acquiror, the Company or the Exchange Agent
shall be liable to any holder of Shares for any Acquiror Common
Shares, net cash proceeds from the sale of Fractional Shares or unpaid
dividends or distributions with respect to Acquiror Common Shares from
the Exchange Fund delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. If any Company
Certificates shall not have been surrendered prior to seven years
after the Effective Time (or immediately prior to such earlier date on
which any Acquiror Common Shares, net cash proceeds from the sale of
Fractional Shares or unpaid dividends or distributions with respect to
Acquiror Common Shares in respect of such Company Certificates would
otherwise escheat to or become the property of any governmental
authority), any such Acquiror Common Shares, cash or unpaid dividends
or distributions in respect of such
<PAGE>
Company Certificates shall, to the extent permitted by applicable
laws, become the property of the Surviving Corporation.
(f) In the event that any Company Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the Person claiming such Company Certificate to be lost,
stolen or destroyed and, if required by Acquiror, the posting by such
Person of a bond in such reasonable amount as Acquiror may direct as
indemnity against any claim that may be made against it with respect
to such Company Certificate, the Exchange Agent (or Acquiror, as the
case may be) will issue in exchange for such lost, stolen or destroyed
Company Certificate the Merger Consideration, cash in lieu of
fractional shares, and unpaid dividends and distributions on Acquiror
Common Shares deliverable in respect thereof pursuant to this
Agreement.
(g) Acquiror shall be entitled to, or shall be entitled to
cause the Exchange Agent to, deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any
holder of Shares such amounts as are required to be deducted and
withheld with respect to the making of such payment under the Code, or
any provision of state, local or foreign tax law. To the extent that
amounts are so withheld by Acquiror or the Exchange Agent, as the case
may be, such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the holder of the Shares in
respect of which such deduction and withholding was made by Acquiror
or the Exchange Agent.
4.4. Dissenting Shares. Notwithstanding any other
-----------------
provisions of this Agreement to the contrary, Shares that are
outstanding immediately prior to the Effective Time and which are held
by shareholders who shall have not voted in favor of the Merger or
consented thereto in writing and who shall have demanded properly in
writing appraisal for such shares in accordance with Article XIII of
the BCA (collectively, the "Dissenting Shares") shall not be converted
into or represent the right to receive the Merger Consideration. Such
shareholders instead shall be entitled to receive payment of the
appraised value of such Shares held by them in accordance with the
provisions of Article III of the BCA, except that all Dissenting
Shares held by shareholders who shall have failed to perfect or who
effectively shall have withdrawn or lost their rights to appraisal of
such Shares under Article III of the BCA shall thereupon be deemed to
have been converted into and to have become exchangeable, as of the
Effective Time, for the right to receive, without any interest
thereon, the Merger Consideration upon surrender in the manner
provided in Section 4.1, of the Company Certificate or Certificates
that, immediately prior to the Effective Time, evidenced such Shares.
<PAGE>
ARTICLE V
Representations and Warranties
5.1. Representations and Warranties of the Company. The
---------------------------------------------
Company hereby represents and warrants to Acquiror that (except to the
extent set forth on the Disclosure Schedule previously delivered by
the Company to Acquiror (the "Company Disclosure Schedule")):
(a) Corporate Organization and Qualification. Each of the
----------------------------------------
Company and its subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of its respective
jurisdiction of incorporation and is qualified and in good standing as
a foreign corporation in each jurisdiction where the properties owned,
leased or operated, or the business conducted, by it require such
qualification, except where failure to so qualify or be in good
standing would not have a Material Adverse Effect (as defined in
Section 9.10) with respect to the Company and its subsidiaries. Each
of the Company and its subsidiaries has all requisite power and
authority (corporate or otherwise) to own its properties and to carry
on its business as it is now being conducted. All of the subsidiaries
of the Company, together with an organizational chart, are set forth
in Section 5.1(a) of the Company Disclosure Schedule. The Company has
heretofore made available to Acquiror complete and correct copies of
its Amended and Restated Articles of Incorporation and By-Laws.
(b) Capitalization. The authorized capital stock of the
--------------
Company consists of (i) 50,000,000 Shares, of which, as of October 1,
1996, 19,235,533 Shares were issued and outstanding and no Shares were
held in treasury, and (ii) 10,000,000 shares of preferred stock, none
of which are issued or outstanding. All of the outstanding shares of
capital stock of the Company have been duly authorized and validly
issued and are fully paid and nonassessable. The Company has no
outstanding stock appreciation rights. Except as set forth in Section
5.1(b) of the Company Disclosure Schedule, no Shares are owned by any
subsidiary of the Company. Except as set forth in Section 5.1(b) of
the Company Disclosure Schedule, all outstanding shares of capital
stock or other equity interests of the subsidiaries of the Company are
owned by the Company or a direct or indirect wholly owned subsidiary
of the Company, free and clear of all liens, charges, encumbrances,
claims and options of any nature. Except for (i) options outstanding
on the date hereof to purchase 1,125,625 Shares under the Option
Plans, (ii) 146,357 Shares issuable under the Baby Superstore, Inc.
Employee Stock Purchase Plan, a true, complete and correct copy of
which the Company has delivered to Acquiror prior to the date hereof,
(iii) the Warrants, true,
<PAGE>
complete and correct copies of which have been delivered to Acquiror
prior to the date hereof, (iv) $115,000,000 aggregate outstanding
principal amount of the Company's 4-7/8% Convertible Subordinated
Notes due October 1, 2000 (the "Convertible Notes") which are
convertible into Shares at a conversion price of $53.875 per share,
and (iv) as set forth in Section 5.1(b) of the Company Disclosure
Schedule, there are not as of the date hereof and there will not be at
the Effective Time any outstanding or authorized options, warrants,
calls, rights (including preemptive rights), commitments or any other
agreements of any character to which the Company or any of its
subsidiaries is a party, or by which it may be bound, requiring it to
issue, transfer, sell, purchase, redeem or acquire any shares of
capital stock or any securities or rights convertible into,
exchangeable for, or evidencing the right to subscribe for, any shares
of capital stock of the Company or any of its subsidiaries. There are
not as of the date hereof and there will not be at the Effective Time
any shareholder agreements (other than the Shareholders Agreement),
voting trusts or other agreements or understandings to which the
Company is a party or to which it is bound relating to the voting of
any shares of the capital stock of the Company.
(c) Approvals; Fairness Opinion.
---------------------------
(i) The Board of Directors at a meeting duly called and
held, has (i) determined that this Agreement and the transactions
contemplated hereby, including the Merger are fair to and in the
best interests of the shareholders of the Company and has
approved the same, and (ii) resolved to recommend that the
holders of the Shares approve this Agreement and the transactions
contemplated hereby, including the Merger. Except for the
approval of the holders of a majority of the outstanding Shares
required by the BCA and the Company's Articles of Incorporation,
no other approval of the stockholders of the Company is required
in order to consummate the transactions contemplated by this
Agreement.
(ii) The Board of Directors of the Company has received an
opinion from CS First Boston Corporation to the effect that the
exchange ratio to be offered to the holders of Shares (other than
Tate) in the Merger is fair to such holders from a financial
point of view. As of the date hereof, such opinion has not been
withdrawn, revoked or modified.
(d) Authority Relative to This Agreement. The Company has
------------------------------------
the requisite corporate power and authority to approve, authorize,
execute and deliver this Agreement and to consummate the transactions
contemplated hereby (subject to the approval of
<PAGE>
the Merger by the affirmative vote of the holders of a majority of the
votes entitled to be cast by the holders of Shares in accordance with
the BCA and the Company's Articles of Incorporation). This Agreement
and the consummation by the Company of the transactions contemplated
hereby have been duly and validly authorized by the Board of Directors
of the Company and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby (other than the approval of the
Merger by the affirmative vote of the holders of a majority of the
votes entitled to be cast by the holders of Shares in accordance with
the BCA and the Company's Articles of Incorporation). This Agreement
has been duly and validly executed and delivered by the Company and,
assuming this Agreement constitutes the valid and binding agreement of
Acquiror, constitutes the valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, subject,
as to enforceability, to bankruptcy, insolvency, reorganization and
other laws of general applicability relating to or affecting
creditors' rights and to general principles of equity.
(e) Consents and Approvals; No Violation. Neither the
------------------------------------
execution and delivery of this Agreement by the Company nor the
consummation by the Company of the transactions contemplated hereby
will (i) conflict with or result in any breach of any provision of the
respective Articles of Incorporation (or other similar documents) or
By-Laws (or other similar documents) of the Company or any of its
subsidiaries; (ii) require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or
regulatory authority or any other Person, except (A) in connection
with the applicable requirements, if any, of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (B)
pursuant to the applicable requirements of the Securities Act of 1933,
as amended (the "Securities Act"), and the rules and regulations
promulgated thereunder, and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations
promulgated thereunder, (C) the filing of the Certificate of Merger
and the Articles of Merger pursuant to the DGCL and the BCA,
respectively, and appropriate documents with the relevant authorities
of other states in which the Company is authorized to do business,
(D) such filings and consents as may be required under any
environmental, health or safety law or regulation pertaining to any
notification, disclosure or required approval triggered by the Merger
or the transactions contemplated by this Agreement, as set forth in
Section 5.1(e) of the Company Disclosure Schedule, (E) the consents,
approvals, orders, authorizations, registrations, declarations and
filings required under the laws of foreign countries, as set forth in
Section
<PAGE>
5.1(e) of the Company Disclosure Schedule, (F) the approval of the
holders of a majority of the outstanding Shares required by the BCA
and the Company's Articles of Incorporation, (G) such filings as may
be required with the NASDAQ National Market or (H) where the failure
to obtain such consent, approval, authorization or permit, or to make
such filing or notification, would not in the aggregate have a
Material Adverse Effect with respect to the Company and its
subsidiaries or adversely affect the ability of the Company to
consummate the transactions contemplated hereby; (iii) except as set
forth in Section 5.1(e) of the Company Disclosure Schedule, result in
a violation or breach of, or constitute (with or without notice or
lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration or result in the creation of
any lien or other charge or encumbrance) under any of the terms,
conditions or provisions of any note, license, agreement or other
instrument or obligation to which the Company or any of its
subsidiaries or any of their assets may be bound, except for such
violations, breaches and defaults (or rights of termination,
cancellation or acceleration or creations of lien or other charge or
encumbrance) as to which requisite waivers or consents have been
obtained or which, in the aggregate, would not have a Material Adverse
Effect with respect to the Company and its subsidiaries or adversely
affect the ability of the Company to consummate the transactions
contemplated hereby; or (iv) assuming the consents, approvals,
authorizations or permits and filings or notifications referred to in
this Section 5.1(e) are duly and timely obtained or made and the
approval of the Merger and the approval of this Agreement by the
Company's stockholders has been obtained, violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the
Company or any of its subsidiaries or to any of their respective
assets, except for violations which would not in the aggregate have a
Material Adverse Effect with respect to the Company and its
subsidiaries or adversely affect the ability of the Company to
consummate the transactions contemplated hereby. Except as set forth
in Section 5.1(e) of the Company Disclosure Schedule, the Company does
not know of any pending or proposed legislation, regulation or order
(other than those affecting businesses such as the Company's
generally) applicable to the Company or any of its subsidiaries or to
the conduct of the business or operations of the Company or any of its
subsidiaries which, if enacted or adopted, could have a Material
Adverse Effect with respect to the Company and its subsidiaries.
(f) Litigation; Compliance with Laws. Except as disclosed
--------------------------------
in the Company SEC Reports (as defined in Section 5.1(g)) filed and
publicly available prior to the date of this Agreement or as disclosed
in Section 5.1(f) of the Company Disclosure Schedule, there are no
actions, suits, or proceedings
<PAGE>
pending or, to the best knowledge of the Company, threatened against
the Company or any of its subsidiaries which could, individually or in
the aggregate, if adversely determined, reasonably be expected to have
a Material Adverse Effect with respect to the Company and its
subsidiaries, nor is there any judgment, decree, injunction, rule or
order of any governmental or regulatory authority or arbitrator
outstanding against the Company or any of its subsidiaries, which
could, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect with respect to the Company and its
subsidiaries. Except as set forth in Section 5.1(f) of the Company
Disclosure Schedule, as of the date of this Agreement, no
investigation or review by any governmental or regulatory authority
with respect to the Company or any of its subsidiaries is to the
knowledge of the Company, pending or threatened, nor has the Company
received any notice from any governmental or regulatory authority
indicating an intention to conduct the same. Neither the Company nor
any of its subsidiaries has violated or failed to comply with any
statute, law, ordinance, regulation, rule, judgment, decree or order
of any governmental authority or regulatory agency applicable to its
business or operations, except for violations and failures to comply
that could not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect with respect to the
Company and its subsidiaries.
(g) SEC Reports; Financial Statements.
---------------------------------
(i) Since September 27, 1994, the Company has filed all
forms, reports and documents with the Securities and Exchange
Commission (the "SEC") required to be filed by it pursuant to
the federal securities laws and the SEC rules and regulations
thereunder, all of which complied in all material respects with
all applicable requirements of the Securities Act and the
Exchange Act and the rules and regulations promulgated thereunder
(collectively, the "Company SEC Reports"). None of the Company
SEC Reports, including, without limitation, any financial
statements or schedules included therein, at the time filed
contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(ii) The consolidated balance sheets and the related
consolidated statements of income, stockholders' equity (deficit)
and cash flows (including the related notes thereto) of the
Company included in the Company SEC Reports complied as to form
in all material respects with applicable accounting requirements
and the published rules and regulations of the SEC with respect
thereto, have been
<PAGE>
prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a basis consistent with prior
periods (except as otherwise noted therein), and present fairly
the consolidated financial position of the Company and its
consolidated subsidiaries as of their respective dates, and the
consolidated results of their operations and their cash flows for
the periods presented therein (subject, in the case of the
unaudited interim financial statements, to normal year-end
adjustments). Except as set forth in Section 5.1(g) of the
Company Disclosure Schedule, since January 1, 1993, there has not
been any material change, or any application or request for any
material change, by the Company or any of its subsidiaries in
accounting principles, methods or policies for financial
accounting purposes that have affected or will affect the
Company's consolidated financial statements included in the
Company SEC Reports or for tax purposes, except as required by
concurrent changes in GAAP.
(h) Undisclosed Liabilities; Absence of Certain Changes or
------------------------------------------------------
Events. Neither the Company nor any of its subsidiaries has any
------
material indebtedness, obligations or liabilities of any kind (whether
accrued, absolute, contingent or otherwise, and whether due or to
become due or asserted or unasserted), and, to the best knowledge of
the Company, there is no basis for the assertion of any claim or
liability of any nature against the Company or any of its
subsidiaries, which is not fully reflected in, reserved against or
otherwise described in the financial statements included in the
Company SEC Reports filed and publicly available prior to the date of
this Agreement. Except as disclosed in the Company SEC Reports filed
and publicly available prior to the date of this Agreement or in
Section 5.1(h) of the Company Disclosure Schedule, or as contemplated
by this Agreement, since January 1, 1996, the business of the Company
and its subsidiaries has been carried on only in the ordinary and
usual course and there has not been (i) any damage, destruction or
loss, whether covered by insurance or not, which has, or insofar as
reasonably can be foreseen in the future is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect with
respect to the Company and its subsidiaries; (ii) any declaration,
setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to the Shares or any
redemption, purchase or other acquisition of the Shares; (iii) any
change, occurrence or circumstance in the business, results of
operations, properties, assets, liabilities, prospects or condition
(financial or otherwise) of any character (whether or not in the
ordinary course of business) which, individually or in the aggregate,
has had or is reasonably likely to have, a Material Adverse Effect
with respect to the Company and its subsidiaries;
<PAGE>
or (iv) other than in the ordinary course of business consistent with
past practice, any increase in the benefits payable under or
establishment of any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, stock option
(including without limitation the granting of stock options, stock
appreciation rights, performance awards or restricted stock awards),
stock purchase or other employee benefit plan, or any other increase
in the compensation payable or to become payable to any officers or
key employees of the Company or any of its subsidiaries.
(i) Employment Agreements. Except as set forth in Section
---------------------
5.1(i) of the Company Disclosure Schedule, the Company is not a party
to any employment, consulting, non-competition, severance, golden
parachute, indemnification agreement or any other agreement providing
for payments or benefits or the acceleration of payments or benefits
upon the change of control of the Company (including, without
limitation, any contract to which the Company is a party involving
employees of the Company).
(j) Brokers and Finders. Except for the fees and expenses
-------------------
payable to CS First Boston Corporation and Invemed Associates, Inc.,
which fees and expenses are reflected in its agreement with the
Company, a true and complete copy of which (including all amendments)
has been furnished to Acquiror, the Company has not employed any
investment banker, broker, finder, consultant or intermediary in
connection with the transactions contemplated by this Agreement which
would be entitled to any investment banking, brokerage, finder's or
similar fee or commission in connection with this Agreement or the
transactions contemplated hereby.
(k) S-4 Registration Statement and Proxy Statement/
-----------------------------------------------
Prospectus. None of the information supplied or to be supplied by the
----------
Company for inclusion or incorporation by reference in the S-4
Registration Statement or the Proxy Statement (as such terms are
defined in Section 6.4) will (i) in the case of the S-4 Registration
Statement, at the time it becomes effective or at the Effective Time,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to
make the statements therein not misleading, or (ii) in the case of the
Proxy Statement, at the time of the mailing of the Proxy Statement and
at the time of the Shareholder Meeting (as such term is defined in
Section 6.3), contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. If at any time prior to
the Effective Time any event with respect to the Company, its officers
and directors or any of its
<PAGE>
subsidiaries should occur which is required to be described in a
supplement to the S-4 Registration Statement or the Proxy Statement
such event shall be so described, and such supplement shall be
promptly filed with the SEC and, as required by law, disseminated to
the stockholders of the Company. The Proxy Statement will (only with
respect to the Company) comply as to form in all material respects
with the requirements of the Exchange Act and the rules and
regulations promulgated thereunder.
(l) Taxes. (i) The Company and each of its
-----
subsidiaries, and each affiliated group (within the meaning of
Section 1504 of the Code) of which the Company or any of its
subsidiaries is or has ever been a member, has timely
filed all Federal income Tax Returns (as defined below) and
all other material Tax Returns and reports required to be
filed by it. All such Tax Returns are complete and correct in
all material respects. The Company and each of its subsidiaries
has paid (or the Company has paid on its subsidiaries' behalf)
all Taxes (as defined below) shown due on such Tax Returns.
The most recent consolidated financial statements contained
in the SEC Reports reflect an adequate reserve for all Taxes
payable by the Company and its subsidiaries for all taxable
periods and portions thereof through the date of such financial
statements.
(ii) Except as disclosed on Section 5.1(l)of the Company
Disclosure Schedule, no material deficiencies for any Taxes have
been proposed, asserted or assessed against the Company or any of
its subsidiaries that have not been fully paid or adequately
provided for in the appropriate financial statements of the
Company and its subsidiaries, no requests for waivers of the time
to assess any Taxes are pending, and no power of attorney with
respect to any Taxes has been executed or filed with any taxing
authority. No material issues relating to Taxes have been raised
in writing by the relevant taxing authority during any presently
pending audit or examination.
(iii) No material liens for Taxes exist with respect to any
assets or properties of the Company or any of its subsidiaries,
except for statutory liens for Taxes not yet due.
(iv) Except as disclosed on Section 5.1(l) of the Company
Disclosure Schedule and other than with respect to contractual
tax indemnity obligations of the Company and its subsidiaries
involving claims for state and local Taxes which are not material
in amount, none of the Company or any of its subsidiaries is a
party to or is bound by any tax
<PAGE>
sharing agreement, tax indemnity obligation or similar agreement,
arrangement or practice with respect to Taxes (including any
advance pricing agreement, closing agreement or other agreement
relating to Taxes with any taxing authority).
(v) None of the Company or any of its subsidiaries has
taken or agreed to take any action that would prevent the Merger
from constituting a reorganization qualifying under the
provisions of Section 368(a)(1) of the Code.
(vi) The Company and its subsidiaries have complied in all
material respects with all applicable laws, rules and regulations
relating to the payment and withholding of Taxes.
(vii) Except as disclosed in Section 5.1(l) of the Company
Disclosure Schedule, no Federal, state, local or foreign audits
or other administrative proceedings or court proceedings are
presently pending with regard to any Federal income or material
state, local or foreign Taxes or Tax Returns of the Company or
its subsidiaries and neither the Company nor any of its
subsidiaries has received a written notice of any pending audit
or proceeding.
