SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 15, 1999
CPI CORP.
________________________________________________________________
(exact name of registrant as specified in its charter)
Delaware 0-11227 43-1256674
________________________________________________________________
(State or other jurisdiction (Commission file (IRS Employer
of incorporation) Number) Identification No.)
1706 Washington Avenue, St. Louis, Missouri 63103-1790
________________________________________________________________
(Address of principal executive offices) (Zip code)
Registrants' telephone number, including area code (314)231-1575
________________________________________________________________
_______________________________________________________________
(Former name or former address, if changes since last report.)
<PAGE>
ITEM. 5 - OTHER EVENTS
On June 15, 1999, CPI Corp. ("CPI") and American Securities
Capital Partners, L.P. ("ASCP") announced a definitive merger
agreement under which entities controlled by affiliates of ASCP and
CPI's management will acquire CPI for $37.00 per share in cash.
The Board of Directors of CPI has unanimously approved the
agreement and the merger. CPI will solicit proxies from its share
holders to approve the merger agreement at a meeting later this
summer. If approved, each share of common stock will be converted
into the right to receive $37.00 in cash.
ITEM. 7 - FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS
Exhibit 2.1 - Agreement and Plan of Merger By and Among
SPS International Holdings, Inc., SPS
Acquisition, Inc. and CPI Corp. Dated as
of June 15, 1999
Exhibit 99.1 - Press release dated June 15, 1999 announcing
the definitive merger agreement between
CPI Corp. and American Securities Capital
Partners, L.P.
<PAGE>
SIGNATURE
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.
CPI CORP.
(Registrant)
/s/ Barry Arthur
-----------------------------
Barry Arthur
Authorized Officer and
Principal Financial Officer
Dated: June 16, 1999
<PAGE>
CPI CORP.
EXHIBIT INDEX
Exhibit 2.1 - Agreement and Plan of Merger By and Among
SPS International Holdings, Inc., SPS
Acquisition, Inc. and CPI Corp. Dated as
of June 15, 1999
Exhibit 99.1 - Press release dated June 15, 1999 announcing
the definitive merger agreement between
CPI Corp. and American Securities Capital
Partners, L.P.
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
SPS INTERNATIONAL HOLDINGS, INC.
SPS ACQUISITION, INC.
AND
CPI CORP.
Dated as of June 15, 1999
<PAGE>
PAGE NUMBERS REFER TO PAPER DOCUMENT
<TABLE>
TABLE OF CONTENTS
Page
<S> <C>
ARTICLE I
......................................................... 1
THE MERGER AND RELATED MATTERS .......................... 1
1.01 The Merger ...................................... 1
1.02 Effective Time; Closing ......................... 1
1.03 Effect of Merger ................................ 2
1.04 Conversion of Stock ............................. 2
1.05 Dissenting Stock ................................ 2
1.06 Surrender of Certificates ....................... 3
1.07 Payment ......................................... 4
1.08 No Further Rights of Transfers .................. 4
1.09 Stock Option and Other Plans .................... 5
1.10 Certificate of Incorporation of the Surviving
Corporation ................................... 5
1.11 By-Laws of the Surviving Corporation ............ 5
1.12 Directors and Officers of the Surviving
Corporation ................................... 5
ARTICLE II
REPRESENTATIONS AND WARRANTIES .......................... 6
2.01 Representations and Warranties of the Company ... 6
(a) Due Organization, Good Standing and
Corporate Power ........................... 6
(b) Authorization and Validity of Agreement ..... 6
(c) Capitalization .............................. 6
(d) Consents and Approvals; No Violations ....... 8
(e) Company Reports and Financial Statements .... 8
(f) Absence of Certain Changes .................. 9
(g) Title to Properties; Encumbrances ........... 9
(h) Compliance with Laws ........................ 10
(i) Litigation .................................. 10
(j) Employee Benefit Plans ...................... 11
(k) Taxes ....................................... 12
(l) Liabilities ................................. 13
(m) Intellectual Properties ..................... 14
(n) Material Contracts .......................... 14
(o) Proxy Statement; Schedule 13E-3 ............. 15
(p) Broker's or Finder's Fee .................... 16
(q) Environmental Laws and Regulations .......... 16
(i)
(r) State Takeover Statutes; Charter Provisions . 18
(s) Opinion of Financial Advisor ................ 18
</TABLE>
<PAGE>
PAGE NUMBERS REFER TO PAPER DOCUMENT
<TABLE>
TABLE OF CONTENTS (continued)
Page
<S> <C>
(t) Labor Matters ............................... 18
(u) Year 2000 ................................... 19
2.02 Representations and Warranties of Parent and
Sub ........................................... 19
(a) Due Organization; Good Standing and
Corporate Power ........................... 19
(b) Authorization and Validity of Agreement ..... 19
(c) Consents and Approvals; No Violations ....... 19
(d) Broker's or Finder's Fee .................... 20
(e) Financing ................................... 20
(f) Proxy Statement; Schedule 13E-3 ............. 20
ARTICLE III
TRANSACTIONS PRIOR TO EFFECTIVE DATE .................... 21
3.01 Access to Information Concerning Properties and
Records ....................................... 21
3.02 Confidentiality ................................. 21
3.03 Conduct of the Business of the Company Pending
the Closing Date .............................. 21
3.04 Proxy Statement; Schedule 13E-3 ................. 24
3.05 Stockholder Approval ............................ 24
3.06 Reasonable Best Efforts ......................... 24
3.07 No Solicitation of Other Offers ................. 25
3.08 Notification of Certain Matters ................. 27
3.09 HSR Act ......................................... 27
3.10 Employee Benefits ............................... 27
3.11 Directors' and Officers' Insurance;
Indemnification ............................... 28
3.12 Indebtedness of the Company ..................... 29
3.13 Guaranty of Performance ......................... 29
3.14 Financing ....................................... 29
ARTICLE IV
CONDITIONS PRECEDENT TO MERGER .......................... 30
4.01 Conditions Precedent to Obligations of Parent,
Sub and the Company ........................... 30
(a) Approval of Company's Stockholders .......... 30
(b) HSR Act ..................................... 30
(c) Injunction .................................. 30
(d) Statutes .................................... 30
4.02 Conditions to Obligations of Parent and Sub ..... 30
4.03 Condition to Obligation of the Company .......... 31
</TABLE>
<PAGE>
PAGE NUMBERS REFER TO PAPER DOCUMENT
<TABLE>
TABLE OF CONTENTS (continued)
Page
<S> <C>
ARTICLE V
TERMINATION AND ABANDONMENT ............................. 32
5.01 Termination ..................................... 32
(ii)
5.02 Effect of Termination ........................... 33
ARTICLE VI
MISCELLANEOUS ........................................... 34
6.01 Fees and Expenses ............................... 34
6.02 Representations and Warranties .................. 34
6.03 Extension; Waiver ............................... 34
6.04 Public Announcements ............................ 35
6.05 Charitable Contributions ........................ 35
6.06 Notices ......................................... 35
6.07 Entire Agreement ................................ 36
6.08 Binding Effect; Benefit; Assignment ............. 36
6.09 Amendment and Modification ...................... 36
6.10 Further Actions ................................. 36
6.11 Headings ........................................ 36
6.12 Counterparts .................................... 36
6.13 Applicable Law .................................. 37
6.14 Severability .................................... 37
6.15 Certain Definitions ............................. 37
6.16 Transfer Taxes .................................. 37
</TABLE>
(iii)
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of June 15, 1999
(this "Agreement"), by and among SPS International Holdings,
Inc., a Delaware corporation ("Parent"), SPS Acquisition, Inc.,
a Delaware corporation and a direct wholly-owned subsidiary of
Parent ("Sub"), and CPI Corp., a Delaware corporation (the
"COMPANY").
WHEREAS, the respective Boards of Directors of Parent, Sub
and the Company have approved the acquisition of the Company by
Parent;
WHEREAS, the respective Boards of Directors of Parent, Sub
and the Company, have approved, and have determined advisable,
the merger of Sub into the Company, with the Company being the
surviving corporation (the "MERGER"), pursuant to and subject
to the terms and conditions of this Agreement;
WHEREAS, the directors of the Company have unanimously
determined (i) that the Merger is fair to, and in the best
interests of, the holders of common stock, par value $0.40 per
share, of the Company (the "Common Stock"), (ii) to approve the
Merger and (iii) to recommend the approval and adoption of this
Agreement by the stockholders of the Company;
WHEREAS, certain employees of the Company and Parent are
simultaneously entering into the subscription agreements (the
"Subscription Agreements") providing for, among other things,
equity investments by such employees in Parent;
NOW, THEREFORE, in consideration of the premises and of
the mutual covenants, representations, warranties and
agreements herein contained, the parties hereto agree as
follows:
ARTICLE I
THE MERGER AND RELATED MATTERS
1.01 The Merger. (a) On the terms and subject to the
conditions of this Agreement and in accordance with the
applicable provisions of the General Corporation Law of the
State of Delaware (the "DGCL"), at the Effective Time (as
defined below), Sub shall be merged with and into the Company
and the separate corporate existence of Sub shall cease, and
the Company shall continue as the surviving corporation under
the laws of the State of Delaware under the name of CPI Corp.
(the "SURVIVING CORPORATION").
<PAGE>
1.02 Effective Time; Closing. (a) On the Closing Date
(as defined below), the Company shall execute, in the manner
required by the DGCL, and deliver to the Secretary of State of
the State of Delaware a duly executed and verified certificate
of merger, and the parties shall take such other and further
actions as may be required by law to make the Merger effective.
The certificate of merger shall provide that the Merger becomes
effective upon the filing of such
1
certificate of merger. The time the Merger becomes effective
in accordance with applicable law is referred to as the
"EFFECTIVE TIME."
(b) The closing of the Merger (the "CLOSING") shall take
place at the offices of White & Case LLP, 1155 Avenue of the
Americas, New York, New York as soon as practicable after the
last of the conditions set forth in Article IV hereof is
fulfilled or waived (subject to applicable law) but in no event
later than the earlier of the fifth business day thereafter, or
at such other time and place and on such other date as Parent
and Company shall mutually agree (the "Closing Date").
1.03 Effect of Merger. From and after the Effective
Time, the Merger shall have the effects set forth in Section
259 of the DGCL.
1.04 Conversion of Stock. At the Effective Time:
(a) Each share of Common Stock then issued and
outstanding (other than (i) any shares of Common Stock which
are held by any Subsidiary of the Company or in the treasury of
the Company, or which are held, directly or indirectly, by
Parent or any direct or indirect subsidiary of Parent
(including Sub), all of which shall be canceled and none of
which shall receive any payment with respect thereto and (ii)
shares of Common Stock held by Dissenting Stockholders (as
defined in Section 1.05 hereof)) shall, by virtue of the Merger
and without any action on the part of the holder thereof, be
converted into and represent the right to receive an amount in
cash equal to $37.00 (the "MERGER CONSIDERATION"); and
(b) Each share of common stock, par value $0.01 per
share, of Sub then issued and outstanding shall, by virtue of
the Merger and without any action on the part of the holder
thereof, become one fully paid and nonassessable share of
common stock, $0.40 par value, of the Surviving Corporation.
<PAGE>
1.05 Dissenting Stock. Notwithstanding anything in this
Agreement to the contrary but only to the extent required by
the DGCL, shares of Common Stock that are issued and
outstanding immediately prior to the Effective Time and are
held by holders of Common Stock who comply with all the
provisions of the DGCL concerning the right of holders of
Common Stock to dissent from the Merger and require appraisal
of their shares of Common Stock ("DISSENTING STOCKHOLDERS")
shall not be converted into the right to receive the Merger
Consideration but shall become the right to receive such
consideration as may be determined to be due such Dissenting
Stockholder pursuant to the DGCL; provided, however, that (i)
if any Dissenting Stockholder shall subsequently deliver a
written withdrawal of his or her demand for appraisal (with the
written approval of the Surviving Corporation, if such
withdrawal is not tendered within 60 days after the Effective
Time), (ii) if any Dissenting Stockholder fails to establish
and perfect or otherwise loses his or her entitlement to
appraisal rights as provided by applicable law or (iii) if
within 120 days of the Effective Time neither any Dissenting
Stockholder nor the Surviving Corporation has filed a petition
demanding a determination of the value of the shares of Common
Stock outstanding at the Effective Time and held by Dissenting
Stockholders, in accordance with applicable law, then such
Dissenting Stockholder or Stockholders, as the case may be,
shall forfeit the right to appraisal of such shares and such
shares shall thereupon be
2
deemed to have been converted into the right to receive, as of
the Effective Time, the Merger Consideration, without interest.
The Company shall give Parent and Sub (A) prompt notice of any
written demands for appraisal, withdrawals of demands for
appraisal and any other related instruments received by the
Company, and (B) the opportunity to direct all negotiations and
proceedings with respect to demands for appraisal. The Company
will not voluntarily make any payment with respect to any
demands for appraisal and will not, except with the prior
written consent of Parent, settle or offer to settle any
demand.
1.06 Surrender of Certificates. (a) Concurrently with
or prior to the Effective Time, Parent shall designate a bank
or trust company located in the United States and reasonably
acceptable to the Company to act as paying agent (the "PAYING
AGENT") for purposes of making the cash payments contemplated
hereby. As soon as practicable after the Effective Time,
Parent shall cause the Paying Agent to mail and/or make
available to each holder of a certificate theretofore
evidencing shares of Common Stock (other than those which are
<PAGE>
held by any Subsidiary of the Company or in the treasury of the
Company or which are held directly or indirectly by Parent or
any direct or indirect subsidiary of Parent (including Sub)) a
notice and letter of transmittal advising such holder of the
effectiveness of the Merger and the procedure for surrendering
to the Paying Agent such certificate or certificates which
immediately prior to the Effective Time represented outstanding
Common Stock (the "Certificates") in exchange for the Merger
Consideration deliverable in respect thereof pursuant to this
Article I. Upon the surrender for cancellation to the Paying
Agent of such Certificates, together with a letter of
transmittal, duly executed and completed in accordance with the
instructions thereon, and any other items specified by the
letter of transmittal, the Paying Agent shall promptly pay to
the Person (as defined in Section 6.15 hereof) entitled thereto
the Merger Consideration deliverable in respect thereof. Until
so surrendered, each Certificate shall be deemed, for all
corporate purposes, to evidence only the right to receive upon
such surrender the Merger Consideration deliverable in respect
thereof to which such Person is entitled pursuant to this
Article I. No interest shall be paid or accrued in respect of
such cash payments.