(viii) Neither the Company nor any of its subsidiaries has
agreed to or is required to make any adjustment under Section
481(a) of the Code.
(ix) Neither the Company nor any of its subsidiaries has,
with regard to any assets or property held or acquired by any of
them, filed a consent to the application of Section 341(f) of the
Code or agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as such term is defined in
Section 341(f)(4) of the Code) owned by the Company or any of its
subsidiaries.
(x) No property owned by the Company or any of its
subsidiaries (i) is property required to be treated as being
owned by another Person pursuant to the provisions of Section
168(f)(8) of the Internal Revenue Code of 1954, as amended and in
effect immediately prior to the enactment of the Tax Reform Act
of 1986; (ii) constitutes "tax exempt use property" within the
meaning of Section 168(h)(1) of the Code; or (iii) is tax exempt
bond financed property within the meaning of Section 168(g) of
the Code. The Company and each of its subsidiaries are not
currently, have not been within the past five years, and do not
anticipate becoming a
<PAGE>
"United States real property holding corporation" within the
meaning of Section 897(c) of the Code.
(xi) For purpose of the Agreement, (A) the terms "Tax" or
"Taxes" shall mean all taxes, charges, fees, imposts, levies,
gaming or other assessments, including, without limitation, all
net income, gross receipts, capital, sales, use, ad valorem,
value added, transfer, franchise, profits, inventory, capital
stock, license, withholding, payroll, employment, social
security, unemployment, excise, severance, stamp, occupation,
property and estimated taxes, customs duties, fees, assessments
and charges of any kind whatsoever, together with any interest
and any penalties, fines, additions to tax or additional amounts
imposed by any taxing authority (domestic or foreign) and shall
include any transferee liability in respect of Taxes, any
liability in respect of Taxes imposed by contract, tax sharing
agreement, tax indemnity agreement or any similar agreement and
(B) the term "Tax Return" shall mean any report, return,
document, declaration or any other information or filing required
to be supplied to any taxing authority or jurisdiction (foreign
or domestic) with respect to Taxes, including, without
limitation, information returns, any document with respect to or
accompanying payments or estimated Taxes, or with respect to or
accompanying requests for the extension of time in which to file
any such report, return document, declaration or other
information.
(m) Employee Benefits. Section 5.1(m) of the Company
-----------------
Disclosure Schedule contains an accurate and complete list of all
Company Benefit Plans (as defined below). None of the Company Benefit
Plans is a "multiemployer plan" as defined in Section 3(37) of ERISA
or a multiple employer plan covered by Section 4063 or 4064 of ERISA.
(i) Except as disclosed in Section 5.1(m) of the Company
Disclosure Schedule, each Company Benefit Plan intended to
qualify under Section 401 of the Code does so qualify and the
trust maintained pursuant thereto is exempt from federal income
taxation under Section 501 of the Code. Nothing has occurred
with respect to the operation of such plans which could cause the
loss of such qualification or exemption or the imposition of any
liability, penalty, or tax under ERISA or the Code.
(ii) True and correct copies of the following documents
with respect to each Company Benefit Plans have been made
available or delivered to Acquiror by the Company: (A) any
plans, and amendments thereto, (B) the most recent forms 5500 and
any financial statements attached thereto,
<PAGE>
(C) the last Internal Revenue Service determination letter (if
any), (D) summary plan descriptions, (E) the two most recent
actuarial reports, including any such reports for purposes of
FASB 87, 106 and 112, and (F) written descriptions of all
material, non-written agreements relating to the Company Benefit
Plans.
(iii) The Company Benefit Plans have been maintained in
accordance with their terms and with all provisions of ERISA and
other applicable law. Neither the Company nor any of its
subsidiaries has any liability with respect to a non-exempt
prohibited transaction within the meaning of Section 4975 of the
Code or Section 406 of ERISA.
(iv) Neither the Company nor any ERISA Affiliate maintains
any Company Benefit Plan subject to Title IV of ERISA has
unfunded benefit liabilities, as defined in Section 4001(a)(18)
of ERISA.
(v) Except as disclosed in Section 5.1(m) of the Company
Disclosure Schedule, neither the Company nor any of its
subsidiaries maintains retiree life insurance or retiree health
plans which are "welfare benefit plans" within the meaning of
Section 3(1) of ERISA and which provide for continuing benefits
or coverage for any participant or any beneficiary of a
participant after such participant's termination of employment
where such participant was an employee of the Company or any
subsidiary of the Company, other than as required by Part 6 of
Title I of ERISA.
(vi) Except as disclosed in Section 5.1(m) of the Company
Disclosure Schedule, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated
hereby will (A) result in any payment (including, without
limitation, bonus or other compensation severance, unemployment
compensation, golden parachute or otherwise) becoming due to any
employee of the Company under any Company Benefit Plan, any
individual agreement or otherwise, (B) increase any benefits
otherwise payable under any Company Benefit Plan, or (C) result
in the acceleration of the time of payment or vesting of any such
benefits.
(vii) (A) None of the employees of the Company or any of
its subsidiaries is represented in his or her capacity as an
employee of such company by any labor organization; (B) neither
the Company nor any of its subsidiaries has recognized any labor
organization nor has any labor organization been elected as the
collective bargaining agent of any of their employees, nor has
the Company or any of its
<PAGE>
subsidiaries signed any collective bargaining agreement or union
contract recognizing any labor organization as the bargaining
agent of any of their employees; and (C) to the best knowledge of
the Company, there is no active or current union organization
activity involving the employees of the Company or any subsidiary
of the Company, nor has there ever been union representation
involving employees of the Company and/or its subsidiaries.
(viii) For the purposes of this Agreement: (A) the term
"Company Benefit Plan" shall include all employee benefit plans
(as defined in Section 3(3) of ERISA) and all other employee
benefit plans, arrangements or payroll practices, including,
without limitation, severance pay, sick leave, vacation pay,
salary continuation for disability, scholarship programs,
deferred compensation, incentive compensation, stock option or
restricted stock plans maintained by the Company or any ERISA
Affiliate of the Company (whether formal or informal, whether for
the benefit of a single individual or for more than one
individual and whether for the benefit of current or former
employees or their beneficiaries) on behalf of the Company or any
of the employees of the Company or any of its subsidiaries or to
which or under which or pursuant to which the Company or any
ERISA Affiliate of the Company has contributed or is obligated to
make contributions on behalf of the Company or any employees of
the Company or any of its subsidiaries; (B) the term "ERISA"
shall refer to the Employee Retirement Income Security Act of
1974, as amended; and (C) the term "ERISA Affiliate" shall refer
to any trade or business (whether or not incorporated) under
common control or treated as a single employer with the Company
within the meaning of Section 414(b), (c), (m) or (o) of the
Code.
(n) Title to Properties; Assets Other Than Real Property
----------------------------------------------------
Interests. (i) Section 5.1(n) of the Company Disclosure Schedule
---------
Disclosure Schedule sets forth a complete list of all real
property and interests in real property owned or leased by the
Company or any of its subsidiaries, and indicates whether such
property is owned or leased (each such owned property, an
"Owned Property" and each such leased property, a "Leased
Property", and collectively "Real Property"). Except
as set forth in Section 5.1(n) of the Company Disclosure Schedule,
each of the Company or one of its subsidiaries has good and
marketable title to each Owned Property, or a valid leasehold
interest in each Leased Property, in each case free and clear
of all liens and except for easements, restrictive covenants and
similar encumbrances of record that, individually or in the
<PAGE>
aggregate, do not and will not materially interfere with its
ability to conduct its business as currently conducted. Except
as set forth in Section 5.1(n) of the Company Disclosure
Schedule, each of the Company and each of its subsidiaries has
complied in all material respects with the terms of all material
leases to which it is a party, and all such leases are in full
force and effect. Each of the Company and each of its
subsidiaries enjoys peaceful and undisturbed possession under all
such material leases.
(ii) The Company or one of its subsidiaries has good and
valid title to all its properties and assets, in each case free
and clear of all liens, except (A) such as are set forth in
Section 5.1(n) of the Company Disclosure Schedule, (B)
mechanics', carriers', workmen's, repairmen's or other similar
liens arising or incurred in the ordinary course of business, (C)
liens arising under conditional sales contracts and equipment
leases with third parties entered into in the ordinary course of
business, (D) liens for Taxes which are not due and payable or
which may thereafter be paid without penalty, (E) liens which
secure debt that is reflected as a liability on the most recent
financial statement included in the Company SEC Reports filed and
publicly available prior to the date of this Agreement and the
existence of which is indicated in the notes thereto and (F)
other imperfections of title or encumbrances, if any, which do
not, individually or in the aggregate, materially impair the
continued use and operation of the assets to which they relate in
the business of the Company and its subsidiaries. This paragraph
(ii) does not relate to Real Property or interests in Real
Property, such items being the subject of paragraph (i) above.
(iii) The occupancies and uses of the Real Property, as well
as the development, construction, management, maintenance,
servicing and operation of the Real Property, comply in all
material respects with all applicable laws, ordinances, rules,
regulations, orders and requirements of all governmental
authorities having jurisdiction and are not in material violation
of any thereof; and the certificate(s) of occupancy and all other
licenses and permits required by law for the proper use and
operation of the Real Property are in full force and effect. All
approvals, consents, permits, utility installations and
connections, curb cuts and street openings required for the
development, construction, maintenance, operation and servicing
of the Real Property have been granted, effected, or performed
and completed (as the case may be), and all fees and charges
therefor have been fully paid. The Company has not received
written notice of, and does not otherwise have knowledge of,
<PAGE>
any material violations, suits, orders, decrees or judgments
relating to zoning, building use and occupancy, traffic, fire,
health, sanitation, air pollution, ecological, environmental or
other laws or regulations, against, or with respect to, the Real
Property.
(iv) There is adequate access between each Owned Property
or Leased Property and public roads and there are no pending or
threatened proceedings that could have the effect of impairing or
restricting such access. There are sufficient parking spaces on
material Owned Property or Leased Property to comply with all
applicable provisions of any agreements to which such Real
Property is subject, local zoning requirements and all other
applicable laws and governmental requirements. The material
improvements upon the Real Property contain no asbestos and there
are no material defects in the roof, foundation, sprinkler mains,
structural, mechanical and HVAC systems and masonry walls in any
of the material improvements upon the Real Property and no
significant repairs thereof are required, and all periodic
maintenance has been done and is being done which is consistent
with first class maintenance standard for Real Property of
similar size and age in the vicinity of such Real Property.
(o) Intangible Property. (i) Section 5.1(o) of the Company
-------------------
Disclosure Statement sets forth a list of each patent, trademark,
trade name, service mark, brand mark, brand name, industrial
design and copyright owned or used in business by the Company and
its subsidiaries, as well as all registrations thereof and
pending applications therefor, and each license or other contract
relating thereto (collectively with any other intellectual
property owned or used in the business by the Company and its
subsidiaries, and all of the goodwill associated therewith, the
"Intangible Property") and indicates, with respect to each item
of Intangible Property listed thereon, the owner thereof and, if
applicable, the name of the licensor and licensee thereof and the
terms of such license or other contract relating thereto. Except
as set forth in Section 5.1(o) of the Company Disclosure
Schedule, each of the foregoing is owned free and clear of any
and all liens, mortgages, pledges, security interests, levies,
charges, options or any other encumbrances, restrictions or
limitations of any kind whatsoever and none of the Company or any
of its subsidiaries has received any notice to the effect that
any other entity has any claim of ownership with respect thereto.
To the best knowledge of the Company, the use of the foregoing by
the Company and its subsidiaries does not conflict with, infringe
upon, violate or interfere
<PAGE>
with or constitute an appropriation of any right, title, interest
or goodwill, including, without limitation, any intellectual
property right, patent, trademark, trade name, service mark,
brand mark, brand name, computer program, industrial design,
copyright or any pending application therefor of any other
entity. Except as set forth in Section 5.1(o) of the Company
Disclosure Schedule, no claims have been made, and none of the
Company or any of its subsidiaries has received any notice, that
any of the foregoing is invalid, conflicts with the asserted
rights of other entities, or has not been used or enforced (or
has failed to be used or enforced) in a manner that would result
in the abandonment, cancellation or unenforceability of any item
of the Intangible Property.
(ii) The Company and its subsidiaries possess all Intangible
Property, including, without limitation, all know-how, formulae
and other proprietary and trade rights necessary for the conduct
of their businesses as now conducted. None of the Company or any
of its subsidiaries has taken or failed to take any action that
would result in the forfeiture or relinquishment of any such
Intangible Property used in the conduct of their respective
businesses as now conducted.
(p) Certain Contracts. Section 5.1(p) of the Company
-----------------
Disclosure Schedule lists all of the following contracts to which the
Company or a subsidiary is a party or by which any one of them or any
of their properties or assets may be bound ("Listed Agreements"): (i)
all employment or other contracts with any employee, consultant,
officer or director of the Company or any subsidiary of the Company
(or any company which is controlled by any such individual) whose
total rate of annual remuneration is estimated to exceed $100,000 in
1996; (ii) union, guild or collective bargaining contracts relating to
employees of the Company or any subsidiary; (iii) instruments for
money borrowed (including, without limitation, any indentures,
guarantees, loan agreements, sale and leaseback agreements, or
purchase money obligations incurred in connection with the acquisition
of property other than in the ordinary course of business) in excess
of $500,000; (iv) underwriting, purchase or similar agreements entered
into in connection with the Company's or any of its subsidiaries'
currently existing indebtedness; (v) agreements for acquisitions or
dispositions (by merger, purchase or sale of assets or stock or
otherwise) of material assets entered into within the last two years,
as to which the transactions contemplated have been consummated or are
currently pending; (vi) joint venture or partnership agreements
entered into; (vii) material licensing, merchandising and distribution
contracts; (viii) contracts granting any person or other entity
<PAGE>
registration rights; (ix) guarantees, suretyships, indemnification and
contribution agreements, in excess of $500,000; and (x) other
contracts which materially affect the business, properties or assets
of the Company and its subsidiaries taken as a whole, and are not
otherwise disclosed in this Agreement or were entered into other than
in the ordinary course of business. A true and complete copy
(including all amendments) of each Listed Agreement has been made
available to Acquiror. Neither the Company nor any subsidiary (i) is
in breach or default under any of the Listed Agreements or (ii) has
any knowledge of any other breach or default under any Listed
Agreement by any other party thereto or by any other person or entity
bound thereby, except in the case of (i) or (ii) breaches or defaults
which would not, individually or in the aggregate, have a Material
Adverse Effect with respect to the Company and its subsidiaries. At
the Effective Time, no person will have the right, by contract or
otherwise, to become, nor does any entity have the right to designate
or cause the Company to appoint a person as, a director of the
Company.
(q) Insurance. The Company and its subsidiaries have
---------
obtained and maintained in full force and effect insurance with
responsible and reputable insurance companies or associations in such
amounts, on such terms and covering such risks, including fire and
other risks insured against by extended coverage, as is usually
carried by companies engaged in similar businesses and owning similar
properties similarly situated or otherwise required by law, and each
has maintained in full force and effect public liability insurance,
insurance against claims for personal injury or death or property
damage occurring in connection with any of the activities of the
Company or its subsidiaries or any of the properties owned, occupied
or controlled by the Company or its subsidiaries, in such amount as
reasonably deemed necessary by the Company or its subsidiaries. To
the extent the Company self-insures against such risks or damages, the
liabilities reflected or reserved against in the Company's most recent
financial statements (or the notes thereto) included in the Company
SEC Reports filed and publicly available prior to the date of this
Agreement are adequate to cover against such risks and damages.
(r) Unlawful Payments and Contributions. None of the
-----------------------------------
Company, any subsidiary of the Company or, to the knowledge of the
Company, any of their respective directors, officers or any of their
respective employees or agents has, with respect to the businesses of
the Company and its subsidiaries, (i) used any funds for any unlawful
contribution, endorsement, gift, entertainment or other unlawful
expense relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government
official or employee; (iii)
<PAGE>
violated or is in violation of any provision of the Foreign Corrupt
Practices Act of 1977, as amended; or (iv) made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any
person or entity.
(s) Listings. The Company's securities are not listed or
--------
quoted for trading on any U.S. domestic or foreign securities
exchange, except as set forth in Section 5.1(s) of the Company
Disclosure Schedule.
(t) Environmental Matters. Except as disclosed in Section
---------------------
5.1(t) of the Company Disclosure Schedule or in the Company SEC
Reports filed and publicly available prior to the date of this
Agreement, (i) the Company and its subsidiaries and the operations
thereof are in material compliance with all Environmental Laws (as
defined below); (ii) there are no judicial or administrative actions,
suits or proceedings pending or, to the knowledge of the Company,
threatened and, to the knowledge of the Company, there are no
investigations pending or threatened against the Company or any
subsidiary of the Company alleging the violation of any Environmental
Law and neither the Company nor any subsidiary of the Company has
received notice from any governmental body or person alleging any
violation of or liability under any Environmental Laws, in either case
which could reasonably be expected to result in material Environmental
Costs and Liabilities; and (iii) to the knowledge of the Company,
there are no facts, circumstances or conditions relating to, arising
from, associated with or attributable to the Company or its
subsidiaries or any real property currently or previously owned,
operated or leased by the Company or its subsidiaries that could
reasonably be expected to result in material Environmental Costs and
Liabilities. For the purpose of this Section 5.1(t), the following
terms have the following definitions: (A) "Environmental Costs and
Liabilities" means any losses, liabilities, obligations, damages,
fines, penalties, judgments, actions, claims, costs and expenses
(including, without limitation, fees, disbursements and expenses of
legal counsel, experts, engineers and consultants and the costs of
investigation and feasibility studies, remedial or removal actions and
cleanup activities) arising from or under any Environmental Law; (B)
"Environmental Laws" means any applicable federal, state, local, or
foreign law (including common law), statute, code, ordinance, rule,
regulation or other requirement relating to the environment, natural
resources, or public or employee health and safety; (C) "Hazardous
Material" means any substance, material or waste regulated by federal,
state or local government, including, without limitation, any
substance, material or waste which is defined as a "hazardous waste,"
"hazardous material," "hazardous substance," "toxic waste" or "toxic
substance" under any
<PAGE>
provision of Environmental Law and including but not limited to
petroleum and petroleum products.
(u) State Takeover Statutes. Neither the South Carolina
-----------------------
Control Share Acquisition Statute (Sections 35-2-101 et seq. of the
-- ----
BCA) nor the South Carolina Business Combination Statute (Sections 35-
2-201 et seq. of the BCA), nor, to the Company's knowledge, any other
-- ----
state takeover statute or similar statute or regulation, is applicable
to the Merger and the other transactions contemplated by this
Agreement.
(v) Inventories; Receivables; Payables. (i) The
----------------------------------
inventories of the Company and its subsidiaries are in good and
marketable condition, and are saleable in the ordinary course of
business. Adequate reserves have been reflected on the most
recent balance sheet included in the Company SEC Documents and,
after the date of the most recent balance sheet included in the
Company SEC Documents, will be reflected on the books of the
Company, for shorts, drops, off-cuts, obsolete or otherwise
unusable inventory, which reserves were calculated in accordance
with GAAP consistently applied.
(ii) All accounts receivable of the Company and its
subsidiaries have arisen from bona fide transactions in the
ordinary course of business. All accounts receivable of the
Company and its subsidiaries reflected on the most recent balance
sheet included in the Company SEC Documents are good and
collectible at the aggregate recorded amounts thereof, net of any
applicable reserve for returns or doubtful accounts reflected
thereon, which reserves are adequate and were calculated in
accordance with GAAP consistently applied. All accounts
receivable arising after the date of the most recent balance
sheet included in the Company SEC Documents are good and
collectible at the aggregate recorded amounts thereof, net of any
applicable reserve for returns or doubtful accounts, which
reserves are adequate and were calculated in accordance with GAAP
consistently applied.
(iii) All accounts payable of the Company and its
subsidiaries reflected on the most recent balance sheet included
in the Company SEC Documents or arising after the date thereof
are the result of bona fide transactions in the ordinary course
of business and have been paid or are not yet due and payable.
(w) Transactions With Affiliates. Other than the
----------------------------
transactions contemplated by this Agreement and except to the extent
disclosed in the Company SEC Reports filed and publicly available
prior to the date of this Agreement, or as set forth in
<PAGE>
Section 5.1(w) of the Company Disclosure Schedule, since January 1,
1994, there have been no transactions, agreements, arrangements or
understandings between the Company or its subsidiaries, on the one
hand, and the Company's Affiliates (other than wholly owned
subsidiaries of the Company) or other Persons, on the other hand, that
would be required to be disclosed under Item 404 of Regulation S-K
under the Securities Act.