(b) If the Merger Consideration (or any portion thereof)
is to be delivered to a Person other than the Person in whose
name the Certificates surrendered in exchange therefor are
registered, it shall be a condition to the payment of the
Merger Consideration that the Certificates so surrendered shall
be properly endorsed or accompanied by appropriate stock powers
and otherwise in proper form for transfer, that such transfer
otherwise be proper and that the Person requesting such
transfer pay to the Paying Agent any transfer or other taxes
payable by reason of the foregoing or establish to the
satisfaction of the Paying Agent that such taxes have been paid
or are not required to be paid.
(c) In the event any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that
fact by the Person claiming such Certificate to be lost, stolen
or destroyed, the Paying Agent will issue in exchange for such
lost, stolen or destroyed Certificate the Merger Consideration
deliverable in respect thereof as determined in accordance with
this Article I; provided that, the Person to whom the Merger
Consideration is paid shall, as a condition precedent to the
payment thereof, give the Surviving Corporation a bond in such
sum as it may direct or otherwise indemnify the Surviving
Corporation in a manner satisfactory to it against
3
<PAGE>
any claim that may be made against the Surviving Corporation
with respect to the Certificate claimed to have been lost,
stolen or destroyed.
1.07 Payment. Concurrently with or immediately prior to
the Effective Time, Parent or Sub shall deposit in trust with
the Paying Agent cash in United States dollars in an aggregate
amount equal to the product of (i) the number of shares of
Common Stock outstanding immediately prior to the Effective
Time (other than shares of Common Stock which are held by any
Subsidiary of the Company or in the treasury of the Company or
which are held directly or indirectly by Parent or any direct
or indirect subsidiary of Parent (including Sub) or a Person
known at the time of such deposit to be a Dissenting
Stockholder) and (ii) the Merger Consideration (such amount
being hereinafter referred to as the "PAYMENT FUND"). The
Payment Fund shall be invested by the Paying Agent as directed
by Parent in direct obligations of the United States,
obligations for which the full faith and credit of the United
States is pledged to provide for the payment of principal and
interest, commercial paper rated at least "P-1" by Moody's
Investors Services, Inc. or "A-1" Standard & Poor's Ratings
Group or time deposits, certificates of deposit, bank
repurchase agreements or bankers' acceptances of a commercial
bank having at least $1,000,000,000 in assets (collectively,
"PERMITTED INVESTMENTS") or in money market funds which are
invested in Permitted Investments, and any net earnings with
respect thereto shall be paid to Parent as and when requested
by Parent. The Paying Agent shall, pursuant to irrevocable
instructions, make the payments referred to in Section 1.02(a)
hereof out of the Payment Fund. The Payment Fund shall not be
used for any other purpose except as otherwise agreed to by
Parent. Promptly following the date which is six months after
the Effective Time, the Paying Agent shall return to the
Surviving Corporation all cash, certificates and other
instruments in its possession that constitute any portion of
the Payment Fund, and the Paying Agent's duties shall
terminate. Thereafter, each holder of a Certificate may
surrender such Certificate to the Surviving Corporation and
(subject to applicable abandoned property, escheat and similar
laws) receive in exchange therefor the Merger Consideration,
without interest, but shall have no greater rights against the
Surviving Corporation or Parent than may be accorded to general
creditors of the Surviving Corporation or Parent under
applicable law. Notwithstanding the foregoing, neither the
Paying Agent nor any party hereto shall be liable to a holder
of shares of Common Stock for any Merger Consideration
delivered to a public official pursuant to applicable abandoned
property, escheat and similar laws.
1.08 No Further Rights of Transfers. At and after the
Effective Time, each holder of a Certificate shall cease to
<PAGE>
have any rights as a stockholder of the Company, except for, in
the case of a holder of a Certificate (other than shares to be
canceled pursuant to Section 1.04(a) hereof and other than
shares held by Dissenting Stockholders), the right to surrender
his or her Certificate in exchange for payment of the Merger
Consideration or, in the case of a Dissenting Stockholder, to
perfect his or her right to receive payment for his or her
shares pursuant to the DGCL and Section 1.05 if such holder has
validly perfected and not withdrawn his or her right to receive
payment for his or her shares, and no transfer of shares of
Common Stock shall be made on the stock transfer books of the
Surviving Corporation. Certificates presented to the Surviving
Corporation after the Effective Time shall be canceled and
exchanged for cash as provided in this Article I. At the close
of business on the day of the Effective Time the stock ledger
of the Company with respect to Common Stock shall be closed.
4
1.09 Stock Option and Other Plans. Prior to the
Effective Time, the Board of Directors of the Company (or, if
appropriate, any committee thereof) shall adopt appropriate
resolutions and use its reasonable best efforts to take
all other actions necessary to provide for the cancellation,
effective at the Effective Time of all the outstanding stock
options to purchase Common Stock (the "OPTIONS") heretofore
granted under any stock option plan or agreement of the Company
(the "STOCK PLANS"). Immediately prior to the Effective Time,
the Company shall use its reasonable best efforts to ensure
that (i) each such Option, whether or not then vested or
exercisable, shall no longer be exercisable for the purchase of
shares of Common Stock but shall entitle each holder thereof,
in cancellation and settlement therefor, to payments in cash
(subject to any applicable withholding taxes, the "CASH
PAYMENT"), at the Effective Time, equal to the product of (x)
the total number of shares of Common Stock subject to such
Option as to which such Option could have been exercisable and
(y) the excess, if any, of the Merger Consideration over the
exercise price per share of Common Stock subject to such
Option, each such Cash Payment to be paid to each holder of an
outstanding Option at the Effective Time and (ii) each share of
Common Stock previously issued in the form of grants of
restricted stock or grants of contingent or bonus shares shall
fully vest and be paid in accordance with their respective
terms. As provided herein, the Company shall use its
reasonable best efforts to ensure that the Stock Plans shall
terminate as of the Effective Time and the provisions of any
Employee Benefit Plan (as defined in Section 2.01(j)) providing
for the issuance or grant of shares of the capital stock of the
Company shall be deleted as of the Effective Time. The Company
will take all reasonable steps to ensure that neither the
Company nor any of its Subsidiaries is or will be bound by any
<PAGE>
Options, other options, warrants, rights or agreements which
would entitle any Person, other than Parent or its affiliates,
to own any capital stock of the Surviving Corporation or any of
its Subsidiaries. The Company will use its reasonable best
efforts to obtain any necessary consents to ensure that after
the Effective Time, the only rights of the holders of Options
to purchase shares of Common Stock in respect of such Options
will be to receive the Cash Payment in cancellation and
settlement thereof. Notwithstanding the foregoing, Parent and
any employee of the Company may agree in writing that all or a
portion of the Options held by such employee will, in lieu of
being canceled in consideration for the Cash Payment pursuant
to this Section 1.09, be rolled over into options to acquire
shares of Parent common stock in a manner which complies with
the requirements of Section 424 of the Code. In such event,
the Company shall not make any Cash Payment in respect of any
such rolled-over Options.
1.10 Certificate of Incorporation of the Surviving
Corporation. The Certificate of Incorporation of the Company,
as in effect immediately prior to the Effective Time, shall be
the Certificate of Incorporation of the Surviving Corporation.
1.11 By-Laws of the Surviving Corporation. The By-Laws
of the Company, as in effect immediately prior to the Effective
Time, shall be the By-Laws of the Surviving Corporation.
1.12 Directors and Officers of the Surviving Corporation.
At the Effective Time, the directors of Sub immediately prior
to the Effective Time shall be the directors of the Surviving
Corporation, each of such directors to hold office, subject to
the applicable provisions of the Certificate of Incorporation
and By-Laws of the Surviving Corporation, until the next annual
stockholders' meeting of the Surviving Corporation and until
their respective successors
5
shall be duly elected or appointed and qualified. At the
Effective Time, the officers of the Company immediately prior
to the Effective Time shall, subject to the applicable
provisions of the Certificate of Incorporation and By-Laws of
the Surviving Corporation, be the officers of the Surviving
Corporation until their respective successors shall be duly
elected or appointed and qualified.
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.01 Representations and Warranties of the Company. The
Company hereby represents and warrants to Parent and Sub as
follows:
(a) Due Organization, Good Standing and Corporate Power.
Each of the Company and its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and each such
corporation has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its
business as now being conducted. Except as set forth in
Section 2.01(a) of the Company's disclosure letter (the
"COMPANY DISCLOSURE LETTER") delivered concurrently with the
delivery of this Agreement, each of the Company and its
Subsidiaries is duly qualified or licensed to do business and
is in good standing in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except
where such failure to be so qualified or licensed and in good
standing would not have a material adverse effect on the
business, properties, operations, results of operations or
condition (financial or otherwise) of the Company and its
Subsidiaries taken as a whole (a "MATERIAL ADVERSE EFFECT").
(b) Authorization and Validity of Agreement The Company
has the corporate power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The
execution, delivery and performance of this Agreement by
the Company, and the consummation by it of the transactions
contemplated hereby, have been duly authorized and unanimously
approved by its Board of Directors and no other corporate
action on the part of the Company is necessary to authorize the
execution, delivery and performance of this Agreement by the
Company and the consummation of the transactions contemplated
hereby (other than the approval of this Agreement by the
holders of a majority of the outstanding shares of Common Stock
entitled to vote). This Agreement has been duly executed and
delivered by the Company and is a valid and binding obligation
of the Company enforceable against the Company in accordance
with its terms, except to the extent that its enforceability
may be subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the
enforcement of creditors' rights generally and by general
equitable principles.
<PAGE>
(c) Capitalization. (i) The authorized capital stock of
the Company consists of 50,000,000 shares of Common Stock and
1,000,000 shares of preferred stock. As of June 11, 1999, (1)
17,783,061 shares of Common Stock were issued of which
9,918,800 were outstanding, (2) 1,401,987 shares of Common
Stock were reserved for issuance pursuant to outstanding
Options granted under the Stock Plans, (3) 7,864,261 shares of
Common Stock were
6
held in the Company's treasury and (4) no shares of preferred
stock were issued and outstanding. All issued and outstanding
shares of Common Stock have been duly authorized, validly
issued and are fully paid and nonassessable and are not subject
to, nor were they issued in violation of any preemptive rights.
Except as set forth in the second sentence of this Section
2.01(c)(i) or, in Section 2.01(c) of the Company Disclosure
Letter, (i) there are no shares of capital stock of the Company
authorized or, as of June 11, 1999, issued, reserved for
issuance or outstanding and (ii) there are not as of the date
hereof, and at the Closing Date, except as permitted by Section
3.03 hereof, there will not be, any outstanding or authorized
options, warrants, rights, subscriptions, claims of any
character, agreements, rights of redemption, convertible or
exchangeable securities, or other commitments, contingent or
otherwise, relating to Common Stock or any other shares of
capital stock of the Company, pursuant to which the Company is
or may become obligated to issue shares of Common Stock, any
other shares of its capital stock or any securities convertible
into, exchangeable for, or evidencing the right to subscribe
for, any shares of the capital stock of the Company. Section
2.01(c) of the Company Disclosure Letter sets forth a true and
correct list of the Options outstanding as of June 11, 1999 and
the exercise prices thereof and since June 11, 1999 the Company
has not issued any Options. There are not any bonds,
debentures, notes or other indebtedness of the Company having
the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which
stockholders of the Company may vote ("VOTING COMPANY DEBT").
As of the date hereof except as set forth in Section 2.01(c) of
the Company Disclosure Letter, and except for Options which may
have been exercised since June 11, 1999, there are not any
options, warrants, rights, convertible or exchangeable
securities, "phantom" stock rights, stock appreciation rights,
stock-based performance units, commitments, contracts,
arrangements or undertakings of any kind to which the Company
or any Subsidiary is a party or by which any of them is bound
that give any person the right to receive any economic benefit
or right similar to or derived from the economic benefits
and rights occurring to holders of Common Stock. There are not
<PAGE>
any (i) outstanding contractual obligations of the Company or
any Subsidiary to repurchase, redeem or otherwise acquire any
shares of capital stock of the Company or any Subsidiary, (ii)
voting trusts or other agreements or understandings to which
the Company or any of the Subsidiaries is a party with respect
to the voting or transfer of capital stock of the Company or
any of the Subsidiaries. None of the outstanding shares of
Common Stock are subject to, nor were they issued in violation
of any purchase option, call option, right of first refusal,
preemptive right, subscription right or any similar right.
(ii) Section 2.01(c)(ii) of the Company Disclosure Letter
lists all of the Company's Subsidiaries. All of the
outstanding shares of capital stock of each of the Company's
Subsidiaries have been duly authorized and validly issued, are
fully paid and nonassessable, are not subject to, nor were they
issued in violation of, any preemptive rights, and are owned,
of record and beneficially, by the Company or one of its direct
or indirect Subsidiaries, free and clear of all liens,
encumbrances, options or claims whatsoever except as set
forthin Section 2.01(c)(ii) of the Company Disclosure Letter.
No shares of capital stock of any of the Company's Subsidiaries
are reserved for issuance and there are no outstanding or
authorized options, warrants, rights, subscriptions, claims of
any character, agreements, obligations, rights of redemption,
convertible or exchangeable securities, or other commitments,
contingent or otherwise, relating to the capital stock of any
Subsidiary, pursuant to which such Subsidiary is or may become
obligated to issue
7
any shares of capital stock of such Subsidiary or any
securities convertible into, exchangeable for, or evidencing
the right to subscribe for, any shares of such Subsidiary.
Other than as set forth in Section 2.01(c)(ii) of the Company
Disclosure Letter, there are no restrictions of any kind which
prevent the payment of dividends by any of the Company's
Subsidiaries. Except for the Subsidiaries listed in Section
2.01(c)(ii) of the Company Disclosure Letter, the Company does
not own, directly or indirectly, any capital stock or other
equity interest in any Person or have any direct or indirect
equity or ownership interest in any Person and neither the
Company nor any of its Subsidiaries is subject to any
obligation or requirement to provide funds for or to make any
investment (in the form of a loan or capital contribution) to
or in any Person.
(d) Consents and Approvals; No Violations. Assuming (i)
the filings required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR ACT"), are made
and any applicable waiting period thereunder has been
<PAGE>
terminated or has expired, (ii) the requirements of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT") relating to the Proxy Statement (as defined below) and
the Schedule 13E-3 (as defined below) are met, (iii) the filing
of the Certificate of Merger and other appropriate merger
documents, if any, as required by the DGCL are made and (iv)
approval of the Merger by holders of a majority of the
outstanding shares of Common Stock entitled to vote is
received, the execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions
contemplated hereby will not: (1) violate any provision of the
Certificate of Incorporation or By-Laws of the Company or the
comparable governing documents of any of its Subsidiaries, in
each case, as amended; (2) violate any statute, ordinance,
rule, regulation, order or decree of any court or of any
governmental or regulatory body, agency or authority
applicable to the Company or any of its Subsidiaries or by
which any of their respective properties or assets may be
bound; (3) require any filing with, or permit, consent or
approval of, or the giving of any notice to, any governmental
or regulatory body, agency or authority; or (4) and except as
set forth in Section 2.01(d) of the Company Disclosure Letter,
result in a violation or breach of, conflict with, constitute
(with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation,
payment or acceleration) under, or result in the creation of
any lien, mortgage, pledge, security interest, charge or
encumbrance, easement, right-of-way, sublease or similar
restriction (each an "ENCUMBRANCE") upon any of the properties
or assets of the Company or any of its Subsidiaries under, or
give rise to, any penalty, acceleration or rights to early
termination under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, license, franchise,
permit, agreement, lease, franchise agreement or other
instrument or obligation to which the Company or any of its
Subsidiaries is a party, or by which it or any of their
respective properties or assets are bound except, in the case
of clauses (2), (3) and (4) above, for any such filing, permit,
consent, approval, the failure to obtain or make which, and
except for any breach, violation, Encumbrance, penalty,
acceleration or early termination which would not, individually
or in the aggregate, reasonably be expected to have a Material
Adverse Effect or would not prevent consummation of the
transactions contemplated by this Agreement. The only vote of
holders of any class or series of any capital stock of the
Company necessary to approve and adopt this Agreement and the
Merger is the approval and adoption of this Agreement by the
holders of a majority of the outstanding shares of Common Stock
(the "STOCKHOLDER APPROVAL").
<PAGE>
(e) Company Reports and Financial Statements. (i) Since
February 4, 1996 the Company has filed all forms, reports and
documents with the Commission required to be filed
8
by it pursuant to the federal securities laws and the
Commission rules and regulations thereunder, and all forms,
reports and documents filed with the Commission by the Company
have complied in all material respects with all applicable
requirements of the federal securities laws and the Commission
rules and regulations promulgated thereunder. The Company has,
prior to the date of this Agreement, made available to Parent
true and complete copies of all forms, reports, registration
statements and other filings filed by the Company with the
Commission between February 4, 1996 and the date hereof (such
forms, reports, registration statements and other filings,
together with any exhibits, any amendments thereto and
information incorporated by reference therein, are sometimes
collectively referred to as the "COMMISSION FILINGS").
Except to the extent amended or superseded by a subsequent
filing with the Commission made prior to the date hereof, as of
their respective dates, the Commission Filings did not contain
any 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, in light of the circumstances
under which they were made, not misleading. The consolidated
financial statements of the Company included in the Commission
Filings comply as to form in all material respects with
applicable accounting requirements and the published rules and
regulations of the Commission with respect thereto, have been
prepared in accordance with generally-accepted accounting
principles ("GAAP") (except, in the case of unaudited
statements, as permitted by Form 10-Q of the Commission)
applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly
present in all material respects the consolidated financial
position of the Company and its consolidated Subsidiaries as of
the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit
adjustments).
(f) Absence of Certain Changes. Except as previously
disclosed in the Commission Filings, as set forth in Section
2.01(f) of the Company Disclosure Letter or as otherwise
contemplated by this Agreement, since February 6, 1999 (i) none
of the Company nor any of its Subsidiaries has experienced or
been affected by any event, change, effect or development that
individually or in the aggregate has had or would reasonably be
expected to have a Material Adverse Effect, other than any
event, change, effect or development arising out of changes in
<PAGE>
general economic, regulatory or political conditions, and (ii)
the businesses of the Company and each of its Subsidiaries have
been conducted only in the ordinary course.
(g) Title to Properties; Encumbrances. (i) The Company
and each of its Subsidiaries has good, and in the case of owned
real property, marketable fee, title to (A) all of its material
tangible properties and assets including, without limitation,
all such properties and assets reflected in the consolidated
balance sheet as of February 6, 1999 except as indicated in the
notes thereto and except for properties and assets reflected in
the consolidated balance sheet as of February 6, 1999 which
have been sold or otherwise disposed of in the ordinary course
of business after such date, and (B) all the material tangible
properties and assets purchased by the Company or any of its
Subsidiaries since February 6, 1999 except for such properties
and assets which have been sold or otherwise disposed of in the
ordinary course of business; in each case subject to no
Encumbrance, except for (1) Encumbrances reflected in the
consolidated balance sheet as of February 6, 1999 (including
the notes thereto), (2) Encumbrances consisting of zoning or
planning restrictions, easements, permits and other
restrictions or limitations on the use of real property
or irregularities in title thereto which do not materially
detract from the value of, or
9
materially impair the use of, such property by the Company or
any of its Subsidiaries in the operation of its respective
business, (3) statutory liens or liens of landlords, carriers,
warehousemen, mechanics, suppliers, materialmen or repairmen
arising in the ordinary course of business, (4) Encumbrances
for current taxes, assessments or governmental charges or
levies on property not yet due and delinquent and (5) such
Encumbrances as individually or in the aggregate would not
reasonably be expected to have a Material Adverse Effect (such
Encumbrances, "Permitted Encumbrances").
(ii) Section 2.01(g) of the Company Disclosure Letter
contains a list of all of the real property and interests in
real property owned by the Company or any of its Subsidiaries
and all material leases of real property to which the Company
or any Subsidiary is a party or by which any of them holds a
leasehold interest (collectively, the "REAL PROPERTY"). Except
as set forth in Section 2.01(g) of the Company Disclosure
Letter or as disclosed in the Commission Filings, (1) each Real
Property lease to which the Company or its Subsidiary is a
party is in full force and effect in accordance with its terms,
(2) all rents and additional rents due to date from the Company
or a Subsidiary on each such lease have been paid, (3) neither
the Company nor any Subsidiary has received written notice that
<PAGE>
it is in default thereunder, and (4) there exists no default by
the Company or any Subsidiary under such lease, except to the
extent that such failure to be in full force and effect, pay
such rents or such defaults has not had and would not
reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect. There are no material
leases, subleases, licenses, concessions or any other
agreements or commitments granting to any Person or entity
other than the Company or a Subsidiary any right to possession,
use, occupancy or enjoyment of any of the Real Property or any
portion thereof. None of the Company nor any of its
Subsidiaries is obligated under or bound by any option, right
of first refusal, purchase contract, or other agreement or
commitment to sell or otherwise dispose of any material Real
Property or any other material interest in any Real Property.
(h) Compliance with Laws. Except as set forth in the
Commission Filings or as set forth in Section 2.01(h) of the
Company Disclosure Letter, the Company and its Subsidiaries are
in compliance with all applicable laws, regulations, orders,
judgments and decrees (other than with respect to taxes,
Environmental Laws, employee benefits and federal securities
laws, which are the subject of specific representations
contained in this Agreement) except where the failure to so
comply would not reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect or would not
prevent or materially delay consummation of the transactions
contemplated by this Agreement. Except as set forth in the
Commission Filings or in Section 2.01(h) or (i) of the Company
Disclosure Letter, none of the Company or any Subsidiary has
received any written communication during the past two years
from a governmental entity that alleges that the Company or any
Subsidiary is not in compliance with any applicable law,
regulation, order, judgment or decree, except for any such
non-compliances which, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect.
(i) Litigation. Except as disclosed in the Commission
Filings or as set forth in Section 2.01(i) of the Company
Disclosure Letter, there is no action, suit, proceeding at law
or in equity, or any arbitration or any administrative or other
proceeding by or before (or to the knowledge of the Company any
investigation by) any governmental or other instrumentality or
agency, pending or, to the knowledge of the Company, threatened
against or affecting the Company or
10
any of its Subsidiaries, or any of their properties or rights
which, individually or in the aggregate, has had or would
reasonably be expected to have a Material Adverse Effect or
would reasonably be expected to prevent or materially delay
<PAGE>
consummation of the transactions contemplated by this
Agreement. Except as disclosed in the Commission Filings or as
set forth in Section 2.01(i) of the Company Disclosure Letter,
neither the Company nor any of its Subsidiaries is subject to
any judgment, order or decree entered in any action, suit,
proceeding at law or in equity, or any arbitration or any
administrative or other proceeding which, individually or in
the aggregate, has had or would reasonably be expected to have
a Material Adverse Effect or would reasonably be expected to
prevent or materially delay consummation of the transactions
contemplated by this Agreement.
(j) Employee Benefit Plans. (i) Each employee benefit plan
within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), written or oral,
formal or informal, and each stock purchase, stock option,
severance, employment, change-in-control, fringe
benefit, collective bargaining, bonus, incentive, deferred
compensation and all other employee benefit plans, agreements,
programs, policies or other arrangements, whether or not
subject to ERISA, under which any employee or former employee
of the Company or its Subsidiaries has any present or future
right to benefits and maintained by the Company and/or any of
its Subsidiaries or to which the Company or any such Subsidiary
contributes (collectively, the "EMPLOYEE BENEFIT PLANS") is
listed in Section 2.01(j) of the Company Disclosure Letter.
Except as set forth in Section 2.01(j) of the Company
Disclosure Letter or disclosed in the Commission Filings, or to
the extent that any breach of the representations set forth in
this Section 2.01(j), individually or in the aggregate, has not
had and would not reasonably be expected to have a Material
Adverse Effect: (i) each Employee Benefit Plan is in
compliance with applicable law and has been administered and
operated in all respects in accordance with its terms; (ii)
each Employee Benefit Plan which is intended to be "qualified"
within the meaning of Section 401(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), has received a
favorable determination letter from the Internal Revenue
Service and, to the knowledge of the Company, no event has
occurred and no condition exists which would adversely
affect such qualified status; (iii) the actuarial present value
of the accumulated plan benefits (whether or not vested) under
any employee benefit plan covered by Title IV of ERISA did not
exceed the fair value of the assets allocable thereto, as
determined by such plan's actuary in such plan's most recent
actuarial valuation; (iv) no employee benefit plan that is
maintained or contributed to by the Company, any of its
Subsidiaries or any person that, together with the Company or
any such Subsidiary, would be treated as a single employer
under Section 414 of the Code (each, a "Control Group Plan")
covered by Title IV of ERISA has been terminated and no
proceedings have been instituted to terminate or appoint a
<PAGE>
trustee under Title IV of ERISA to administer any such plan;
(v) no "reportable event" (as defined in Section 4043 of ERISA)
has occurred with respect to any Control Group Plan covered by
Title IV of ERISA (other than any such event related to the
transactions contemplated by this Agreement); (vi) no Control
Group Plan subject to Section 412 of the Code or Section 302 of
ERISA has incurred any accumulated funding deficiency within
the meaning of Section 412 of the Code or Section 302 of ERISA,
or obtained a waiver of any minimum funding standard or an
extension of any amortization period under Section 412 of the
Code or Section 303 or 304 of ERISA; (vii) neither the Company
nor any of its Subsidiaries, nor, to the Company's knowledge,
any other "disqualified person" or
11
"party in interest" (as defined in Section 4975(e)(2) of the
Code and Section 3(14) of ERISA, respectively) has engaged in
any transactions in connection with any Employee Benefit Plan
that would result in the imposition of a penalty pursuant to
Section 502(i) of ERISA or a tax pursuant to Section 4975 of
the Code; and (viii) no liability, claim, action or litigation,
has been made, commenced or, to the Company's knowledge,
threatened with respect to any Employee Benefit Plan (other
than routine claims for benefits payable in the ordinary
course, and appeals of denied such claims).
(ii) With respect to each Employee Benefit Plan, the
Company has delivered or made available to Parent a current,
accurate and complete copy (or, to the extent no such copy
exists, an accurate description) thereof and, to the extent
applicable: (A) any related trust agreement or other funding
instrument; (B) the most recent determination letter, if
applicable; (C) any summary plan description distributed to
plan participants and other written communications and (D) for
the two most recent years (1) the Form 5500 and attached
schedules filed with the Internal Revenue Service, (2) audited
financial statements, (3) actuarial valuation reports and (4)
attorney's response to an auditor's request for information.
(iii) Neither the Company or its Subsidiaries nor any
entity that, together with the Company or any of its
Subsidiaries, would be treated as a single employer under
Section 414 of the Code (an "ERISA AFFILIATE") has engaged in,
or is a successor or parent corporation to an entity that has
engaged in, a transaction described in Sections 4069 or 4212(c)
of ERISA.
(iv) The Company and its Subsidiaries have not
contributed to any "multiemployer plan" (within the meaning of
section 3(37) of ERISA) and neither the Company or its
Subsidiaries nor any ERISA Affiliate has incurred any
<PAGE>
withdrawal liability which remains unsatisfied.
(v) Except as provided in Section 2.01(j) of the Company
Disclosure Letter or in documents made available to Parent or
its counsel, no Employee Benefit Plan or other plan, policy or
agreement of the Company and its Subsidiaries exists that
would result in the payment to any present or former employee
of the Company or its Subsidiaries of any money or other
property or accelerate or provide any other rights or benefits
to any present or former employee of the Company or its
Subsidiaries as a result of the transactions contemplated by
this Agreement, whether or not such payment would constitute an
excess parachute payment within the meaning of Code section
280G.