(x) Disclosure. No representation or warranty by the
----------
Company in this Agreement and no statement contained in the Company
Disclosure Schedules or any certificate delivered by the Company to
Acquiror pursuant to this Agreement, contains any untrue statement of
a material fact or omits any material fact necessary to make the
statements herein or therein not misleading when taken together in
light of the circumstances in which they were made, it being
understood that as used in this Section 5.1(x) "material" means
material to the Company and its subsidiaries taken as a whole.
5.2. Representations and Warranties of Acquiror. Acquiror
------------------------------------------
represents and warrants to the Company that:
(a) Corporate Organization and Qualification. Each of
----------------------------------------
Acquiror and its Significant Subsidiaries (within the meaning of Rule
1-02 of Regulation S-X promulgated by the SEC) is a corporation duly
organized, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation and is qualified and in good
standing as a foreign corporation in each jurisdiction where the
properties owned, leased or operated, or the business conducted, by it
require such qualification, except where the failure to so qualify or
be in such good standing would not have a Material Adverse Effect with
respect to Acquiror and its subsidiaries. Each of Acquiror and its
Significant Subsidiaries has all requisite power and authority
(corporate or otherwise) to own its properties and to carry on its
business as it is now being conducted.
(b) Capitalization. The authorized capital stock of
--------------
Acquiror consists of 650,000,000 Acquiror Common Shares of which, as
of August 3, 1996, approximately 274,235,794 Acquiror Common Shares
were issued and outstanding. All of the outstanding shares of capital
stock of Acquiror have been duly authorized and validly issued and are
fully paid and nonassessable. All outstanding shares of capital stock
or other equity interests of the subsidiaries of Acquiror are owned by
Acquiror or a direct or indirect wholly owned subsidiary of Acquiror,
free and clear of all liens, charges, encumbrances, claims and options
of any nature. Except as set forth in the Acquiror SEC Reports (as
defined in Section 5.2(f)) or as contemplated by this Agreement,
<PAGE>
there are not, as of the date hereof, any outstanding or authorized
options, warrants, calls, rights (including preemptive rights),
commitments or any other agreements of any character which Acquiror or
any of its subsidiaries is a party to, or may be bound by, requiring
it to issue, transfer, sell, purchase, redeem or acquire any Acquiror
Common Shares or any shares of capital stock or any of its securities
or rights convertible into, exchangeable for, or evidencing the right
to subscribe for, any shares of capital stock of Acquiror or any of
its subsidiaries. There are not as of the date hereof and there will
not be at the Effective Time any stockholder agreements, voting trusts
or other agreements or understandings to which Acquiror is a party or
to which it is bound relating to the voting of any shares of the
capital stock of Acquiror. Acquiror has reserved for issuance under a
stock option plan or plans of Acquiror a sufficient number of Acquiror
Common Shares to cover the exercise of the Options and Warrants to be
assumed by Acquiror in accordance with Section 4.1(d).
(c) Authorization for Acquiror Common Shares. Acquiror has
----------------------------------------
taken all necessary action to permit it to issue the number of
Acquiror Common Shares required to be issued pursuant to the Merger.
The Acquiror Common Shares issued pursuant to Article IV will, when
issued, be validly issued, fully paid and nonassessable and no person
will have any preemptive right of subscription or purchase in respect
thereof. The Acquiror Common Shares issued pursuant to the Merger
will, when issued, be registered under the Securities Act and the
Exchange Act and registered or exempt from registration under any
applicable state securities laws and will, when issued, be listed on
the NYSE, subject to official notice of issuance.
(d) Authority Relative to This Agreement. Acquiror has the
------------------------------------
requisite corporate power and authority to approve, authorize, execute
and deliver this Agreement and to consummate the transactions
contemplated hereby. This Agreement and the consummation by Acquiror
of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of Acquiror, and no other
corporate proceedings on the part of Acquiror are necessary to
authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly
executed and delivered by Acquiror and, assuming this Agreement
constitutes the valid and binding agreement of the Company,
constitutes a valid and binding agreement of Acquiror, enforceable
against it in accordance with its terms, subject, as to
enforceability, to bankruptcy, insolvency, reorganization and other
laws of general applicability relating to or affecting creditors'
rights and to general principles of equity.
<PAGE>
(e) Consents and Approvals; No Violation. Neither the
------------------------------------
execution and delivery of this Agreement by Acquiror nor the
consummation by Acquiror of the transactions contemplated hereby will
(i) conflict with or result in any breach of any provision of the
Restated Certificate of Incorporation and the Restated By-Laws of
Acquiror; (ii) require any consent, approval, authorization or permit
of, or filing with or notification to, any governmental or regulatory
authority or any other Person, except (A) in connection with the
applicable requirements, if any, of the HSR Act, (B) pursuant to the
applicable requirements of the Securities Act and the Exchange Act,
(C) the filing of the Certificate of Merger and the Articles of Merger
pursuant to the DGCL and the BCA, respectively, and appropriate
documents with the relevant authorities of other states in which
Acquiror is authorized to do business, (D) as may be required by any
applicable state securities or takeover laws, (E) such filings and
consents as may be required under any environmental, health or safety
law or regulation pertaining to any notification, disclosure or
required approval triggered by the Merger or the transactions
contemplated by this Agreement, (F) such filings, consents, approvals,
orders, authorizations, registrations, declarations and filings as may
be required under the laws of any foreign country, (G) filings with,
and approval of, the NYSE or, (H) where the failure to obtain such
consent, approval, authorization or permit, or to make such filing or
notification, would not in the aggregate have a Material Adverse
Effect with respect to Acquiror and its subsidiaries or adversely
affect the ability of Acquiror to consummate the transactions
contemplated hereby; (iii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or
acceleration or result in the creation of any lien or other charge or
encumbrance) under any of the terms, conditions or provisions of any
note, license, agreement or other instrument or obligation to which
Acquiror or any of its subsidiaries or any of their assets may be
bound, except for such violations, breaches and defaults (or rights of
termination, cancellation, or acceleration or creations of lien or
other charge or encumbrance) as to which requisite waivers or consents
have been obtained or which, in the aggregate, would not have a
Material Adverse Effect with respect to Acquiror and its subsidiaries
or adversely affect the ability of Acquiror to consummate the
transactions contemplated hereby; or (iv) assuming the consents,
approvals, authorizations or permits and filings or notifications
referred to in this Section 5.2(e) are duly and timely obtained or
made, violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Acquiror or any of its subsidiaries or to any
of their respective assets, except for violations which would not in
the aggregate have a Material Adverse Effect with respect to Acquiror
and its subsidiaries or adversely affect the
<PAGE>
ability of Acquiror to consummate the transactions contemplated
hereby.
(f) SEC Reports; Financial Statements.
---------------------------------
(i) Since January 1, 1993, Acquiror has filed all forms,
reports and documents with the SEC required to be filed by it
pursuant to the federal securities laws and the SEC rules and
regulations thereunder, all of which complied in all material
respects with all applicable requirements of the Securities Act
and the Exchange Act (the "Acquiror SEC Reports"). None of
Acquiror SEC Reports, including, without limitation, any
financial statements or schedules included therein, at the time
filed contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(ii) The consolidated balance sheets and the related
statements of income, stockholders' equity and cash flow
(including the related notes thereto) of Acquiror included in the
Acquiror SEC Reports comply as to form in all material respects
with applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP applied on a basis consistent
with prior periods (except as otherwise noted therein), and
present fairly the consolidated financial position of Acquiror
and its consolidated subsidiaries as of their respective dates,
and the results of its operations and its cash flow for the
periods presented therein (subject, in the case of the unaudited
interim financial statements, to normal year-end adjustments).
(g) Undisclosed Liabilities; Absence of Certain Changes or
------------------------------------------------------
Events. Neither Acquiror nor any of its subsidiaries has any material
------
indebtedness, obligations or liabilities of any kind (whether accrued,
absolute, contingent or otherwise, and whether due or to become due or
asserted or unasserted), and, to the best knowledge of Acquiror, there
is no basis for the assertion of any claim or liability of any nature
against Acquiror or any of its subsidiaries, which is not fully
reflected in, reserved against or otherwise described in the financial
statements included in the Acquiror SEC Reports filed and publicly
available prior the date of this Agreement. Except as disclosed in
Acquiror SEC Reports filed and publicly available prior to the date of
this Agreement or as contemplated by this Agreement, since January 1,
1996, the business of Acquiror and its subsidiaries has been carried
on only in the ordinary and
<PAGE>
usual course and there has not been any adverse change in its
business, properties, operations or financial condition and no event
has occurred and no fact or set of circumstances has arisen which has
resulted in or could reasonably be expected to result in a Material
Adverse Effect with respect to Acquiror and its subsidiaries.
(h) Litigation. Except as disclosed in the Acquiror SEC
----------
Reports filed and publicly available prior to the date of this
Agreement, there are no actions, suits or proceedings pending or, to
the best knowledge of Acquiror threatened (or to the best knowledge of
Acquiror any investigation pending or threatened) against Acquiror or
any of its subsidiaries which could, individually or in the aggregate,
if adversely determined, reasonably be expected to have a Material
Adverse Effect with respect to Acquiror and its subsidiaries, nor is
there any judgment, decree, injunction, rule or order of any
governmental or regulatory authority or arbitration outstanding
against Acquiror or any of its subsidiaries, which could, individually
or in the aggregate, reasonably be expected to have a Material Adverse
Effect with respect to Acquiror and its subsidiaries.
(i) S-4 Registration Statement and Proxy Statement/
-----------------------------------------------
Prospectus. None of the information to be supplied by Acquiror for
----------
inclusion or incorporation by reference in the S-4 Registration
Statement or the Proxy Statement will, (i) in the case of the S-4
Registration Statement, at the time it becomes effective and at the
Effective Time, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading, or
(ii) in the case of the Proxy Statement, at the time of the mailing of
the Proxy Statement and at the time of the Shareholder Meeting,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they are made, not misleading. If at any time prior to the Effective
Time any event with respect to Acquiror, its officers and directors or
any of its subsidiaries shall occur which is required to be described
in the S-4 Registration Statement, such event shall be so described,
and an amendment or supplement shall be promptly filed with the SEC
and, as required by law, disseminated to the shareholders of the
Company. The S-4 Registration Statement will comply (only with
respect to Acquiror) as to form in all material respects with the
provisions of the Securities Act and the rules and regulations
promulgated thereunder.
(j) Brokers and Finders. Except for Goldman, Sachs & Co.,
-------------------
Acquiror has not employed any investment banker, broker,
<PAGE>
finder, consultant or intermediary in connection with the transactions
contemplated by this Agreement which would be entitled to any
investment banking, brokerage, finder's or similar fee or commission
in connection with this Agreement or the transactions contemplated
hereby.
(k) Ownership of Shares. As of the date hereof, none of
-------------------
the Acquiror Companies owns any Shares.
(l) Disclosure. No representation or warranty by Acquiror
----------
in this Agreement and no statement contained in the Acquiror
Disclosure Schedules or any certificate delivered by Acquiror to the
Company pursuant to this Agreement, contains any untrue statement of a
material fact or omits any material fact necessary to make the
statements herein or therein not misleading when taken together in
light of the circumstances in which they were made, it being
understood that as used in this Section 5.2(l) "material" means
material to Acquiror and its subsidiaries taken as a whole.
5.3. Representations and Warranties of Tate. Tate hereby
--------------------------------------
represents and warrants to Acquiror:
(a) Authority Relative to This Agreement and Shareholders'
------------------------------------------------------
Agreement. Tate has the requisite power and authority to enter into,
---------
execute and deliver this Agreement and the Shareholders Agreement and
to perform fully his obligations hereunder and thereunder. Each of
this Agreement and the Shareholders Agreement has been duly executed
and delivered by Tate and constitutes the valid and binding agreement
of Tate, enforceable against Tate in accordance with its terms.
(b) The Tate Shares. All of the Tate Shares are owned of
---------------
record and beneficially by Tate, free and clear of all liens, charges,
encumbrances, claims and options of any nature.
(c) Consents and Approvals; No Violation. The execution
------------------------------------
and delivery of this Agreement will not (i) require any consent,
approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority or any other Person,
except in connection with the applicable requirements, if any, of the
HSR Act pursuant to the applicable requirements of the Securities Act
and the rules and regulations promulgated thereunder, and the Exchange
Act and the rules and regulations promulgated thereunder; or
(ii) result in a violation or breach of, or default (or give rise to
any right of termination, cancellation or acceleration or result in
the creation of any lien or other charges or encumbrance) under any of
the terms, conditions or provision of any note, license, agreement or
other instrument or obligation to which Tate may be
<PAGE>
bound, except for such violations, breaches and defaults (or rights of
termination, cancellation or acceleration or creations of liens or
other charges or encumbrances) as to which requisite waivers or
consents have been obtained or which, in the aggregate, would not
adversely affect the ability of Acquiror to consummate the Merger.
(d) Certain Acknowledgements. Tate acknowledges that he is
------------------------
an informed and sophisticated investor and, together with his
advisors, has undertaken such investigation as he has deemed
necessary, including the review of this Agreement and the Shareholders
Agreement, to enable him to make an informed and intelligent decision
with respect to the Agreement and the Shareholders Agreement and the
transactions contemplated hereby and thereby, including the Merger.
Tate acknowledges that pursuant to the Merger he will receive less
consideration per Share than will other holders of Shares.
ARTICLE VI
Additional Covenants and Agreements
6.1. Conduct of Business.
-------------------
(a) The Company covenants and agrees that, during the
period from the date of this Agreement to the Effective Time (unless
Acquiror shall otherwise agree in writing, which agreement shall not
be unreasonably withheld, and except as otherwise contemplated by this
Agreement), the Company will, and will cause each of its subsidiaries
to, conduct its operations according to its ordinary and usual course
of business consistent with past practice and, to the extent
consistent therewith, with no less diligence and effort than would be
applied in the absence of this Agreement, seek to preserve intact its
current business organizations, keep available the service of its
current officers and employees and preserve its relationships with
customers, suppliers and others having business dealings with it to
the end that goodwill and ongoing businesses shall be unimpaired at
the Effective Time. Without limiting the generality of the foregoing,
and except as otherwise permitted in this Agreement or disclosed in
Section 6.1 of the Company Disclosure Schedule, prior to the Effective
Time, neither the Company nor any of its subsidiaries will, without
the prior written consent of Acquiror, which consent shall not be
unreasonably withheld:
(i) (A) declare, set aside or pay any dividends on, or make
any other distributions in respect of, any of its capital stock,
other than dividends and distributions by any direct or indirect
wholly owned subsidiary of the Company to
<PAGE>
its parent, (B) split, combine or reclassify any of its capital
stock or, except pursuant to the exercise of options, warrants,
conversion rights, exchange rights and other contractual rights
existing on the date hereof, issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution
for shares of its capital stock or other equity interests or
(C) purchase, redeem or otherwise acquire or amend any shares of
capital stock or other equity interests of the Company or any of
its subsidiaries or any other securities thereof or any rights,
warrants or options to acquire any such shares, interests or
other securities;
(ii) issue, deliver, sell, pledge or otherwise encumber or
amend any shares of its capital stock, any other voting
securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, interests,
voting securities or convertible securities, including pursuant
to the Option Plans, other than (A) the issuance of Shares upon
the conversion of Convertible Notes outstanding on the date of
this Agreement in accordance with their present terms, (B) the
issuance of Shares upon the exercise of Options outstanding on
the date of this Agreement in accordance with their present terms
and (C) the issuance of Shares upon the exchange of the Warrants
outstanding on the date of this Agreement in accordance with
their present terms;
(iii) amend its Articles of Incorporation, By-Laws or other
comparable charter or organizational documents;
(iv) acquire or agree to acquire (A) by merging or
consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any
corporation, partnership, joint venture, association or other
business organization or division thereof or (B) any asset
requiring or involving an expenditure or purchase price in excess
of $100,000, except (x) mergers and consolidations between or
among one or more wholly owned subsidiaries of the Company that
will not create adverse tax consequences to the Company or its
subsidiaries, and (y) purchases of inventory in the ordinary
course of business consistent with past practice;
(v) sell, lease, license, mortgage or otherwise encumber or
subject to any lien or otherwise dispose of any of its properties
or assets, except in the ordinary course of business consistent
with past practice;
<PAGE>
(vi) (A) other than incurrences of indebtedness (which term
shall be deemed not to include trade payables incurred in the
ordinary course of business) in the ordinary course of business
which, in the aggregate, do not exceed $50,000, incur any
indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities
or warrants or other rights to acquire any debt securities of the
Company or any of its subsidiaries, guarantee any debt securities
of another person, enter into any "keep well" or other agreement
to maintain any financial statement condition of another person
or enter into any arrangement having the economic effect of any
of the foregoing or (B) make any loans, advances or capital
contributions to, or investments in, any other person other than
to the Company or any direct or indirect wholly owned subsidiary
of the Company;
(vii) pay, discharge, settle or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment,
discharge, settlement or satisfaction, in accordance with their
terms of liabilities reflected or reserved against in the most
recent consolidated financial statements (or the notes thereto)
of the Company included in the Company SEC Reports filed and
publicly available prior to the date of this Agreement or
incurred in the ordinary course of business consistent with past
practice since the date of such financial statements, or waive
the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which the
Company or any of its subsidiaries is a party;
(viii) (A) adopt, enter into, terminate or amend any
Company Benefit Plan or other arrangement for the benefit or
welfare of any director, officer or current or former employee of
the Company or any of its subsidiaries, (B) increase in any
manner the compensation or fringe benefits of, or pay any bonus
to, any such director, officer or employee (except for normal
increases or bonuses as contractually required pursuant to
agreements disclosed in the Company SEC Reports filed and
publicly available prior to the date of this Agreement or in the
ordinary course of business consistent with past practice to
employees other than directors and executive officers of the
Company and that, in the aggregate, do not result in any material
increase in benefits or compensation expense to the Company and
its subsidiaries relative to the level in effect prior to such
action (but in no event shall the aggregate amount of the
increases granted to any such director, officer or employee
exceed 5% of the aggregate annualized compensation
<PAGE>
of such director, officer or employee and in no event shall the
aggregate amount of all such increases exceed 1% of the aggregate
annualized compensation expense of the Company and its
subsidiaries reported in the most recent consolidated financial
statements of the Company included in the Company SEC Reports
filed and publicly available prior to the date of this Agreement)
and except as contractually required pursuant to agreements
included as part of a Company SEC Reports filed and publicly
available prior to the date of this Agreement), (C) pay any
benefit not provided for under any Company Benefit Plan,
(D) except for payments or awards in cash permitted by clause
(B), grant any awards under any bonus, incentive, performance or
other compensation plan or arrangement or Company Benefit Plan
(including the grant of stock options, stock appreciation rights,
stock-based or stock-related awards, performance units or
restricted stock, or the removal of existing restrictions in any
Company Benefit Plans or agreements or awards made thereunder) or
(E) take any action to fund or in any other way secure the
payment of compensation or benefits under any employee plan,
agreement, contract or arrangement or Company Benefit Plan;
(ix) make or agree to make any capital expenditure or
expenditures other than for maintenance purposes;
(x) modify, amend or terminate any contract or agreement
set forth in the Company SEC Reports or any real property lease
to which the Company or any of its subsidiaries is a party, or
waive, release or assign any material rights or claims
thereunder;
(xi) take or agree to take any action that would prevent
the Merger from constituting a reorganization qualifying under
the provisions of Section 368(a)(1) of the Code;
(xii) conduct its business in a manner or take, or cause to
be taken, any other action that would or might reasonably be
expected to prevent or materially delay the Company or Acquiror
from consummating the transactions contemplated hereby in
accordance with the terms of this Agreement (regardless of
whether such action would otherwise be permitted or not
prohibited hereunder), including, without limitation, any action
which may materially limit the ability of the Company or Acquiror
to consummate the transactions contemplated hereby as a result of
antitrust or other regulatory concerns; or
(xiii) authorize any of, or commit or agree to take any of,
the foregoing actions.