(k) Taxes. Except to the extent that the failure to do
so, individually or in the aggregate, has not had and would not
reasonably be expected to have a Material Adverse Effect, the
Company has filed or caused to be filed, or will file or cause
to be filed on or prior to the Closing Date, all Tax Returns
which are required to be filed by, or with respect to, the
Company on or prior to the Closing Date (taking into account
any extension of time to file granted to or on behalf of the
Company). Except as set forth in Section 2.01(k) of the
Company Disclosure Letter or disclosed in the Commission
Filings, and except to the extent that the failure to do so,
individually or in the aggregate, has not had and would not
reasonably be expected to have a Material Adverse Effect, all
Taxes due and payable by the Company or any of its Subsidiaries
on or prior to the Closing Date have been, or prior to the
Closing Date will be, paid or fully provided
12
for on the books and records of the Company in accordance with
GAAP. Except to the extent that the failure to do so,
individually or in the aggregate, has not had and would not
reasonably be expected to have a Material Adverse Effect, the
Company and its Subsidiaries have made adequate provision (in
the reasonable judgment of the management of the Company) for
all Taxes payable for any periods that end before the Effective
Time for which no Tax Returns have yet been filed and for any
periods that begin before the Effective Time and end after the
Effective Time to the extent such Taxes are attributable to the
portion of any such period ending at the Effective Time.
Except as set forth in Section 2.01(k) of the Company
Disclosure Letter, (a) there are no written waivers in effect
of the applicable statutory period of limitation for Taxes of
the Company for any taxable period, except for such waivers
that, individually or in the aggregate, have not had and would
not reasonably be expected to have a Material Adverse Effect,
(b) no audit, deficiency assessment or proposed adjustment with
<PAGE>
respect to any liability for Taxes of the Company or any of its
Subsidiaries for any taxable period is pending or, to the
knowledge of the Company, threatened, except for such audits,
deficiency assessments or proposed adjustments that,
individually or in the aggregate, have not had and would
not reasonably be expected to have a Material Adverse Effect,
(c) except for claims with respect to Taxes that are not yet
due and payable and for claims that, individually or in the
aggregate, have not had and would not reasonably be expected to
have a Material Adverse Effect, no material claim for unpaid
Taxes has become a lien against the property of the Company or
any of its Subsidiaries, (d) neither the Company nor any of its
Subsidiaries (i) has been a member of a consolidated group
filing a consolidated federal income Tax Return (other than a
group the common parent of which was the Company) or (ii) has
any liability for the Taxes of any Person (other than the
Company and its Subsidiaries), including liability arising from
the application of Treasury Regulation Section 1.1502-6 or any
analogous provision of state, local or foreign law, or as a
transferee or successor, by contract, or otherwise, except to
the extent that any such liability, individually or in the
aggregate, has not had and would not reasonably be expected to
have a Material Adverse Effect and (e) except to the extent the
failure to do so, individually or in the aggregate, has not had
and would not reasonably be expected to have a Material Adverse
Effect, all Taxes required to be withheld, collected or
deposited by or with respect to the Company and each of its
Subsidiaries have been timely withheld, collected or deposited,
as the case may be, and, to the extent required, have been paid
to the relevant taxing authority. As used herein, "Taxes"
shall mean all taxes of any kind, including those on or
measured by or referred to as income, gross receipts, sales,
use, ad valorem, franchise, profits, license, withholding,
payroll, employment, excise, severance, stamp, occupation,
premium, value added, property or windfall profits taxes,
customs, duties or similar fees, assessments or charges of any
kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any
governmental authority, domestic or foreign. As used herein,
"TAX RETURN" shall mean any return, report or statement
required to be filed with any governmental authority with
respect to Taxes.
(l) Liabilities. Neither the Company nor any of its
Subsidiaries has any material claims, liabilities or
indebtedness outstanding which would be required to be
reflected on a balance sheet prepared in accordance with GAAP
except (i) as set forth in the audited consolidated financial
statements of the Company for the fiscal year ended February 6,
1999, or referred to in the footnotes to such financial
statements, (ii) for liabilities incurred subsequent to
<PAGE>
February 6, 1999, in the ordinary course of business which
individually or in the aggregate would
13
not reasonably be expected to have a Material Adverse Effect or
(iii) as otherwise disclosed in the Commission Filings. As of
the date hereof, there is no debt outstanding under the
Company's Revolving Credit Agreement between the Company,
Mercantile Bank and Harris Trust and Savings Bank.
(m) Intellectual Properties. Except as individually or
in the aggregate have not had and would not reasonably be
expected to have a Material Adverse Effect, as set forth in
Section 2.01(m) of the Company Disclosure Letter or as
disclosed in the Commission Filings, the Company and its
Subsidiaries own or have valid, binding and enforceable rights
to use all patents, trademarks, trade names, service marks,
service names, copyrights, applications therefor and licenses,
trade secrets and other proprietary intellectual property
rights, including all technology, know-how, inventions,
processes, procedures, data, computer software and other
tangible and intangible proprietary information and material or
other rights in respect thereof ("INTELLECTUAL PROPERTY") used
or held for use in connection with the business of the Company
or its Subsidiaries. Neither the Company nor any of its
Subsidiaries has received any notice in writing from any other
person pertaining to or challenging the right of the Company or
any of its Subsidiaries to use any Intellectual Property owned
or used or licensed to the Company or its Subsidiaries or
challenging the ownership by the Company or any of its
Subsidiaries or the validity of any of Intellectual Property
owned by the Company or its Subsidiaries, except with respect
to rights the loss of which, individually or in the aggregate,
have not had and would not reasonably be expected to have a
Material Adverse Effect.
(n) Material Contracts. Except as set forth in Section
2.01(n) of the Company Disclosure Letter and except as included
as an exhibit to the Company's Annual Report on Form 10K (the
items set forth in such Section 2.01(n) and/or filed as such
exhibits are referred to as the "Material Contracts") for the
fiscal year ended February 6, 1999 and all of the exhibits
listed and incorporated therein, neither the Company nor any of
its Subsidiaries has or is bound by:
(i) any agreement, contract or commitment that involves
the performance of services by it of an amount, payments or
value (as measured by the revenue derived therefrom during
fiscal year 1998-1999) in excess of $500,000 annually, unless
terminable by the Company on not more than 90 days notice,
<PAGE>
(ii) any agreement, indenture or other instrument which
contains restrictions with respect to payment of dividends or
any other distribution in respect of its capital stock,
(iii) any agreement, contract or commitment to be
performed relating to capital expenditures in excess of
$1,000,000 in any calendar year, or in the aggregate require
expenditures in excess of $5,000,000,
(iv) any loan agreement, credit agreement, note, bond,
mortgage or other agreement, indenture or instrument relating
to indebtedness for borrowed money, the deferred purchase
price of property, conditional sale arrangements, capital
lease obligations, obligations secured by an Encumbrance, or
interest rate or currency hedging activities ("INDEBTEDNESS")
(excluding trade payables in the ordinary course of business,
14
intercompany indebtedness and leases for telephones, copy
machines, facsimile machines and other office equipment),
(v) any loan or advance to (other than advances to
employees in the ordinary course of business in amounts of
$7,500 or less to any individual and $150,000 in the
aggregate), or investment in (other than investments in
Subsidiaries), any Person, or any agreement, contract or
commitment relating to the making of any such loan, advance
or investment or any agreement, contract or commitment
involving a sharing of profits (except for bonus arrangements
with employees entered into in the ordinary course of
business consistent with past practice),
(vi) any guarantee or other contingent liability in
respect of any indebtedness (as defined in paragraph (iv)
above) of any Person (other than with respect to any
indebtedness or obligation of the Company or any Subsidiary),
(vii) any management service, consulting or any other
similar type of contract, involving payments of more than
$100,000 annually, unless terminable by the Company on not
more than 90 days notice, or
(viii)any agreement, contract or commitment limiting the
ability of the Company or any of its Subsidiaries to engage
in any line of business or to compete with any Person.
Except as otherwise set forth in Section 2.01(n) of the
Company Disclosure Letter, each Material Contract is in full
force and effect, is a valid and binding obligation of the
Company or the Subsidiary party thereto and, to the knowledge
of the Company, each other party thereto. Except as otherwise
<PAGE>
set forth in Section 2.01(n) of the Company Disclosure Letter,
(A) there exists no default or event of default or event,
occurrence, condition or act (including the consummation of the
Merger) on the part of the Company or any Subsidiary which,
with the giving of notice, the lapse of time or the happening
of any other event or condition, would become a default or
event of default under any Material Contract, except for such
defaults or events of default which, individually or in the
aggregate, have not had and would not reasonably be expected to
have a Material Adverse Effect and (B) no approval or consent
of, or notice to, any Person is needed in order that each
Material Contract or agreement shall continue in full force and
effect in accordance with its terms without penalty,
acceleration or rights of early termination by reason of the
consummation of the transactions contemplated by this
Agreement.
(o) Proxy Statement; Schedule 13E-3. The definitive
proxy statement and related materials, if required, to be
furnished to the holders of Common Stock in connection with the
Merger pursuant to Section 4.04 hereof (the "PROXY STATEMENT")
and the Transaction Statement on Schedule 13E-3 to be filed
with the Commission (the "SCHEDULE 13E-3") will comply in all
material respects with the Exchange Act and the rules and
regulations thereunder and any other applicable laws. If at
any time prior to the date of the Stockholders' Meeting (as
defined below) any event occurs which should be described in an
amendment or supplement to the Proxy Statement or the Schedule
13E-3, the Company will file and disseminate, as required, an
amendment or supplement which complies in all material respects
with the Exchange Act and the rules and regulations thereunder
and any other applicable laws. Prior to its filing with the
15
Commission, the amendment or supplement shall be delivered to
Parent and Sub and their counsel. The Proxy Statement, as of
the date it is mailed to the Company's stockholders and as of
the date of the Stockholders' Meeting, will not contain any
untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements
made therein, in light of the circumstances under which they are
made, not misleading; provided, that no representation is
made by the Company with respect to the statements made in
the Proxy Statement based on the information supplied by Parent
or Sub relating to Parent or Sub specifically for inclusion
therein. The Schedule 13E-3, at the time it or any amendment or
supplement to it is filed with the Commission and at the date of
the Stockholders' Meeting, will not contain any untrue statement of
any material fact or omit to state a material fact required to be
stated therein or necessary in order to make the
<PAGE>
statement made therein, in light of the circumstances under
which they are made, not misleading; provided, that no
representation is made by the Company with respect to statements
made in the Schedule 13E-3 based on the information supplied by
Parent or Sub relating to Parent or Sub specifically for
inclusion therein.
(p) Broker's or Finder's Fee. Except for Credit Suisse
First Boston Corporation (whose fees and expenses will be paid
by the Company in accordance with the Company's agreement with
such firm, a complete and correct copy of which has been
delivered to Parent), no agent, broker, Person or firm acting
on behalf of the Company is, or will be, entitled to any fee,
commission or broker's or finder's fees from any of the parties
hereto, or from any Person controlling, controlled by, or under
common control with any of the parties hereto, in connection
with ths Agreement or any of the transactions contemplated
hereby.
(q) Environmental Laws and Regulations. Except as set
forth in Section 2.01(q) of the Company Disclosure Letter or as
disclosed in the Commission Filings, or as, individually or in
the aggregate, has not had and would not reasonably be expected
to have, a Material Adverse Effect:
(i) Hazardous Materials have not been generated, used,
treated or stored (1) on any Company Property or (2) by the
Company or any of its Subsidiaries on or, to the knowledge
of the Company, without any independent inquiry, by any
other Person, on any Leased Company Property or (3) to the
knowledge of the Company, on any Former Company Property, in
the case of the latter, during the period of the Company's
or any of its Subsidiaries ownership, operation or occupancy
of such Former Company Property, in each case, except for
quantities used or stored at such Company Property in
compliance with Environmental Laws and required in connection
with the normal operations and maintenance of such Company
Property;
(ii) Hazardous Materials have not been Released or
disposed of or arranged to be disposed of (1) on, at or from
any Company Property or (2) by the Company or any of its
Subsidiaries on, at or from, or, to the knowledge of the
Company, without any independent inquiry, by any other
Person, on, at or from any Leased Company Property or (3) to
the knowledge of the Company, on, at or from any Former
Company Property, in the case of the latter, during the
period of the Company's or any of its Subsidiaries'
ownership, operation or occupancy of such Former Company
Property, in each case,
16
<PAGE>
except in compliance with Environmental Laws and as required
in connection with the normal operation and maintenance of
such Company Property and as would not reasonably be expected
to result in liability under Environmental Law;
(iii) The Company and its Subsidiaries are, and have been,
in compliance with Environmental Laws and the requirements of
permits issued under such Environmental Laws with respect
to any Company Property;
(iv) There are no pending or threatened Environmental
Claims against the Company, any of its Subsidiaries or, to
the knowledge of the Company, any Company Property, Leased
Company Property or Former Company Property, in the case of
the latter, for which the Company or ny of its Subsidiaries
is reasonably likely to be liable;
(v) There are no underground storage tanks located on
any Company Property or to the knowledge of the Company, any
Leased Company Property; and
(vi) None of the Company or any of its Subsidiaries have
assumed any liability or obligation under Environmental Laws.
As used in this Section 2.01(q), the following terms shall
have the meanings set forth below:
(i) "COMPANY PROPERTY" means any real property, assets,
facilities and improvements currently owned and operated by
the Company or any of its Subsidiaries.
(ii) "LEASED COMPANY PROPERTY" means any real property
and improvements currently leased, operated or occupied by
the Company or any of its Subsidiaries.
(iii) "FORMER COMPANY PROPERTY" means any real property
and improvements formerly owned, leased, operated or
occupied by the Company or any of its Subsidiaries.
(iv) "HAZARDOUS MATERIALS" means (a) any petroleum or
petroleum products, radioactive materials, asbestos in any
form that is friable, urea formaldehyde foam insulation,
polychlorinated biphenyls, and radon gas; and (b) any
chemicals, materials or substances defined as or included in
the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous
substances," "restricted hazardous wastes," "toxic
substances," "toxic pollutants," or words of similar import,
under any applicable Environmental Law.
<PAGE>
(v) "ENVIRONMENTAL LAW" means any federal, state or
local statute, law, rule, regulation, ordinance, code, policy
or rule of common law in effect and in each case as amended
as of the Closing Date, and any judicial or administrative
interpretation thereof as of the Closing Date, including any
judicial or administrative order, consent decree or judgment,
relating to the environment, health, safety or Hazardous
Materials, including the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as
amended, 42 U.S.C. Section 9601 et seq.; the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. Section
6901 et seq.; the Federal Water Pollution Control Act, as
amended,
17
33 U.S.C. Section 1251 et seq.; the Toxic Substances Control
Act, 15 U.S.C. Section 2601 et seq.; the Clean Air Act, 42
U.S.C. Section 7401 et seq.; the Occupational Safety and
Health Act, 29 U.S.C. Section 651 et seq.; the Safe Drinking
Water Act, 42 U.S.C. Section 300f et seq.; the Oil Pollution
Act of 1990, 33 U.S.C. Section 2701 et seq.; and their state
and local counterparts and equivalents.
(vi) "ENVIRONMENTAL CLAIMS" means administrative,
regulatory or judicial actions, suits, demands, demand
letters, claims, liens, notices of non-compliance or
violation, investigations or proceedings relating in any way
to any Environmental Law or any permit issued under any such
Law (hereafter "CLAIMS"), including, without limitation (a)
Claims by governmental or regulatory authorities for
enforcement, cleanup, removal, response, remedial or other
actions or damages pursuant to any applicable Environmental
Law, and (b) Claims by any third party seeking damages,
contribution, indemnification, cost recovery, compensation
or injunctive relief resulting from Hazardous Materials or
arising from alleged injury or threat of injury to health,
safety or the environment.
(vii) "RELEASE" means disposing, discharging, injecting,
spilling, leaking, leaching, dumping, emitting, escaping,
emptying, seeping, placing and the like, into or upon any
land or water or air, or otherwise entering into the
environment.
(r) State Takeover Statutes; Charter Provisions. The
Board of Directors of the Company has approved the Merger
and this Agreement and such approval is sufficient to render
inapplicable to the Merger and this Agreement and the other
transactions contemplated by this Agreement, the provisions
of Section 203 of the DGCL. No provision of the certificate
of incorporation, by-laws or other governing instruments of
<PAGE>
the Company or any Subsidiary or any applicable anti-takeover
law, directly or indirectly, would (i) limit the ability of
the Company, Parent or Sub to comply with the terms of this
Agreement or consummate any of the transactions contemplated
hereby or (ii) restrict or impair the ability of Parent or
Sub to vote or otherwise exercise the rights of a stockholder
with respect to the shares of the capital stock of the
Company or the Surviving Corporation or any of their
Subsidiaries.
(s) Opinion of Financial Advisor. The Company has
received the opinion of Credit Suisse First Boston
Corporation, to the effect that, as of the date of this
Agreement, the consideration to be received in the Merger by
the Company's stockholders is fair to the Company's
stockholders from a financial point of view, and a complete
and correct signed copy of such opinion has been, or will be,
delivered to Parent.
(t) Labor Matters. Neither the Company nor any of its
Subsidiaries is a party to any collective bargaining agreement
or other labor union contract applicable to persons employed by
the Company or its Subsidiaries. There is no labor strike,
slowdown, or work stoppage or lockout pending or, to the
knowledge of the Company, threatened against the Company or any
of its Subsidiaries, except for such labor strike, slowdown,
work stoppage or lockout, which would not reasonably be
expected to have, individually or in the aggregate, a Material
Adverse Effect. Except as disclosed on Section 2.01(i) of the
Company Disclosure Letter, there is no unfair labor practice
charge or other employment related complaint pending or,
18
to the knowledge of the Company, threatened against the
Company or any of its Subsidiaries which if decided adversely
would reasonably be expected to have a Material Adverse Effect.
(u) Year 2000. The Company is not reasonably expected
to suffer a Material Adverse Effect caused individually or in
the aggregate by the failure to be Year 2000 Compliant with
respect to computer systems, computer software or technology
that are internal to the Company and its Subsidiaries. The
Company is not reasonably expected to suffer a Material Adverse
Effect caused individually or in the aggregate by the failure
to be Year 2000 Compliant of any of its products or services
sold or licensed to customers of the Company and its
Subsidiaries.
For purposes of this Agreement, "YEAR 2000
COMPLIANT" means that a product or system is (i) able to
receive, record, store, process, calculate, manipulate and
<PAGE>
output dates from and after January 1, 2000, time periods that
include January 1, 2000 and information that is dependent on or
relates to such dates or time periods, in that same manner and
with the same accuracy, functionality, data integrity and
performance as when dates or time periods prior to January 1,
2000 are involved and (ii) able to store and output date
information in a manner that is unambiguous as to century.
2.02 Representations and Warranties of Parent and Sub.
Each of Parent and Sub represents and warrants to the Company
as follows:
(a) Due Organization; Good Standing and Corporate Power.
Parent is a corporation duly organized and validly existing
and in good standing under the laws of its jurisdiction of
incorporation. Sub is a corporation duly organized, validly
existing and in good standing under the laws of its
jurisdiction of incorporation. Each of Parent and Sub has
all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as
now being conducted except where the failure to have such
power and authority, individually or in the aggregate, would
not prevent or materially delay the consummation of the
transactions contemplated by this Agreement.
(b) Authorization and Validity of Agreement. Each of
Parent and Sub has the corporate power and authority to execute
and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this
Agreement by Parent and Sub, and the consummation by each of
them of the transactions contemplated hereby, have been duly
authorized by the Boards of Directors of each of Parent and
Sub. No other corporate action on the part of either of Parent
or Sub is necessary to authorize the execution, delivery and
performance of this Agreement by each of Parent and Sub and the
consummation of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by each of
Parent and Sub and is a valid and binding obligation of each of
Parent and Sub, enforceable against each of Parent and Sub in
accordance with its terms, except that such enforcement may
be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights
generally, and general equitable principles.
(c) Consents and Approvals; No Violations. Assuming (i)
the filings required under the HSR Act are made and any
applicable waiting period thereunder has been terminated or
19
<PAGE>
has expired, (ii) the requirements of the Exchange Act
relating to the Proxy Statement and the Schedule 13E-3 are
met, and (iii) the filing of the Certificate of Merger and
other appropriate merger documents, if any, as required by
the DGCL, the execution and delivery of this Agreement by
Parent and Sub and the consummation by Parent and Sub of the
transactions contemplated hereby will not: (1) violate any
provision of the Certificate of Incorporation or By-Laws or
comparable governing documents, in each case, as amended of
either Parent or Sub; (2) violate any statute, ordinance, rule,
regulation, order or decree of any court or of any governmental
or regulatory body, agency or authority applicable to Parent or
Sub or by which either of their respective properties or assets
may be bound; (3) require any filing with, or permit, consent
or approval of, or the giving of any notice to any governmental
or regulatory body, agency or authority; or (4) result in a
violation or breach of, conflict with, 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)
under, or result in the creation of any Encumbrance upon any of the
properties or assets of the Parent, Sub or any of their
Subsidiaries under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, license, franchise, permit,
agreement, lease, franchise agreement or other instrument or
obligation to which Parent or Sub or any of their subsidiaries is
a party, or by which they or their respective properties or assets
may be bound except, in the cases of clauses (2), (3) and (4)
above, for any such filing, permit, consent, approval, the failure
to obtain or make which, and except for any breach, violation or
Encumbrance which, would not prevent or materially delay
consummation of the transactions contemplated by this Agreement.
(d) Broker's or Finder"s Fee. Except for the fees and
expenses of American Securities Capital Partners, L.P. or
its affiliate which will be paid by Parent or Sub, no agent,
broker, Person or firm acting on behalf of Parent or Sub is,
or will be, entitled to any fee, commission or broker's or
finder's fees from any of the parties hereto, or from any
Person controlling, controlled by, or under common control
with any of the parties hereto, in connection with this
Agreement or any of the transactions contemplated hereby.
(e) Financing. Parent has obtained commitment letters
(the "COMMITMENT LETTERS") from Credit Suisse First Boston
Corporation addressed to Parent and Sub which, upon the
terms and subject to the conditions thereof, provide for (i)
a $150 million bridge term loan facility and (ii) a $185
million senior secured and revolving credit facility. True,
complete and correct copies of the Commitment Letters have
been furnished to the Company. The Commitment Letters have
been executed by Parent and Sub and are in full force and
<PAGE>
effect.
(f) Proxy Statement; Schedule 13E-3. The written
information supplied or to be supplied by Parent and Sub for
inclusion in the Proxy Statement and the Schedule 13E-3 will
not, with respect to the Schedule 13E-3, at the time it or
any amendment or supplement to it is filed with the
Commission, with respect to the Proxy Statement, at the date
it is mailed to the Company's stockholders, and with respect
to both documents, at the date of the Stockholders' Meeting,
contain any untrue statement of a material fact necessary in
order to make the statements made, in light of the
circumstances under which they are made, not misleading.
20
ARTICLE III
TRANSACTIONS PRIOR TO EFFECTIVE DATE
3.01 Access to Information Concerning Properties and
Records. During the period commencing on the date hereof and
ending on the Effective Date, the Company shall, and shall cause
each of its Subsidiaries to, upon reasonable notice, afford Parent
and Sub, and their respective counsel, accountants, consultants and
other authorized representatives, reasonable access during normal
business hours to the employees, properties, books and records of
the Company and its Subsidiaries in order that they may have the
opportunity to make such investigations as they shall desire of the
affairs of the Company and its Subsidiaries. The Company shall
furnish promptly to Parent and Sub (a) a copy of each report,
schedule, registration statement and other document filed by it or
its Subsidiaries during such period pursuant to the requirements of
Federal or state securities laws and (b) all other information
concerning its or its Subsidiaries' business, properties and
personnel as Parent and Sub may reasonably request. The Company
agrees to cause its officers and employees to furnish such
additional financial and operating data and other information and
respond to such inquiries as Parent and Sub shall from time to time
reasonably request. Parent shall have the right, at its sole cost
and expense, to conduct a Phase I environmental assessment in
accordance with ASTM standards of the properties listed on
Schedule 3.01 and review of compliance with applicable
Environmental Laws for such properties (the "Phase I
Assessment"); provided, that the Phase I Assessment shall be
conducted only during regular business hours and in a manner
that will not interfere in any significant respect with the
ordinary course operation of the Company and its Subsidiaries,
shall be completed no later than July 15, 1999 and shall be
conducted by an
<PAGE>
environmental consulting firm mutually acceptable to Parent
and the Company.
3.02 Confidentiality. Information obtained by Parent and
Sub and their respective counsel, accountants, consultants and
other authorized representatives pursuant to Section 3.01 hereof
shall be subject to the provisions of the Confidentiality Agreement
between Credit Suisse First Boston Corporation, as agent for the
Company, and Parent dated February 24, 1999 (the "CONFIDENTIALITY
AGREEMENT").
3.03 Conduct of the Business of the Company Pending the
Closing Date. The Company agrees that, except as permitted or
required by this Agreement and except as set forth in Section
3.03 of the Company Disclosure Letter or otherwise consented to
or approved by Parent in writing (which consent or approval,
with respect to clauses (b)(iv)(A) and (C), (b)(vii) and (b)
(xiv) (A) and (B), shall not be unreasonably withheld,
conditioned or delayed), during the period commencing on the
date hereof and ending at the Closing Date:
(a) the Company and each of its Subsidiaries will
conduct their respective business and operations only
according to their ordinary course of business consistent
with past practice and will use their reasonable best
efforts to preserve intact their respective business
organization, keep available the services of their
officers and employees and maintain satisfactory
relationships with licensors, suppliers, distributors,
clients, landlords, joint venture partners, employees and
others having business relationships with them;
22
(b) neither the Company nor any of its Subsidiaries
shall: (i) make any change in or amendment to its Certificate
of Incorporation or By-Laws (or comparable governing
documents); (ii) grant, issue or sell any shares of its
capital stock (other than in connection with the exercise of
Options outstanding on the date hereof) or any Voting Debt or
any options, warrants, rights or other securities convertible
into or exercisable for its capital stock or Voting Debt or
any phantom stock or stock appreciation rights (other than
issuance of phantom stock (on the basis of 400 shares per
person) to non-employee members of the Board of Directors in
accordance with the CPI Corp. Deferred Compensation and
Retirement Plan for Non-Management Directors); (iii) sell or
pledge or agree to sell or pledge any stock owned by it in
any of its Subsidiaries; (iv) (A) make, or enter into any
contract or commitment with respect to, capital expenditures
in excess of $1,000,000, individually or $5,000,000, in the
aggregate (other than as disclosed in Schedule 2.01(n) of the
<PAGE>
Company Disclosure Letter; (B) acquire (by merger,
consolidation, or acquisition of stock or assets) any
corporation, partnership, joint venture interest or other
business or division thereof; or (C) cancel, amend or modify,
any Material Contract or enter into any contract that, if in
effect on the date hereof, would be a Material Contract other
than any immaterial cancellation, modification or amendment
in the ordinary course of business; (v) except in the
ordinary course of business acquire a material amount of
assets or securities; (vi) except to the extent required
under existing employee and director benefit plans,
agreements or arrangements as in effect on the date of this
Agreement, (a) except for increases in the ordinary course of
business for employees who are not officers, increase the
compensation or fringe benefits of any of its directors,
officers or employees, (b) or grant any severance or
termination pay or increase therein not currently required to
be paid under existing severance plans, (c) enter into any
employment, consulting or severance agreement or arrangement
with any present or former director, officer or other
employee of the Company or any of its Subsidiaries, or (d)
establish, adopt, enter into or amend or terminate any
collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination,
severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any directors, officers or
employees or take any action to accelerate any rights or
benefits, or make any material determinations not in the
ordinary course of business consistent with past practice,
under any of the foregoing; (vii) sell, lease, license or
otherwise dispose of any properties or assets, except sales
of inventory and excess or obsolete assets and the
licensing of the Company's proprietary software in the
ordinary course of business, and except for immaterial asset
sales or dispositions, or allow any properties or assets to
become subject to any Encumbrance other than Permitted
Encumbrances; (viii) incur any indebtedness for borrowed
money or guarantee any such indebtedness of another person
(except as between any of the Company and its Subsidiaries in
the ordinary course of business), issue or sell any debt
securities or warrants or other rights to acquire any debt
securities of the Company or any Subsidiary, 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; (ix) make any loans, advances or capital
contributions to, or investments in, any other Person, other
than to or in the St. Louis Equity Fund in accordance with
the Company's 1999 budget, and other than to or in the
22
<PAGE>
Company or any direct or indirect wholly owned Subsidiary of
the Company and other than loans to employees, not exceeding
$1,000 individually, in the ordinary course of business
consistent with past practice; (x) make or change any
material Tax election, settle or compromise any material Tax
liability, or take any other action relating to Taxes of the
Company or its Subsidiaries, except for any action relating
to Taxes of the Company or its Subsidiaries that is not
inconsistent with past business practices and that is in
the ordinary course of business; (xi) except as required by
applicable law or generally accepted accounting principles,
make any material change in its method of accounting; (xii)
adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or
other reorganization of the Company or any of its
Subsidiaries not constituting an inactive Subsidiary (other
than the Merger); (xiii) (A) declare, set aside or pay any
dividends on, or make any other distributions in respect
of, any of its capital stock, other than regular quarterly
cash dividends using customary record and payment dates
not in excess of $0.14 per share and dividends and
distributions by a direct or indirect wholly owned
Subsidiary of the Company to its parent, (B) split, combine
or reclassify any of its capital stock or 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 (C)
purchase, redeem or otherwise acquire any shares of capital
stock of the Company or any Subsidiary or any other
securities thereof or any rights, warrants or options to
acquire any such shares or other securities; (xiv) (A) pay,
discharge or satisfy any claims, liabilities or obligations,
other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or
in accordance with their terms, of liabilities reflected or
reserved against in, or contemplated by, the most recent
consolidated financial statements (or notes thereto)
of the Company included in the Commission Filings or
incurred in the ordinary course of business consistent
with past practice, (B) cancel any material indebtedness
(individually or in the aggregate) owed to the Company or any
Subsidiary or waive any material claims or rights or (C)
knowingly waive the benefits of, or agree to modify in any
manner, any confidentiality, standstill or similar agreement
to which the Company or any Subsidiary of the Company is a
party; or (xv) agree, in writing or otherwise, to take any of
the foregoing actions;
(c) as soon as practicable after the date hereof, the
Company and its Subsidiaries shall invest all but $50,000
of its cash on hand in Permitted Investments and, as soon
as practicable after receipt thereof, shall invest any
cash received after the date hereof in Permitted
<PAGE>
Investments; provided that (i) the Company may liquidate any
Permitted Investments to meet the working capital
requirements of the Company and (ii) the Company shall not be
required to liquidate any shares of so called "par value
preferred stock" or "money market preferred stock" rated at
least "A-" by Standard & Poor's Ratings Group or "Aa3" by
Moody's Investors Services, Inc. held by the Company on the
date of this Agreement until the Company's rights with
respect to such shares expire which, in any event, shall not
be greater than fifty days from the date hereof;
(d) except as otherwise permitted by this Agreement, the
Company shall not, and shall not permit any of its
Subsidiaries to, take any action, engage in any transaction
or enter into any agreement which would cause any of the
representations or warranties of
23
the Company set forth herein to be untrue as of the Closing
Date or any of the conditions set forth in Article IV not to
be satisfied.