<PAGE>
(b) Acquiror covenants and agrees that, during the period
from the date of this Agreement to the Effective Time, neither
Acquiror or any of its subsidiaries will, without the prior written
consent of the Company, which consent shall not be unreasonably
withheld:
(i) take or agree to take any action that would prevent the
Merger from constituting a reorganization qualifying under the
provisions of Section 368(a)(1) of the Code;
(ii) conduct its business in a manner or take, or cause to
be taken, any other action that would or might reasonably be
expected to prevent or materially delay Acquiror or the Company
from consummating the transactions contemplated hereby in
accordance with the terms of this Agreement (regardless of
whether such action would otherwise be permitted or not
prohibited hereunder), including, without limitation, any action
which may materially limit the ability of Acquiror or the Company
to consummate the transactions contemplated hereby as a result of
antitrust or other regulatory concerns; or
(iii) authorize any of, or commit or agree to take any of,
the foregoing actions.
6.2. No Solicitation. (a) The Company, its subsidiaries
---------------
and their respective officers, directors, employees, representatives,
agents or affiliates (including, without limitation, any investment
banker, attorney or accountant retained by the Company or any of its
subsidiaries) (collectively, the "Company's Representatives") shall
immediately cease any discussions or negotiations with any party that
may be ongoing with respect to a Competing Transaction (as defined
below). From and after the date hereof until the termination of this
Agreement, neither the Company nor any of its subsidiaries will, nor
will the Company authorize or permit any of its subsidiaries or any of
the Company Representatives to, directly or indirectly, initiate,
solicit or knowingly encourage (including by way of furnishing non-
public information), or take any other action to facilitate, any
inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Competing Transaction, or
participate in any discussions or negotiations regarding any Competing
Transaction or agree to or endorse any Competing Transaction, and the
Company shall notify Acquiror orally (within one business day) and in
writing (as promptly as practicable) of all of the relevant details
relating to all inquiries and proposals which it or any of its
subsidiaries or any such Company Representative may receive relating
to any of such matters and, if such inquiry or
<PAGE>
proposal is in writing, the Company shall deliver to Acquiror a copy
of such inquiry or proposal promptly; provided, however, that nothing
-------- -------
contained in this Section 6.2 shall prohibit the Company or its Board
of Directors from (i) taking and disclosing to its stockholders a
position contemplated by Exchange Act Rule 14e-2 or (ii) making any
disclosure to its stockholders that, in the good faith judgment of its
Board of Directors, after consultation with and based upon the advice
of independent legal counsel (who may be the Company's regularly
engaged independent legal counsel), is required under applicable law;
provided further, that nothing contained in this Section 6.2 shall
-------- -------
prohibit the Company from furnishing information to, or entering into
discussions or negotiations with, any person or entity that after the
date hereof states in an unsolicited writing that it has a bona fide
serious interest to make a Superior Proposal (as defined below) if
(1) (x) the Board of Directors of the Company, after consultation with
and based upon the advice of independent legal counsel (who may be the
Company's regularly engaged independent legal counsel), determines in
good faith that such action is necessary for the Board of Directors of
the Company to comply with its fiduciary duties to stockholders under
applicable law and (y) after consultation with and based upon the
advice of an independent financial advisor (who may be the Company's
regularly engaged independent financial advisor) determines in good
faith that such person or entity is capable of making, financing and
consummating a Superior Proposal and (2) prior to taking such action,
the Company (x) provides at least two business days' notice to
Acquiror to the effect that it is taking such action and (y) receives
from such person or entity an executed confidentiality agreement on
terms no less restrictive than the Confidentiality Agreement (as
defined below). For purposes of this Agreement, "Competing
Transaction" shall mean any of the following (other than the
transactions between the Company Acquiror contemplated hereunder)
involving the Company: (i) any merger, consolidation, share exchange,
recapitalization, business combination, or other similar transaction;
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of all or a substantial portion of the assets of the
Company and its subsidiaries, taken as a whole, or of more than 25% of
the equity securities of the Company or any of its subsidiaries, in
any case in a single transaction or series of transactions; (iii) any
tender offer or exchange offer for 25% or more of the outstanding
shares of capital stock of the Company or the filing of a registration
statement under the Securities Act in connection therewith; or (iv)
any public announcement of a proposal, plan or intention to do any of
the foregoing or any agreement to engage in any of the foregoing.
(b) Except as set forth in this Section 6.2, the Board of
Directors of the Company shall not (i) withdraw or modify, or
<PAGE>
propose to withdraw or modify, in a manner adverse to Acquiror, the
approval or recommendation by such Board of Directors of this
Agreement or the Merger, or (ii) approve or recommend, or cause the
Company to enter into any agreement with respect to, any Competing
Transaction. Notwithstanding the foregoing, if the Board of Directors
of the Company, after consultation with and based upon the advice of
independent legal counsel (who may be the Company's regularly engaged
independent legal counsel), determines in good faith that it is
necessary to do so in order to comply with its fiduciary duties to
stockholders under applicable law, the Board of Directors of the
Company may modify or withdraw its approval or recommendation of this
Agreement and the Merger, approve or recommend a Superior Proposal (as
defined below) or cause the Company to enter into an agreement with
respect to a Superior Proposal, but in each case only after providing
at least two business days' written notice to Acquiror (a "Notice of
Superior Proposal") advising Acquiror that the Board of Directors of
the Company has received a Superior Proposal, specifying the material
terms and conditions of such Superior Proposal and identifying the
person making such Superior Proposal. In addition, if the Company
proposes to enter into an agreement with respect to any Competing
Transaction, it shall concurrently with entering into such an
agreement pay, or cause to be paid, to Acquiror the fee required by
Section 8.5(a) hereof. For purposes of this Agreement, a "Superior
Proposal" means any bona fide proposal to acquire, directly or
indirectly, for consideration consisting of cash and/or securities,
all or substantially all the Shares then outstanding or all or
substantially all the assets of the Company and otherwise on terms
which the Board of Directors of the Company determines in its good
faith judgment (based on the advice of a financial advisor of
nationally recognized reputation) to be more favorable to the
Company's shareholders than the Merger.
6.3. Meeting of Shareholders. The Company will take all
-----------------------
action necessary in accordance with applicable law and its Articles of
Incorporation and By-Laws to convene a meeting of its shareholders
(the "Shareholder Meeting") as promptly as practicable to consider and
vote upon the approval of this Agreement. Subject to the fiduciary
duties of the Company's Board of Directors under applicable law after
consultation with and based upon the advice of independent legal
counsel, except as otherwise provided in Section 6.2, the Board of
Directors of the Company shall recommend and declare advisable such
approval and the Company shall use its best efforts to solicit, and
use its best efforts to obtain, such approval.
6.4. S-4 Registration Statement; Proxy Statement. Acquiror
-------------------------------------------
will, as promptly as practicable, prepare and file with the SEC a
registration statement on Form S-4 (the "S-4
<PAGE>
Registration Statement"), containing a proxy statement/prospectus and
a form of proxy, in connection with the registration under the
Securities Act of Acquiror Common Shares issuable pursuant to the
Merger. The Company will, as promptly as practicable, prepare and
file with the SEC a proxy statement that will be the same proxy
statement/prospectus contained in the S-4 Registration Statement and a
form of proxy, in connection with the vote of the Company's
stockholders with respect to this Agreement (such proxy
statement/prospectus, together with any amendments thereof or
supplements thereto, in each case in the form or forms mailed to the
Company's stockholders, is herein called the "Proxy Statement").
Acquiror and the Company will, and will cause their accountants and
lawyers to, use their best efforts to have or cause the S-4
Registration Statement declared effective as promptly as practicable,
including, without limitation, causing their accountants to deliver
necessary or required instruments such as opinions and certificates,
and will take any other action required or necessary to be taken under
federal or state securities laws or otherwise in connection with the
registration process. The Company will cause the Proxy Statement to
be mailed to stockholders of the Company at the earliest practicable
date and will coordinate and cooperate with Acquiror with respect to
the timing of the Shareholder Meeting and shall hold such Shareholder
Meeting as soon as practicable after the date hereof.
6.5. Access to Information. Upon reasonable notice, the
---------------------
Company shall (and shall cause each of its subsidiaries to) afford to
officers, employees, counsel, accountants and other authorized
representatives of Acquiror ("Acquiror's Representatives") reasonable
access, during normal business hours throughout the period prior to
the Effective Time, to its properties, books and records and, during
such period, shall (and shall cause each of its subsidiaries to)
furnish promptly to Acquiror's Representatives all information
concerning the business, properties and personnel of the Company and
its subsidiaries as may reasonably be requested, including the
opportunity to observe the full physical chain-wide inventory count of
the Company and its subsidiaries to be taken in October 1996 (which
inventory count shall be completed no later than October 31, 1996),
provided that no investigation pursuant to this Section 6.5 shall
affect or be deemed to modify any of the representations or warranties
made by the Company. Acquiror agrees that it will not, and will cause
Acquiror's Representatives not to, use any information obtained
pursuant to this Section 6.5 for any purpose unrelated to the
consummation of the transactions contemplated by this Agreement. In
connection with the foregoing, the Company agrees to cause the
Company's independent accountants to provide their workpapers to
Acquiror upon the terms and subject to the conditions on which such
workpapers have previously been provided to Acquiror. The
<PAGE>
Confidentiality Agreement, dated July 16, 1996 (the "Confidentiality
Agreement"), between Acquiror and the Company shall apply with respect
to the information furnished hereunder and survive any termination of
this Agreement, subject to the terms and conditions set forth in such
Confidentiality Agreement.
6.6. Publicity. The parties hereto agree that they will
---------
consult with each other concerning any proposed press release or
public announcement pertaining to the Merger and the other
transactions contemplated hereby in order to seek to agree upon the
text of any such press release or the making of such public
announcement.
6.7. Indemnification of Directors and Officers.
-----------------------------------------
(a) From and after the Effective Time and for a period of
six years thereafter, the Surviving Corporation shall indemnify,
defend and hold harmless each person who is now, or has been at any
time prior to the date hereof or who becomes prior to the Effective
Time, an officer or director of the Company or any of its subsidiaries
(the "Indemnified Parties") against all losses, claims, damages,
costs, expenses (including attorneys' fees and expenses), liabilities
or judgments or amounts that are paid in settlement of or in
connection with any threatened or actual claim, action, suit,
proceeding or investigation based in whole or in part on or arising in
whole or in part out of the fact that such person is or was a director
or officer of the Company or any of its subsidiaries, whether
pertaining to any matter existing or occurring at or prior to the
Effective Time and whether asserted or claimed prior to, or at or
after, the Effective Time ("Indemnified Liabilities"), including,
without limitation, all Indemnified Liabilities based in whole or in
part on, or arising in whole or in part out of, or pertaining to this
Agreement or the transactions contemplated hereby, in each case to the
fullest extent a corporation is permitted under the BCA to indemnify
its own directors or officers, as the case may be; provided, however,
-------- -------
that all right to indemnification in respect of any claim asserted or
made within such period shall continue until the disposition of such
claim. In the event of an Indemnified Liability, (i) Acquiror shall
pay the reasonable fees and expenses of counsel selected by the
Indemnified Parties, which counsel shall be reasonably satisfactory to
Acquiror, promptly after statements therefor are received and
otherwise advance to such Indemnified Party upon request reimbursement
of documented expenses reasonably incurred, in either case to the
extent not prohibited by the BCA and upon receipt of any affirmation
and undertaking required by the BCA, (ii) Acquiror will cooperate in
the defense of any such matter and (iii) any determination required to
be made with respect to whether an Indemnified Party's conduct
complies with the standards set forth
<PAGE>
under the BCA shall be made by independent counsel mutually acceptable
to Acquiror and the Indemnified Party; provided, however, that
-------- -------
Acquiror shall not be liable for any settlement effected without its
written consent (which consent shall not be reasonably withheld). The
Indemnified Parties as a group may retain only one law firm with
respect to each related matter except to the extent there is, in the
opinion of counsel to an Indemnified Party, under applicable standards
of professional conduct, a conflict on any significant issue between
positions of any two or more Indemnified Parties.
(b) This Section 6.7 is intended to benefit the Indemnified
Parties and shall be binding on all successors and assigns of
Acquiror, the Company and the Surviving Corporation.
6.8. Affiliates of the Company. Prior to the Closing Date,
-------------------------
the Company shall identify to Acquiror all persons (each, a "Company
Affiliate") who may be deemed to be "affiliates" of the Company for
purposes of Rule 145 under the Securities Act. The Company shall use
its best reasonable efforts to cause each Company Affiliate to deliver
to Acquiror, on or prior to the Closing Date, a written agreement
substantially in the form attached hereto as Exhibit C.
6.9. Taxes. In respect of Tax Returns of the Company or
-----
any subsidiary not required to be filed prior to the date hereof, the
Company shall, to the extent permitted by law without any penalty,
delay (or cause such subsidiary to delay) the filing of any such Tax
Returns until after the Effective Time; provided, however, that the
-------- -------
Company shall notify Acquiror of its intention to delay (or cause such
subsidiary to delay) any such filing and shall not so delay the filing
of a Tax Return if Acquiror and the Company agree that so delaying the
filing of such Tax Return is not in the best interests of either the
Company or Acquiror. If any such Tax Return is required to be filed
on or prior to the Effective Time, the Company or its subsidiaries, as
the case may be, shall prepare and timely file such Tax Return in a
manner consistent with prior years and all applicable laws and
regulations; provided, however, that Acquiror shall be notified and
-------- -------
given an opportunity to review and to comment, prior to the filing
thereof, on any such Tax Return.
6.10. Maintenance of Insurance. Between the date hereof
------------------------
and through the Effective Time the Company will maintain in full force
and effect all of its presently existing policies of insurance or
insurance comparable to the coverage afforded by such policies.
6.11. Representations and Warranties. None of the Company,
------------------------------
Acquiror or Tate will take any action that would cause
<PAGE>
any of the representations and warranties set forth in Section 5.1,
5.2 or 5.3, as the case may be, not to be true and correct (subject to
the standard set forth in the proviso of Section 7.1(a) or 7.2(a),
respectively) at and as of the Effective Time.
6.12. Antitrust Notification. The Company and Acquiror
----------------------
shall as promptly as practicable, but in no event later than ten
Business Days following the execution and delivery of this Agreement,
file with the United States Federal Trade Commission (the "FTC") and
the United States Department of Justice (the "DOJ") the notification
and report form required for the transactions contemplated hereby and
any supplemental information requested in connection therewith
pursuant to the HSR Act. Any such notification and report form and
supplemental information shall be in substantial compliance with the
requirements of the HSR Act. The Company and Acquiror shall furnish
to each other such necessary information and reasonable assistance as
the other may request in connection with its preparation of any filing
or submission which is necessary under the HSR Act. The Company and
Acquiror shall keep each other apprised of the status of any
communications with, and any inquiries or requests for additional
information from, the FTC and the DOJ and shall comply promptly with
any such inquiry or request. The Company and Acquiror shall use
reasonable efforts to obtain any clearance required under the HSR Act
for the completion of the Merger, which efforts for purposes of this
Section 6.12 shall not require Acquiror to agree to any prohibition,
limitation or other requirement of the type set forth in clauses (B),
(C) and (D) of Section 7.1(c).
6.13. Reasonable Best Efforts; Other Action. (a) Upon the
-------------------------------------
terms and subject to the conditions set forth in this Agreement, each
of the parties agrees to use all reasonable best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the Merger and the other
transactions contemplated by this Agreement, including (i) the
obtaining of all necessary actions or nonactions, waivers, consents
and approvals from all applicable governmental and regulatory
authorities and the making of all necessary registrations and filings
(including filings with governmental and regulatory authorities, if
any) and the taking of all reasonable steps as may be necessary to
obtain an approval or waiver from, or to avoid an action or proceeding
by, any governmental and regulatory authority, (ii) the obtaining of
all necessary consents, approvals or waivers from all other Persons,
(iii) the defending of any lawsuits or other legal proceedings,
whether judicial or administrative, challenging this Agreement or the
consummation of any of the transactions
<PAGE>
contemplated by this Agreement, including seeking to have any stay or
temporary restraining order entered by any court or other governmental
or regulatory authority vacated or reversed and (iv) the execution and
delivery of any additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of,
this Agreement. Each party hereto will notify the other party
promptly of the receipt of any comments from the SEC or its staff and
of any other governmental officials for amendments or supplements to
the S-4 Registration Statement, the Proxy Statement or any other
filing described in or made pursuant to Section 6.12 or this Section
6.13 hereof and will supply the other with copies of all
correspondence between such party or any of its representatives, on
the one hand, and the SEC, its staff or any other governmental
officials, on the other hand, with respect to the S-4 Registration
Statement, the Proxy Statement or such other filings.
6.14. Notification of Certain Matters. Each of the Company
-------------------------------
and Acquiror shall give prompt notice to the other of (a) any notice
of, or other communication relating to, a default or event which, with
notice or lapse of time or both, would become a default, received by
it or any of its subsidiaries subsequent to the date of this Agreement
and prior to the Effective Time, under any contract material to the
financial condition, properties, businesses or results of operations
of it and its subsidiaries taken as a whole to which it or any of its
subsidiaries is a party or is subject, (b) any notice or other
communication from any third party alleging that the consent of such
third party is or may be required in connection with the transactions
contemplated by this Agreement, (c) any material adverse change in
their respective (together with their respective subsidiaries taken as
a whole) businesses, results of operations, properties, assets,
liabilities, prospects or condition (financial or otherwise), other
than changes resulting from general economic conditions, (d) any
representation or warranty made by it contained in this Agreement
becoming untrue or inaccurate in any material respect (including in
the case of representations or warranties by the Company or Acquiror,
as applicable, such party's receiving knowledge of any fact, event or
circumstance which may cause any representation qualified as to the
knowledge of such party to be or become untrue or inaccurate in any
material respect) or (e) the failure by it to comply with or satisfy
in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement; provided,
--------
however, that no such notification shall affect the representations,
-------
warranties, covenants or agreements of the parties or the conditions
to the obligations of the parties under this Agreement.
<PAGE>
6.15. Blue Sky Permits. Acquiror shall use its best
----------------
efforts to obtain, prior to the effective date of the S-4 Registration
Statement, all necessary state securities laws or "blue sky" permits
and approvals required to carry out the transactions contemplated by
this Agreement, and will pay all expenses incident thereto.
6.16. NYSE Listing. Acquiror shall use its best efforts to
------------
cause the Acquiror Common Shares to be issued pursuant to the Merger
to be listed, prior to the Effective Time, on the NYSE, subject to
notice of official issuance thereof.
6.17. Comfort Letter. The Company shall cause to be
--------------
delivered to Acquiror a letter of Deloitte & Touche LLP, independent
public accountants to the Company, dated a date within two business
days before the date on which the S-4 Registration Statement shall
become effective and addressed to Acquiror, in form and substance
reasonably satisfactory to Acquiror and customary in scope and
substance for letters delivered by independent public accountants in
connection with registration statements similar to the S-4
Registration Statement.
6.18. Benefit Matters. The employees of the Company and
---------------
its subsidiaries shall be eligible to participate in the Acquiror
401(k), profit sharing, stock option and stock purchase plans and
Acquiror medical, life insurance, disability insurance and vacation
plans (the "Plans") effective (a) February 2, 1997 or (b) if the
Effective Time is after February 2, 1997, the first day of the month
following the Effective Time (the "Eligibility Date"). Participation
in the Plans shall be subject to the eligibility requirements and the
terms and conditions of each of the Plans. For purposes of the
eligibility and vesting requirements of the Plans, service credit will
be given for employment with the Company and its Subsidiaries prior to
the Effective Time. The medical plan of the Acquiror shall not
include pre-existing condition exclusions with respect to employees of
the Company and its subsidiaries as of the Effective Time, except to
the extent such exclusions were applicable under the medical plan of
the Company on the Effective Time. Effective as of the Eligibility
Date, all welfare benefit plans and the vacation plan of the Company
and its subsidiaries will be terminated. Acquiror shall cause the
Company to perform the Company's obligations under all employment,
consulting and other compensation arrangements disclosed in Sections
5.1(i) and (m) of the Company Disclosure Schedule.
6.19. Convertible Notes. Following the Effective Time,
-----------------
pursuant to the terms of Article Eight of the Indenture, dated as of
October 3, 1995, between the Company and Nationsbank
<PAGE>
Georgia, National Association, as trustee, Acquiror shall assume the
Convertible Notes and comply with the other provisions set forth
therein.
ARTICLE VII
Conditions
7.1. Conditions to the Obligations of Acquiror. The
-----------------------------------------
obligations of Acquiror to consummate the Merger are subject to the
fulfillment at or prior to the Effective Time of the following
conditions, any or all of which may be waived in whole or in part by
Acquiror to the extent permitted by applicable law.