3.04 Proxy Statement; Schedule 13E-3. As promptly as
practicable, the Company will prepare and file a preliminary
Proxy Statement and the Schedule 13E-3 with the Commission and
will use its reasonable best efforts to respond to the comments
of the Commission in connection therewith and to furnish all
information required to prepare the definitive Proxy Statement
(including, without limitation, financial statements and
supporting schedules and certificates and reports of independent
public accountants). Parent, Sub and the Company will cooperate
with each other in connection with the preparation, filing and
clearance by the Commission of the Proxy Statement and the Schedule
13E-3. Without limiting the generality of the foregoing, each of
Parent and Sub will furnish to the Company the information relating
to it required by the Exchange Act to be set forth in the Proxy
Statement and the Schedule 13E-3. The Company shall notify Parent
promptly of the receipt of any comments from the Commission or its
staff and of any request by the Commission or its staff for
amendments or supplements to the Proxy Statement or the Schedule
13E-3 or for additional information and shall supply Parent with
copies of all correspondence between the Company or any of its
representatives, on the one hand, and the Commission or its staff,
on the other hand, with respect to the Proxy Statement or the
Schedule 13E-3. The Company will cause the definitive Proxy
Statement to be mailed to the stockholders of the Company and,
ifnecessary, after the definitive Proxy Statement shall have been
so mailed, promptly circulate amended, supplemental or supplemented
proxy
<PAGE>
material and, if required in connection therewith, resolicit
proxies. The Company will not mail any Proxy Statement or
amendment or supplement thereto or use any proxy material in
connection with the Stockholders' Meeting (as defined below)
without Parent's prior approval.
3.05 Stockholder Approval. (a) As soon as practicable,
the Company, acting through its Board of Directors, shall, in
accordance with applicable law, duly call, convene and hold a
special meeting of the holders of Common Stock for the purpose
of voting upon this Agreement and the Merger (the "STOCKHOLDERS'
MEETING") and the Company agrees that this Agreement and the Merger
shall be submitted at such special meeting. The Company shall use
its reasonable best efforts to solicit from its stockholders
proxies, and, subject always, to the fiduciary obligations of the
Company's directors under applicable law shall take all other
action necessary and advisable, to secure the vote of stockholders
required by applicable law to obtain the approval for this
Agreement and the Merger. Subject to Section 3.07(b) of this
Agreement, the Company agrees that it will include in the Proxy
Statement the recommendation of its Board of Directors that holders
of Common Stock approve and adopt this Agreement and approve the
Merger. Without limiting the generality of the foregoing, the
Company agrees that its obligations pursuant to the first sentence
of this Section 3.05(a) shall not be affected by (i) the
commencement, public proposal, public disclosure or communication
to the Company of any Acquisition Proposal or
(ii) the withdrawal or modification by the Board of Directors of
the Company of its approval or recommendation of this Agreement or
the Merger. Parent will cause all shares of Common Stock owned by
Parent and its Subsidiaries to be voted in favor of the Merger.
3.06 Reasonable Best Efforts. Subject to the terms and
conditions provided herein, each of the Company, Parent and Sub
shall, and the Company shall cause each of its
24
Subsidiaries to, cooperate and use their respective reasonable best
efforts to take, or cause to be taken, all appropriate action, and
to make, or cause to be made, all filings necessary, proper or
advisable under applicable laws and regulations to consummate and
make effective the transactions contemplated by this Agreement,
including, without limitation, their respective reasonable best
efforts to obtain, prior to the Closing Date, all licenses,
permits, consents, approvals, authorizations, qualifications and
orders of governmental authorities and parties to contracts with
the Company and its Subsidiaries (including contacting lessors as
promptly as possible to obtain consents under leases of real
property) as
<PAGE>
are necessary for consummation of the transactions contemplated by
this Agreement and to fulfill the conditions to the Merger,
including the defending of any lawsuits or other legal proceedings,
whether judicial or administrative, challenging this Agreement or
the consummation of any of the transactions
contemplated hereby and the execution and delivery of any
additional instruments necessary to consummate the transactions
contemplated by this Agreement and to fully carry out the
purposes of this Agreement. In connection with and without
limiting the foregoing, the Company shall provide reasonable
and customary cooperation to Parent and Sub in arranging the
financing contemplated by the Commitment Letters (including
participating in the preparation and conduct of any "ROAD SHOW"
presentation and consenting to amendments to option and
restricted stock agreements and plans required to permit equity
investments by employees as contemplated by the Subscription
Agreements).
3.07 No Solicitation of Other Offers. (a) The Company
and its affiliates and each of their respective officers,
directors, employees, representatives, consultants, investment
bankers, attorneys, accountants and other agents shall immediately
cease any existing discussions or negotiations with any other
parties that may be ongoing with respect to any Acquisition
Proposal (as defined below). Neither the Company nor any of its
affiliates shall, take (and the Company shall not authorize or
permit any of its officers, directors, employees, representatives,
consultants, investment bankers, attorneys, accountants or other
agents, to so take) any action (i) to directly or indirectly
solicit, initiate or knowingly encourage the making of any
Acquisition Proposal, (ii) to initiate or participate in any
discussions or negotiations with, or, furnish or disclose any
information to, any Person (other than Parent or Sub) in
furtherance of, 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 Acquisition Proposal or (iii) to enter into any
agreement with respect to any Acquisition Proposal; provided, that,
to the extent that the failure to take such action would breach the
fiduciary obligations of the Board of Directors of the Company, as
determined in good faith by a majority of the disinterested members
thereof based on the advice of outside counsel, the Company may, in
response to an Acquisition Proposal that was not solicited by the
Company and that did not otherwise result from a breach of this
Section 3.07(a), no sooner than two days following delivery to
Parent of notice of such Acquisition Proposal in compliance with
Section 3.07(c), furnish information with respect to the Company
and its Subsidiaries to any Person pursuant to a customary
confidentiality agreement and participate in discussions or
negotiations with respect to any Acquisition Proposal. Without
limiting the foregoing, it is agreed that any violation of the
<PAGE>
restrictions set forth in the preceding two sentences by any
executive officer of the Company or any Subsidiary, any affiliate
or director of the Company or any Subsidiary of the Company, or any
advisor retained by the Company in connection with the transactions
contemplated hereby, whether or not such Person is purporting to
act on behalf of the Company
25
or any Subsidiary of the Company, shall be deemed to be a breach of
this Section 3.07(a) by the Company. Nothing in this Section 3.07
shall prevent the Company or Board of Directors from taking and
disclosing to the Company's stockholders a position contemplated by
Rule 14d-9 and Rule 14e-2 promulgated under the Exchange Act with
respect to any tender offer. Any actions permitted under, and
taken in compliance with, this Section 3.07 shall not be deemed a
breach of any other covenant or agreement of such party contained
in this Agreement.
(b) Neither the Board of Directors of the Company nor any
committee thereof shall (i) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to Parent or Sub, the
approval or recommendation by the Board of Directors or any
such committee of this Agreement or the Merger, (ii) approve any
letter of intent, agreement in principle, acquisition agreement or
similar agreement relating to any Acquisition Proposal or (iii)
approve or recommend any Acquisition Proposal. Notwithstanding the
foregoing, if the Company receives a Superior Proposal (as defined
below) and a majority of the disinterested directors of the Company
determine in good faith, based on the advice of outside counsel,
that failure to take such action would breach their fiduciary
obligations, the Board of Directors of the Company may, no sooner
than three days following delivery to Parent of notice of such
Superior Proposal in compliance with Section 3.07(c), withdraw or
modify its approval or recommendation of the Merger and this
Agreement and may approve or recommend and, following termination
of this Agreement in accordance with Section 5.01(h), enter into an
agreement with respect to such Acquisition Proposal.
"ACQUISITION PROPOSAL" shall mean any inquiry, proposal or
offer from any Person or group relating to any direct or
indirect acquisition or purchase of a substantial amount of assets
of the Company or any of its Subsidiaries or of all or any portion
of any class of equity securities of the Company or any of its
Subsidiaries, any tender offer or exchange offer that if
consummated would result in any Person beneficially owning all or
any portion of any class of equity securities of the Company or any
of its Subsidiaries, any merger, consolidation, business
combination, recapitalization, liquidation, dissolution or any
transaction having similar economic effect involving the Company or
any of its
<PAGE>
Subsidiaries, other than the transactions contemplated by this
Agreement. "SUPERIOR PROPOSAL" shall mean a bona fide proposal made
by a third party to acquire all or substantially all of the Company
pursuant to a tender offer, exchange offer, a merger or other
business combination or a sale of all or substantially all of the
assets of the Company and its
Subsidiaries on terms which a majority of the disinterested
members of the Board of Directors of the Company determines in
their good faith reasonable judgment to be superior from a
financial point of view to the holders of Common Stock to the
Merger and any alternative transaction proposed by Parent
(based on the written opinion as to the financial terms thereof,
with only customary qualifications, of the Company's independent
financial advisor), taking into account all the terms and
conditions of such Acquisition Proposal and this Agreement or any
alternative transaction proposed by Parent.
(c) The Company promptly shall advise Parent orally and in
writing of any Acquisition Proposal or any inquiry that could
reasonably be expected to lead to any Acquisition Proposal and the
identity of the Person making any such Acquisition Proposal or
inquiry including any change to the material terms of any such
Acquisition Proposal or inquiry. The Company shall (i) keep Parent
fully informed of the status including any change to the terms of
any such
26
Acquisition Proposal or inquiry and (ii) provide to Parent as soon
as practicable after receipt or delivery thereof with copies of all
correspondence and other written material sent or provided to the
Company from any third party in connection with any Acquisition
Proposal or sent or provided by the Company to any third party in
connection with any Acquisition Proposal.
3.08 Notification of Certain Matters. The Company shall
give prompt notice to Parent, and Parent and Sub shall give
prompt notice to the Company, of the occurrence, or failure to
occur, of any event, which occurrence or failure to occur would
likely cause any representation or warranty made by it contained
in the Agreement to be untrue in any material respect
at any time from the date of this Agreement to the Closing
Date. Each of the Company and Parent shall give prompt notice to
the other party of 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.
3.09 HSR Act. The Company and Parent shall, as soon as
practicable and in any event within ten business days from the
date of this Agreement, file Notification and Report Forms
under the HSR Act with the Federal Trade Commission (the "FTC")
<PAGE>
and the Antitrust Division of the Department of Justice (the
"ANTITRUST DIVISION") and shall use their reasonable best efforts
to respond as promptly as practicable to all inquiries received
from the FTC or the Antitrust Division for additional information
or documentation.
3.10 Employee Benefits. (a) Until the first anniversary
of the Effective Time, Parent and its affiliates shall ensure
that, except as otherwise agreed with any officer or employee of
the Company with regard to his or her compensation and benefits,
all employees and officers of the Company and its Subsidiaries
receive (i) the salary or wage level and annual bonus opportunity,
to the extent applicable, at least comparable in the aggregate to
that in effect immediately prior to the date hereof (including a
cash bonus opportunity commensurate with the stock bonus
opportunity provided under the Company's 1981 Stock Bonus Plan, as
amended, in consideration for services rendered through the first
anniversary of the Effective Time), and (ii) benefits
(excluding equity-based incentives) and other terms and
conditions of employment that are equivalent in the aggregate
to the benefits and terms and conditions received by such
individuals immediately prior to the date hereof; provided,
however, that any employer match payable under the Company's
Employees Profit Sharing Plan shall be paid in cash in lieu of
the Company's Common Stock. Notwithstanding the foregoing,
following the Effective Time, the Parent may terminate the
employment of any employee (subject to the payment of severance
benefits payable to the employee in connection with such
termination under any plan, practice or policy of the Company
or any of its Subsidiaries and full payment and satisfaction of
the employee's rights under any employment agreement).