(a) Certificate. The representations and warranties of the
-----------
Company and Tate set forth in this Agreement shall be true and correct
in all material respects on and as of the Effective Time with the same
force and effect as though the same had been made on and as of the
Effective Time (except to the extent they relate to a particular
date), the Company and Tate shall have performed in all material
respects all of its material obligations under this Agreement
theretofore to be performed, and Acquiror shall have received at the
Effective Time a certificate to that effect dated the Effective Time
and executed by the Chief Executive Officer or President of the
Company, provided, however, that no representation or warranty of the
-------- -------
Company contained in Section 5.1 hereof shall be deemed untrue or
incorrect as a consequence of the existence of any fact, circumstance
or event unless such fact, circumstance or event, individually or
taken together with all other facts circumstances or events
inconsistent with any paragraph of Section 5.1 has had or is expected
to have a Material Adverse Effect with respect to the Company and its
subsidiaries.
(b) Company Shareholder Approval. This Agreement shall
----------------------------
have been duly approved by the holders of a majority of the votes
entitled to be cast by the holders of Shares at the Shareholder
meeting, in accordance with applicable law and the Articles of
Incorporation and By-Laws of the Company.
(c) No Litigation. There shall not be pending or
-------------
threatened by any governmental authority or regulatory agency, any
suit, action or proceeding, (A) challenging or seeking to restrain or
prohibit the Merger or any of the other transactions contemplated by
this Agreement or seeking to obtain from Acquiror or the Company or
any of their respective subsidiaries in connection with the Merger any
material damages, (B) seeking to prohibit or limit the ownership or
operation by Acquiror or the Company or any of their respective
subsidiaries of any material
<PAGE>
portion of the business or assets of Acquiror or the Company or any of
their respective subsidiaries, or to compel Acquiror, the Company or
any of their respective subsidiaries to dispose of or hold separate
any material portion of the business or assets of Acquiror, the
Company or any of their respective subsidiaries in each case as a
result of the Merger or any of the other transactions contemplated by
this Agreement, (C) seeking to impose limitations on the ability of
Acquiror to acquire or hold, or exercise full rights of ownership of,
the Shares, including the right to vote the Shares on all matters
properly presented to the stockholders of the Company, (D) seeking to
prohibit Acquiror or any of its subsidiaries from effectively
controlling in any material respect the business or operations of the
Company or any of its subsidiaries or (E) which otherwise is
reasonably likely to have a Material Adverse Effect with respect to
the Company and its subsidiaries or Acquiror and its subsidiaries.
There shall be in effect no preliminary or permanent injunction or
other order of a court or governmental or regulatory agency of
competent jurisdiction directing that the transactions contemplated
herein not be consummated.
(d) S-4 Registration Statement. The S-4 Registration
--------------------------
Statement shall have become effective and no stop order suspending the
effectiveness of the S-4 Registration Statement shall have been issued
and no proceedings for such purpose shall have been initiated and be
continuing or threatened by the SEC.
(e) Listing of Acquiror Common Shares. The Acquiror Common
---------------------------------
Shares to be issued pursuant to the Merger and the Share Exchange and
the other such shares required to be reserved for issuance in
connection with the Merger shall have been authorized for listing on
the NYSE, subject to notice of official issuance.
(f) Governmental Filings and Consents; HSR Act. Subject in
------------------------------------------
each case to the provisions of Section 7.1(c), (i) all governmental
filings required to be made prior to the Effective Time by the Company
with, and all governmental consents required to be obtained prior to
the Effective Time from, governmental and regulatory authorities in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby shall have been
made or obtained, except where the failure to make such filing or
obtain such consent would not reasonably be expected to have a
Material Adverse Effect with respect to Acquiror (assuming the Merger
had taken place) and (ii) the waiting periods under the HSR Act shall
have expired or been terminated.
(g) Third-Party Consents. All required authorizations,
--------------------
consents and approvals of any Person (other than a governmental
authority), the failure to obtain which would have
<PAGE>
a Material Adverse Effect with respect to Acquiror (assuming the
Merger had taken place), shall have been obtained.
(h) Delivery of Comfort Letter. Deloitte & Touche LLP
--------------------------
shall have delivered to the Company, for delivery by it to Acquiror,
one or more letters with respect to the financial information
contained in the Proxy Statement as contemplated by Section 6.17.
(i) Affiliate Letters. Acquiror shall have used its
-----------------
reasonable best efforts to obtain from each Company Affiliate an
executed copy of an agreement substantially in the form of Exhibit C.
(j) Delivery of Tax Opinion. Acquiror shall have received
-----------------------
from Weil, Gotshal & Manges LLP, counsel to Acquiror, an opinion
addressed to Acquiror, substantially to the effect that (i) the Merger
will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code; (ii) each of
Acquiror and the Company will be a party to the reorganization within
the meaning of Section 368(b) of the Code; and (iii) no gain or loss
will be recognized by Acquiror or the Company as a result of the
Merger, dated the Closing Date, and such opinion shall not have been
withdrawn or modified in any material respect. In rendering such
opinion, Weil, Gotshal & Manges LLP may receive and rely upon
representations contained in certificates and agreements of the
Company, Acquiror and certain shareholders of the Company.
7.2. Conditions to the Obligations of the Company. The
--------------------------------------------
obligation of the Company to consummate the Merger is subject to the
fulfillment at or prior to the Effective Time of the following
conditions, any or all of which may be waived in whole or in part by
the Company to the extent permitted by applicable law.
(a) Certificate. The representations and warranties of
-----------
Acquiror set forth in this Agreement shall be true and correct in all
material respects on and as of the Effective Time with the same force
and effect as though the same had been made on and as of the Effective
Time (except to the extent they relate to a particular date), Acquiror
shall have performed in all material respects all of its obligations
under this Agreement theretofore to be performed, and the Company
shall have received at the Effective Time a certificate to that effect
dated the Effective Time and executed by the Chief Executive Officer
or President of Acquiror, provided, however, that no representation or
-------- -------
warranty of Acquiror contained in Section 5.2 hereof shall be deemed
untrue or incorrect as a consequence of the existence of any fact,
circumstance or event unless such fact, circumstance or
<PAGE>
event, individually or taken together with all other facts
circumstances or events inconsistent with any paragraph of Section 5.2
has had or is expected to have a Material Adverse Effect with respect
to Acquiror and its subsidiaries.
(b) Company Shareholder Approval. This Agreement shall
----------------------------
have been duly approved by the holders of a majority of the votes
entitled to be cast by the holders of Shares at the Shareholder
Meeting, in accordance with applicable law and the Articles of
Incorporation and By-Laws of the Company.
(c) Injunction. There shall be in effect no preliminary or
----------
permanent injunction or other order of a court or governmental or
regulatory agency of competent jurisdiction directing that the
transactions contemplated herein not be consummated; provided,
--------
however, that prior to invoking this condition the Company shall use
-------
its best efforts to have such injunction or order vacated.
(d) S-4 Registration Statement. The S-4 Registration
--------------------------
Statement shall have become effective and no stop order suspending the
effectiveness of the S-4 Registration Statement shall have been issued
and no proceedings for such purpose shall have been initiated and be
continuing or threatened by the SEC.
(e) Listing of Acquiror Common Shares. The Acquiror Common
---------------------------------
Shares to be issued pursuant to the Merger and such other shares
required to be reserved for issuance in connection with the Merger
shall have been authorized for listing on the NYSE, subject to
official notice of issuance.
(f) HSR Act. The waiting periods under the HSR Act shall
-------
have expired or been terminated.
(g) Delivery of Tax Opinion. The Company shall have
-----------------------
received from Wachtell, Lipton, Rosen & Katz, counsel to the Company,
an opinion addressed to the Company substantially to the effect that
(i) the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code; (ii)
each of Acquiror and the Company will be a party to the reorganization
within the meaning of Section 368(b) of the Code; and (iii) no gain or
loss will be recognized by a shareholder of the Company as a result of
the Merger except (x) with respect to cash received by such
shareholder in lieu of fractional shares or pursuant to the exercise
of appraisal rights and (y) except to the extent a shareholder
receives consideration different in amount from other shareholders,
dated the Closing Date, and such opinion shall not have been withdrawn
or modified in any material respect. In rendering such opinion,
Wachtell, Lipton, Rosen & Katz may receive and rely upon representa-
tions
<PAGE>
contained in certificates of Acquiror, the Company and certain
shareholders of the Company.
ARTICLE VIII
Termination
8.1. Termination by Mutual Consent. This Agreement may be
-----------------------------
terminated and the Merger may be abandoned at any time prior to the
Effective Time, before or after the approval by holders of Shares,
either by the mutual written consent of Acquiror and the Company, or
by mutual action of their respective Boards of Directors.
8.2. Termination by Either Acquiror or the Company. This
---------------------------------------------
Agreement may be terminated and the Merger may be abandoned by action
of the Board of Directors of either Acquiror or the Company if (i) the
Merger shall not have been consummated by May 31, 1997 (provided that
the right to terminate this Agreement under this Section 8.2(i) shall
not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of or resulted in the failure
of the Merger to occur on or before such date); (ii) any court of
competent jurisdiction in the United States or some other governmental
body or regulatory authority shall have issued an order, decree or
ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or
other action shall have become final and nonappealable; or (iii) the
Merger shall have been voted on by shareholders of the Company at a
meeting duly convened therefor and the vote shall not have been
sufficient to satisfy the conditions set forth in Sections 7.1(b) and
7.2(b).
8.3. Termination by Acquiror. This Agreement may be
-----------------------
terminated and the Merger may be abandoned at any time prior to the
Effective Time, before or after the approval by holders of Shares, by
action of the Board of Directors of Acquiror, if (i) the Company shall
have failed to comply in any material respect with any of the
covenants or agreements contained in this Agreement to be complied
with or performed or fulfilled by the Company at or prior to such date
of termination, which failure to comply has not been cured within
fifteen business days following receipt by the Company of notice of
such failure to comply, (ii) any representation or warranty of the
Company contained in the Agreement shall not be true in all material
respects when made (provided such breach has not been cured within
fifteen business days following receipt by the Company of notice of
the breach) or (except to the extent they relate to a particular date)
on and as of the Effective Time as if made on and as of the
<PAGE>
Effective Time (in each case subject to the standard set forth in the
proviso of Section 7.1(a)), or (iii) (A) the Board of Directors of the
Company shall withdraw, modify or change its recommendation of this
Agreement or the Merger in a manner adverse to Acquiror, or shall have
approved or recommended to the stockholders of the Company any
Competing Transaction or (B) the Company shall have entered into any
agreement with respect to any Competing Transaction or (C) the Board
of Directors of the Company shall resolve to do any of the foregoing.
8.4. Termination by the Company. This Agreement may be
--------------------------
terminated and the Merger may be abandoned at any time prior to the
Effective Time, before or after the approval by holders of Shares, by
action of the Board of Directors of the Company, if (i) Acquiror shall
have failed to comply in any material respect with any of the
covenants or agreements contained in this Agreement to be complied
with or performed or fulfilled by Acquiror at or prior to such date of
termination, which failure to comply has not been cured within fifteen
business days following receipt by the breaching party of notice of
such failure to comply, (ii) any representation or warranty of
Acquiror contained in this Agreement shall not be true in all material
respects when made (provided such breach has not been cured within
fifteen business days following receipt by the breaching party of
notice of the breach) or (except to the extent they relate to a
particular date) on and as of the Effective Time as if made on and as
of the Effective Time (in each case subject to the standard set forth
in the proviso of Section 7.2(a)) or (iii) the Company enters into a
definitive agreement relating to a Superior Proposal in accordance
with Section 6.2(b), provided it has complied with all of the
provisions thereof and has made payment of the fees required by
Section 8.5 hereof.
8.5. Effect of Termination and Abandonment. (a) In the
-------------------------------------
event of termination of this Agreement by either the Company or
Acquiror as provided in this Article VIII, this Agreement shall
forthwith become void and there shall be no liability or obligation on
the part of Acquiror or the Company or their respective affiliates,
officers, directors or stockholders except (x) with respect to this
Section 8.5 and Section 9.1 and (y) to the extent that such
termination results from the breach of a party hereto or any of its
representations or warranties, or any of its covenants or agreements,
in each case, as set forth in this Agreement; provided, however, that
-------- -------
the Company agrees that if this Agreement shall be terminated pursuant
to (i) Section 8.2(iii), if at or prior to the time of the Shareholder
Meeting (x) a Competing Transaction shall have been commenced,
publicly proposed or publicly disclosed and (y) the Company has not
rejected such Competing Transaction, (ii) Section 8.3(iii), or
(iii) Section 8.4(iii), then the Company shall pay to Acquiror an
<PAGE>
amount equal to $12 million; and provided, further, that Acquiror
-------- -------
agrees that if this Agreement shall be terminated pursuant to Section
8.4(i) or 8.4(ii), then Acquiror shall pay to the Company an amount
equal to $20 million.
(b) Any payment required to be made pursuant to Section
8.5(a) shall be made as promptly as practicable but not later than two
business days after the occurrence of the event giving rise to such
payment and shall be made by wire transfer of immediately available
funds to an account designated by Acquiror or the Company, as the case
may be, except that any payment to be made pursuant to clause (iii) of
the first proviso of Section 8.5(a) shall be made not later than the
termination of this Agreement by the Company pursuant to
Section 8.4(iii).
ARTICLE IX
Miscellaneous and General
9.1. Payment of Expenses. Whether or not the Merger shall
-------------------
be consummated, except as otherwise provided in Section 8.5, each
party hereto and the shareholders of the Company shall pay their own
expenses incident to preparing for, entering into and carrying out
this Agreement and the consummation of the transactions contemplated
hereby, provided that the Surviving Corporation shall pay, with funds
of the Company and not with funds provided by any of Acquiror
Companies, any and all property or transfer taxes imposed on the
Surviving Corporation. The cost of printing the S-4 Registration
Statement and the Proxy Statement shall be borne equally by the
Company and the Acquiror.
9.2. Survival of Representations and Warranties. The
------------------------------------------
representations and warranties made herein shall not survive beyond
the Effective Time or a termination of this Agreement. This Section
9.2 shall not limit any covenant or agreement of the parties hereto
which by its terms contemplates performance after the Effective Time.
9.3. Modification or Amendment. Subject to the applicable
-------------------------
provisions of the BCA, at any time prior to the Effective Time,
Acquiror and the Company may modify or amend this Agreement, by
written agreement executed and delivered by duly authorized officers
of Acquiror and the Company; provided, however, that after approval of
-------- -------
this Agreement by the shareholders of the Company, no amendment shall
be made which changes the consideration payable in the Merger or
adversely affects the rights of the Company's shareholders hereunder
without the approval of such shareholders.
<PAGE>
9.4. Waiver of Conditions. The conditions to each of the
--------------------
parties' obligations to consummate the Merger are for the sole benefit
of such party and may be waived by such party in whole or in part to
the extent permitted by applicable law.
9.5. Counterparts. For the convenience of the parties
------------
hereto, this Agreement may be executed in any number of counterparts,
each such counterpart being deemed to be an original instrument, and
all such counterparts shall together constitute the same agreement.
9.6. Governing Law. This Agreement shall be governed by
-------------
and construed in accordance with the laws of the State of New York,
without regard to any applicable conflicts of law, except that matters
relating to the Merger shall be governed by and construed in
accordance with the laws of Delaware and South Carolina to the extent
applicable.
9.7. Notices. Any notice, request, instruction or other
-------
document to be given hereunder by any party to the other parties shall
be in writing and delivered personally or sent by registered or
certified mail, postage prepaid, or by facsimile transmission (with a
confirming copy sent by overnight courier), as follows:
(a) if to the Company or Tate, to
Baby Superstore, Inc.
1201 Woods Chapel Road
Duncan, South Carolina 29334
Attention: Jodi Taylor
Telephone: (800) 324-1340
Facsimile: Call to arrange facsimile.
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Edward Herlihy, Esq.
Telephone: (212) 403-1000
Facsimile: (212) 403-2000
<PAGE>
(b) if to Acquiror, to
TOYS "R" US, Inc.
462 From Road
Paramus, New Jersey 07652
Attention: Michael Goldstein
Telephone: (201) 262-7800
Facsimile: (201) 262-8919
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Dennis J. Block, Esq.
Telephone: (212) 310-8000
Facsimile: (212) 310-8007
or to such other persons or addresses as may be designated in writing
by the party to receive such notice.
9.8. Entire Agreement; Assignment. This Agreement,
----------------------------
including the Disclosure Schedules and Exhibits, and the
Confidentiality Agreement, (i) constitutes the entire agreement among
the parties with respect to the subject matter hereof and supersedes
all other prior agreements and understandings, both written and oral,
among the parties or any of them with respect to the subject matter
hereof, and (ii) shall not be assigned by operation of law or
otherwise.
9.9. Parties in Interest. This Agreement shall be binding
-------------------
upon and inure solely to the benefit of each party hereto and their
respective successors and assigns; provided, however, that Tate shall
-------- -------
only have the right to receive Acquiror Common Shares pursuant to
Article IV and shall not have the right to enforce any other provision
of this Agreement. Nothing in this Agreement, express or implied,
other than the right to receive the consideration payable in the
Merger pursuant to Article IV hereof, is intended to or shall confer
upon any other person any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement; provided, however,
-------- -------
that the provisions of Section 6.7 shall inure to the benefit of and
be enforceable by the Indemnified Parties.
9.10. Certain Definitions. As used herein:
-------------------
(a)"Affiliate" shall mean, with respect to any Person, any
other Person directly or indirectly controlling, controlled by or
under common control with such other Person.
<PAGE>
(b) "subsidiary" shall mean, when used with reference to
any entity, any entity fifty percent (50%) or more of the outstanding
voting securities or interests of which are owned directly or
indirectly by such former entity.
(c) "Material Adverse Effect" shall mean, with respect to
any person, any change or effect (or any development that, insofar as
can reasonably be foreseen, is likely to result in any change or
effect) that is materially adverse to the business, properties,
assets, condition (financial or otherwise), results of operations or
prospects of such party and its subsidiaries taken as a whole, other
than changes or effects which result from the execution and delivery
of this Agreement or the consummation of any transactions contemplated
hereby.
(d) "Person" shall mean an individual, corporation,
partnership, trust or unincorporated organization or a government or
any agency or political subdivision thereof.
9.11. Severability. If any term or other provision of this
------------
Agreement is invalid, illegal or unenforceable, all other provisions
of this Agreement shall remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is
not affected in any manner materially adverse to any party.
9.12. Specific Performance. The parties hereto acknowledge
--------------------
that irreparable damage would result if this Agreement were not
specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a
decree of specific performance issued by a court of competent
jurisdiction. Such remedy shall, however, not be exclusive and shall
be in addition to any other remedies, including arbitration, which any
party may have under this Agreement or otherwise.
9.13. Captions. The Article, Section and paragraph
--------
captions herein are for convenience of reference only, do not
constitute part of this Agreement and shall not be deemed to limit or
otherwise affect any of the provisions hereof.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed
and delivered by the duly authorized officers of the parties hereto
and shall be effective as of the date first hereinabove written.
TOYS "R" US, INC.
By: /S/ Michael Goldstein
---------------------
Name: Michael Goldstein
Title: Vice Chairman and
Chief Executive Officer
BABY SUPERSTORE, INC.
By: /S/ Jack P. Tate
----------------
Name: Jack P. Tate
Title: Chief Executive Officer
/S/ Jack P. Tate
----------------
Jack P. Tate
<PAGE>
SHAREHOLDERS AGREEMENT
AGREEMENT, dated October 1, 1996 (this "Agreement"), by
and among TOYS "R" US, Inc., a Delaware corporation ("Acquiror"),
and Jack P. Tate ("Tate") and Linda M. Robertson ("Robertson")
(each, a "Shareholder", and collectively, the "Shareholders").
W I T N E S S E T H:
----------- -------
WHEREAS, concurrently herewith, Acquiror and Diaper,
Inc., a South Carolina corporation (the "Company"), and Tate are
entering into an Agreement and Plan of Merger (as such agreement
may hereafter be amended from time to time, the "Merger
Agreement"; capitalized terms used and not defined herein have
the respective meanings ascribed to them in the Merger Agreement)
pursuant to which the Company will be merged with and into
Acquiror (the "Merger");
WHEREAS, Tate owns 9 million shares (the "Shares"), no
par value, of common stock of the Company ("Common Stock"); and
WHEREAS, as an inducement and a condition to entering
into the Merger Agreement, Acquiror has required that the
Shareholders agree, and the Shareholders have agreed, to enter
into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and
the mutual premises, representations, warranties, covenants and
agreements contained herein, the parties hereto hereby agree as
follows:
1. Provisions Concerning Shares. (a) Tate hereby
----------------------------
agrees that during the period commencing on the date hereof and
continuing until this provision terminates pursuant to Section 5
hereof, at any meeting of the holders of shares of Common Stock,
however called, or in connection with any written consent of the
holders of shares of Common Stock, he shall vote (or cause to be
voted) the Shares held of record or Beneficially Owned (as
defined below) by him, whether heretofore owned or hereafter
acquired, (i) in favor of the adoption of the Merger Agreement
and any actions required in furtherance thereof and hereof;
(ii) against any action or agreement that would result in a
breach in any respect of any covenant, representation or warranty
or any other obligation or agreement of the Company under the
Merger Agreement (after giving effect to any materiality or
similar qualifications contained therein); and (iii) except as
otherwise agreed to in writing in advance by Acquiror, against
the following actions (other than the Merger and the transactions
<PAGE>
contemplated by the Merger Agreement): (A) any extraordinary
corporate transaction, such as a merger, consolidation or other
business combination involving the Company; (B) a sale, lease or
transfer of a material amount of assets of the Company, or a
reorganization, recapitalization, dissolution or liquidation of
the Company; (C) (1) any change in a majority of the persons who
constitute the board of directors of the Company; (2) any change
in the present capitalization of the Company or any amendment of
the Company's Articles of Incorporation or By-Laws; (3) any other
material change in the Company's corporate structure or business;
or (4) any other action which, in the case of each of the matters
referred to in clauses C (1), (2), (3) or (4), is intended, or
could reasonably be expected, to impede, interfere with, delay,
postpone, or materially adversely affect the Merger and the
transactions contemplated by this Agreement and the Merger
Agreement. Tate shall not enter into any agreement or
understanding with any Person (as defined below) the effect of
which would be inconsistent or violative of the provisions and
agreements contained in Section 1 or 2 hereof. For purposes of
this Agreement, "Beneficially Own" or "Beneficial Ownership" with
respect to any securities shall mean having "beneficial
ownership" of such securities (as determined pursuant to Rule
13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), including pursuant to any agreement,
arrangement or understanding, whether or not in writing. Without
duplicative counting of the same securities by the same holder,
securities Beneficially Owned by a Person shall include
securities Beneficially Owned by all other Persons with whom such
Person would constitute a "group" as within the meanings of
Section 13(d)(3) of the Exchange Act. For purposes of this
Agreement, "Person" shall mean an individual, corporation,
partnership, joint venture, association, trust, unincorporated
organization or other entity.
(b) In furtherance of the foregoing, (i) Tate hereby
appoints Acquiror and the proper officers of Acquiror, and each
of them, with full power of substitution in the premises, its
proxies to vote all Shares at any meeting, general or special, of
the shareholders of the Company, and to execute one or more
written consents or other instruments from time to time in order
to take such action without the necessity of a meeting of the
shareholders of the Company, in accordance with the provisions of
the preceding paragraph and (ii) Acquiror hereby agrees to vote
such Shares or execute written consents or other instruments in
accordance with the provisions of the preceding paragraph. The
proxy and power of attorney granted herein shall be irrevocable
during the term specified in Section 5 hereof, shall be deemed to
be coupled with an interest and shall revoke all prior proxies
<PAGE>
granted by Tate. Tate shall not grant any proxy to any person
which conflicts with the proxy granted herein, and any attempt to
do so shall be void. The power of attorney granted herein is a
durable power of attorney and shall survive the disability or
incompetence of such Shareholder.
(c) Notwithstanding anything to the contrary in this
Agreement, in no event shall the number of Shares subject to the
agreement to vote provided for in Section 1(a) or the proxy
provided for in Section 1(b) be greater than 49% of the total
voting power of all shares of capital stock of the Company
entitled to vote in ordinary circumstances in an election of
directors.
(d) Tate hereby waives his dissenter's rights under
Chapter 13 of the BCA with respect to the Shares in connection
with the transactions contemplated by the Merger Agreement.
2. Other Covenants, Representations and Warranties.
-----------------------------------------------
Each Shareholder hereby agrees, represents and warrants as to
itself to Acquiror as follows:
(a) Ownership of Shares. Tate is the Beneficial Owner
-------------------
of 9 million Shares. On the date hereof, such Shares constitute
all of the shares of Common Stock owned of record or Beneficially
Owned by him. Tate has sole voting power and sole power to issue
instructions with respect to the matters set forth in Section 1
hereof, sole power of disposition, sole power of conversion, sole
power to demand appraisal rights and sole power to agree to all
of the matters set forth in this Agreement, in each case with
respect to all such Shares, with no limitations, qualifications
or restrictions on such rights.
(b) Power; Binding Agreement. Such Shareholder has
------------------------
the legal capacity, power and authority to enter into and perform
all of such Shareholder's obligations under this Agreement. The
execution, delivery and performance of this Agreement by such
Shareholder will not violate any other agreement to which such
Shareholder is a party including, without limitation, any voting
agreement, shareholders agreement or voting trust. This
Agreement has been duly and validly executed and delivered by
such Shareholder and constitutes a valid and binding agreement of
such Shareholder, enforceable against such Shareholder in
accordance with its terms. In the case of Tate, there is no
beneficiary or holder of a voting trust certificate or other
interest of any trust of which such Shareholder is trustee whose
consent is required for the execution and delivery of this
Agreement or the consummation by such shareholder of the
<PAGE>
transactions contemplated hereby. If Tate is married and the
Shares constitute community property, this Agreement has been
duly authorized, executed and delivered by, and constitutes a
valid and binding agreement of, Tate's spouse, enforceable
against such person in accordance with its terms.
(c) No Conflicts. (A) No filing with, and no permit,
------------
authorization, consent or approval of, any state or federal
public body or authority is necessary for the execution of this
Agreement by Tate and the consummation by him of the transactions
contemplated hereby and (B) none of the execution and delivery of
this Agreement by Tate, the consummation by him of the
transactions contemplated hereby or compliance by him with any of
the provisions hereof shall (1) result in a violation or breach
of, or constitute (with or without notice or lapse of time or
both) a default (or give rise to any third party right of
termination, cancellation, material modification or acceleration)
under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, contract, commitment,
arrangement, understanding, agreement or other instrument or
obligation of any kind to which Tate is a party or by which he or
any of his properties or assets may be bound, or (2) violate any
order, writ, injunction, decree, judgment, order, statute, rule
or regulation applicable to him or any of his properties or
assets.
(d) No Finder's Fees. Other than existing financial
----------------
advisory and investment banking arrangements and agreements
between the Company and CS First Boston Corporation and Invemed
Associates, Inc., no broker, investment banker, financial adviser
or other person is entitled to any broker's, finder's, financial
adviser's or other similar fee or commission in connection with
the transactions contemplated by the Merger Agreement based upon
arrangements made by or on behalf of such Shareholder.
(e) No Solicitation. Notwithstanding the provisions
---------------
of Section 6.2 of the Merger Agreement, from and after the date
hereof and continuing until this provision terminates pursuant to
Section 5 hereof, Tate shall not, in his capacity as such,
directly or indirectly, initiate, solicit or encourage (including
by way of furnishing non-public information or assistance), or
take any other action to facilitate, any inquiries or the making
of any proposal that constitutes, or may reasonably be expected
to lead to, any Competing Transaction, or enter into or maintain
or continue discussions or negotiate with any person or entity in
furtherance of such inquiries or to obtain a Competing
Transaction or agree to or endorse any Competing Transaction, or
authorize or permit any of his agents, and Tate shall promptly
<PAGE>
notify Acquiror orally (in all events within two business days)
and in writing (as promptly thereafter as practicable) of the
material terms and status of all inquiries and proposals which he
or any such agent may receive after the date hereof relating to
any of such matters and, if such inquiry or proposal is in
writing, Tate shall deliver to Acquiror a copy of such inquiry or
proposal promptly; provided, however, that, notwithstanding any
-------- -------
other provision of this Agreement, Tate, as a member of the Board
of Directors of the Company, may take any action in his capacity
as a director that the Board of Directors of the Company would be
permitted to take in accordance with Section 6.2 of the Merger
Agreement. Tate will immediately cease and cause to be
terminated any existing activities, discussions or negotiations,
with any parties conducted heretofore with respect to any of the
foregoing.
(f) Restriction on Transfer, Proxies and Non-
----------------------------------------
Interference. Tate shall not, directly or indirectly, during the
------------
period commencing on the date hereof and continuing until this
provision terminates pursuant to Section 5 hereof: (i) except as
contemplated by the Merger Agreement, offer for sale, sell,
transfer, tender, pledge, encumber, assign or otherwise dispose
of, or enter into any contract, option or other arrangement or
understanding with respect to or consent to the offer for sale,
sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of, any or all of his Shares or any interest therein;
(ii) except as contemplated by this Agreement, grant any proxies
or powers of attorney, deposit any Shares into a voting trust or
enter into a voting agreement with respect to any Shares; or
(iii) take any action that would make any of his representation
or warranty contained herein untrue or incorrect or have the
effect of preventing or disabling him from performing his
obligations under this Agreement.
(g) Disposition of Acquiror Common Shares. Tate has
-------------------------------------
no plan or intention to sell, exchange, or otherwise dispose of,
reduce the risk of loss by short sale or other use, enter into
any contract or arrangement with respect to, or consent to the
sale, exchange or other disposition of any interest in any
Acquiror Common Shares received in the Merger by such
Shareholder.
(h) Reliance by Acquiror. Such Shareholder
--------------------
understands and acknowledges that Acquiror is entering into the
Merger Agreement in reliance upon such Shareholder's execution
and delivery of this Agreement.
<PAGE>
(i) Certain Acknowledgements by Tate. Tate
--------------------------------
acknowledges that he is an informed and sophisticated investor
and, together with his advisor, has undertaken such investigation
as he has deemed necessary, including the review of the Merger
Agreement and this Agreement, to enable him to make an informed
and intelligent decision with respect to the Merger Agreement and
this Agreement and the transactions contemplated thereby and
hereby. Tate acknowledges that pursuant to the Merger he will
receive less consideration per Share than will other holders of
shares of Common Stock.
3. Further Assurances. From time to time, at the
------------------
other party's request and without further consideration, Tate and
Acquiror shall execute and deliver such additional documents and
take all such further lawful action as may be necessary or
desirable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by
this Agreement.
4. Stop Transfer. Tate agrees with, and covenants
-------------
to, Acquiror that he shall not request that the Company register
the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing the Shares, unless such
transfer is made in compliance with this Agreement. In the event
of a stock dividend or distribution, or any change in the Company
Common Stock by reason of any stock dividend, split-up,
recapitalization, combination, exchange of shares or the like,
the term "Shares" shall be deemed to refer to and include the
Shares as well as all such stock dividends and distributions and
any shares into which or for which any or all of the Shares may
be changed or exchanged.
5. Termination. Except as otherwise provided herein,
-----------
the covenants and agreements contained in Sections 1, 2(e), 2(f)
and 4 hereof with respect to the Shares shall terminate (a) in
the event the Merger Agreement is terminated pursuant to any
other provision, upon such termination, and (b) in the event the
Merger is consummated, upon the Effective Time.
6. Shareholder Capacity. No person executing this
--------------------
Agreement who is or becomes during the term hereof a director of
the Company makes any agreement or understanding herein in his or
her capacity as such director. Tate is executing this Agreement
solely in his capacity as the record and beneficial owner of all
of his Shares.
7. Confidentiality. The Shareholders recognize that
---------------
successful consummation of the transactions contemplated by this
<PAGE>
Agreement may be dependent upon confidentiality with respect to
the matters referred to herein. In this connection, pending
public disclosure thereof, each Shareholder hereby agrees not to
disclose or discuss such matters with anyone not a party to this
Agreement (other than such Shareholder's counsel and advisors, if
any) without the prior written consent of Acquiror, except for
disclosures such Shareholder's counsel advises are necessary in
order to fulfill such Shareholder's obligations imposed by law,
in which event such Shareholder shall give notice of such
disclosure to Acquiror as promptly as practicable so as to enable
Acquiror to seek a protective order from a court of competent
jurisdiction with respect thereto.
8. Release. Each of the Shareholders, solely in such
-------
person's capacity as a shareholder of the Company, hereby
releases and discharges the Company and the Surviving Corporation
and their respective officers, directors, shareholders,
employees, agents, attorneys, representatives, successors and
assigns (and the respective heirs, executors, administrators,
representatives, successors and assigns of such officers,
directors, shareholders, employees, agents, attorneys and
representatives) from any and all claims, actions, causes of
action, suits, debts, sums of money, controversies, agreements,
promises, damages, judgments, claims and demands whatsoever, at
law or in equity, which any of the Shareholders, as a result of
such person's status as a shareholder of the Company, had, now
have or hereafter can, shall or may have for, upon, or by reason
of any matter, cause or thing whatsoever relating, directly or
indirectly, to the Company or the Surviving Corporation and any
of their respective subsidiaries, as the case may be; provided,
--------
however, that nothing contained in this Section 8 shall be
-------
construed as a release of the Acquiror for any such claims such
Shareholder may have, as a shareholder of Acquiror, for
obligations Acquiror may have to such Shareholder following the
Merger.
9. Non-Competition. (a) Except as otherwise
---------------
provided in Section 9(b), each Shareholder shall not, until the
third anniversary of the Effective Date (the "Termination Date"):
(i) engage in any activity in the juvenile retail
business, directly or indirectly (whether as an employee,
officer, director, agent, consultant, proprietor, partner,
principal shareholder of otherwise), anywhere in the United
States of America and in foreign countries where the Company
currently has operations; or
<PAGE>
(ii) engage in any action, activity or course of
conduct which is detrimental to the business or business
reputation of the Company or any of its Subsidiaries, including
(A) recruiting any employees of the Company (or the Surviving
Corporation) or any of its subsidiaries and (B) soliciting or
encouraging any employee of the Company (or the Surviving
Corporation) or any of its subsidiaries to leave the employment
of the Company or any of its subsidiaries and (C) disclosing or
furnishing to anyone any confidential information relating to the
Company or any of its subsidiaries or otherwise using such
confidential information for its own benefit or the benefit of
any other person.
(b) Nothing contained in Section 9(a) shall prohibit
or otherwise restrict any Shareholder from acquiring or owning,
directly or indirectly, for investment or other legitimate
business purposes not intended to circumvent this Agreement,
securities of any entity engaged, directly or indirectly, in the
juvenile retail business if either (i) such entity is a public
entity and (A) is not a Controlling Person of, or a member of a
group which Controls, such entity and (B) owns, directly or
indirectly, no more than 5% of any class of equity securities of
such entity or (ii) such entity is not a public entity and such
Shareholder (X) is not a Controlling Person of, or a member of a
group that Controls, such entity and (Y) owns, directly or
indirectly, no more than 10% of any class of equity securities of
such entity.
(c) Each Shareholder acknowledges and agrees that the
covenants and restrictions contained in this Section 9 are
reasonable and that they shall not in any way challenge the
reasonableness or the enforceability of this Section 9 or any
covenant or restriction contained herein.
(d) As used herein, "Control" shall mean, as to any
Person, the power to direct or cause the direction of the
management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise. The
term "Controlling Person" shall have a correlative meaning.
10. Miscellaneous.
-------------
(a) Entire Agreement. This Agreement and in the case
----------------
of Tate, the Merger Agreement, constitute the entire agreement
between the parties with respect to the subject matter hereof and
supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject
matter hereof.
<PAGE>
(b) Certain Events. Tate agrees that this Agreement
--------------
and the obligations hereunder shall attach to the Shares and
shall be binding upon any person or entity to which legal or
beneficial ownership of such Shares shall pass, whether by
operation of law or otherwise, including, without limitation,
Tate's heirs, guardians, administrators or successors.
Notwithstanding any transfer of Shares, the transferor shall
remain liable for the performance of all obligations under this
Agreement of the transferor.
(c) Assignment. This Agreement shall not be assigned
----------
by operation of law or otherwise without the prior written
consent of the other party, provided that Acquiror may assign, in
its sole discretion, its rights and obligations hereunder to any
direct or indirect wholly owned subsidiary of Acquiror, but no
such assignment shall relieve Acquiror of its obligations
hereunder if such assignee does not perform such obligations.
(d) Amendments, Waivers, Etc. This Agreement may not
------------------------
be amended, changed, supplemented, waived or otherwise modified
or terminated, with respect to any one or more Shareholders,
except upon the execution and delivery of a written agreement
executed by the relevant parties hereto.
(e) Notices. All notices, requests, claims, demands
-------
and other communications hereunder shall be in writing and shall
be given (and shall be deemed to have been duly received if so
given) by hand delivery, telegram, telex or telecopy, or by mail
(registered or certified mail, postage prepaid, return receipt
requested) or by any courier service, such as Federal Express,
providing proof of delivery. All communications hereunder shall
be delivered to the respective parties at the following
addresses:
If to any Shareholder: c/o Baby Superstore, Inc.
1201 Woods Chapel Road
Duncan, South Carolina 29334
Telephone: (800) 324-1340
Facsimile: Call to arrange
facsimile.
Attention: Linda M. Robertson
<PAGE>
If to Acquiror: Toys "R" Us, Inc.
461 From Road
Paramus, New Jersey 07652
Telephone: 201-262-7800
Facsimile: 201-262-8919
Attention: Michael Goldstein
or to such other address as the person to whom notice is given
may have previously furnished to the others in writing in the
manner set forth above.
(f) Severability. Whenever possible, each provision
------------
or portion of any provision of this Agreement will be interpreted
in such manner as to be effective and valid under applicable law
but if any provision or portion of any provision of this
Agreement is held to be invalid, illegal or unenforceable in any
respect under any applicable law or rule in any jurisdiction,
such invalidity, illegality or unenforceability will not affect
any other provision or portion of any provision in such
jurisdiction, and this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision or portion of any provision had never
been contained herein.
(g) Specific Performance. Each of the parties hereto
--------------------
recognizes and acknowledges that a breach by it of any covenants
or agreements contained in this Agreement will cause the other
party to sustain damages for which it would not have an adequate
remedy at law for money damages, and therefore each of the
parties hereto agrees that in the event of any such breach the
aggrieved party shall be entitled to the remedy of specific
performance of such covenants and agreements and injunctive and
other equitable relief in addition to any other remedy to which
it may be entitled, at law or in equity.
(h) Remedies Cumulative. All rights, powers and
-------------------
remedies provided under this Agreement or otherwise available in
respect hereof at law or in equity shall be cumulative and not
alternative, and the exercise of any thereof by any party shall
not preclude the simultaneous or later exercise of any other such
right, power or remedy by such party.
(i) No Waiver. The failure of any party hereto to
---------
exercise any right, power or remedy provided under this Agreement
or otherwise available in respect hereof at law or in equity, or
to insist upon compliance by any other party hereto with its
obligations hereunder, and any custom or practice of the parties
<PAGE>
at variance with the terms hereof, shall not constitute a waiver
by such party of its right to exercise any such or other right,
power or remedy or to demand such compliance.
(j) No Third Party Beneficiaries. This Agreement is
----------------------------
not intended to be for the benefit of, and shall not be
enforceable by, any person or entity who or which is not a party
hereto.
(k) Governing Law. This Agreement shall be governed
-------------
and construed in accordance with the laws of the State of New
York, without giving effect to the principles of conflicts of law
thereof.
(l) WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
--------------------
WAIVES ANY RIGHT TO A TRIAL BY JURY IN CONNECTION WITH ANY SUCH
ACTION, SUIT OR PROCEEDING.
(m) Descriptive Headings. The descriptive headings
--------------------
used herein are inserted for convenience of reference only and
are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
(n) Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be deemed to be an original,
but all of which, taken together, shall constitute one and the
same Agreement.
<PAGE>
IN WITNESS WHEREOF, Acquiror and each Shareholder have
caused this Agreement to be duly executed as of the day and year
first above written.
TOYS "R" US, INC.
By: /S/ Michael Goldstein
--------------------------
Name: Michael Goldstein
Title: Vice Chairman and
Chief Executive Officer
By: /S/ Jack P. Tate
--------------------------
Jack P. Tate
By: /S/ Linda M. Robertson
--------------------------
Linda M. Robertson
AGREED TO AND ACKNOWLEDGED
(with respect to Sections 2, 4 and 8):
BABY SUPERSTORE, INC.
By: /S/ Jack P. Tate
---------------------------
Name: Jack P. Tate
Title: Chief Executive Officer
<PAGE>
[EXECUTION COPY]
REGISTRATION RIGHTS AGREEMENT
AGREEMENT, dated as of October 1, 1996, between Toys
"R" Us, Inc., a Delaware corporation ("Acquiror"), and Jack P.