(b) From and after the Effective Time, Parent and its
affiliates shall, as applicable, except as otherwise agreed
with any officeror employee of the Company with regard to his
or her compensation and benefits, honor, pay, perform and
satisfy any and all liabilities, obligations and
responsibilities to, or in respect of, each employee and
officer of the Company and its Subsidiaries, and each former
employee and officer of the Company and its Subsidiaries, arising
under the terms of, or in connection with, any employee benefit,
fringe benefit, deferred compensation or incentive compensation
plan or arrangement maintained or contributed to by the
27
Company or any of its Subsidiaries or any employment, consulting,
retention, severance or similar agreement to which the Company or
any such Subsidiary is a party, in each case, in accordance with
the terms thereof in effect immediately prior
<PAGE>
to the date hereof; provided that, except as provided in Section
3.10(a), nothing herein shall obligate Parent to maintain any
particular plan or arrangement after the Effective Time. Without
limiting the generality of the foregoing, until the first
anniversary of the Effective Time, except as otherwise agreed with
any officer or employee of the Company with regard to his or her
compensation and benefits, Parent and its affiliates shall keep in
effect all severance plans, practices and policies that are
applicable to employees and officers of the Company and its
Subsidiaries immediately prior to the date hereof.
(c) Following the Effective Time, (i) Parent shall ensure
that no employee welfare benefit plan of the Surviving
Corporation or in which employees of the Company or its
Subsidiaries may otherwise participate shall have any waiting
periods, exclusions, or preexisting condition limitations
applicable to employees of the Company or its Subsidiaries at
the Effective Time to the extent such employees are not subject
to such limitations under the welfare benefits plans in which
such employees currently participate, and (ii) Parent shall
honor or cause to be honored all premiums, co-payments and
deductibles paid by the employees and officers of the Company
and its Subsidiaries under all Employee Benefit Plans up to
(and including) the Effective Time.
(d) Following the Effective Time, each employee benefit
plan sponsored by Parent or its affiliates at any time prior to the
first anniversary of the Effective Time, in which employees and
officers of the Company or the Surviving Corporation or their
Subsidiaries are eligible to participate shall credit, for all
purposes, all service of employees and officers of the Company and
its Subsidiaries with the Company and its Subsidiaries and their
respective predecessors to the extent such service was credited for
similar purposes under similar plans of the Company and its
Subsidiaries prior to the Effective Time.
3.11 Directors' and Officers' Insurance; Indemnification.
(a) The Certificate of Incorporation and the By-Laws of the
Surviving Corporation shall contain the provisions with respect
to indemnification and exculpation from liability for directors
and officers of the Company set forth in the Company's
Certificate of Incorporation and By-Laws on the date of this
Agreement, which provisions shall not be amended, repealed or
otherwise modified for a period of six years from the Effective
Time in any manner that would adversely affect the rights
thereunder of individuals who on or prior to the Effective Time
were directors or officers, of the Company, unless such
modification is required by law.
<PAGE>
(b) For six years from the Effective Time, the Surviving
Corporation shall either (x) maintain in effect the Company's
current directors' and officers' liability insurance covering
those persons who are currently covered on the date of this
Agreement by the Company's directors' and officers' liability
insurance policy (a copy of which has been heretofore delivered
to Parent) (the "INDEMNIFIED PARTIES"); provided that the
Surviving Corporation may substitute for such Company policies,
policies with at least the same coverage containing terms and
condtions which are no less advantageous and provided that said
substitution does not result in any gaps or lapses in coverage
with respect to matters occurring prior to the Effective Time,
or (y) cause the Parent's directors' and officers' liability
insurance then in effect to cover those
28
persons who are covered on the date of this Agreement by the
Company's directors' and officers' liability insurance policy with
respect to those matters covered by the Company's directors' and
officers' liability policy (any such insurance under (x) or (y),
the "D&O Insurance"); provided, that the coverage provided by
Parent's insurance shall be no less favorable to the Indemnified
Parties and shall provide no fewer rights than the D&O Insurance
currently in place, provided further, that, in the case of clause
(x) or (y) the annual premium for such D&O Insurance coverage would
not be in excess of 200% of the last annual premium paid by the
Company for its D&O Insurance prior to the date of this Agreement
(such 200% amount, the "MAXIMUM PREMIUM"). If the existing D&O
Insurance expires, is terminated or canceled during such six-year
period or if Parent is unable to maintain the Company's existing
D&O Insurance for the Maximum Premium, Parent shall use reasonable
best efforts to cause to be obtained as much D&O Insurance as can
be obtained for the remainder of such period for an annualized
premium not in excess of the Maximum Premium.
3.12 Indebtedness of the Company. Prior to the Closing
Date the Company shall enter into arrangements for the prepayment
prior to, at or immediately following the Closing
Date of, the entire principal amount of and all other amounts
owing under the Company's 7.46% Senior Notes due 2007 (the
"Existing Notes"), so that as of such time the Existing Notes shall
be retired and of no further force or effect and the consummation
of the transactions contemplated hereby will not result in a breach
of the terms thereof or otherwise result in liability; provided,
that, in connection therewith, the Company shall not make any
payment in connection with such prepayment, other than a payment
required pursuant to the terms of the Existing Notes as currently
in effect.
<PAGE>
3.13 Guaranty of Performance. Parent hereby guarantees
the performance by Sub of its obligations under this Agreement and
the obligations of the Surviving Corporation under Sections
3.10 and 3.11 hereof.
3.14 Financing. (a) Subject to the satisfaction of the
condition set forth in Sections 4.01 and 4.02, Parent shall
provide Sub with the equity financing contemplated by the
Commitment Letters.
(b) Parent and Sub shall, and shall cause their respective
officers, directors, employees, affiliates, financial advisors and
other representatives to, use their reasonable best efforts to
arrange as promptly as practicable and (subject only to the
simultaneous consummation of the transactions contemplated hereby)
to complete the financing contemplated by (i) the Credit Facility
(as defined in the Commitment Letters) on the terms set forth in
the Commitment Letters and, to the extent not set forth in the
Commitment Letters, on such terms as are reasonably satisfactory to
Parent and (ii) the issuance and sale of $150 million principal
amount of senior subordinated notes on the terms set forth in the
Commitment Letters and, to the extent not set forth in the
Commitment Letters, on such terms as are reasonably satisfactory to
Parent; provided, that if the issuance
and sale of such senior subordinated notes is not completed by
the later of (A) the date of the Stockholders' Meeting and (B)
90 days after the date hereof, then thereafter Parent and Sub
shall be obligated to use their reasonable best efforts to
consummate as promptly as practicable prior to the Outside Date,
the financing pursuant to the Bridge Loan Facility (as
29
defined in the Commitment Letters) on the terms set forth in the
Commitment Letters and, to the extent not set forth in the
Commitment Letters, on terms reasonably satisfactory to Parent.
(c) Except to the extent the Company shall otherwise
consent in writing, Parent and Sub will not modify or amend in
any material respect the terms of, or cancel or waive any
material right under, the Commitment Letters.
ARTICLE IV
CONDITIONS PRECEDENT TO MERGER
4.01 Conditions Precedent to Obligations of Parent, Sub
and the Company. The respective obligations of Parent and Sub,
on the one hand, and the Company, on the other hand, to effect
the Merger are subject to the satisfaction or waiver (subject
<PAGE>
to applicable law) at or prior to the Closing Date of each of the
following conditions:
(a) Approval of Company's Stockholders. This Agreement
and the Merger shall have been approved and adopted by holders
of a majority of the outstanding shares of the Common Stock of the
Company entitled to vote in accordance with applicable law and the
Company's Certificate of Incorporation and By-Laws;
(b) HSR Act. Any applicable waiting period (and any
extension thereof) under the HSR Act applicable to the Merger
shall have expired or been terminated;
(c) Injunction. No preliminary or permanent injunction or
other order shall have been issued by any court or by any
governmental or regulatory agency, body or authority which
prohibits the consummation of the Merger and the transactions
contemplated by this Agreement and which is in effect;
provided, however, that, in the case of a decree, injunction or
other order, each of the parties shall have used reasonable
best efforts to prevent the entry of any such injunction or
other order and to appeal as promptly as possible any decree,
injunction or other order that may be entered; and
(d) Statutes. No statute, rule, regulation, executive
order, decree or order of any kind shall have been enacted,
entered, promulgated or enforced by any court or governmental
authority which prohibits the consummation of the Merger.
4.02 Conditions to Obligations of Parent and Sub. The
obligations of Parent and Sub to effect the Merger are further
subject to the satisfaction or waiver at or prior to the Closing
Date of the following conditions:
(a) Representations and Warranties. The representations
and warranties of the Company in this Agreement that are qualified
as to materiality shall be true and correct and those not so
qualified shall be true and correct in all material respects as of
the Closing Date as though made at the Closing Date, except to the
extent such representations and warranties expressly relate to an
earlier date (in which case such representations and warranties
that are qualified as to
30
materiality shall be true and correct and those not so qualified
shall be true and correct in all material respects, on and as of
such earlier date).
(b) Performance of Obligations of the Company. The
Company shall have performed in all material respects all
<PAGE>
obligations required to be performed by it under this Agreement
at or prior to the Closing Date.
(c) Financing. Sub shall have obtained the financing
described in the Commitment Letters on the terms set forth in
the Commitment Letters, including at least $10 million in the
aggregate of equity investment by those individuals who are
parties to the Subscription Agreements.
(d) Company Indebtedness. The Company shall have entered
into arrangements for the prepayment at or immediately
following the Closing Date of, the entire principal amount of
and all other amounts owning under the Existing Notes; provided,
that, in connection therewith, the Company shall not make any
payment in connection with such prepayment, other than a payment
required pursuant to the terms of the Existing Notes.
(e) Sears License Agreements. The Company's license
agreements with Sears, Roebuck and Co. and/or its affiliates
("SEARS") each dated January 1, 1999, and as amended as of June
11, 1999 (except, dated April 6, 1977 with respect to Canada)
(the "SEARS AGREEMENTS") shall remain in full force and effect
as of the Closing Date and Sears shall not have exercised any
right to terminate any such Sears Agreement with respect to any
Licensed Business Location (as such term is used in the Sears
Agreements) for any reason other than the closing of a
Designated Sears Store (as such term is defined in the Sears
Agreements) and Sears shall have consented in writing to the
change of control contemplated by the Merger.
(f) Material Consents. The Company shall have received,
and provided copies to Parent of, the written consents of all
governmental agencies and authorities and third parties
necessary to consummate the transactions contemplated hereby
(including those necessary to avoid a breach, default or right of
termination under any agreement to which the Company or its
Subsidiaries is a party) other than such consents the absence
of which either individually or in the aggregate would not
reasonably be expected to have a Material Adverse Effect.
(g) Environmental Assessment. Parent's environmental
consultants shall have completed their Phase I Assessment and
shall have delivered to Parent a report on such Phase I
Assessment which shall not disclose potential environmental
circumstances or conditions the remediation of which (to the
extent required), and penalties resulting therefrom, which
individually or in the aggregate, would reasonably be expected
to exceed $3,000,000.
4.03 Condition to Obligation of the Company. The
obligation of the Company to effect the Merger is further
subject to the following conditions:
<PAGE>
(a) Representations and Warranties. The representations
and warranties of Parent and Sub in this Agreement that are
qualified as to materiality shall be true and correct and those not
so qualified shall be true and correct in all material respects as
of the Closing Date as
31
though made on the Closing Date, except to the extent such
representations and warranties expressly relate to an earlier date
(in which case such representations and warranties that are
qualified as to materiality shall be true and correct and those not
so qualified shall be true and correct in all material respects, on
and as of such earlier date).
(b) Performance of Obligations. Parent and Sub shall have
performed in all material respects all obligations to be
performed by them under this Agreement at or prior to the
Closing Date.
ARTICLE V
TERMINATION AND ABANDONMENT
5.01 Termination. This Agreement may be terminated and
the transactions contemplated hereby may be abandoned, at any time
prior to the Closing Date, whether before or after approval of the
Merger by the Company's stockholders:
(a) by mutual consent of the Company, on the one hand,
and of Parent and Sub, on the other hand;
(b) by either Parent, on the one hand, or the Company,
on the other hand, if any governmental or regulatory agency
shall have issued an order, decree or ruling or taken any
other action permanently enjoining, restraining or otherwise
prohibiting the Merger and such order, decree or ruling or
other action shall have become final and nonappealable;
(c) by Parent, on the one hand, or the Company, on the
other hand, if the Closing shall not have occurred on or
prior to October 29, 1999 (the "OUTSIDE DATE"), unless the
Closing shall not have occurred because of a breach of any
representation, warranty, obligation, covenant, agreement
or condition set forth in this Agreement on the part of
the party seeking to terminate this Agreement; provided, that
the passage of such period shall be tolled for any part
thereof during which any party shall be subject to a
nonfinal order, decree, ruling or action restraining,
enjoining or otherwise prohibiting the consummation of the
Merger;
<PAGE>
(d) by the Parent, in the event of a breach by the
Company of any representation, warranty, covenant or
agreement contained in this Agreement which (A) would
give rise to the failure of a condition set forth in
Section 4.02(a) or (b) and (B) cannot or has not been
cured prior to 15 days after the giving of written notice
of such breach to the Company;
(e) by the Company, in the event of a breach by the
Parent or Sub of any representation, warranty, covenant or
agreement contained in this Agreement which (A) would give
rise to the failure of a condition set forth in Section
4.03(a) or (b) and (B) cannot or has not been cured prior
to 15 days after the giving of written notice of such
breach to the Parent and Sub;
32
(f) by Parent or the Company if the requisite approval
by the stockholders of the Company of the Merger and this
Agreement ("STOCKHOLDER APPROVAL") shall not have been
obtained after a vote on the matter at a duly held meeting
of stockholders or at any adjournment thereof;
(g) by Parent, if (x) the Company or its Board of
Directors shall have (i) withdrawn, modified or amended in
any respect adverse to Parent its approval or recommendation
of the Merger or this Agreement or any of the transactions
contemplated hereby, (ii) approved, recommended or entered
into an agreement with respect to, or consummated the
transactions contemplated by any Acquisition Proposal
received from a Person other than Parent or any of its
affiliates or (iii) resolved to do any of the foregoing or
(y) any Person or group (as defined in Section 13(d)
of the Exchange Act) other than Parent, Sub or any of
their affiliates, shall have become the beneficial owner of
more than 50% of the outstanding Common Stock of the Company;
or
(h) by the Company, no sooner than three days following
delivery to Parent of notice of a Superior Proposal in
compliance with Section 3.07(c), if, (i) pursuant to and
in compliance with Section 3.07(b) hereof, the Board of
Directors of the Company withdraws, modifies or amends in a
manner adverse to Parent its recommendation of the Merger or
this Agreement or (ii) the Company or its Board of Directors
approves a Superior Proposal; provided, however, that (w)
the Company shall have complied with Section 3.07, (x) the
Board of Directors of the Company shall have concluded in
good faith, after giving effect to all concessions which
have been offered by Parent, that such proposal is a
Superior Proposal (determined in accordance with Section
<PAGE>
3.07(b)), (y) the Board of Directors shall have concluded in
good faith, based upon the advice of its outside legal
counsel, that notwithstanding all concessions which have
been offered by Parent in negotiations conducted pursuant to
clause (z) below failure to approve such Superior Proposal
would result in a breach of the Board's fiduciary duties to
the stockholders of the Company and (z) prior to any such
termination, the Company shall, and shall cause its legal
and financial advisors to, negotiate with Parent to
determine whether or not Parent can make such adjustments in
the terms and conditions of this Agreement as would enable
Parent to proceed with the transactions contemplated hereby
on such adjusted terms; provided, that, this Agreement may
not be terminated pursuant to this Section 5.01(h) unless
concurrently with such termination, the Company pays to
Parent the Termination Fee required by Section 6.01(b).