Tate ("Tate") and Linda M. Robertson ("Robertson" and together
with Tate, the "Shareholders").
W I T N E S S E T H:
-------------------
WHEREAS, Acquiror, Baby Superstore, Inc., a South
Carolina corporation (the "Company"), and Tate are parties to an
Agreement and Plan of Merger, dated as of October 1, 1996 (the
"Merger Agreement"), pursuant to which the Company will merge
with and into Acquiror, with Acquiror continuing as the surviving
corporation; and
WHEREAS, Acquiror has agreed to provide registration
rights to the Shareholders with respect to the stock to be
received in connection with the Merger, subject to the terms and
conditions set forth herein.
NOW, THEREFORE, the parties hereby agree as follows:
1. Definitions. Capitalized terms used but not
-----------
defined shall have the meanings assigned to such terms in the
Merger Agreement. For purposes of this Agreement, the following
terms shall have the following meanings:
"Blackout Period" means any Section 6(a) Period and any
---------------
Section 6(b) Period.
"Common Stock" means the common stock, par value $0.10
------------
per share, of Acquiror.
"Effective Period" means the period commencing on the
----------------
180th day following the Effective Time and ending on the earliest
of (i) the first date as of which all Registrable Securities
cease to be Registrable Securities and (ii) the second
anniversary of the Effective Time.
"Holder" means each Shareholder and each Permitted
------
Assignee that becomes a holder of Registrable Securities,
provided that such Permitted Assignee has agreed in writing to
become a Holder hereunder and to be bound by the terms and
conditions of this Agreement.
<PAGE>
"NASD" means the National Association of Securities
----
Dealers, Inc.
"Permitted Assignee" shall mean, with respect to any
------------------
Shareholder, (i) such Shareholder's lineal descendants, (ii) a
trust for the benefit of, the estate of, executors, personal
representatives, administrators, guardians or conservators of
such Shareholder or any of the individuals referred to in the
foregoing clause (i) (but only in their capacity as such) and
(iii) charitable trusts and charitable foundations formed by such
Shareholder.
"Prospectus" means the prospectus included in any
----------
Registration Statement, as amended or supplemented by any
prospectus supplement with respect to the terms of the offering
of any portion of the Registrable Securities covered by any
Registration Statement and by all other amendments and
supplements to the prospectus, including post-effective
amendments and all material incorporated by reference in such
prospectus.
"Registrable Securities" means (i) the shares of Common
----------------------
Stock issued pursuant to the Merger to the Shareholders, and
(ii) any securities issued or distributed in respect of any such
shares of Common Stock by way of stock dividend or stock split or
in connection with a combination of shares, recapitalization,
reorganization, merger, consolidation or otherwise. Securities
will cease to be Registrable Securities in accordance with
Section 2 hereof.
"Registration Expenses" means any and all expenses
---------------------
incident to performance of or compliance with this Agreement,
including, without limitation, (i) all SEC, NASD and securities
exchange registration and filing fees, (ii) all fees and expenses
of complying with state securities or blue sky laws (including
fees and disbursements of counsel for any underwriters in
connection with blue sky qualifications of the Registrable
Securities), (iii) all printing, messenger and delivery expenses,
(iv) all fees and expenses incurred in connection with the
listing of the Registrable Securities on any securities exchange
pursuant to Section 7(h), and (v) the fees and disbursements of
counsel for Acquiror and of its independent public accountants,
but excluding (x) underwriting discounts and commissions and
transfer taxes, if any, and (y) any fees or disbursements of
counsel to the Holders or any Holder.
"Registration Statement" means any registration
----------------------
statement (including a Shelf Registration) of Acquiror referred
<PAGE>
to in Section 3 or 4, including any Prospectus, amendments and
supplements to any such registration statement, including post-
effective amendments, and all exhibits and all material
incorporated by reference in any such registration statement.
"Related Securities" means any securities of Acquiror
------------------
similar or identical to any of the Registrable Securities,
including, without limitation, any class of capital stock of
Acquiror and all options, warrants, rights and other securities
convertible into, or exchangeable or exercisable for, any class
of capital stock of Acquiror.
"Section 6(a) Period" has the meaning specified in
-------------------
Section 6(a).
"Section 6(b) Period" has the meaning specified in
-------------------
Section 6(b).
"Shelf Registration" means a "shelf" registration
------------------
statement on an appropriate form pursuant to Rule 415 under the
Securities Act (or any successor rule that may be adopted by the
SEC).
"Underwritten Registration or Underwritten Offering"
--------------------------------------------------
shall mean an underwritten offering in which securities of
Acquiror are sold to an underwriter for reoffering to the public.
2. Securities Subject to this Agreement. The
------------------------------------
securities entitled to the benefits of this Agreement are the
Registrable Securities. For the purposes of this Agreement,
Registrable Securities shall cease to be Registrable Securities
when and to the extent that (i) a Registration Statement covering
Registrable Securities has been declared effective under the
Securities Act and Registerable Securities have been disposed of
pursuant to such effective Registration Statement, (ii)
Registrable Securities are distributed to the public pursuant to
Rule 144 (or any similar provision then in force) under the
Securities Act, (iii) Registrable Securities have been otherwise
transferred to a party that is not an Affiliate of the Holder and
new certificates for such Registrable Securities not bearing a
legend restricting further transfer shall have been delivered by
Acquiror, (iv) the Effective Period ends or (v) Registrable
Securities have ceased to be outstanding.
3. Piggy-Back Registration Rights. (a) Whenever
------------------------------
Acquiror shall propose to file a Registration Statement under the
Securities Act relating to the public offering of Common Stock
for cash pursuant to a firm commitment underwriting (other than
<PAGE>
pursuant to a Registration Statement on Form S-4 or Form S-8 or
any successor forms, or filed in connection with an exchange
offer or an offering of securities solely to existing
shareholders or employees of Acquiror and other than pursuant to
a Registration Statement filed in connection with an offering by
Acquiror of securities convertible into or exchangeable for
Common Stock) for sale for its own account, Acquiror shall
(i) give written notice at least ten Business Days prior to the
filing thereof to each Holder then outstanding, specifying the
approximate date on which Acquiror proposes to file such
Registration Statement and advising such Holder of such Holder's
right to have any or all of the Registrable Securities then held
by such Holder included among the securities to be covered
thereby and (ii) at the written request of any such Holder given
to Acquiror at least five Business Days prior to the proposed
filing date, include among the securities covered by such
Registration Statement the number of Registrable Securities that
such Holder shall have requested be so included (subject,
however, to reduction in accordance with paragraph (b) of this
Section 3). Acquiror shall use its commercially reasonable
efforts to cause the managing underwriter of the proposed
underwritten offering to permit the Holders of Registrable
Securities requested to be included in the Registration Statement
for such offering to include such securities in such offering on
the same terms and conditions as the Shares of Acquiror capital
stock included therein.
(b) Each Holder desiring to participate in an offering
pursuant to Section 3(a) may include Registrable Securities in
any Registration Statement relating to such offering to the
extent that the inclusion of such Registrable Securities shall
not reduce the number of shares of Common Stock to be offered and
sold by Acquiror pursuant thereto. If the lead managing
underwriter selected by Acquiror for an underwritten offering
pursuant to Section 3(a) or any financial advisor to Acquiror
determines that marketing factors require a limitation on the
number of shares of Common Stock to be offered and sold by
shareholders of Acquiror in such offering, there shall be
included in the offering only that number of shares of Common
Stock, that such lead managing underwriter or financial advisor,
as the case may be, reasonably and in good faith believes will
not jeopardize the success of the offering of all the shares of
Common Stock that the Company desires to sell for its own
account. In such event and provided the managing underwriter or
financial advisor, as the case may be, has so notified Acquiror
in writing, the number of shares of Common Stock to be offered
and sold by shareholders of Acquiror, including Holders of
Registrable Securities, desiring to participate in such offering
<PAGE>
shall be allocated among such shareholders of Acquiror on a pro
rata basis based on their holdings of Common Stock, subject to
any written agreements requiring a different priority.
(c) Nothing in this Section 3 shall create any
liability on the part of Acquiror to the Holders of Registrable
Securities if Acquiror for any reason should decide not to file a
Registration Statement proposed to be filed under Section 3(a) or
to withdraw such Registration Statement subsequent to its filing,
regardless of any action whatsoever that a Holder may have taken,
whether as a result of the issuance by Acquiror of any notice
hereunder or otherwise.
(d) A request by Holders to include Registrable
Securities in a proposed underwritten offering pursuant to
Section 3(a) shall not be deemed to be a request for a demand
registration pursuant to Section 4.
4. Demand Registration Right. (a) Upon the written
-------------------------
request of Holders of at least a majority in number of the
Registrable Securities that Acquiror effect the registration with
the SEC under and in accordance with the provisions of the
Securities Act of all or part of such Holder's or Holders'
Registrable Securities and specifying the aggregate number of
shares of Registrable Securities requested to be registered,
Acquiror shall use all commercially reasonable efforts to file a
Registration Statement within 45 days after receipt of such
request for disposition pursuant to an underwritten offering (the
terms of such underwritten offering or other distribution to be
determined by the Holders of a majority of the Registrable
Securities so requested to be registered); provided, however,
-------- -------
that Acquiror shall not be required to take any action pursuant
to this Section 4:
(i) if prior to the date of such request Acquiror
shall have effected one (1) registration pursuant to this
Section 4;
(ii) if Acquiror has effected a registration pursuant
to this Section 4 within the 120-day period (if at the time
Acquiror qualifies to use Form S-3) or 365-day period (in
all other cases) next preceding such request;
(iii) if Acquiror shall at the time have effective a
Shelf Registration pursuant to which the Holder or Holders
that requested registration could effect the disposition of
such Registrable Securities in the manner requested;
<PAGE>
(iv) if the Registrable Securities that Acquiror shall
have been requested to register shall have a then current
market value of less than $50,000,000, unless such
registration request is for all remaining Registrable
Securities; or
(v) during the pendency of any Blackout Period;
and provided, further, that Acquiror shall be permitted to
-------- -------
satisfy its obligations under this Section 4(a) by amending (to
the extent permitted by applicable law) any Registration
Statement (including any Shelf Registration) previously filed by
Acquiror under the Securities Act so that such Registration
Statement (as amended) shall permit the disposition (in
accordance with the intended methods of disposition specified as
aforesaid) of all of the Registrable Securities for which a
demand for registration has been made under this Section 4(a).
If Acquiror shall so amend a previously filed Registration
Statement, it shall be deemed to have effected a registration for
purposes of this Section 4.
(b) A registration requested pursuant to this Section
4 shall not be deemed to be effected for purposes of this Section
4 if it has not been declared effective by the SEC or become
effective in accordance with the Securities Act.
(c) Holders of a majority in number of the Registrable
Securities to be included in a Registration Statement pursuant to
this Section 4 may, at any time prior to the effective date of
the Registration Statement relating to such registration, revoke
such request by providing a written notice to Acquiror revoking
such request. The Holders of Registrable Securities who revoke
such request shall reimburse Acquiror for all its out-of-pocket
expenses incurred in the preparation, filing and processing of
the Registration Statement. If such reimbursement is made within
10 Business Days following a request therefor, such registration
shall not be deemed to have been effected for purposes of this
Section 4. If such reimbursement is not so received within such
time (i) such registration shall be deemed to have been effected
for purposes of this Section 4 and (ii) Acquiror shall have no
further obligations to such Holders with respect to piggy-back
registrations pursuant to Section 3 or demand registrations
pursuant to this Section 4 until such reimbursement is made.
(d) Acquiror will not include any securities that are
not Registrable Securities in any Registration Statement filed
pursuant to a demand made under this Section 4 without the prior
<PAGE>
written consent of the Holders of a majority in number of the
Registrable Securities covered by such Registration Statement.
5. Selection of Underwriters. In connection with any
-------------------------
offering pursuant to a Registration Statement filed pursuant to a
demand made in accordance with Section 4, the managing
underwriter or underwriters to administer the offering shall be a
nationally recognized banking firm, which shall include Goldman
Sachs & Co., CS First Boston Corporation and Invemed Associates
Inc., to be selected jointly by Acquiror and the Holders of a
majority in number of the Registrable Securities to be included
in the Registration Statement.
6. Blackout Periods for Holders. (a) If Acquiror
----------------------------
determines in good faith that the registration and distribution
of Registrable Securities (or the use of the Registration
Statement or related Prospectus) would interfere with any pending
financing, acquisition, corporate reorganization or any other
corporate development involving Acquiror or any of its
subsidiaries (or would require premature disclosure thereof) and
promptly gives the Holders of Registrable Securities written
notice of such determination, Acquiror shall be entitled to (i)
postpone the filing of the Registration Statement otherwise
required to be prepared and filed by Acquiror pursuant to Section
3 or 4, or (ii) elect that the Registration Statement not be
used, in either case for a reasonable period of time, but not to
exceed 120 days (a "Section 6(a) Period"). Any such written
notice shall contain a general statement of the reasons for such
postponement or restriction on use and an estimate of the
anticipated delay. Acquiror shall promptly notify each Holder of
the expiration or earlier termination of a Section 6(a) Period.
(b) If (i) during the Effective Period, Acquiror shall
file a registration statement (other than in connection with the
registration of securities issuable pursuant to an employee stock
option, stock purchase or similar plan on Form S-8 or pursuant to
a merger, exchange offer or a transaction of the type specified
in Rule 145(a) under the Securities Act) with respect to any
Related Securities and (ii) with reasonable prior notice, (A)
Acquiror (in the case of a non-underwritten offering pursuant to
such registration statement) advises the Holders in writing that
a sale or distribution of Registrable Securities would adversely
affect such offering or (B) the managing underwriter or
underwriters (in the case of an underwritten offering) advise
Acquiror in writing (in which case Acquiror shall notify the
Holders), that a sale or distribution of Registrable Securities
would adversely impact such offering, then each Holder shall, to
the extent not inconsistent with Applicable Law, refrain from
<PAGE>
effecting any sale or distribution of Registrable Securities,
including sales pursuant to Rule 144 under the Securities Act,
during the 10-day period prior to, and during the 90-day period
beginning on, the effective date of such registration statement
(a "Section 6(b) Period").
(c) The Effective Period and, in the case where the
use of an effective Registration Statement is prohibited under
Section 6(a), the period for which a Registration Statement shall
be kept effective pursuant to Section 7(b), as the case may be,
shall be extended by a number of days equal to the number of days
of any Blackout Period occurring during such period. Except as
provided below, the beginning of any Blackout Period shall be at
least 120 days after the end of any prior Blackout Period and the
aggregate number of days included in all Blackout Periods during
any consecutive 12 months during the Effective period shall not
exceed 180 days; provided, however, that once during any
-------- -------
consecutive 12 months during the Effective Period a Section 6(b)
Period may begin on or within five days of the last day of a
Section 6(a) Period.
7. Registration Procedures. If and whenever Acquiror
-----------------------
is required to use its commercially reasonable efforts to effect
or cause the registration of any Registrable Securities under the
Securities Act as provided in this Agreement, Acquiror shall, as
expeditiously as possible:
(a) prepare and file with the SEC a Registration
Statement with respect to such Registrable Securities on any
form for which Acquiror then qualifies or that counsel for
Acquiror shall deem appropriate, and which form shall be
available for the sale of the Registrable Securities in
accordance with the intended methods of distribution
thereof, and use its reasonable best efforts to cause such
Registration Statement to become and remain effective;
(b) prepare and file with the SEC amendments and post-
effective amendments to such Registration Statement and such
amendments and supplements to the Prospectus used in
connection therewith as may be necessary to maintain the
effectiveness of such registration or as may be required by
the rules, regulations or instructions applicable to the
registration form utilized by Acquiror or by the Securities
Act for shelf registration or otherwise necessary to keep
such Registration Statement effective for up to 90 days and
cause the Prospectus as so supplemented to be filed pursuant
to Rule 424 under the Securities Act, and to otherwise
comply with the provisions of the Securities Act with
<PAGE>
respect to the disposition of all securities covered by such
Registration Statement until the earlier of (x) such 90th
day and (y) such time as all Registrable Securities covered
by such Registration Statement have ceased to be Registrable
Securities (it being understood that Acquiror at its option
may determine to maintain such effectiveness for a longer
period, whether pursuant to a Shelf Registration or
otherwise); provided, however, that a reasonable time before
-------- -------
filing a Registration Statement or Prospectus, or any
amendments or supplements thereto (other than reports
required to be filed by it under the Exchange Act), Acquiror
shall furnish to the Holders, the managing underwriter and
their respective counsel for review and comment, copies of
all documents proposed to be filed and shall not file any
such documents (other than as aforesaid) to which any of
them reasonably object prior to the filing thereof;
(c) furnish to each Holder of such Registrable
Securities such number of conformed copies of such
Registration Statement and of each amendment and post-
effective amendment thereto (in each case including all
exhibits) and such number of copies of any Prospectus or
Prospectus supplement and such other documents as such
Holder may reasonably request in order to facilitate the
disposition of the Registrable Securities by such Holder
(Acquiror hereby consenting to the use (subject to the
limitations set forth in the last paragraph of this Section
7) of the Prospectus or any amendment or supplement thereto
in connection with such disposition);
(d) use its reasonable best efforts to register or
qualify such Registrable Securities covered by such
Registration Statement under such other securities or blue
sky laws of such jurisdictions as each Holder shall
reasonably request, except that Acquiror shall not for any
such purpose be required to qualify generally to do business
as a foreign corporation in any jurisdiction where, but for
the requirements of this Section 7(d), it would not be
obligated to be so qualified, to subject itself to taxation
in any such jurisdiction, or to consent to general service
of process in any such jurisdiction;
(e) notify each Holder of any such Registrable
Securities covered by such Registration Statement, at any
time when a Prospectus relating thereto is required to be
delivered under the Securities Act within the appropriate
period mentioned in Section 7(b), of Acquiror's becoming
aware that the Prospectus included in such Registration
<PAGE>
Statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading in light of the
circumstances then existing, and at the request of any such
Holder, prepare and furnish to such Holder a reasonable
number of copies of an amendment or supplement to such
Registration Statement or related Prospectus as may be
necessary so that, as thereafter delivered to the purchasers
of such Registrable Securities, such Prospectus shall not
include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances then existing;
(f) notify each Holder covered by such Registration
Statement at any time:
(i) when the Prospectus or any Prospectus
supplement or post-effective amendment has been filed,
and, with respect to the Registration Statement or any
post-effective amendment, when the same has become
effective;
(ii) of any request by the SEC for amendments or
supplements to the Registration Statement or the
Prospectus or for additional information;
(iii) of the issuance by the SEC of any stop
order suspending the effectiveness of the Registration
Statement or any order preventing the use of a related
Prospectus, or the initiation (or any overt threats) of
any proceedings for such purposes;
(iv) of the receipt by Acquiror of any written
notification of the suspension of the qualification of
any of the Registrable Securities for sale in any
jurisdiction or the initiation (or overt threats) of
any proceeding for that purpose); and
(v) if at any time the representations and
warranties of Acquiror contemplated by paragraph (i)(1)
below cease to be true and correct in all material
respects;
(g) otherwise use its reasonable best efforts to
comply with all applicable rules and regulations of the SEC,
and make available to its security holders an earnings
<PAGE>
statement that shall satisfy the provisions of Section 11(a)
of the Securities Act, provided that Acquiror shall be
deemed to have complied with this paragraph if it has
complied with Rule 158 of the Securities Act;
(h) use reasonable best efforts to cause all such
Registrable Securities to be listed on any securities
exchange on which the Acquiror capital stock is then listed,
if such Registrable Securities are not already so listed and
if such listing is then permitted under the rules of such
exchange, and to provide a transfer agent and registrar for
such Registrable Securities covered by such Registration
Statement no later than the effective date of such
Registration Statement;
(i) enter into agreements (including an underwriting
agreement in the form customarily entered into by Acquiror
in a comparable underwritten offering) and take all other
appropriate and all commercially reasonable actions in order
to expedite or facilitate the disposition of such
Registrable Securities and in such connection, whether or
not an underwriting agreement is entered into and whether or
not the registration is an underwritten registration:
(i) make such representations and warranties to
the Holders of such Registrable Securities and the
underwriters, if any, in form, substance and scope as
are customarily made by Acquiror to underwriters in
comparable underwritten offerings;
(ii) obtain opinions of counsel to Acquiror and
updates thereof (which counsel and opinions shall be
reasonably satisfactory (in form, scope and substance)
to the managing underwriters, if any, and the Holders
of a majority in number of the Registrable Securities
being sold) addressed to such Holders and the
underwriters covering the matters customarily covered
in opinions requested in comparable underwritten
offerings by Acquiror;
(iii) obtain "cold comfort" letters and updates
thereof from Acquiror's independent certified public
accountants addressed to the selling Holders of
Registrable Securities and the underwriters, if any,
such letters to be in customary form and covering
matters of the type customarily covered in "cold
comfort" letters by independent accountants in
connection with comparable underwritten offerings on
<PAGE>
such date or dates as may be reasonably requested by
the managing underwriter;
(iv) if requested, provide the indemnification in
accordance with the provisions and procedures of
Section 10 hereof to all parties to be indemnified
pursuant to such Section; and
(v) deliver such documents and certificates as
may be reasonably requested by the Holders of a
majority in number of the Registrable Securities being
sold and the managing underwriters, if any, to evidence
compliance with clause (f) above and with any customary
conditions contained in the underwriting agreement or
other agreement entered into by Acquiror;
(j) cooperate with the Holders of Registrable
Securities covered by such Registration Statement and the
managing underwriter or underwriters to facilitate, to the
extent reasonable under the circumstances, the timely
preparation and delivery of certificates (not bearing any
restrictive legends) representing the securities to be sold
under such Registration Statement, and enable such
securities to be in such denominations and registered in
such names as the managing underwriter or underwriters, if
any, or such Holders may request and/or in a form eligible
for deposit with the Depository Trust Company;
(k) make available for inspection by any Holder
included in such Registration Statement, any underwriter
participating in any disposition pursuant to such
Registration Statement, and any attorney, accountant or
other agent retained by any such Holder or underwriter
(collectively, the "Inspectors"), reasonable access to
appropriate officers of Acquiror and Acquiror's subsidiaries
to ask questions and to obtain information reasonably
requested by such Inspector and all financial and other
records and other information, pertinent corporate documents
and properties of any of Acquiror and its subsidiaries and
affiliates (collectively, the "Records"), as shall be
reasonably necessary to enable them to exercise their due
diligence responsibility; provided, however, that the
-------- -------
Records that Acquiror determines, in good faith, to be
confidential and which it notifies the Inspectors in writing
are confidential shall not be disclosed to any Inspector
unless such inspector signs a confidentiality agreement
reasonably satisfactory to Acquiror or either (i) the
disclosure of such Records is necessary to avoid or correct
<PAGE>
a misstatement or omission of a material fact in such
Registration Statement or (ii) the release of such Records
is ordered pursuant to a subpoena or other order from a
court of competent jurisdiction; and provided, further, that
-------- -------
any decision regarding the disclosure of information
pursuant to subclause (i) shall be made only after
consultation with counsel for the applicable Inspectors.
Each Holder agrees that it will, promptly after learning
that disclosure of such Records is sought in a court having
jurisdiction, give notice to Acquiror and allow Acquiror, at
Acquiror's expense, to undertake appropriate action to
prevent disclosure of such Records; and
(l) in the event of the issuance of any stop order
suspending the effectiveness of the Registration Statement
or of any order suspending or preventing the use of any
related Prospectus or suspending the qualification of any
Registrable Securities included in the Registration
Statement for sale in any jurisdiction, Acquiror will use
all commercially reasonable efforts promptly to obtain its
withdrawal.
Acquiror may require each Holder as to which any
registration is being effected to furnish Acquiror with such
information regarding such Holder and pertinent to the disclosure
requirements relating to the registration and the distribution of
such securities as Acquiror may from time to time reasonably
request in writing.
Each Holder agrees that, upon receipt of any notice
from Acquiror of the happening of any event of the kind described
in Section 7(e), such Holder shall forthwith discontinue
disposition of Registrable Securities pursuant to the Prospectus
or Registration Statement covering such Registrable Securities
until such Holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 7(e), and, if so
directed by Acquiror, such Holder will deliver to Acquiror (at
Acquiror's expense) all copies, other than permanent file copies
then in such Holder's possession, of the Prospectus covering such
Registrable Securities current at the time of receipt of such
notice. In the event Acquiror shall give any such notice, the
Effective Period and the period mentioned in Section 7(b) shall
be extended by the number of days during the period from the date
of the giving of such notice pursuant to Section 7(e) and through
the date when each seller of Registrable Securities covered by
such Registration Statement shall have received the copies of the
supplemented or amended Prospectus contemplated by Section 7(e).
<PAGE>
8. Registration Expenses. Acquiror shall pay all
---------------------
Registration Expenses in connection with all registrations of
Registrable Securities pursuant to Sections 3 and 4 upon the
written request of any of the Holders, and each Holder shall pay
(x) all fees and expenses of counsel to such Holder and any
counsel to the Holders and (y) all underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or
disposition of such Holder's Registrable Securities pursuant to
the Registration Statement.
9. Reports Under the Exchange Act. Acquiror agrees
------------------------------
to:
(a) file with the SEC in a timely manner all reports
and other documents required of Acquiror under the Exchange
Act; and
(b) furnish to any Holder, during the Effective
Period, forthwith upon request (A) a written statement by
Acquiror that it has complied with the current public
information and reporting requirements of Rule 144 under the
Securities Act and the Exchange Act and (B) a copy of the
most recent annual or quarterly report of Acquiror and such
other reports and documents so filed by Acquiror.
10. Indemnification; Contribution.
-----------------------------
(a) Indemnification by Acquiror. Acquiror agrees to indemnify
---------------------------
and hold harmless each Holder included in any registration of
Registrable Securities pursuant to this Agreement, its officers
and directors and each Person who controls such Holder (within
the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act), and any agent or investment adviser thereof
against all losses, claims, damages, liabilities and expenses
(including reasonable attorneys' fees and expenses) incurred by
such party pursuant to any actual or threatened action, suit,
proceeding or investigation arising out of or based upon (i) any
untrue or alleged untrue statement of material fact contained in
any Registration Statement, any Prospectus or preliminary
Prospectus, or any amendment or supplement to any of the
foregoing or (ii) any omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of a
Prospectus or a preliminary Prospectus, in light of the
circumstances then existing) not misleading, except in each case
insofar as the same arise out of or are based upon, any such
untrue statement or omission made in reliance on and in
conformity with information with respect to such Holder furnished
in writing to Acquiror by such Holder or its counsel expressly
<PAGE>
for use therein. In connection with an underwritten offering,
Acquiror will indemnify the underwriters thereof, their officers,
directors and agents and each Person who controls such
underwriters (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) to the same extent as
provided above with respect to the indemnification of the
Holders. Notwithstanding the foregoing provisions of this Section
10(a), Acquiror will not be liable to any Holder, any Person who
participates as an underwriter in the offering or sale of
Registrable Securities or any other Person, if any, who controls
such Holder or underwriter (within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act), under the
indemnity agreement in this Section 10(a) for any such loss,
claim, damage, liability (or action or proceeding in respect
thereof) or expense that arises out of such Holder's or other
Person's failure to send or deliver a copy of a final Prospectus
to the Person asserting an untrue statement or alleged untrue
statement or omission or alleged omission at or prior to the
written confirmation of the sale of the Registrable Securities to
such Person if such statement or omission was corrected in such
final Prospectus and Acquiror has previously furnished copies
thereof to such Holder in accordance with this Agreement.
(b) Indemnification by Holders of Registrable
-----------------------------------------
Securities. In connection with the any registration of
----------
Registrable Securities pursuant to this Agreement, each Holder
included in such registration shall furnish to Acquiror in
writing such information, including the name, address and the
amount of Registrable Securities held by such Holder, as Acquiror
reasonably requests for use in the Registration Statement
relating to such registration or the related Prospectus and
agrees to indemnify and hold harmless Acquiror, all other Holders
and any underwriter, each such party's officers and directors and
each Person who controls each such party (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange
Act), and any agent or investment adviser thereof against all
losses, claims, damages, liabilities and expenses (including
reasonable attorneys' fees and expenses) incurred by such each
party pursuant to any actual or threatened action, suit,
proceeding or investigation arising out of or based upon (i) any
untrue or alleged untrue statement of material fact contained in
any Registration Statement, any Prospectus or preliminary
Prospectus, or any amendment or supplement to any of the
foregoing or (ii) any omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of a
Prospectus or a preliminary Prospectus, in light of the
circumstances then existing) not misleading, but only to the
<PAGE>
extent that any such untrue statement or omission is made in
reliance on and in conformity with information with respect to
such Holder furnished in writing to Acquiror by such Holder or
its counsel specifically for inclusion therein.
(c) Conduct of Indemnification Proceedings. Any
--------------------------------------
Person entitled to indemnification hereunder agrees to give
prompt written notice to the indemnifying party after the receipt
by such indemnified party of any written notice of the
commencement of any action, suit, proceeding or investigation or
threat thereof made in writing for which such indemnified party
may claim indemnification or contribution pursuant to this
Section 10 (provided that failure to give such notification shall
not affect the obligations of the indemnifying party pursuant to
this Section 10 except to the extent the indemnifying party shall
have been actually prejudiced as a result of such failure). In
case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish,
jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the
indemnified party, be counsel to the indemnifying party), and
after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party
under these indemnification provisions for any legal expenses of
other counsel or any other expenses, in each case subsequently
incurred by such indemnified party, in connection with the
defense thereof other than reasonable costs of investigation. No
indemnified party shall consent to entry of any judgment or enter
into any settlement without the consent of each indemnifying
party.
(d) Contribution. If the indemnification from the
------------
indemnifying party provided for in this Section 10 is unavailable
to an indemnified party hereunder in respect of any losses,
claims, damages, liabilities or expenses referred to therein,
then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims,
damages, liabilities and expenses in such proportion as is
appropriate to reflect the relative fault of the indemnifying
party and indemnified party in connection with the actions which
resulted in such losses, claims, damages, liabilities and
expenses, as well as any other relevant equitable considerations.
The relative fault of such indemnifying party and indemnified
<PAGE>
party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged
untrue statement of a material fact or omission or alleged
omission to state a material fact, has been made by, or relates
to information supplied by, such indemnifying party or
indemnified party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set
forth in Section 10(c), any legal and other fees and expenses
reasonably incurred by such indemnified party in connection with
any investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 10(d) were
determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable
considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 10(d),
no underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the
Registrable Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any
damages which such underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission
or alleged omission and no Holder shall be required to contribute
any amount in excess of the amount by which the total price at
which the Registrable Securities of such Holder were offered to
the public exceeds the amount of any damages which such Holder
has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No
Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such
fraudulent misrepresentation.
If indemnification is available under this Section 10,
the indemnifying parties shall indemnify each indemnified party
to the fullest extent provided in Section 10(a) or (b), as the
case may be, without regard to the relative fault of such
indemnifying parties or indemnified party or any other equitable
consideration provided for in this Section 10(d).
(e) The provisions of this Section 10 shall be in
addition to any liability which any party may have to any other
party and shall survive any termination of this Agreement.
<PAGE>
11. Participation in Underwritten Offerings. No
---------------------------------------
Holder may participate in any underwritten offering hereunder
unless such Holder (a) agrees to sell such Holder's securities on
the basis provided in any underwriting arrangements approved by
Acquiror in its reasonable discretion and (b) completes and
executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements.
12. Miscellaneous. (a) Remedies. Each Holder, in
------------- --------
addition to being entitled to exercise all rights granted by law,
including recovery of damages, will be entitled to specific
performance of its rights under this Agreement.
(b) Amendments and Waivers. Except as otherwise
----------------------
provided herein, the provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, unless
Acquiror has obtained the written consent of Holders of at least
a majority in number of the Registrable Securities then
outstanding.
(c) Notices. All notices, requests, claims, demands
-------
and other communications hereunder shall be in writing and shall
be deemed given if delivered personally or sent by overnight
courier (providing proof of delivery) to the parties at the
following addresses (or at such other address for any party as
shall be Specified by like notice).
to a Holder to:
c/o Baby Superstore, Inc.
1201 Woods Chapel Road
Duncan, South Carolina 29334
Telephone: (800) 324-1340
Telecopy: Call to arrange telecopy.
Attention: Linda M. Robertson
to Acquiror:
Toys "R" Us
461 From Road
Paramus, New Jersey 07652
Telephone: (201) 262-7800
Telecopy: (201) 262-8919
Attention: Michael Goldstein
<PAGE>
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Telephone: (212) 310-8000
Telecopy: (212) 310-8007
Attention: Dennis J. Block, Esq.
(d) Successors and Assigns. This Agreement shall inure
----------------------
to the benefit of and be binding upon the successors of each of
the parties; provided, however that any successor to a Holder
-------- -------
shall have agreed in writing to become a Holder under this
Agreement and to be bound by the terms and conditions hereof and
to become a Shareholder under the Shareholders Agreement and to
be bound by the terms and conditions thereof. This Agreement and
the provisions of this Agreement that are for the benefit of the
Holders shall not be assignable by any Holder to any Person and
any such purported assignment shall be null and void.
(e) Counterparts. This Agreement may be executed in
------------
one or more counterparts, all of which shall be considered one
and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and
delivered to the other parties.
(f) Descriptive Headings. The descriptive headings
--------------------
used herein are inserted for convenience of reference only and
are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
(g) Governing Law. This Agreement shall be governed by
-------------
and construed in accordance with the laws of the State of New
York, regardless of the laws that might otherwise govern under
applicable principles of conflicts of laws thereof.
(h) Severability. In the event that any one or more of
------------
the provisions contained herein, or the application thereof in
any circumstances, is held invalid, illegal or unenforceable in
any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and
of the remaining provisions contained herein shall not be in any
way impaired thereby, it being intended that all remaining
provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges
of the Holder shall be enforceable to the fullest extent
permitted by law.
<PAGE>
(i) Entire Agreement. This Agreement is intended by
----------------
the parties as a final expression and a complete and exclusive
statement of the agreement and understanding of the parties
hereto in respect of the subject matter hereof. There are no
restrictions, promises, warranties or undertakings with respect
to the subject matter hereof, other than those set forth or
referred to herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to
such subject matter.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first written above.
TOYS "R" US, INC.
By: /s/ Michael Goldstein
-------------------------------
Name: Michael Goldstein
Title: Vice Chairman and
Chief Executive Officer
/s/ Linda M. Robertson
-----------------------------------
Linda M. Robertson
/s/ Jack P. Tate
-----------------------------------
Jack P. Tate
<PAGE>
EXHIBIT C
Toys "R" Us, Inc.
461 From Road
Paramus, New Jersey 07652
Ladies and Gentlemen:
The undersigned has been advised that as of the date of this letter it
may be deemed to be an "affiliate" of Baby Superstore, Inc., a South Carolina
corporation (the "Company"), as such term is defined for purposes of paragraphs
(c) and (d) of Rule 145 of the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Securities Act"). Pursuant to the
terms of the Agreement and Plan of Merger, dated as of October 1, 1996 (as
amended from time to time, the "Merger Agreement"), among Toys "R" Us, Inc., a
Delaware corporation ("Acquiror"), the Company and Jack P. Tate, the Company
will be merged with and into Acquiror (the "Merger"), with Acquiror continuing
as the surviving corporation.
Pursuant to the Merger, each share of Common Stock, no par value, of the
Company owned by the undersigned will be converted into the right to receive
shares of Common Stock, par value $0.10 per share, of Acquiror ("Acquiror Common
Shares") on the terms set forth in the Merger Agreement.
<PAGE>
The undersigned represents, warrants and covenants to Acquiror that, with
respect to all Acquiror Common Shares received by it as a result of the Merger:
1. The undersigned shall not make any sale, transfer or other disposition of
such Acquiror Common Shares in violation of the Securities Act or the Rules
and Regulations
2. The undersigned has carefully read this letter and the Merger
Agreement and discussed the requirements of such documents and any other
applicable limitations upon its ability to sell, transfer or otherwise dispose
of such Acquiror Common Shares to the extent it felt necessary, with its counsel
or counsel for the Company.
3. The undersigned understands that the undersigned may not sell,
transfer or otherwise dispose of such Acquiror Common Shares unless (i) such
sale, transfer or other disposition has been registered under the Securities
Act, (ii) such sale, transfer or other disposition is made in conformity with
Rule 145 under the Securities Act, or (iii) such sale, transfer or other
disposition is otherwise exempt from registration under the Securities Act.
4. The undersigned understands, that, unless the undersigned is a party
to the Registration Rights Agreement, dated as of October 1, 1996, among
Acquiror, Jack P. Tate and Linda M. Robertson, Acquiror is under no obligation
to register under the Securities Act the sale, transfer or other disposition of
such Acquiror Common Shares by the undersigned or on its behalf or to take any
other action necessary in order to make compliance with an exemption from such
registration available.
5. From and after the Effective Time of the Merger and for so long as is
necessary in order to permit the undersigned to sell the Acquiror Common Shares
held by the undersigned pursuant to Rule 145 under the Securities Act, Acquiror
will use its reasonable best efforts to file on a timely basis all reports
required to be filed by it pursuant to the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder, as the same shall be in
effect at the time referred to in paragraph (c) of Rule 144 under the Securities
Act, in order to permit the undersigned to sell, transfer or otherwise dispose
of the Acquiror Common Shares held by it pursuant to the terms and conditions of
Rule 145.
2
<PAGE>
6. The undersigned understands that the certificates for such Acquiror
Common Shares issued to the undersigned, or any substitutions therefore, will
bear a legend substantially to the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE
TRANSFERRED IN ACCORDANCE WITH THE TERMS OF A LETTER, DATED, 1996,
BETWEEN THE REGISTERED HOLDER HEREOF AND TOYS "R" US, INC., A COPY OF
WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF TOYS "R" US,
INC."
7. The undersigned also understands that unless the transfer by the
undersigned of such Acquiror Common Shares has been registered under the
Securities Act or is a sale made in conformity with the provisions of Rule 145,
Acquiror reserves the right to place the following legend on the certificates
issued to any transferee:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SECURITIES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SECURITIES HAVE NOT BEEN
ACQUIRED BY THE HOLDER WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH,
ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF
1933 AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN
EXEMPTION FROM THE REGISTRATION REQUIREMENT OF THE SECURITIES ACT OF
1933."
It is understood and agreed that the legends set forth in paragraphs 5 and 6
above shall be removed by delivery of substitute certificates without such
legend if Acquiror receives an opinion of counsel reasonably satisfactory to
Acquiror to the effect that such legend is not required for purposes of the
Securities Act. It is understood and agreed that such legends and the stop
orders referred to above will be removed if (i) two years shall have elapsed
from the date the undersigned acquired such.
3
<PAGE>
Acquiror Common Shares and the provisions of Rule 145 (d)(2) are then available
to the undersigned, (ii) three years shall have elapsed from the date the
undersigned acquired such Acquiror Common Shares and the provisions of Rule 145
(d)(3) are then available to the undersigned, or (iii) Acquiror has received
either an opinion of counsel, which opinion and counsel shall be reasonably
satisfactory to Acquiror, or a "no-action" letter obtained by the undersigned
from the Staff of the Commission, to the effect that the restrictions imposed
by Rule 145 under the Securities Act no longer apply to the undersigned.
Execution of this letter should not be considered an admission on part of
the undersigned that it is an "affiliate" of the Company as described in the
first paragraph of this letter or as a waiver of any rights that the
undersigned may have to object to any claim that it is such and affiliate on
or after the date of this letter.
Sincerely,
_________________
Accepted this _______ day of
_____________, 1996.
TOYS "R" US
By:_____________________
Name:
Title:
4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheets and Condensed Consolidated Statements
of Earnings as reported in the Form 10-Q and is qualified in its entirety by
reference to such finanial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> AUG-04-1996
<PERIOD-END> NOV-02-1996
<CASH> 651,700
<SECURITIES> 0
<RECEIVABLES> 152,700
<ALLOWANCES> 0
<INVENTORY> 3,582,200
<CURRENT-ASSETS> 4,519,700
<PP&E> 5,203,500
<DEPRECIATION> 1,190,000
<TOTAL-ASSETS> 8,921,500
<CURRENT-LIABILITIES> 4,003,700
<BONDS> 1,028,300
<COMMON> 30,045
0
0
<OTHER-SE> 3,467,056
<TOTAL-LIABILITY-AND-EQUITY> 8,921,500
<SALES> 5,264,900
<TOTAL-REVENUES> 5,264,900
<CGS> 3,582,100
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 149,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66,400
<INCOME-PRETAX> 70,700
<INCOME-TAX> 26,200
<INCOME-CONTINUING> 44,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,500
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