5.02 Effect of Termination. In the event of the
termination of this Agreement pursuant to Section 5.01 hereof
by Parent or Sub, on the one hand, or the Company, on the other
hand, written notice thereof shall forthwith be given to the
other party or parties specifying the provision hereof pursuant
to which such termination is made, and this Agreement shall
become void and have no effect, and there shall be no liability
hereunder on the part of Parent, Sub or the Company, except
that Sections 2.01(p), 2.02(d), 3.02, 6.01, 6.04 and this
Section 5.02 hereof shall survive any termination of this
Agreement. Nothing in this Section 5.02 shall relieve any
party to this Agreement ofliability for willful breach of this
Agreement.
33
ARTICLE VI
MISCELLANEOUS
6.01 Fees and Expenses. (a) Except as set forth in
Section 6.01(c) all costs and expenses incurred in connection with
this Agreement and the consummation of the transactions
contemplated hereby shall be paid by the party incurring such costs
and expenses.
(b) The Company shall pay to Parent a fee of $9,000,000
(the "TERMINATION FEE") if: (i) this Agreement is terminated
pursuant to Section 5.01(g) or Section 5.01(h); or (ii) (x) any
Person or group shall have made, or proposed, communicated or
disclosed in a manner which is, or otherwise becomes, public
(including being known by unaffiliated stockholders of the Company)
an intention to make an Acquisition Proposal and this Agreement is
terminated (other than pursuant to Section 5.01(a)
<PAGE>
or (b)) and (y) within twelve months of such termination the
Company enters into an agreement to consummate an Acquisition
Proposal, or an Acquisition Proposal is consummated. Any fee due
under (x) Section 6.01(b)(i) shall be paid by wire transfer of same
day funds on the date of termination of this Agreement or (y)
Section 6.01(b)(ii) shall be paid on the date of execution of such
definitive agreement or, if earlier, consummation of such
transaction.
(c) The Company shall reimburse Parent and Sub for all
their documented out-of-pocket expenses incurred in connection with
this Agreement, the Merger and the other transactions
contemplated hereby up to a maximum of $6,000,000 if (i) this
Agreement is terminated pursuant to Section 5.01(d), (f), (g)
or (h), (ii) this Agreement is terminated pursuant to Section
5.01(c) as a result of any fact, circumstance or occurrence
arising after the date hereof which has had or would reasonably
be expected to have a Material Adverse Effect or (iii) the
Termination Fee becomes payable pursuant to Section
6.01(b)(ii). Such payment shall be made on the date of termination
of this Agreement or, in the case of a payment pursuant to clause
(iii), on such later date as the Termination Fee is payable.
6.02 Representations and Warranties. The respective
representations and warranties of the Company, on the one hand,
and Parent and Sub, on the other hand, contained herein or in
any certificates or other documents delivered prior to or at the
Closing shall not be deemed waived or otherwise affected by any
investigation made by any party. Each and every such
representation and warranty shall expire with, and be terminated
and extinguished by, the Closing and thereafter none of
the Company, Parent or Sub shall be under any liability whatsoever
with respect to any such representation or warranty. This Section
6.02 shall have no effect upon any other obligation of the parties
hereto, whether to be performed before or after the Closing Date.
6.03 Extension; Waiver. At any time prior to the Closing
Date, the parties hereto, by action taken by or on behalf of
the respective Boards of Directors of the Company, Parent or Sub,
may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive
any inaccuracies in the representations and warranties contained
herein by any other applicable party or in any document,
certificate or writing delivered pursuant hereto by any other
applicable party or (iii) waive compliance with any of the
agreements
34
<PAGE>
or conditions contained herein. Any agreement on the part of any
party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party.
6.04 Public Announcements. The Company, on the one hand,
and Parent and Sub, on the other hand, agree to consult promptly
with each other prior to issuing any press release or
otherwise making any public statement with respect to the
transactions contemplated hereby, and shall not issue any such
press release or make any such public statement prior to such
consultation and review by the other party of a copy of such
release or statement.
6.05 Charitable Contributions. Following the Effective Time,
Parent shall for the remainder of fiscal 1999 maintain the
aggregate level of annual charitable contributions in the St. Louis
area equal to the amount that appears in the Company's 1999 budget.
6.06 Notices. All notices, requests, demands, waivers and
other communications required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been duly
given if delivered in person or mailed, certified or registered
mail with postage prepaid, or sent by telex, telegram or
telecopier, as follows:
(a) if to the Company, to it at:
CPI Corp.
1706 Washington Avenue
St. Louis, MO 63103
Attention: Chief Executive Officer
with a copy to:
White & Case LLP
1155 Avenue of the Americas
New York, NY 10036
Attention: William F. Wynne, Jr., Esq.
(b) if to either Parent or Sub, to it at:
c/o American Securities Capital Partners, L.P.
122 East 42nd Street, Suite 2400
New York, New York 10168
Attention: Mark Bandeen
<PAGE>
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017-3954
35
Attention: Richard Capelouto, Esq.
or to such other Person or address as any party shall specify
by notice in writing to each of the other parties. All such
notices, requests, demands, waivers and communications shall be
deemed to have been received on the date of delivery unless if
mailed, in which case on the third business day after the
mailing thereof except for a notice of a change of address, which
shall be effective only upon receipt thereof.
6.07 Entire Agreement. This Agreement and the annex,
schedules and other documents referred to herein or delivered
pursuant hereto, collectively contain the entire understanding
of the parti es hereto with respect to the subject matter
contained herein and supersede all prior agreements and
understandings, oral and written, with respect thereto.
6.08 Binding Effect; Benefit; Assignment. This Agreement
shall inure to the benefit of and be binding upon the parties
hereto and, with respect to the provisions of Section 3.11
hereof, shall inure to the benefit of the Persons benefiting
from the provisions thereof who are intended to be third party
beneficiaries thereof, and, in each such case, their respective
successors and permitted assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto without the prior written
consent of the other parties. Except as specified in the previous
sentence, nothing in this Agreement, expressed or
implied, is intended to confer on any Person other than the
parties hereto or their respective successors and permitted
assigns, any rights, remedies, obligations or liabilities under
or by reason of this Agreement.
6.09 Amendment and Modification. Subject to applicable
law, this Agreement may be amended, modified and supplemented
in writing by the parties hereto in any and all respects before
the Closing Date (notwithstanding any stockholder approval), by
action taken by the respective Boards of Directors of Parent,
Sub and the Company or by the respective officers authorized by
such Boards of Directors; provided, however, that after any
such Stockholder Approval, no amendment shall be made which by
law requires further approval by such stockholders without such
further approval.
<PAGE>
6.10 Further Actions. Each of the parties hereto agrees
that, subject to its legal obligations, it will use its best
efforts to fulfill all conditions precedent specified herein,
to the extent that such conditions are within its control, and
to do all things reasonably necessary to consummate the
transactions contemplated hereby.
6.11 Headings. The descriptive headings of the several
Articles and Sections of this Agreement are inserted for
convenience only, do not constitute a part of this Agreement
and shall not affect in any way the meaning or interpretation
of this Agreement.
6.12 Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an
original, and all of which together shall be deemed to be one
and the same instrument.
36
6.13 Applicable Law. This Agreement and the legal
relations between the parties hereto shall be governed by and
construed in accordance with the laws of the State of New York,
without regard to the conflict of laws rules thereof.
6.14 Severability. If any term, provision, covenant or
restriction contained in this Agreement is held by a court of
competent jurisdiction or other authority to be invalid, void,
unenforceable or against its regulatory policy, the remainder
of the terms, provisions, covenants and restrictions contained in
this Agreement shall remain in full force and effect and shall in
no way be affected, impaired or invalidated.
6.15 Certain Definitions. (a) "BUSINESS DAY" shall mean
any day, other than a Saturday, Sunday or a day on which banks
located in New York, New York shall be authorized or required
by law to close.
(b) "KNOWLEDGE" Defined. When any representation or
warranty contained in this Agreement or in the Company
Disclosure Letter is expressly qualified by the knowledge of
the Company, such knowledge shall mean the actual knowledge
after due inquiry of Alyn V. Essman, Russell Isaak, Patrick J.
Morris, Barry Arthur, Jane Nelson, Richard Tarpley, Fran
Scheper (only with respect to Sections 2.01(j) and (f)) and Tim
Hufker (only with respect to Sections 2.01(m) and (u)).
(c) "PERSON" shall mean and include an individual, a
partnership, a joint venture, a corporation, a trust, a limited
liability company, an unincorporated organization, and a
government or other department or agency thereof.
<PAGE>
(d) "SUBSIDIARY" with respect to the Company, shall mean
and include (x) any partnership of which the Company or any
Subsidiary is a general partner or (y) any other entity in
which the Company or any of its Subsidiaries owns or has the power
to vote 50% or more of the equity interests in such entity having
general voting power to participate in the election of the
governing body of such entity.
6.16 Transfer Taxes. All stamp, transfer, documentary,
sales, use, registration and other such taxes and fees
(including any penalties and interest) incurred in connection
with this Agreement and the transactions contemplated hereby
(collectively, the "TRANSFER TAXES") shall be paid by Sub, and Sub
shall, at its own expense, procure any stock transfer stamps
required by, and properly file on a timely basis all necessary tax
returns and other documentation with respect to, any Transfer Tax
and provide to the Company evidence of payment of all Transfer
Taxes.
[SIGNATURE PAGE FOLLOWS]
37
<PAGE>
IN WITNESS WHEREOF, each of Parent, Sub and the Company have
caused this Agreement to be executed by their respective
officers thereunto duly authorized, all as of the date first above
written.
SPS INTERNATIONAL HOLDINGS, INC.
By: /s/ Mark E. Bandeen
Name: Mark E. Bandeen
Title: Co-President
SPS ACQUISITION, INC.
By: /s/ Mark E. Bandeen
Name: Mark E. Bandeen
Title: Co-President
CPI CORP.
By: /s/ Alyn V. Essman
Name: Alyn V. Essman
Title: Chairman and Chief
Executive Officer
By: /s/ Nicholas L. Reding
Name: Nicholas L. Reding
Title: Director
EXHIBIT 99.1
CPI CORP.
NEWS FOR IMMEDIATE RELEASE
---------------------------------------------------------------
For further information, contact:
Alyn V. Essman, Chairman and CEO
CPI Corp., 1706 Washington Ave., St. Louis, MO 63103
Phone: (314) 231-1575, ext. 3240
---------------------------------------------------------------
FOR FURTHER INFORMATION
AT THE FINANCIAL RELATIONS BOARD
George Zagoudis, Chicago (312) 640-6663
Suzy Lynde, Chicago (312) 640-6772
AT AMERICAN SECURITIES CAPITAL PARTNERS, L.P.
Mark Bandeen
122 East 42nd Street, Suite 2400
New York, NY 10168
Phone: (212) 476-8078
FOR IMMEDIATE RELEASE
TUESDAY, JUNE 15, 1999
CPI CORP. AND AMERICAN SECURITIES CAPITAL PARTNERS, L.P.
ANNOUNCE DEFINITIVE MERGER AGREEMENT
St. Louis, MO, June 15, 1999 - - CPI Corp. (NYSE: CPY)
("CPI") and American Securities Capital Partners, L.P. ("ASCP")
announced today that they have entered into a definitive merger
agreement under which entities controlled by affiliates of ASCP
and CPI's management will acquire CPI for $37.00 per share in
cash. The Board of Directors of CPI has unanimously approved the
agreement and the merger. CPI will solicit proxies from its
shareholders to approve the merger agreement at a meeting later
<PAGE>
this summer. If approved, each share of common stock will be
converted into the right to receive $37.00 in cash.
Commenting on the merger, Alyn Essman, Chairman and Chief
Executive Officer, said "We believe that this merger serves the
best interest of our stockholders, our employees and our
customers. Our stockholders will realize a significant return on
their investment reflecting the true value of the company. Our
employees will benefit by knowing that the long-term vision of
building upon our leading position in the portrait photography
industry will be solidified and enhanced by our new relationship
with our partners at ASCP, and our customers will benefit from
the focused attention directed to delivering superior value in
every transaction."
"Having a family portrait taken at Sears is as American as
apple pie," said Mark Bandeen, a Managing Director of ASCP. "We
are excited about becoming part of what is not only a great
business, but also an American family tradition."
Completion of the merger is subject to ASCP arranging
financing for the acquisition and to other customary terms and
conditions, including the approval of CPI's shareholders at the
stockholders' meeting.
CPI is a consumer services company with $389 million in
fiscal 1998 sales, operating approximately 1,200 retail
locations, including 1,029 Sears Portrait Studios in the U.S.,
Puerto Rico and Canada and 152 Prints Plus wall decor stores,
whose principal businesses include Sears Portrait Studios and the
Prints Plus retail chain.
ASCP is a private equity firm which partners with management
teams in acquiring and building companies. The firm has over
$500 million of capital under management and prefers to invest in
companies with leading market positions.
For more information on CPI Corp. via facsimile at no cost,
simply dial 1-800-PRO-INFO and enter the company cost CPY.
